The Plaza Cafe has an operating cash flow of $78,460, depreciation expense of $8,960,
and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows:
What is the amount of the cash flow from assets?
A. $58,913
B. $61,246
C. $61,487
D. $63,909
E. $64,128
Answer:
Given the following information, what is the standard deviation of the returns on this
stock?
A. 7.38 percent
B. 7.55 percent
C. 7.80 percent
D. 7.91 percent
E. 8.06 percent
Answer:
Based on the capital asset pricing model, investors are compensated based on which of
the following?
I. Market risk premium
II. Portfolio standard deviation
III. Portfolio beta
IV. Risk-free rate
A. I and III only
B. II and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
A real rate of return is defined as a rate that has been adjusted for which one of the
following?
A. Inflation
B. Interest rate risk
C. Taxes
D. Liquidity
E. Default risk
Answer:
Sand Mountain Resort has a 45 percent tax rate. Its total interest payment for the year
just ended was $6.8 million. What is the interest tax shield?
A. $3,006,500
B. $3,060,000
C. $3,410,600
D. $3,525,000
E. $3,618,000
Answer:
A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000
face value, and a maturity date 21 years from today. What is the current yield?
A. 7.91 percent
B. 8.47 percent
C. 9.04 percent
D. 9.38 percent
E. 9.46 percent
Answer:
The Waffle House pays a constant annual dividend of $1.25 per share. How much are
you willing to pay for one share if you require a 25 percent rate of return?
A. $4.72
B. $5.00
C. $6.52
D. $6.63
E. $6.83
Answer:
Blooming Gardens has an inventory turnover of 16. This means the firm:
A. sells its entire inventory every 16 days.
B. stocks its inventory only every 16 days.
C. buys 16 days of inventory with each order.
D. sells its inventory by granting customers 16 days’ credit.
E. sells its inventory an average of 16 times each year.
Answer:
Which one of the following actions is indicative of a restrictive short-term financial
policy?
A. Granting increasing amounts of credit to customers
B. Expanding the number of inventory items carried
C. Increasing the firm’s investment in the current accounts
D. Minimizing the cash balances held by the firm
E. Investing relatively large amounts in marketable securities
Answer:
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information,
you know that this debt can be described as a:
A. note.
B. bearer form bond.
C. debenture.
D. registered form bond.
E. call protected bond.
Answer:
Municipal bonds are:
A. generally purchased by tax-exempt investors.
B. risk-free.
C. issued by federal, state, and local governmental bodies.
D. zero coupon bonds.
E. generally callable.
Answer:
Which one of the following represents the present value of the interest tax shield?
A. D (1 – Tc)
B. D/(1 – Tc)
C. D/Tc
D. D – D(Tc)
E. TcD
Answer:
Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the
firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of
$48,420. At the end of the year, the firm had total equity of $142,430. The firm does not
pay dividends. What is the amount of the net new equity raised during the year?
A. $1,500
B. $2,500
C. $2,700
D. $48,420
E. $48,310
Answer:
Hi-As-A-Kite is considering making and selling custom kites in two sizes. The small
kites would be priced at $10 and the large kites would be $24. The variable cost per unit
is $5 and $11, respectively. Jill, the owner, feels that she can sell 2,600 of the small
kites and 1,700 of the large kites each year. The fixed costs would be only $2,100 a year
and the tax rate is 34 percent. What is the annual operating cash flow if the annual
depreciation expense is $900?
A. $20,064
B. $22,086
C. $22,848
D. $23,309
E. $23,604
Answer:
A $1,000 face value bond is currently quoted at 101.2. The bond pays semiannual
payments of $28.50 each and matures in six years. What is the coupon rate?
A. 2.72 percent
B. 2.85 percent
C. 5.00 percent
D. 5.63 percent
E. 5.70 percent
Answer:
Assume there are no taxes or imperfections. Given this assumption, which one of the
following statements is correct?
A. A cash dividend has no effect on the market price of the payer’s stock.
B. A cash dividend decreases shareholder wealth.
C. Stock repurchases decrease the market value per share.
D. Both a cash dividend and a share repurchase increase a firm’s PE ratio.
E. A stock repurchase has the same effect on a firm’s market value balance sheet as does
a cash dividend.
Answer:
Given the following information for Electric Transport, find the WACC. Assume the
company’s tax rate is 34 percent.
Debt: 7,500, 8.4 percent coupon bonds outstanding. $1,000 par value, 22 years to
maturity, selling for 103 percent of par, the bonds make semiannual payments.
Common stock: 195,000 shares outstanding, selling for $78 per share, beta is 1.21.
Preferred stock: 11,000 shares of 6.35 percent preferred stock outstanding, currently
selling for $76 per share.
Market: 8 percent market risk premium and 5.1 percent risk-free rate.
A. 11.49 percent
B. 12.07 percent
C. 12.42 percent
D. 13.33 percent
E. 13.80 percent
Answer:
A debt-free firm has net income of $228,400, taxes of $46,200, and depreciation of
$21,300. What is the operating cash flow?
A. $182,200
B. $103,500
C. $107,100
D. $249,700
E. $295,900
Answer:
The present value of a lump sum future amount:
A. increases as the interest rate decreases.
B. decreases as the time period decreases.
C. is inversely related to the future value.
D. is directly related to the interest rate.
Answer: