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1) Which one of the following best defines a regular cash dividend?
A.Distribution by a firm to its shareholders
B.Payment from any source by a firm to its owners
C.One-time payment of cash by a firm to its shareholders
D.Cash payment by a firm to its owners as part of a firm's normal operations
E.Distribution of the proceeds from the sale of a portion of a firm's operations
2) A project will reduce costs by $34,000 but increase depreciation by $16,500. What is
the operating cash flow of this project based on the tax shield approach if the tax rate is
40 percent?
A.$5,775
B.$9,275
C.$15,625
D.$20,400
E.$27,000
3) Which one of the following characteristics applies to commercial paper?
A.Maturities of 270 days or more
B.Offerings registered with the SEC
C.Interest rates higher than comparable bank loans
D.Issued directly by large-sized firms
E.Issued primarily by low-rated firms
4) You are planning an extended trip to Hong Kong. You have located some housing
that you can lease for 11,250 Hong Kong dollars per month. What is the cost per month
in U.S. dollars if the exchange rate is HK$1 = $0.1290?
A.$1,208.15
B.$1,451.25
C.$78,311.27
D.$81,395.35
E.$87,209.30
5) Delivery trucks are classified as:
A.noncash expenses
B.current liabilities
C.current assets
D.tangible fixed assets
E.intangible fixed assets
6) Janice plans to save $75 a month, starting today, for 20 years. Kate plans to save $80
a month for 20 years, starting one month from today. Both Janice and Kate expect to
earn an average return of 5.5 percent on their savings. At the end of the 20 years, Kate
will have approximately _____ more than Janice.
A.$2,028.39
B.$2,066.67
C.$2,091.50
D.$2,178.14
E.$2,189.12
7) 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.Tc D
8) Accounts receivable financing is the term used to describe which of the following
types of loans that involve either the assignment or the factoring of a firm's accounts
receivable?
A.Secured short-term loan
B.Unsecured short-term loan
C.Secured long-term loan
D.Unsecured long-term loan
E.Trust receipt loan
9) If a trade is made "in the crowd," the trade has occurred:
A.between a broker and a DMM
B.between two brokers
C.electronically on NASDAQ
D.onSuperDOT
E.on an ECN
10) You would like to borrow money three years from now to build a new building. In
preparation for applying for that loan, you are in the process of developing target ratios
for your firm. Which set of ratios represents the best target mix considering that you
want to obtain outside financing in the relatively near future?
A.Times interest earned = 1.7; debt-equity ratio = 1.6
B.Times interest earned = 1.5; debt-equity ratio = 1.2
C.Cash coverage ratio = 0.8; debt-equity ratio = 0.8
D.Cash coverage ratio = 2.6; debt-equity ratio = 0.3
E.Cash coverage ratio = 0.5; total debt ratio = 0.2
11) Scenario analysis is best described as the determination of the:
A.most likely outcome for a project
B.reasonable range of project outcomes
C.variable that has the greatest effect on a project's outcome
D.effect that a project's initial cost has on the project's net present value
E.change in a project's net present value given a stated change in projected sales
12) Which one of the following is an equity account?
A.Paid-in surplus
B.Bonds payable
C.Patent
D.Depreciation
E.Net fixed assets
13) The Nifty Fifty is considering opening a new store at a start-up cost of $720,000.
The initial investment will be depreciated straight-line to zero over the 15-year life of
the project. What is the average accounting rate of return?
A.13.05 percent
B.13.68 percent
C.14.01 percent
D.14.18 percent
E.14.35 percent
14) Andre's Dog House had current assets of $67,200 and current liabilities of $71,100
last year. This year, the current assets are $82,600 and the current liabilities are $85,100.
The depreciation expense for the past year is $9,600 and the interest paid is $8,700.
What is the amount of the change in net working capital?
A.-$2,800
B.-$1,400
C.$1,400
D.$2,100
E.$2,800
15) You can exchange $1 for either 0.7773 euro or 0.6220 British pound. What is the
cross-rate between the pound and the euro?
A.£0.7519/1
B.£0.8756/1
C.£0.8002/1
D.£1.0852/1
E.£1.2497/1
16) Which one of the following statements is correct?
A.Bonds are generally called at par value
B.A current list of all bondholders is maintained whenever a firm issues bearer bonds
C.An indenture is a contract between a bond's issuer and its holders
D.Collateralized bonds are called debentures
E.A bondholder has the right to determine when his or her bond is called
17) Contingency planning focuses on the:
A.opportunity costs involved with a project
B.sunk costs related to a project
C.economic effects on a project's profitability
D.managerial options implicit in a project
E.optional capital requirements of a project
18) The Dairy Delight wants to raise $1.0 million by selling some coupon bonds at par.
Comparable bonds in the market have a 6.5 percent annual coupon, 15 years to
maturity, and are selling at 98 percent of par. What coupon rate should The Dairy
Delight set on its bonds?
A.6.25 percent
B.6.48 percent
C.6.50 percent
D.6.67 percent
E.6.72 percent
19) Which one of the following statements concerning the issuance of long-term debt is
correct?
A.Rarely is debt issued privately in the U.S
B.All U.S. debt issues, private and public, must be registered with the SEC
C.Private placements generally have shorter maturities than term loans
D.It is easier to renegotiate a public issue than it is a private issue of debt
E.A direct placement of debt generally has more restrictive covenants than a public
issue
20) Which one of the following is a website that enables Lester to sell his shares of
ABC stock directly to Marti?
A.SuperDOT
B.POST
C.ECN
D.SEAT
E.eNET
21) 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
22) Wage Garnishers, Inc. has sales for the year of $50,300 and cost of goods sold of
$23,700. The firm carries an average inventory of $4,800 and has an average accounts
payable balance of $4,400. What is the inventory period?
A.12.39 days
B.18.68 days
C.31.29 days
D.73.92 days
E.81.36 days
23) EKG, Inc. is considering a new project that will require an initial cash investment of
$398,000. The project will produce no cash flows for the first two years. The projected
cash flows for years 3 through 7 are $79,000, $88,000, $102,000, $140,000, and
$160,000, respectively. How long will it take the firm to recover its initial investment in
this project?
A.3.81 years
B.3.98 years
C.5.57years
D.5.92 years
E.The project never pays back
24) Valley Forge and Metal purchased a truck five years ago for local deliveries. Which
one of the following costs related to this truck is the best example of a sunk cost?
Assume the truck has a usable life of eight years.
A.New tires that will be purchased this winter
B.Costs of repairs needed so the truck can pass inspection next month
C.Money spent last month repairing a damaged front fender
D.Engine tune-up that is scheduled for this afternoon
E.Cost for a truck driver for the remainder of the truck's useful life
25) Donovan Brothers, Inc. would like to increase its internal rate of growth.
Decreasing which one of the following will help the firm achieve its goal?
A.Return on assets
B.Net income
C.Retention ratio
D.Dividend payout ratio
E.Return on equity
26) A cost that should be ignored when evaluating a project because that cost has
already been incurred and cannot be recouped is referred to as which type of cost?
A.Fixed
B.Forgotten
C.Variable
D.Opportunity
E.Sunk
27) Mark is analyzing a proposed project to determine how changes in the variable
costs per unit would affect the project's net present value. What type of analysis is Mark
conducting?
A.Sensitivity analysis
B.Erosion planning
C.Scenario analysis
D.Benefit-cost analysis
E.Opportunity cost analysis
28) A firm has a cost of equity of 13 percent, a cost of preferred of 11 percent, and an
aftertax cost of debt of 6 percent. Given this, which one of the following will increase
the firm's weighted average cost of capital?
A.Increasing the firm's tax rate
B.Issuing new bonds at par
C.Redeeming shares of common stock
D.Increasing the firm's beta
E.Increasing the debt-equity ratio
29) Bruce Moneybags owns several restaurants and hotels near a local interstate. One
restaurant, Beef and More, needs modernized. He is trying to decide whether to accept
an offer and sell Beef and More as is for the offer price of $1.1 million or renovate the
restaurant himself. The projected renovation cost is $1.3 million. The restaurant would
need to be shut down completely during the renovation which would cause a net
operating cash flow loss of $210,000 in today's dollars. The estimated present value of
the cash inflows from the renovated restaurant are $3.2 million. When analyzing the
renovation project, what opportunity cost, if any, should be included for the current
restaurant? Assume the restaurant is totally paid for and any future costs will be paid in
cash.
A.There is no opportunity cost since the current restaurant is owned free and clear
B.The opportunity cost is the value of the current offer to buy the restaurant
C.The opportunity cost is the cost of the needed improvements
D.The opportunity cost is the present value of the loss of operating cash flows while the
restaurant is closed for renovation
E.The opportunity cost is the cost of the renovations plus the loss of the operating cash
flows during the renovation
30) The variance is the average squared difference between which of the following?
A.Actual return and average return
B.Actual return and (average return/N - 1)
C.Actual return and the real return
D.Average return and the standard deviation
E.Actual return and the risk-free rate
31) Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B?
A.2.77 percent
B.4.13 percent
C.6.67 percent
D.8.91 percent
E.9.36 percent
32) Red Roofs, Inc. has current liabilities of $24,300 and accounts receivable of $7,800.
The firm has total assets of $43,100 and net fixed assets of $23,700. The owners' equity
has a book value of $21,400. What is the amount of the net working capital?
A.$5,100
B.-$4,900
C.$6,500
D.$18,800
E.-$2,600
33) 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
34) Which one of the following must be significantly eliminated if interest rate parity is
to exist?
A.Absolute purchasing power parity
B.Short-run exposure to exchange rate risk
C.Covered interest arbitrage opportunities
D.Relative purchasing power parity
E.Translation exposure
35) A firm has inventory of $11,400, accounts payable of $9,800, cash of $850, net
fixed assets of $12,150, long-term debt of $9,500, accounts receivable of $6,600, and
total equity of $11,700. What is the common-size percentage for the net fixed assets?
A.19.60 percent
B.26.67 percent
C.39.19 percent
D.42.08 percent
E.48.75 percent
