Which one of the following statements is correct?
A. The internal rate of return is the most reliable method of analysis for any type of
investment decision.
B. The payback method is biased toward short-term projects.
C. The modified internal rate of return is most useful when projects are mutually
exclusive.
D. The average accounting return is the most difficult method of analysis to compute.
E. The net present value method is applicable only if a project has conventional cash
flows.
Kurt, who is a divisional manager, continually brags that his divisions required return
for its projects is 1 percent lower than the return required for any other division of the
firm. Which one of the following most likely contributes the most to the lower rate
requirement for Kurts division?
A. Kurt tends to overestimate the projected cash inflows on his projects.
B. Kurt tends to underestimate the variable costs of his projects.
C. Kurt has the most efficiently managed division.
D. Kurts division is less risky than the other divisions.
E. Kurts projects are generally financed with debt while the other divisions projects are
financed with equity.
River City Gifts has an average collection period of 20 days and annual sales of
$650,000. What is the average investment in accounts receivable as shown on the
balance sheet?
A. $18,850
B. $20,375
C. $25,506
D. $28,900
E. $35,616
The current spot rate between the UK and the U.S. is 0.6528 per $1. The expected
inflation rate in the U.S. is 1.8 percent. The expected inflation rate in the UK is 3.4
percent. If relative purchasing power parity exists, what will the exchange rate be two
years from now?
A. 0.6549/$1
B. .0.6632/$1
C. .0.6739/$1
D. 0.6982/$1
E. 0.5331/$1
Jersey Ts is preparing to sell new shares of stock to the general public. As part of this
process, the firm just filed the required paperwork with the SEC that contains the
material information related to this issue of stock. What is the name associated with this
paperwork?
A. Prospectus
B. Red herring
C. Security agreement
D. Comment letter
E. Registration statement
A project has the following cash flows. What is the internal rate of return?
A. 10.53 percent
B. 10.58 percent
C. 10.60 percent
D. 10.67 percent
E. 11.10 percent
The lowest rating a bond can receive from Moodys and still be classified as an
investment-quality bond is:
A. BB.
B. BBB.
C. B.
D. Ba.
E. Baa.
Computer Geeks has sales of $521,000, a profit margin of 14.8 percent, a total asset
turnover rate of 2.16, and an equity multiplier of 1.30. What is the return on equity?
A. 8.91 percent
B. 12.67 percent
C. 18.28 percent
D. 32.11 percent
E. 41.56 percent
Taylor Farms is borrowing $75,000 for three years at an APR of 9 percent. The loan
calls for the principal balance to be reduced by equal amounts over the life of the loan.
Interest is to be paid in full each year. The payments are to be made annually at the end
of each year. How much will Taylor Farms pay in interest over the life of this loan?
A. $12,311.67
B. $12,484.90
C. $12,840.00
D. $13,500.00
E. $13,887.32
Which one of the following players on the floor of the NYSE is obligated to maintain a
fair, orderly market for a limited number of securities?
A. DMM
B. Floor trader
C. $2 broker
D. Commission broker
E. Floor broker
Six months ago, Benders Gym repurchased $20,000 of its common stock. The company
pays regular quarterly dividends totaling $8,500 per quarter. What is the amount of the
cash flow to stockholders for the past year if no additional shares were issued?
A. -$10,000
B. $20,000
C. $28,500
D. $30,000
E. $54,000
A stock has an expected return of 17.2 percent and a beta of 1.65. The risk-free rate is
5.1 percent. What is the slope of the security market line?
A. 7.25 percent
B. 7.33 percent
C. 7.78 percent
D. 7.92 percent
E. 8.03 percent
Kelly just completed compiling a listing of her firms accounts receivable with each
invoice segregated according to the length of time the invoice has been outstanding.
What is the name given to this listing?
A. Aging schedule
B. Collection report
C. Credit evaluation report
D. Invoice schedule
E. Terms of credit
Which one of the following statements is correct concerning capital structure weights?
A. Target rates are less relevant to a project than are historical rates.
B. The weights are unaffected when a bond issue matures.
C. An increase in the debt-equity ratio will increase the weight of the common stock.
D. The repurchase of preferred stock will increase the weight of debt.
E. The issuance of additional shares of common stock will increase the weight of the
preferred stock.
The federal government has a tax claim on the cash flows of The Window Store. This
claim is defined as a claim by one of the firms:
A. residual owners.
B. shareholders.
C. financiers.
D. provisional partners.
E. stakeholders.
The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of
$26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net
income for this firm?
A. $61,930
B. $66,211
C. $67,516
D. $76,428
E. $83,219