Which one of the following statements related to the income statement is correct?
A. Depreciation has no effect on taxes.
B. Interest paid is a noncash item.
C. Taxable income must be a positive value.
D. Net income is distributed either to dividends or retained earnings.
E. Taxable income plus interest and depreciation equals earnings before interest and
taxes.
Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms
bought $60,000 worth of equipment last year. Both firms are in the 35 percent tax
bracket. The operating cash flows for each firm are identical except for the depreciation
effects. Given this, you know the:
A. depreciation expense for Firm A will be greater than Firm Bs expense every year.
B. equipment has a higher value on Firm Bs books than on Firm As at the end of year 2.
C. operating cash flow of Firm A is less than that of Firm B for year 2.
D. market value of Firm As equipment is greater than the market value of Firm Bs
equipment.
E. market value of Firm Bs equipment is greater than the market value of Firm As
equipment.
Which one of the following indicates that a project is expected to create value for its
owners?
A. Profitability index less than 1.0
B. Payback period greater than the requirement
C. Positive net present value
D. Positive average accounting rate of return
E. Internal rate of return that is less than the requirement
The beta of a risky portfolio cannot be less than _____ nor greater than ____.
A. 0; 1
B. 1; the market beta
C. the lowest individual beta in the portfolio; market beta
D. the market beta; the highest individual beta in the portfolio
E. the lowest individual beta in the portfolio; the highest individual beta in the portfolio
Which one of the following statements concerning money market securities 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 is less volatile than ordinary preferred.
Which one of the following will increase the profit margin of a firm, all else constant?
A. Increase in interest paid
B. Increase in fixed costs
C. Increase in depreciation expense
D. Decrease in the tax rate
E. Decrease in sales
Katz is an all-equity development company that has 36,000 shares of stock outstanding
at a market price of $25 a share. The firms earnings before interest and taxes are
$29,000. Katz has decided to issue $200,000 of debt at a rate of 6 percent and use the
proceeds to repurchase shares. What should Leslie do if she owns 600 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 22 shares
B. Borrow money and buy an additional 133 shares
C. Sell 22 shares and loan out the proceeds
D. Sell 56 shares and loan out the proceeds
E. Sell 133 shares and loan out the proceeds
Assume that PE is the euro price of a product, PUS is the U.S. price of the identical
product, and S0 is the spot exchange rate, quoted as the amount of foreign currency per
dollar. Given this, which one of the following correctly expresses absolute purchasing
power parity?
A. PUS = S0/PE
B. PUS = S0 x PE
C. PUS = S0 + PE
D. PE = S0/PUS
E. PE = S0 x PUS
If the market price of existing publicly traded shares declines due to the announcement
of a seasoned issue of stock, the decline is referred to as which one of the following?
A. Spread
B. Direct underwriting cost
C. Underpricing
D. Direct issue cost
E. Abnormal return
The following is the sales budget for Uptown Rentals, Inc. for the first quarter of 2013:
Credit sales are collected as follows:60 percent in the month of sale32 percent in the
month after the sale8 percent in the second month after the saleThe accounts receivable
balance at the end of the previous quarter was $87,040 ($73,600 of which was
uncollected December sales). How much did the firm collect in the month of February?
A. $118,533
B. $121,212
C. $135,208
D. $138,615
E. $147,040
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