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1) Hometown Builders is borrowing $150,000 today for five years. The loan is an
interest-only loan with an APR of 8.5 percent. Payments are to be made annually. What
is the amount of the first annual payment?
A.$12,750.00
B.$20,610.90.00
C.$30,029.18
D.$36,461.10
E.$41,300.00
2) The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending
net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the
interest expense is $11,460. What is the amount of the net capital spending?
A.-$22,360
B.-$4,780
C.$23,720
D.$58,340
E.$69,800
3) Which one of the following is the best example of systematic risk?
A.Discovery of a major gas field
B.Decrease in textile imports
C.Increase in agricultural exports
D.Decrease in gross domestic product
E.Decrease in management bonuses for banking executives
4) Which one of the following statements is correct concerning capital structure
weights?
A.Target rates are less relevant to a project than are historical rates
B.The weights are unaffected when a bond issue matures
C.An increase in the debt-equity ratio will increase the weight of the common stock
D.The repurchase of preferred stock will increase the weight of debt
E.The issuance of additional shares of common stock will increase the weight of the
preferred stock
5) Given the following partial stock quote, what was the closing price on the previous
trading day if the firm's earnings per share are $1.90?
A.$16.71
B.$16.77
C.$16.89
D.$17.09
E.$17.40
6) The Braxton Co. has beginning long-term debt of $64,500, which is the principal
balance of a loan payable to Centre Bank. During the year, the company paid a total of
$16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000.
What is the value of the ending long-term debt?
A.$45,100
B.$53,300
C.$58,200
D.$63,300
E.$85,900
7) Which one of the following is an implication of M&M Proposition II, without taxes?
A.A firm's optimal capital structure is 100 percent debt
B.WACC is unaffected by the capital structure of a firm
C.WACC decreases as the debt-equity ratio increases
D.A firm's capital structure is irrelevant
E.The risk of equity depends on both the degree of financial leverage and the riskiness
of the firm's operations
8) Moore & Moore has just finished projecting its expected cash receipts and
expenditures for next year. What is this projection called?
A.Operating projection
B.Receivables schedule
C.Balance sheet
D.Cash budget
E.Compromise policy
9) An American Depositary Receipt is defined as a security:
A.that has been deposited in an interest-bearing account at a U.S. bank
B.issued outside the U.S. that represents shares of a U.S. stock
C.issued in the U.S. that represents shares of a foreign stock
D.that has a guarantee of payment from a U.S. bank
E.issued in multiple countries but denominated in U.S. currency
10) 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
11) Mike's Place has total assets of $123,800, a debt-equity ratio of 0.75, and net
income of $7,100. What is the return on equity?
A.3.48 percent
B.3.73 percent
C.5.74 percent
D.10.04 percent
E.13.61 percent
12) Which one of the following terms refers to the termination of a firm as a going
concern?
A.Insolvency
B.Reorganization
C.Chapter 11 bankruptcy
D.Prepack
E.Liquidation
13) Which one of the following will tend to decrease the length of the credit period?
A.Decrease in default risk
B.Increase in the cost of the product
C.Increase in competition
D.Decrease in the size of the account
E.Decrease in turnover rate
14) Which one of the following statements related to a cash budget is correct?
A.Capital expenditures are treated as a cash inflow on a cash budget
B.The cumulative surplus is computed prior to adjusting for the minimum cash balance
C.A positive net cash inflow for a period indicates the cash disbursements exceed the
cash collections for the period
D.Financially healthy firms can have a negative quarterly net cash inflow
E.Firms generally set the minimum cash balance at zero for planning purposes
15) Through which of the following can a firm can reduce its number of outstanding
shares?
I. Open market purchase
II. Rights offer
III. Tender offer
IV. Targeted repurchase
A.IV only
B.I and IV only
C.II, III, and IV only
D.I, III and IV only
E.I, II, III, and IV
16) Which one of the following statements is correct related to the dividend growth
model approach to computing the cost of equity?
A.The rate of growth must exceed the required rate of return
B.The rate of return must be adjusted for taxes
C.The annual dividend used in the computation must be for year 1 if you are using
today's stock price to compute the return
D.The cost of equity is equal to the return on the stock plus the risk-free rate
E.The cost of equity is equal to the return on the stock multiplied by the stock's beta
17) You expect to receive $20,000 at graduation one year from now. You plan on
investing it at 6 percent until you have $100,000. How long will you wait from now?
A.27.47 years
B.27.51 years
C.27.55 years
D.28.54 years
E.28.62 years
18) A firm has an average collection period of 35 days and factors all of its receivables
immediately at a 0.95 percent discount. Assume all accounts are collected in full. What
is the firm's effective cost of borrowing?
A.9.98 percent
B.10.13 percent
C.10.24 percent
D.10.38 percent
E.10.47 percent
19) A stock has had returns of 11 percent, -8 percent, 6 percent, 21 percent, 24 percent,
and 16 percent over the last six years, respectively. What is the geometric return for this
stock?
A.10.82 percent
B.11.13 percent
C.11.31 percent
D.11.42 percent
E.11.47 percent
20) Slaughter Industries just signed a sales contract with a new customer. What is this
contract worth as of the end of year 4 if the following payments will be received and the
firm earns 6 percent on its savings?
A.$397,425.35
B.$402,311.19
C.$466,118.00
D.$485,271.13
E.$489,512.14
21) Which one of the following projects is most apt to be financed with venture capital?
A.Additional warehouse space for a profitable trucking firm
B.New product for an international plastics manufacturing company
C.Prototype for a newly patented hand tool by an individual inventor
D.Seasonal merchandise for a major retailer
E.Domestic outlet for a large global exporter
22) The Brown Jug has compiled the following information:
What is the operating cash flow for 2014?
A.$21,900
B.$26,700
C.$42,100
D.$48,300
E.$52,600
23) Which of the following characteristics apply to a perpetuity?
I. Constant cash flow dollar amount
II. Unequal cash flow dollar amount
III. Limited time period
IV. Infinite time period
A.I and III only
B.I and IV only
C.II and III only
D.II and IV only
E.I plus either III or IV
24) A firm has an equity multiplier of 1.5 . This means that the firm has a:
A.debt-equity ratio of 0.67
B.debt-equity ratio of 0.33
C.total debt ratio of 0.50
D.total debt ratio of 0.67
E.total debt ratio of 0.33
25) Which one of the following dates is the date on which the board of directors votes
to pay a dividend?
A.Record date
B.Declaration date
C.Ex-dividend date
D.Payment date
E.Settlement date
26) One year ago, you bought a stock for $36.48 a share. You received a dividend of
$1.62 per share last month and sold the stock today for $41.18 a share. What is the
capital gains yield on this investment?
A.2.86 percent
B.4.70 percent
C.12.88 percent
D.15.62 percent
E.18.53 percent
27) Which one of the following statements is true, all else constant?
A.A decrease in the accounts receivable turnover rate decreases the cash cycle
B.Paying a supplier within the discount period, rather than waiting until the end of the
normal credit period, will decrease the cash cycle
C.The cash cycle can never be negative
D.An increase in the inventory turnover rate will decrease the cash cycle
E.The payables period must be shorter than the receivables period
28) Venus, Inc. has an issue of preferred stock outstanding that pays a $9.00 dividend
every year, in perpetuity. If this issue currently sells for $164.60 per share, what is the
required return?
A.5.47 percent
B.6.89 percent
C.7.70 percent
D.8.23 percent
E.8.98 percent
29) The static theory of capital structure assumes a firm:
A.maintains a constant debt-equity ratio
B.has an all-equity structure
C.is fixed in terms of its assets
D.pays no taxes
E.is operating at the point where financial distress costs are eliminated
30) The expected return on a security is currently based on a 22 percent chance of a 15
percent return given an economic boom and a 78 percent chance of a 12 percent return
given a normal economy. Which of the following changes will decrease the expected
return on this security?
I. An increase in the probability of an economic boom
II. A decrease in the rate of return given a normal economy
III. An increase in the probability of a normal economy
IV. An increase in the rate of return given an economic boom
A.I and II only
B.I and IV only
C.II and III only
D.I, III, and IV only
E.I, II, III, and IV
31) The accounts receivable period is the time that elapses between the _____ and the
____.
A.purchase of inventory; payment to the supplier
B.purchase of inventory; collection of the receivable
C.sale of inventory; payment to supplier
D.sale of inventory; collection of the receivable
E.sale of inventory: billing to customer
32) You are comparing two annuities. Annuity A pays $100 at the end of each month for
10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of
return on both annuities is 8 percent. Which one of the following statements is correct
given this information?
A.The present value of Annuity A is equal to the present value of Annuity B
B.Annuity B will pay one more payment than Annuity A will
C.The future value of Annuity A is greater than the future value of Annuity B
D.Annuity B has both a higher present value and a higher future value than Annuity A
E.Annuity A has a higher future value but a lower present value than Annuity B
33) When is a firm insolvent from an accounting perspective?
A.When the firm is unable to meet its financial obligations in a timely manner
B.When the firm's debt exceeds the value of the firm's equity
C.When the firm has a negative net worth
D.When the firm's revenues cease
E.When the market value of the firm's equity equals zero
34) The computation of which one of the following requires assigning every proposed
investment to a particular risk class?
A.Pure play cost of capital
B.Cost of equity
C.Aftertax cost of debt
D.WACC
E.Subjective cost of capital
35) Taylor, Inc. has sales of $11,898, total assets of $9,315, and a debt-equity ratio of
0.55 . If its return on equity is 14 percent, what is its net income?
A.$841.35
B.$887.16
C.$904.10
D.$911.16
E.$927.46
36) Johnson's Tree Farm has a cash balance of $33 and a short-term loan balance of
$200 at the beginning of quarter 1 . The net cash inflow for the first quarter is $89 and
for the second quarter there is a net cash outflow of $44. All cash shortfalls are funded
with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance
as interest each quarter. The minimum cash balance is $25. What is the short-term loan
balance at the end of the first quarter?
A.$107
B.$111
C.$121
D.$128
E.$133
37) Which one of the following represents the amount of compensation an investor
should expect to receive for accepting the unsystematic risk associated with an
individual security?
A.Security beta multiplied by the market rate of return
B.Market risk premium
C.Security beta multiplied by the market risk premium
D.Risk-free rate of return
E.Zero
38) Which one of the following can occur if the operating cycle decreases while both
the accounts receivable and the accounts payable periods remain constant?
A.Inventory period remains constant
B.Cash cycle increases
C.Inventory turnover rate increases
D.Accounts receivable turnover rate increases
E.Cash cycle remains constant
39) You have compiled the following information on your investments. What rate of
return should you expect to earn on this portfolio?
A.9.54 percent
B.9.83 percent
C.10.01 percent
D.10.27 percent
E.10.58 percent
