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1) Which one of the following is a primary benefit of implementing zero-balance
accounts into a cash management system?
A.Increased disbursements float
B.Total elimination of all safety stocks
C.Additional cash availability
D.Decreased collection float
E.Elimination of all float
2) Your firm is contemplating the purchase of a new $674,000 computer-based order
entry system. The system will be depreciated straight-line to zero over its six-year life.
It will be worth $58,000 at that time. You will save $185,000 before taxes per year in
order processing costs, and you will be able to reduce working capital by $29,000 at the
beginning of the project. Working capital will revert back to normal at the end of the
project. If the tax rate is 34 percent, what is the IRR for this project?
A.12.51 percent
B.12.79 percent
C.13.01 percent
D.13.53 percent
E.14.20 percent
3) The reinvestment approach to the modified internal rate of return:
A.individually discounts each separate cash flow back to the present
B.reinvests all the cash flows, including the initial cash flow, to the end of the project
C.discounts all negative cash flows to the present and compounds all positive cash
flows to the end of the project
D.discounts all negative cash flows back to the present and combines them with the
initial cost
E.compounds all of the cash flows, except for the initial cash flow, to the end of the
project
4) Which one of the following statements related to the security market line is correct?
A.An underpriced security will plot below the security market line
B.A security with a beta of 1.54 will plot on the security market line if it is correctly
priced
C.A portfolio with a beta of 0.93 will plot to the right of the overall market
D.A security with a beta of 0.99 will plot above the security market line if it is correctly
priced
E.A risk-free security will plot at the origin
5) Semistrong form market efficiency states that the value of a security is based on:
A.all public and private information
B.historical information only
C.all publicly available information
D.all publicly available information plus any data that can be gathered from insider
trading
E.random information with no clear distinction as to the source of that information
6) Firms that compile financial statements according to GAAP:
A.record income and expenses at the time they affect the firm's cash flows
B.have no discretion over the timing of recording either revenue or expense items
C.must record all expenses when incurred
D.can still manipulate their earnings to some degree
E.record both income and expenses as soon as the amount for each can be ascertained
7) Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously
delinquent so your firm has offered to arrange a payment plan in the hopes that it might
at least collect a portion of this receivable. Your firm's offer consists of weekly
payments for one year at an interest rate of 3 percent. What is the amount of each
payment?
A.$2,229.90
B.$2,318.11
C.$2,409.18
D.$2,599.04
E.$2,706.33
8) Friendly Skies Airline has earnings before interest and taxes of $21,680 and net
income of $12,542. The tax rate is 35 percent. What is the times interest earned ratio?
A.0.88
B.1.73
C.3.09
D.5.59
E.9.09
9) If the appropriate discount rate for the following cash flows is 11.7 percent per year,
what is the present value of the cash flows?
A.$71,407.19
B.$74,221.80
C.$78,270.77
D.$80,407.16
E.$81,121.03
10) The Jones Brothers recently established a trust fund that will provide annual
scholarships of $12,000 indefinitely. These annual scholarships can best be described
by which one of the following terms?
A.Ordinary annuity
B.Annuity due
C.Amortized payment
D.Perpetuity
E.Continuation
11) A stock has a beta of 1.47 and an expected return of 16.6 percent. The risk-free rate
is 4.8 percent. What is the slope of the security market line?
A.6.49 percent
B.7.28 percent
C.8.03 percent
D.9.03 percent
E.9.99 percent
12) A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000
face value and a yield to maturity of 5.33 percent. What is the coupon rate?
A.5.00 percent
B.5.25 percent
C.5.50 percent
D.6.00 percent
E.6.50 percent
13) Which one of the following factors favors a high-dividend payout?
A.Low transaction costs on stock trades
B.Lower taxes on capital gains than on dividends
C.Tax deferment on capital gains, but not on dividend income
D.Flotation costs
E.Corporate shareholders
14) Which one of the following parties on the NYSE floor posts bid and asked prices?
A.Floor traders
B.DMMs
C.Floor brokers
D.Commission brokers
E.Fee brokers
15) A corporate bond pays 6 percent interest. How much would a municipal bond have
to pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax
bracket?
A.3.96 percent
B.4.28 percent
C.5.10 percent
D.9.75 percent
E.11.47 percent
16) Corporate shareholders:
A.are proportionately liable for the firm's debts
B.are protected from all losses
C.have the ability to change the corporation's bylaws
D.receive tax-free distributions since all profits are taxed at the corporate level
E.have basically no control over the actual corporation
17) A pro forma financial statement is a financial statement that:
A.expresses all values as a percentage of either total assets or total sales
B.compares actual results to the budgeted amounts
C.compares the performance of a firm to its industry
D.projects future years' operations
E.values all assets based on their current market values
18) Currently, you can exchange $1 for SF 1.14. Assume that the average inflation rate
in the U.S. over the next two years will be 2.5 percent annually as compared to 3
percent in Switzerland. Based on this information and relative purchasing power parity,
which one of the following assumptions can you make regarding the next two years?
A.The Swiss franc will appreciate against all currencies
B.The Swiss franc will appreciate against the U.S. dollar
C.The U.S. dollar will appreciate against all currencies
D.The U.S. dollar will appreciate against the Swiss franc
E.Both the U.S. dollar and the Swiss franc will appreciate against all other currencies
19) Suppose that in 2010, a $10 silver certificate from 1898 sold for $11,200. For this to
have been true, what would the annual increase in the value of the certificate have
been?
A.6.47 percent
B.6.81 percent
C.7.23 percent
D.7.49 percent
E.7.97 percent
20) Scenario analysis:
A.determines the impact a $1 change in sales has on the internal rate of return
B.determines which variable has the greatest impact on a project's net present value
C.helps determine the reasonable range of expectations for a project's anticipated
outcome
D.evaluates a project's net present value while sensitivity analysis evaluates a project's
internal rate of return
E.determines the absolute worst and absolute best outcome that could ever occur
21) Which one of the following statements concerning financial leverage is correct?
A.The benefits of leverage are unaffected by the amount of a firm's earnings
B.The use of leverage will always increase a firm's earnings per share
C.The shareholders of a firm are exposed to less risk anytime a firm uses financial
leverage
D.Changes in the capital structure of a firm will generally change the firm's earnings
per share
E.Financial leverage is beneficial to a firm only when the firm has negative earnings
22) Which one of the following is an example of systematic risk?
A.Major layoff by a regional manufacturer of power boats
B.Increase in consumption created by a reduction in personal tax rates
C.Surprise firing of a firm's chief financial officer
D.Closure of a major retail chain of stores
E.Product recall by one manufacturer
23) What is the primary purpose of a cash discount?
A.Customer compensation for an out-of-stock item
B.Customer compensation for faulty goods or services
C.Means of offsetting the interest charges on an account receivable
D.Inducement to pay promptly
E.Incentive to purchase a specialty item
24) Which of the following will increase the present value of an annuity, all else held
constant?
I. Increase in the number of payments
II. Increase in the interest rate
III. Decrease in the interest rate
IV. Decrease in the payment amount
A.I and II only
B.I and III only
C.II and IV only
D.I, II, and IV only
E.I, III, and IV only
25) You have just purchased a new warehouse. To finance the purchase, you've arranged
for a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly
payment on this loan will be $10,800. What is the APR? The EAR?
A.7.67 percent; 7.94 percent
B.7.67 percent; 8.03 percent
C.7.72 percent; 7.94 percent
D.7.72 percent; 8.03 percent
E.7.75 percent; 8.03 percent
26) Which one of the following terms is most commonly used to describe the cash
flows of a new project that are simply an offset of reduced cash flows for a current
project?
A.Opportunity cost
B.Sunk cost
C.Erosion
D.Replicated flows
E.Pirated flows
27) The average risk premium on long-term government bonds for the period
1926-2011 was equal to:
A.zero
B.1 percent
C.the rate of return on the bonds plus the corporate bond rate
D.the rate of return on the bonds minus the T-bill rate
E.the rate of return on the bonds minus the inflation rate
28) Which one of the following statements is correct?
A.An increase in the market value of preferred stock will increase a firm's weighted
average cost of capital
B.The cost of preferred stock is unaffected by the issuer's tax rate
C.Preferred stock is generally the cheapest source of capital for a firm
D.The cost of preferred stock remains constant from year to year
E.Preferred stock is valued using the capital asset pricing model
29) In a general partnership, each partner is personally liable for:
A.the partnership debts that he or she created
B.his or her proportionate share of all partnership debts regardless of which partner
incurred that debt
C.the total debts of the partnership, even if he or she was unaware of those debts
D.the debts of the partnership up to the amount he or she invested in the firm
E.all personal and partnership debts incurred by any partner, even if he or she was
unaware of those debts
30) Katie owns 100 shares of ABC stock. Which one of the following terms is used to
refer to the return that Katie and the other shareholders require on their investment in
ABC?
A.Weighted average cost of capital
B.Pure play cost
C.Cost of equity
D.Subjective cost
E.Cost of debt
31) Sensitivity analysis:
A.looks at the most reasonably optimistic and pessimistic results for a project
B.helps identify the variable within a project that presents the greatest forecasting risk
C.is used for projects that cannot be analyzed by scenario analysis because the cash
flows are unconventional
D.is generally conducted prior to scenario analysis just to determine if the range of
potential outcomes is acceptable
E.illustrates how an increase in operating cash flow caused by changing both the
revenue and the costs simultaneously will change the net present value for a project
32) A project has the following cash flows. What is the internal rate of return?
A.12.21 percent
B.12.47 percent
C.13.72 percent
D.14.09 percent
E.14.19 percent
33) The December 31, 2013, balance sheet of Suzette's Market showed long-term debt
of $638,100 and the December 31, 2014, balance sheet showed long-term debt of
$574,600. The 2010 income statement showed an interest expense of $42,300. What
was the firm's cash flow to creditors during 2014?
A.$21,200
B.$26,700
C.$54,900
D.$102,400
E.$105,800
34) A firm has a cost of debt of 7.5 percent and a cost of equity of 16.2 percent. The
debt-equity ratio is 0.45 . There are no taxes. What is the firm's weighted average cost
of capital?
A.11.75 percent
B.12.29 percent
C.13.50 percent
D.14.47 percent
E.16.20 percent
35) The Fried Green Tomatoes Restaurant increased its operating cycle from 140 days
to 148 days while the cash cycle decreased by 3 days. How have these changes affected
the accounts payable period?
A.Decreased by 11 days
B.Decreased by 5 days
C.Decreased by 1 day
D.Increased by 5 day
E.Increased by 11 days
36) Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense
of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out
$16,500 in dividends. What is the addition to retained earnings?
A.$36,909
B.$42,438
C.$44,141
D.$47,208
E.$47,615
37) Given an interest rate of 5.85 percent per year, what is the value at year t = 8 of a
perpetual stream of $2,500 payments that begin at year t = 25?
A.$16,412.02
B.$17,208.00
C.$34,335.96
D.$36,235.06
E.$36,711.41
38) Which one of the following is defined as the average compound return earned per
year over a multiyear period?
A.Geometric average return
B.Variance of returns
C.Standard deviation of returns
D.Arithmetic average return
E.Normal distribution of returns
39) Miller Brothers is considering a project that will produce cash inflows of $61,500,
$72,800, $84,600, and $68,000 a year for the next four years, respectively. What is the
internal rate of return if the initial cost of the project is $225,000?
A.9.39 percent
B.10.22 percent
C.11.47 percent
D.11.62 percent
E.12.24 percent
40) Which one of the following applies to a general partnership?
A.The firm's operations must be controlled by a single partner
B.Any one of the partners can be held solely liable for all of the partnership's debt
C.The profits of the firm are taxed as a separate entity
D.Each partner's liability for the firm's debts is limited to each partner's investment in
the firm
E.The profits of a general partnership are taxed the same as those of a corporation
