The current yield on a bond is equal to the annual interest divided by the:
A. issue price.
B. maturity value.
C. face amount.
D. current market price.
E. current par value.
Lockboxes should be located:
A. in every town where a firm has a customer.
B. geographically close to a firm’s primary customers.
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.
M&N stock is currently selling for $22 per share. The firm just made an offer to one of
its major shareholders to repurchase all the shares owned by that shareholder for $26
per share. What type of offer is being made?
A. Rights offer
B. Secondary issue
C. Targeted repurchase
D. Tender offer
E. Private issue
What is the net present value of the following set of cash flows at a discount rate of 5
percent? At 15 percent?
A. $1,018.47; -$628.30
B. $1,620.17; -$2,618.99
C. $1,620.17; -$525.13
D. $722.09; -$1,708.16
E. $722.09; -$418.05
Which one of the following statements is correct?
A. NASDAQ has more listed stocks than does the NYSE.
B. The NYSE is a dealer market.
C. NASDAQ is an auction market.
D. NASDAQ has the most stringent listing requirements of any U.S. exchange.
E. The trading floor for NASDAQ is located in Chicago.
Which one of the following correctly defines a common chain of command within a
corporation?
A. The controller reports directly to the corporate treasurer.
B. The treasurer reports directly to the board of directors.
C. The chief financial officer reports directly to the board of directors.
D. The credit manager reports directly to the controller.
E. The controller reports directly to the chief financial officer.
Wiley’s has total equity of $679,400, long-term debt of $316,900, net working capital of
$31,600, and total assets of $1,123,900. What is the total debt ratio?
A. .53
B. .40
C. .67
D. .49
E. .63
Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month
forward rate is C$1.12. Assuming absolute PPP holds, what is the current cost in the
United States of a hamburger if the price in Canada of an equivalent burgerin Canada is
C$4.75?
A. $5.39
B. $5.18
C. $4.36
D. $5.02
E. $4.51
Blue Bell stock is expected to return 8.4 percent in a boom, 8.9 percent in a normal
economy, and 9.2 percent in a recession. The probabilities of a boom, normal economy,
and a recession are 6 percent, 92 percent, and 2 percent, respectively. What is the
standard deviation of the returns on this stock?
A. .38 percent
B. .55 percent
C. .13 percent
D. .42 percent
E. .06 percent
Which ratio was primarily designed to monitor firms with negative earnings?
A. Price-sales ratio
B. Market-to-book ratio
C. Profit margin
D. ROE
E. ROA
Marine Expeditors has three divisions. Division A is the core of the business and
represents 80 percent of the firm’s operations. Division B is involved only with
contractual short-term projects and therefore has about ten percent less risk than
Division A. Division C develops and markets new products and is about ten percent
riskier than Division A and about equal in size to Division B. The manager of Division
A has suggested that the operations of his division be increased by 10 percent next year.
The proposed project should probably be assigned a required return that is equal to
_____ percent of the firm’s weighted average cost of capital.
A. 90
B. 33
C. 80
D. 100
E. 110
Assume the exchange rates in New York for $1 are C$1.1382 and £.6387 while in
Toronto, C$1 will buy £.5612. How much profit can you earn on $10,000 using triangle
arbitrage?
A. $.91
B. $1.08
C. $.97
D. $1.03
E. $1.11
ABD common stock is selling for $36.08 a share. The company has earnings per share
of $.34 and a book value per share of $12.19. What is the market-to-book ratio?
A. 8.71
B. 7.69
C. 2.96
D. 3.97
E. 5.92
Which one of the following is an intangible fixed asset?
A. Inventory
B. Machinery
C. Copyright
D. Account receivable
E. Building
A project has an initial requirement of $311,700 for fixed assets and $47,600 for net
working capital. The fixed assets will be depreciated to a zero book value over the
four-year life of the project and will be worthless at the end of the project. All of the net
working capital will be recouped after four years. The expected annual operating cash
flow is $108,315. What is the project’s internal rate of return if the tax rate is 34
percent?
A. 12.06 percent
B. 11.99 percent
C. 10.69 percent
D. 12.15 percent
E. 10.87 percent
You just borrowed $3,000 from your bank and agreed to repay the interest on an annual
basis and the principal at the end of three years. What type of loan did you obtain?
A. Interest-only
B. Amortized
C. Perpetual
D. Pure discount
E. Lump sum
Janis just won a scholarship that will pay her $500 a month, starting today, and
continuing for the next 48 months. Which one of the following terms best describes
these scholarship payments?
A. Ordinary annuity
B. Annuity due
C. Consol
D. Ordinary perpetuity
E. Perpetuity due
Which statement is correct?
A. Commercial paper is highly marketable.
B. All T-bills are issued with 90-day maturities.
C. A certificate of deposit is a short-term loan to the government.
D. Any CD with a face amount of $10,000 or more is classified as a jumbo CD.
E. Money market preferred securities have less price volatility than ordinary preferred.
Cash flow to creditors increases when:
A. interest rates on debt decline.
B. accounts payables decrease.
C. long-term debt is repaid.
D. current liabilities are repaid.
E. new long-term loans are acquired.
Capstone Investments is considering a project that will produce cash inflows of $11,000
at the end of Year 1, $24,000 in Year 2, and $36,000 in Year 3. What is the present value
of these cash inflows at a discount rate of 12 percent?
A. $41,997.60
B. $46,564.28
C. $54,578.17
D. $54,868.15
E. $63,494.54
Which one of the following methods of analysis is most appropriate to use when two
investments are mutually exclusive?
A. Internal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
E. Average accounting return
Assume you are comparing two firms that are identical in every aspect, except one is
levered and one is unlevered. Which one of the following statements is correct
regarding these two firms?
A. The levered firm has higher EPS (earnings per share) than the unlevered firm at the
break-even point.
B. The levered firm will have higher EPS than the unlevered firm at all levels of EBIT.
C. The unlevered firm will have higher EPS than the levered firm at relatively high
levels of EBIT.
D. The EPS for the unlevered firm will always exceed those of the levered firm.
E. The unlevered firm will have higher EPS at relatively low levels of EBIT.
A firm has an equity multiplier of 1.5. This means that the firm has a:
A. debt-equity ratio of .67.
B. debt-equity ratio of .33.
C. total debt ratio of .50.
D. total debt ratio of .67.
E. total debt ratio of .33.
Which one of the following bonds is the most sensitive to changes in market interest
rates?
A. 5-year, zero coupon
B. 5-year, 5 percent coupon
C. 5-year, 8 percent coupon
D. 10-year, zero coupon
E. 10-year, 5 percent coupon
Which of these is most likely the fastest method of collecting cash?
A. Requiring customers to submit all payments to a lockbox
B. Requiring customers to submit all payments to the home office
C. Initiating a financial electronic data interchange at the time of sale
D. Offering customers credit terms of 1/5, net 15
E. Eliminating all disbursement float
Which one of the following statements is correct?
A. The APR is equal to the EAR for a loan that charges interest monthly.
B. The EAR is always greater than the APR.
C. The APR on a monthly loan is equal to (1 + monthly interest rate)12– 1.
D. The APR is the best measure of the actual rate you are paying on a loan.
E. The EAR, rather than the APR, should be used to compare both investment and loan
options.
Katz is an all-equity development company that has 52,000 shares of stock outstanding
at a market price of $32 a share. The firm’s earnings before interest and taxes are
$46,000. Katz has decided to issue $176,000 of debt at a rate of 8 percent and use the
proceeds to repurchase shares. What should Leslie do if she owns 500 shares of Katz
stock and wants to use homemade leverage to offset the leverage being assumed by the
firm?
A. Borrow money and buy an additional 53 shares
B. Borrow money and buy an additional 56 shares
C. Sell 48 shares and loan out the proceeds
D. Sell 56 shares and loan out the proceeds
E. Sell 53 shares and loan out the proceeds
Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and
total equity is $595,000. What is the net income?
A. $82,147.09
B. $81,311.29
C. $80,485.65
D. $78,887.02
E. $83,013.69
Southern Wear stock has an expected return of 15.1 percent. The stock is expected to
lose 8 percent in a recession and earn 18 percent in a boom. The probabilities of a
recession, a normal economy, and a boom are 2 percent, 87 percent, and 11 percent,
respectively. What is the expected return on this stock if the economy is normal?
A. 14.79 percent
B. 17.04 percent
C. 15.26 percent
D. 16.43 percent
E. 11.08 percent
AJ’s Glass Works just arranged a three-year direct business loan. Which one of the
following terms matches this loan arrangement?
A. Term loan
B. Private placement
C. Rights offer
D. Seasoned offer
E. Shelf offer
Assume the spot rate for the pound is £.6390 = $1 and for the Canadian dollar is
C$1.1417 = $1. What is the £/C$ cross-rate?
A. £.5597/C$1
B. £.6027/C$1
C. £.7295/C$1
D. £.7594/C$1
E. £.7608/C$1
Six years ago, China Exporters paid cash for a new packaging machine that cost
$347,000. Three years ago, the firm spent $14,300 on repairs and modifications to the
machine. The machine is now fully depreciated and has just sat idly in a back corner of
the shop for the past seven months. The estimated value of the machine today is
$157,500. The firm is considering using this machine in a new project. If it does so,
what value should be assigned to this machine and included in the initial costs of the
new project?
A. $0
B. $361,300
C. $157,500
D. $128,900
E. $171,800
A firm has a return on equity of 12.4 percent according to the dividend growth model
and a return of 18.7 percent according to the capital asset pricing model. The market
rate of return is 13.5 percent. What rate should the firm use as the cost of equity when
computing the firm’s weighted average cost of capital (WACC)?
A. 12.4 percent because it is lower than 18.7 percent
B. 18.7 percent because it is higher than 12.4 percent
C. The arithmetic average of 12.4 percent and 18.7 percent
D. The arithmetic average of 12.4 percent, 13.5 percent, and 18.7 percent
E. 13.5 percent
Last year, Forest Products issued both 5-year and 10-year bonds at par. The bonds each
have a coupon rate of 5.5 percent, paid semiannually, and a face value of $1,000.
Assume the yield to maturity on each of these bonds is now 7.4 percent. What is the
percentage change in the price of the 5-year bond since it was issued? The 10-year
bond?
A. -3.39; -6.08
B. -6.08; -6.33
C. -6.48; -12.33
D. -6.48; -10.87
E. -3.39; -5.77
