1) Lockboxes should be located:
A.in every town where a firm has a customer
B.based on where a firm’s primary customers are located
C.only in major urban areas since those are the key financial areas of the country
D.close to a firm’s home office
E.only in cities where the firm has regional offices
2) Stevenson’s Bakery is an all-equity firm that has projected perpetual earnings before
interest and taxes of $138,000 a year. The cost of equity is 13.7 percent and the tax rate
is 32 percent. The firm can borrow money at 6.75 percent. Currently, the firm is
considering converting to a debt-equity ratio of 0.45. What is the firm’s levered value?
A.$527,613
B.$689,919
C.$752,987
D.$829,507
E.$903,682
3) Lake City Plastics currently produces plastic plates and silverware. The company is
considering expanding its product offerings to include plastic serving trays. Which of
the following are cash flows relevant to the new product?
I. molds needed to form the serving trays
II. projected increase in plate and silverware sales if the trays are produced
III. a portion of the production manager’s current annual salary of $75,000
IV. raw materials used in the production of the serving trays
A.I and IV only
B.III and IV only
C.I, II, and IV only
D.I, III, and IV only
E.I, II, III, and IV
4) A bond dealer sells at the _____ price and buys at the _____ price.
A.clean; dirty
B.dirty; clean
C.bid; asked
D.asked; bid
E.asked; asked
5) At the end of fiscal year 2011, Crane Industries, Inc.’s stock price was $30.75. A year
later it was $34.88. Per share dividends over the year were $0.55, while earnings per
share were $1.33. What rate of return did the common stock owners earn in fiscal year
2012?
A.1.79%
B.4.33%
C.43%
D.15.22%
E.17.76%
6) Use the following tax table to answer this question:
Bait and Tackle has taxable income of $411,562. How much does it owe in taxes?
A.$128,603.33
B.$134,611.27
C.$138,542.79
D.$139,931.08
E.$141,354.82
7) Which one of the following is a source of cash?
A.increase in accounts receivable
B.decrease in notes payable
C.decrease in common stock
D.increase in inventory
E.increase in accounts payable
8) The Brown Jug has compiled the following information:
What is the operating cash flow for 2010?
A.$21,900
B.$26,700
C.$42,100
D.$48,300
E.$52,600
9) Which one of the following terms applies to the costs incurred by a firm which is
trying to avoid filing for bankruptcy?
A.Indirect bankruptcy costs
B.Direct bankruptcy costs
C.Static theory cost
D.Optimal capital structure cost
E.Reorganization costs
10) The Donut Hut has sales of $68,000, current assets of $11,300, net income of
$5,100, net fixed assets of $54,900, total debt of $23,800, and dividends of $800. What
is the sustainable growth rate?
A.10.48 percent
B.11.29 percent
C.11.79 percent
D.12.08 percent
E.12.39 percent
11) 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
12) The Pretzel Factory has net sales of $821,300 and costs of $698,500. The
depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of
the firm’s operating cash flow if the tax rate is 34 percent?
A.$87,620
B.$89,540
C.$91,220
D.$93,560
E.$95,240
13) 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
14) Consider the following information on a portfolio of three stocks:
The portfolio is invested 35 percent in each A and B and 30 percent in C. If the
expected T-bill rate is 3.90 percent, what is the expected risk premium on the portfolio?
A.6.19 percent
B.6.90 percent
C.7.38 percent
D.7.72 percent
E.8.68 percent
15) One year ago, you purchased 100 shares of a stock .This morning you sold those
shares and realized a total return of 8.2 percent. Given this information, you know for
sure the:
A.stock price increased by 8.2 percent over the last year
B.stock increased in value over the past year
C.stock paid a dividend
D.dividend yield is greater than zero
E.sum of the dividend yield and the capital gains yield is 8.2 percent
16) Gino’s Winery has net working capital of $29,800, net fixed assets of $64,800,
current liabilities of $34,700, and long-term debt of $23,000. What is the value of the
owners’ equity?
A.$36,900
B.$66,700
C.$71,600
D.$89,400
E.$106,300
17) What is the beta of the following portfolio?
A.0.98
B.1.02
C.1.11
D.1.14
E.1.20
18) Which one of the following has nearly the same meaning as free cash flow?
A.Net income
B.Cash flow from assets
C.Operating cash flow
D.Cash flow to shareholders
E.Addition to retained earnings
19) Dividends are best defined as:
A.cash payments to shareholders
B.cash payments to either bondholders or shareholders
C.cash or stock payments to shareholders
D.cash or stock payments to either bondholders or shareholders
E.distributions of stock to current shareholders
20) Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5
percent interest. How much interest will she pay on this loan if she pays the loan as
agreed? Round your answer to the nearest whole dollar.
A.$1,338
B.$1,414
C.$1,459
D.$1,506
E.$1,534
21) Which one of the following is most closely related to the net present value profile?
A.Internal rate of return
B.Average accounting return
C.Profitability index
D.Payback
E.Discounted payback
22) Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the
six-month forward rate is Can$1.16. Assuming absolute PPP holds, what is the current
cost in the United States of a beer if the price in Canada is Can$2.95?
A.$2.48
B.$2.54
C.$2.95
D.$3.42
E.$3.51
23) The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and
pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years.
What is the yield to maturity?
A.6.97 percent
B.7.10 percent
C.7.24 percent
D.7.78 percent
E.8.09 percent
24) Which one of the following occurs when interest rate parity exists between
countries A and B?
A.Country A investors are indifferent between risk-free investments in countries A and
B
B.Forward exchange rates for countries A and B must be equal for all time periods
C.Risk-free interest rates in countries A and B must be equal
D.Spot and forward exchange rates between the currencies of the two countries must be
equal
E.Significant covered interest arbitrage opportunities between currencies A and B must
exist
25) 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
26) AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a
market price of $974. The bonds pay interest annually and have a yield to maturity of
4.03 percent. What is the coupon rate?
A.3.75 percent
B.4.20 percent
C.4.25 percent
D.7.50 percent
E.8.40 percent
27) Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends
decided to create a business together renting surfboards, paddle boats, and inflatable
devices in California. Will and Bill will equally share in the decision making and in the
profits or losses. Which type of business did they create if they both have full personal
liability for the firm’s debts?
A.Sole proprietorship
B.Limited partnership
C.Corporation
D.Joint stock company
E.General partnership
28) Which one of the following describes a Green Shoe provision?
A.Determination of underwriters’ fees
B.Guarantee of sale for all offered shares
C.Price auction
D.Overallotment option
E.Description of issue excluding the offer price
29) Your grandfather started his own business 52 years ago. He opened a savings
account at the end of his third month of business and contributed $x. Every three
months since then, he faithfully saved another $x. His savings account has earned an
average rate of 4.5 percent annually. Today, his account is valued at $364,209.11. How
much did your grandfather save every 3 months?
A.$425.15
B.$428.67
C.$431.09
D.$443.13
E.$462.25
30) Which one of the following 5 Cs refers to the general economic climate in a
customer’s line of business?
A.Capital
B.Conditions
C.Capacity
D.Character
E.Collateral