The daily financial operations of a firm are primarily controlled by managing the:
A. total debt level.
B. working capital.
C. capital structure.
D. capital budget.
E. long-term liabilities.
Answer:
Which one of the following is the most ethical practice related to cash disbursement
management?
A. Intentionally delaying payments by creating a complex accounts payable system
B. Taking the cash discount but paying after the discount period
C. Paying a supplier from a zero-balance account
D. Purposely losing a supplier’s invoice and requiring the supplier to submit another
copy
E. Mailing a check from the most remote location possible
Answer:
All else constant, which one of the following will decrease if a firm increases its net
income?
A. Return on assets
B. Profit margin
C. Return on equity
D. Price-sales ratio
E. Price-earnings ratio
Answer:
What is the primary purpose of a cash discount?
A. Customer compensation for an out-of-stock item
B. Customer compensation for faulty goods or services
C. Means of offsetting the interest charges on an account receivable
D. Inducement to pay promptly
E. Incentive to purchase a specialty item
Answer:
How are checks that are deposited into a typical lockbox handled?
A. The checks are deposited into a local bank which then overnights one check for the
entire amount to the firm.
B. The checks are collected once a day, normally in the early morning, by a bank
employee.
C. The checks are posted to the customer’s account prior to being deposited.
D. The checks are collected throughout the day and immediately deposited into the
firm’s account.
E. The checks are collected and sent overnight to the firm’s main office for processing.
Answer:
Travel America Coaches currently sells 15,000 motor homes per year at $94,000 each,
and 1,500 luxury motor coaches per year at $159,000 each. The company wants to
introduce a low-range camper to fill out its product line; it hopes to sell 6,000 of these
campers per year at $14,500 each. An independent consultant has determined that if
Travel Coaches introduces the new campers, it should boost the sales of its existing
motor homes by 1,500 units per year, and reduce the sales of its luxury motor coaches
by 450 units per year. What amount should be used as the annual sales figure when
evaluating this project?
A. $87,000,000
B. $97,400,000
C. $156,450,000
D. $186,750,000
E. $228,000,000
Answer:
The App Store needs to raise $2.2 million for an expansion project. The firm wants to
raise this money by selling zero coupon bonds with a par value of $1,000 that mature in
20 years. The market yield on similar bonds is 8.8 percent. How many bonds must The
App Store sell to raise the money it needs? (Assume semiannual compounding.)
A. 2,200 bonds
B. 3,450 bonds
C. 11,508 bonds
D. 11,797 bonds
E. 12,315 bonds
Answer:
A good steak dinner in the U.S. costs $49 while the exact meal costs 660 pesos across
the border in Mexico. Based on purchasing power parity, what is the implied peso/$
exchange rate?
A. Ps0.0833/$1
B. Ps12.00/$1
C. Ps14.42/$1
D. Ps14.67/$1
E. Ps15.08/$1
Answer:
Christmas Ornaments, Inc. is an all-equity firm with a total market value of $386,000
and 15,000 shares of stock outstanding. Management is considering issuing $75,000 of
debt at an interest rate of 8 percent and using the proceeds on a stock repurchase. As an
all-equity firm, management believes the earnings before interest and taxes (EBIT) will
be $31,000 if the economy is normal, $12,000 if it is in a recession, and $37,000 if the
economy booms. Ignore taxes. What will the EPS be if the economy falls into a
recession and the firm maintains its all-equity status?
A. $0.78
B. $0.80
C. $1.21
D. $1.67
E. $2.07
Answer:
Lakeside Winery is considering expanding its winemaking operations. The expansion
will require new equipment costing $649,000 that would be depreciated on a
straight-line basis to a zero balance over the four-year life of the project. The estimated
salvage value is $187,000. The project requires $38,000 initially for net working
capital, all of which will be recouped at the end of the project. The projected operating
cash flow is $198,500 a year. What is the net present value of this project if the relevant
discount rate is 14 percent and the tax rate is 35 percent?
A. -$14,162
B. -$8,309
C. -$2,747
D. $2,311
E. $3,615
Answer:
Which one of the following commences on the day inventory is purchased and ends on
the day the payment for that inventory is collected? Assume all sales and purchases are
on credit.
A. Inventory period
B. Accounts receivable period
C. Accounts payable period
D. Operating cycle
E. Cash cycle
Answer:
The T-shirt Hut successfully managed to reduce its general and administrative costs this
year. This cost improvement will increase which of the following ratios?
I. Profit margin
II. Return on assets
III. Total asset turnover
IV. Return on equity
A. I and II only
B. I and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Answer:
Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How
much interest will you earn over the next 5 years?
A. $96.00
B. $101.15
C. $480.00
D. $492.16
E. $519.97
Answer:
Which one of the following is the slope of the security market line?
A. Risk-free rate
B. Market risk premium
C. Beta coefficient
D. Risk premium on an individual asset
E. Market rate of return
Answer:
Country Kitchen’s cost of equity is 15.3 percent and its aftertax cost of debt is 6.9
percent. What is the firm’s weighted average cost of capital if its debt-equity ratio is
0.58 and the tax rate is 30 percent?
A. 8.94 percent
B. 11.47 percent
C. 12.21 percent
D. 12.28 percent
E. 13.01 percent
Answer:
You own a portfolio consisting of the securities listed below. The expected return for
each security is as shown. What is the expected return on the portfolio?
A. 9.97 percent
B. 10.86 percent
C. 11.23 percent
D. 12.09 percent
E. 14.20 percent
Answer:
The primary goal of financial management is to maximize which one of the following
for a corporation?
A. Current profits
B. Market share
C. Number of shares outstanding
D. Market value of existing stock
E. Revenue growth
Answer:
The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction method.
The bids received are as follows:
Bidder D will receive _____ shares and pay a price per share of _____.
A. 0; $0
B. 700; $37.00
C. 272; $37.00
D. 272; $38.75
E. 700; $38.75
Answer:
Which one of the following refers to the option to expand into related businesses in the
future?
A. Strategic option
B. Contingency option
C. Soft rationing
D. Hard rationing
E. Capital rationing option
Answer:
Bama & Co. owes a total of $21,684 in taxes for this year. The taxable income is
$61,509. If the firm earns $100 more in income, it will owe an additional $56 in taxes.
What is the average tax rate on income of $61,609?
A. 28.00 percent
B. 30.33 percent
C. 33.33 percent
D. 35.00 percent
E. 35.29 percent
Answer:
The Tree House has a pretax cost of debt of 7.9 percent and a return on assets of 11.7
percent. The debt-equity ratio is 0.50. Ignore taxes. What is the cost of equity?
A. 11.87 percent
B. 12.33 percent
C. 12.47 percent
D. 12.98 percent
E. 13.60 percent
Answer:
Tuesday, December 1, is the ex-dividend date for Alpha stock. Which one of the
following dates is the record date? Assume there are no banking holidays to consider.
A. Friday, November 27
B. Monday, November 30
C. Wednesday, December 2
D. Thursday, December 3
E. Friday, December 4
Answer:
Which one of the following is an intangible fixed asset?
A. Inventory
B. Machinery
C. Copyright
D. Account receivable
E. Building
Answer: