Ratios that measure how efficiently a firm uses its assets to generate sales are known as
_______ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value
Answer:
Stock K is expected to return 12.4 percent while the return on Stock L is expected to be
8.6 percent. You have $10,000 to invest in these two stocks. How much should you
invest in Stock L if you desire a combined return from the two stocks of 11 percent?
A. $3,511
B. $4,209
C. $3,684
D. $2,907
E. $3,415
Answer:
MM Proposition II with taxes:
A. has the same general implications as MM Proposition II without taxes.
B. reveals how the interest tax shield relates to the value of a firm.
C. supports the argument that business risk is determined by the capital structure
employed by a firm.
D. supports the argument that the cost of equity decreases as the debt-equity ratio
increases.
E. reaches the final conclusion that the capital structure decision is irrelevant to the
value of a firm.
Answer:
Which one of the following statements is true concerning a rights offering?
A. The subscription price is generally greater than the market price.
B. The subscription price must be greater than the ex-rights price.
C. The subscription price is generally less than the market price.
D. The ex-rights price is generally higher than the rights-attached price.
E. The market price tends to increase on the ex-rights date.
Answer:
Assume mortgage rates increase to 7.5 percent and you borrow $329,000 for 30 years to
purchase a house. What will your loan balance be at the end of the first 15 years of
payments?
A. $238,854.07
B. $194,311.64
C. $248,153.73
D. $207,308.09
E. $192,938.72
Answer:
A stock had returns of 9%, -6%, 4%, and 16% over the past four years. What is the
standard deviation of these returns?
A. 8.56%
B. 6.67%
C. 7.14%
D. 9.25%
E. 7.98%
Answer:
Uptown Cleaners is being liquidated. The building has been sold for a net of $670,000
but the mortgage due is $738,000. The remaining assets were sold with net proceeds of
$154,000. Administrative costs, wages and benefits, and consumer claims equal
$136,000. The firm also owes $58,000 in taxes. The secured claims total $46,000 and
the unsecured claims are $138,000. What percentage of their total claims will the
secured creditors be paid?
A. 11.2%
B. 8.8%
C. 0%
D. 41.2%
E. 39.1%
Answer:
The cash cycle equals the:
A. inventory period plus the accounts receivable period.
B. change in net working capital divided by daily sales.
C. operating cycle plus the accounts payable period.
D. operating cycle minus the inventory period.
E. operating cycle minus the accounts payable period.
Answer:
Based on a multi-factor APT model, the concept of portfolio diversification is to
minimize which one of the following?
A. weighted average of betas
B. weighted average of betas F
C. F
D. weighted average of unsystematic risks
E. weighted average of expected returns
Answer:
One year ago, you purchased a stock at a price of $32 a share. Today, you sold the stock
and realized a total return of 14.62 percent. Your capital gain was $3.48 a share. What
was your dividend yield on this stock?
A. 2.25%
B. 3.75%
C. 3.35%
D. 2.85%
E. 4.35%
Answer:
Which one of these statements concerning the cash cycle is correct?
A. The cash cycle is equal to the operating cycle minus the inventory period.
B. A negative cash cycle is actually preferable to a positive cash cycle.
C. Granting credit to slower paying customers tends to decrease the cash cycle.
D. The cash cycle plus the accounts receivable period is equal to the operating cycle.
E. The most desirable cash cycle is the one that equals zero days.
Answer:
Walks Softly sells customized shoes. Currently, it sells 14,800 pairs of shoes annually at
an average price of $59 a pair. It is considering adding a lower-priced line of shoes that
will be priced at $39 a pair. Walks Softly estimates it can sell 6,000 pairs of the
lower-priced shoes but will sell 3,500 less pairs of the higher-priced shoes by doing so.
What annual sales revenue should be used when evaluating the addition of the
lower-priced shoes?
A. $27,500
B. $24,000
C. $31,300
D. $789,100
E. $900,700
Answer:
Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that
increases by 5 percent annually. The rate of return on this stock is 9 percent. What is the
amount of the last dividend paid?
A. $.77
B. $.80
C. $.84
D. $.87
E. $.88
Answer:
When valuing a project using the Black Scholes option pricing model, R is set equal to
the:
A. historical real market rate of return.
B. annually compounded risk-free rate.
C. expected future real market rate of return.
D. continuously compounded risk-free rate.
E. project’s CAPM rate of return.
Answer:
There is a 20 percent probability the economy will boom, 70 percent probability it will
be normal, and a 10 percent probability of a recession. Stock A will return 18 percent in
a boom, 11 percent in a normal economy, and lose 10 percent in a recession. Stock B
will return 9 percent in boom, 7 percent in a normal economy, and 4 percent in a
recession. Stock C will return 6 percent in a boom, 9 percent in a normal economy, and
13 percent in a recession. What is the expected return on a portfolio which is invested
20 percent in Stock A, 50 percent in Stock B, and 30 percent in Stock C?
A. 7.40%
B. 8.25%
C. 8.33%
D. 9.45%
E. 9.50%
Answer:
Boutelle Homes has 4,800 bonds outstanding with a face value of $1,000 each and a
coupon rate of 6.4 percent. Interest is paid semiannually. What is the present value of
the interest tax shield if the tax rate is 35 percent?
A. $106,020
B. $172,400
C. $1,498,800
D. $1,680,000
E. $107,520
Answer:
What is the effective annual rate of 10.25% compounded continuously?
A. 10.98%
B. 11.11%
C. 10.79%
D. 11.04%
E. 10.86%
Answer:
You bought 360 shares of stock at a total cost of $7,754.40. You received a total of
$403.20 in dividends and sold your shares for $19.98 a share. What was your total rate
of return?
A. 3.67%
B. -2.04%
C. -1.29%
D. 7.24%
E. 5.38%
Answer:
The Reading Co. has adopted a policy of increasing the annual dividend on its common
stock at a constant rate of 3 percent annually. The last dividend it paid (T = 0) was $.90
a share. What will the company’s dividend be six years from now?
A. $0.90
B. $0.93
C. $1.04
D. $1.07
E. $1.11
Answer:
If the financial markets are efficient, then investors should expect their investments in
those markets to:
A. earn extraordinary returns on a routine basis.
B. generally have positive net present values.
C. generally have zero net present values.
D. produce arbitrage opportunities on a routine basis.
E. produce negative returns on a routine basis.
Answer:
A perpetuity differs from an annuity because:
A. perpetuity payments vary with the rate of inflation.
B. perpetuity payments vary with the market rate of interest.
C. perpetuity payments are variable while annuity payments are constant.
D. perpetuity payments never cease.
E. annuity payments occur at irregular intervals of time.
Answer:
If The Deli delays paying its suppliers by an additional ten days, then:
A. its payables turnover rate will increase.
B. it should require less bank financing of its daily operations.
C. its cash cycle will increase by ten days.
D. its operating cycle will increase by ten days.
E. its stock-out costs will rise.
Answer:
The increase you realize in buying power as a result of owning an investment is referred
to as the _____ rate of return.
A. inflated
B. realized
C. nominal
D. real
E. risk-free
Answer:
Which one of the following combinations of firms would benefit the most through the
use of complementary resources?
A. a ski resort and a travel trailer sales outlet
B. a golf resort and a ski resort
C. a hotel and a home improvement center
D. a swimming pool distributor and a kitchen designer
E. a fast food restaurant and a dry cleaner
Answer:
You can decrease the cash cycle by:
A. improving the cash discount offered to customers who pay their accounts early.
B. increasing the percentage of customers paying with credit rather than cash.
C. increasing the amount of raw materials kept in inventory.
D. paying your suppliers earlier to receive a discount on your purchases.
E. increasing your inventory to prevent stock-outs.
Answer:
A firm starts its year with a positive net working capital. During the year, the firm
acquires more short-term debt than it does short-term assets. This means that:
A.the ending net working capital will be negative.
B.both accounts receivable and inventory decreased during the year.
C.the beginning current assets were less than the beginning current liabilities.
D.accounts payable increased and inventory decreased during the year.
E.the ending net working capital can be positive, negative, or equal to zero.
Answer:
Baked Potatoes has total annual sales of 846,000 units, a carrying cost per unit of $1.64
per year, and restocking costs of $31 per order. Each inventory item has an average cost
of $2.39. What is the average dollar value of the firm’s inventory if it always orders the
most economical quantity?
A. $6,758
B. $7,008
C. $7,409
D. $6,218
E. $6,411
Answer:
Jamp;L stock has a current market price of $47.60 a share. The one-year call on Jamp;L
stock with a strike price of $45 is priced at $3.20 while the one-year put with a strike
price of $45 is priced at $.15. What is the risk-free rate of return?
A. 2.71%
B. 1.76%
C. 1.01%
D. 2.04%
E. 2.87%
Answer:
When you are making a financial decision, the most relevant tax rate is the ____ rate.
A.average
B.fixed
C.marginal
D.total
E.variable
Answer:
Assume a project has these estimated values: Sales quantity of 4,600 units, plus or
minus 2 percent; variable cost per unit of $17, plus or minus 3 percent; fixed costs of
$46,900, plus or minus 1 percent; depreciation of $17,300; and a sales price of $39 a
unit, plus or minus 10 percent. The tax rate is 34 percent. The company bases its
sensitivity analysis on the expected case scenario. What will be the operating cash flow
for a sensitivity analysis based on a sales price of $35 a unit?
A. $27,319
B. $32,400
C. $29,576
D. $26,700
E. $23,508
Answer:
Which one of these is not included in the indenture?
A. bond seniority
B. registered owner
C. protective covenant
D. call provision
E. repayment provisions
Answer:
In the financial planning model, the external financing needed (EFN) as shown on a pro
forma balance sheet is equal to the changes in assets:
A. plus the changes in liabilities minus the changes in equity.
B. minus the changes in both liabilities and equity.
C. minus the changes in liabilities.
D. plus the changes in both liabilities and equity.
E. minus the change in retained earnings.
Answer:
Which one of these best exemplifies “milking the property”?
A. a firm paying a premium to acquire a competitor
B. a firm demanding a premium to be acquired without a proxy fight
C. a firm with high financial distress paying additional dividends
D. an all-equity firm repurchasing shares
E. a firm with high financial distress using expected dividends to repay debt
Answer:
Which one of these accounts is included in net working capital?
A. copyright
B. manufacturing equipment
C. common stock
D. long-term debt
E. inventory
Answer: