Given the following information, what is the standard deviation of the returns on this
stock?
A. 19.90 percent
B. 20.52 percent
C. 22.41 percent
D. 23.79 percent
E. 25.52 percent
Answer:
The Bird Cage has the following estimated sales.
Purchases are equal to 67 percent of the following quarter’s sales. The sales for the first
quarter of the following year are estimated at $42,100. The accounts receivable period
is 30 days and the accounts payable period is 45 days. Assume there are 30 days in each
month. By how much will the firm’s collections exceed its payments for quarter 2?
A. $9,648.50
B. $11,884.20
C. $13,383.50
D. $17,925.00
E. $24,211.70
Answer:
Woodcrafters requires an average accounting return (AAR) of at least 17 percent on all
fixed asset purchases. Currently, it is considering some new equipment costing
$178,000. This equipment will have a four-year life over which time it will be
depreciated on a straight-line basis to a zero book value. The annual net income from
this equipment is estimated at $10,100, $10,300, $17,900, and $19,600 for the four
years. Should this purchase occur based on the accounting rate of return? Why or why
not?
A. Yes, because the AAR is less than 17 percent
B. Yes, because the AAR is equal to 17 percent
C. Yes, because the AAR is greater than 17 percent
D. No, because the AAR is less than 17 percent
E. No, because the AAR is greater than 17 percent
Answer:
Which one of the following activities is most apt to reduce the inventory period?
A. Replacing slow-moving items with faster-selling products
B. Replacing fresh foods with canned goods
C. Manufacturing a product for inventory rather than for an order
D. Increasing the amount of inventory on hand
E. Decreasing the number of times the inventory turns over per year
Answer:
What is the legal document called that is provided to potential investors and describes a
new security offering?
A. Security agreement
B. Prospectus
C. Public statement
D. Registration statement
E. Formal filing
Answer:
A fire has destroyed a large percentage of the financial records of the Strongwell Co.
You have the task of piecing together information in order to release a financial report.
You have found the return on equity to be 13.8 percent. Sales were $979,000, the total
debt ratio was 0.42, and total debt was $548,000. What is the return on assets?
A. 6.92 percent
B. 8.00 percent
C. 8.45 percent
D. 9.03 percent
E. 9.29 percent
Answer:
Christie is buying a new car today and is paying a $500 cash down payment. She will
finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly
payments of $450 each with the first payment due 30 days from today. Which one of
the following statements is correct concerning this purchase?
A. The present value of the car is equal to $500 + (36 $450).
B. The $500 is the present value of the purchase.
C. The car loan is an annuity due.
D. To compute the initial loan amount, you must use a monthly interest rate.
Answer:
Six months ago, Benders Gym repurchased $20,000 of its common stock. The company
pays regular quarterly dividends totaling $8,500 per quarter. What is the amount of the
cash flow to stockholders for the past year if no additional shares were issued?
A. -$10,000
B. $20,000
C. $28,500
D. $30,000
E. $54,000
Answer:
Santa Claus Enterprises has 174,000 shares of common stock outstanding at a current
price of $46 a share. The firm also has two bond issues outstanding. The first bond issue
has a total face value of $250,000, pays 7.7 percent interest annually, and currently sells
for 102.5 percent of face value. The second bond issue consists of 5,000 bonds that are
selling for $993 each. These bonds pay 6.5 percent interest annually and mature in eight
years. The tax rate is 34 percent. What is the capital structure weight of the firm’s debt?
A. 39.48 percent
B. 51.39 percent
C. 55.50 percent
D. 60.52 percent
E. 71.86 percent
Answer:
Cash flow to creditors is defined as:
A. interest paid minus net new borrowing.
B. interest paid plus net new borrowing.
C. the operating cash flow minus net capital spending minus change in net working
capital.
D. dividends paid plus net new borrowing.
E. cash flow from assets plus net new equity.
Answer:
An individual who executes buy and sell orders on the floor of an exchange for a fee is
called a:
A. floor broker.
B. DMM.
C. floor trader.
D. proxy.
E. flow specialist.
Answer:
LaDoris & Mike, Inc. sells earnings forecasts for Chinese securities. Its credit terms are
1/5, net 15. Based on experience, 85 percent of all customers take the discount. What is
the average collection period?
A. 6.0 days
B. 6.5 days
C. 7.0 day
D. 7.5 days
E. 8.0 days
Answer:
A credit card has a stated interest rate of 14.56 percent. What is the APR if interest is
compounded monthly?
A. 13.09 percent
B. 13.46 percent
C. 13.90 percent
D. 14.56 percent
E. 14.82 percent
Answer:
Computing the present value of a future cash flow to determine what that cash flow is
worth today is called:
A. compounding.
B. factoring.
C. time valuation.
D. simple cash flow valuation.
E. discounted cash flow valuation.
Answer:
A stock produced returns of 19 percent, 27 percent, and -38 percent over three of the
past four years, respectively. The arithmetic average for the past four years is 7 percent.
What is the standard deviation of the stock’s returns for the four-year period?
A. 11.63 percent
B. 15.94 percent
C. 19.70 percent
D. 26.25 percent
E. 30.21 percent
Answer:
New Labs just announced that it has received a patent for a product that will eliminate
all flu viruses. This news is totally unexpected and viewed as a major medical
advancement. Which one of the following reactions to this announcement indicates the
market for New Labs stock is efficient?
A. The price of New Labs stock remains unchanged.
B. The price of New Labs stock increases rapidly and then settles back to its
pre-announcement level.
C. The price of New Labs stock increases rapidly to a higher price and then remains at
that price.
D. All stocks quickly increase in value and then all but New Labs stock fall back to
their original values.
E. The value of all stocks suddenly increase and then level off at their higher values.
Answer:
You are trying to compare the financial performance of your firm to that of similar
firms. What are some of the key problems you might encounter in doing this
comparison?
Answer:
Assume the federal government decides to permanently eliminate corporate income
taxes as a means of encouraging economic development and job growth. What effect, if
any, would this change have on the evaluation of a proposed project?
Answer:
Draw a graph that illustrates the relationship between interest rates and the present
value of $1,000 to be received in one year.
Answer:
Explain the time value of money principle and also identify the underlying assumption
of that principle.
Answer:
Ed has to choose between Project A and Project B, which are mutually exclusive.
Project A has an initial cost of $28,000 and an internal rate of return of 16 percent.
Project B has an initial cost of $47,000 and an internal rate of return of 12 percent.
Explain why the selection of the project with the higher internal rate of return could be
a faulty decision.
Answer:
Explain the primary difference between a Chapter 7 bankruptcy and a Chapter 11
bankruptcy.
Answer:
Global Importers predicted that its earnings per share for the year would be $1.86.
Today, the firm released its earnings report and the earnings per share turned out to be
$1.99 per share. In response to the earnings report, the price per share of Global
Importers stock declined by 3.4 percent. Explain how the market price can decrease
when the announced earnings were higher than the firm predicted.
Answer:
Explain the Rule of 72.
Answer: