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1) You are analyzing a project and have developed the following estimates. The
depreciation is $19,800 a year and the tax rate is 34 percent. What is the best-case
operating cash flow?
A.$60,456
B.$62,333
C.$64,011
D.$65,650
E.$66,240
2) Which one of the following terms could be defined as a new issue of common stock
offered to the general public by a firm that is currently publicly held?
A.Initial public offering
B.Private placement
C.Rights offer
D.Venture capital
E.Seasoned equity offering
3) Which one of the following describes systemic risk?
A.Risk that affects a large number of assets
B.An individual security's total risk
C.Diversifiable risk
D.Asset specific risk
E.Risk unique to a firm's management
4) Which one of the following features applies to NASDAQ but not the NYSE?
A.Trading in the crowd
B.Multiple market maker system
C.SuperDot
D.Broker market
E.Physical trading floor
5) What is the effective annual rate of 10 percent compounded semiannually?
A.10.21 percent
B.10.25 percent
C.10.35 percent
D.10.38 percent
E.10.42 percent
6) A firm is reviewing a project that has an initial cost of $71,000. The project will
produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600,
$33,100, and finally in year 5, $37,900. What is the profitability index if the discount
rate is 11 percent?
A.0.92
B.0.98
C.1.02
D.1.07
E.1.12
7) You own a $46,000 portfolio comprised of four stocks. The values of Stocks A, B,
and C are $5,600, $16,700, and $11,400, respectively. What is the portfolio weight of
Stock D?
A.24.57 percent
B.25.39 percent
C.30.33 percent
D.32.10 percent
E.32.58 percent
8) Charlies's writes 135 checks a day for an average amount of $480 each. These checks
generally clear the bank in 3 days. In addition, the firm generally receives an average of
$159,000 a day in checks that are deposited immediately. Deposited funds are available
in 1.5 days. What is the firm's net float?
A.Net disbursement float of $94,200
B.Net disbursement float of $44,100
C.Net disbursement float of $34,750
D.Net collection float of $44,100
E.Net collection float of $94,200
9) You just received a loan offer from Friendly Loans. The company is offering you
$5,000 at 14.3 percent interest. The monthly payment is only $100. If you accept this
offer, how long will it take you to pay off the loan?
A.5.84 years
B.6.37 years
C.6.80 years
D.7.33 years
E.7.59 years
10) Bob Gibson's has sales for the year of $311,400, cost of goods sold equal to 78
percent of sales, and an average inventory of $42,800. The profit margin is 6 percent
and the tax rate is 35 percent. How many days on average does it take the firm to sell an
inventory item?
A.5.68 days
B.11.46 days
C.64.32 days
D.71.74 days
E.82.03 days
11) Gabella's is an all-equity firm that has 21,000 shares of stock outstanding at a
market price of $40 a share. The firm has earnings before interest and taxes of $84,000
and has a 100 percent dividend payout ratio. Ignore taxes. Gabella's has decided to issue
$160,000 of debt at a rate of 12 percent and use the proceeds to repurchase shares. Terry
owns 400 shares of Gabella's stock and has decided to continue holding those shares.
How will Gabella's debt issue affect Terry's annual dividend income?
A.Decrease from $2,400 to $1,840
B.Increase from $2,400 to $2,160
C.Decrease from $1,600 to $1,525
D.Increase from $1,600 to $2,094
E.No change
12) Which one of the following statements about the operating cycle is correct?
A.The operating cycle illustrates the sources and uses of cash
B.The operating cycle is equal to the cash cycle plus the accounts receivable period
C.The operating cycle begins when a product is sold to a customer
D.The operating cycle is based on a 360-day year
E.The operating cycle describes how a product moves through the current asset
accounts
13) The common stock of Up-Towne Movers is selling for $33 a share and has a 10
percent rate of return. The growth rate of the dividends is 2 percent annually. What is
the amount of the next annual dividend?
A.$2.58
B.$2.61
C.$2.64
D.$2.67
E.$2.70
14) LaDoris' Boutique has 4,500 shares of stock outstanding at a price per share of $20.
The firm has decided to repurchase 600 of those shares in the open market. What will
the price per share be after the share repurchase is completed? Ignore taxes and market
imperfections.
A.$17.80
B.$18.40
C.$18.80
D.$20.00
E.$20.20
15) Old Town Industries has three divisions. Division X has been in existence the
longest and has the most stable sales. Division Y has been in existence for five years
and is slightly less risky than the overall firm. Division Z is the research and
development side of the business. When allocating funds, the firm should probably:
A.require the highest rate of return from Division X since it has been in existence the
longest
B.assign the highest cost of capital to Division Z because it is most likely the riskiest of
the three divisions
C.use the firm's WACC as the cost of capital for Division Z as it provides analysis for
the entire firm
D.use the firm's WACC as the cost of capital for Divisions A and B because they are
part of the revenue-producing operations of the firm
E.allocate capital funds evenly amongst the divisions to maintain the current capital
structure of the firm
16) A $100,000 Treasury bond has a bid price quote of 115.20 and an asked quote of
115.23. In dollars, what is the value of the bid-ask spread on this bond?
A.$0.93
B.$9.36
C.$93.75
D.$937.50
E.$9,375.00
17) Which type of financing is generally used by new car dealers to finance their
inventories?
A.Blanket inventory lien arrangement
B.Trust receipt loans
C.Committed line of credit
D.Trade credit financing
E.Field warehousing financing
18) Outdoor Sports is considering adding a miniature golf course to its facility. The
course would cost $138,000, would be depreciated on a straight-line basis over its
five-year life, and would have a zero salvage value. The estimated income from the
golfing fees would be $72,000 a year with $24,000 of that amount being variable cost.
The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000
in revenue from its existing facilities if the golf course is added. The project will require
$3,000 of net working capital, which is recoverable at the end of the project. What is
the net present value of this project at a discount rate of 12 percent and a tax rate of 34
percent?
A.$11,309
B.$11,628
C.$12,737
D.$14,439
E.$14,901
19) Which one of the following is the bill given to a customer for goods he or she
purchased?
A.Account aging
B.Invoice
C.Docket
D.Remittance advice
E.Shipping receipt
20) The spot rate for the pound is £0.6220 = $1 and for the Canadian dollar is
Can$0.9725 = $1. What is the £/Can$ cross-rate?
A.£0.6396/1
B.£0.6627/1
C.£1.0333/1
D.£1.5635/1
E.£01.8238/1
21) A portfolio has an expected return of 12.3 percent. This portfolio contains two
stocks and one risk-free security. The expected return on Stock X is 9.7 percent and on
Stock Y it is 17.7 percent. The risk-free rate is 3.8 percent. The portfolio value is
$78,000 of which $18,000 is the risk-free security. How much is invested in Stock X?
A.$18,600
B.$19,667
C.$21,375
D.$22,204
E.$24,800
22) Lexington Stables just declared a 15 percent stock dividend. Which one of the
following increased by 15 percent as a result of this dividend?
A.Book value of firm's equity
B.Shareholders' wealth
C.Number of shares outstanding
D.Firm's cash balance
E.Stock price
23) Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600.
The company has determined that it will owe $56,211 in tax if its taxable income rises
to $565,000. What is the marginal tax rate at this level of income?
A.9.95 percent
B.30.00 percent
C.30.67 percent
D.51.03 percent
E.51.18 percent
24) Which one of the following activities is a source of cash?
A.Decreasing long-term debt
B.Increasing inventory
C.Repurchasing shares of stock
D.Increasing fixed assets
E.Decreasing accounts receivable
25) Precision Manufacturing had the following operating results for 2014: sales =
$38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense
= $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were
$14,300, current assets were $8,700, and current liabilities were $6,600. At the end of
the year, net fixed assets were $13,900, current assets were $9,200, and current
liabilities were $7,400. The tax rate for 2014 was 34 percent. What is the cash flow
from assets for 2014?
A.$8,047
B.$8,292
C.$8,658
D.$9,492
E.$9,964
26) 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
27) 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
28) British Motor Works is reviewing its current accounts to determine how a proposed
project might affect the account balances. The firm estimates the project will initially
require $67,000 in additional current assets and $32,000 in additional current liabilities.
The firm also estimates the project will require an additional $7,000 a year in current
assets for each one of the four years of the project. How much net working capital will
the firm recoup at the end of the project assuming that all net working capital can be
recaptured?
A.-$85,000
B.$25,000
C.$63,000
D.$68,000
E.$85,000
29) Kay's House of Sound sells 520 musical instruments a year at an average price per
instrument of $580. All sales are credit sales with terms of 2/10, net 25 . Hogan's has
found that 78 percent of its customers take advantage of the discounted price. What is
the amount of the firm's average accounts receivable?
A.$9,560
B.$10,990
C.$11,280
D.$12,440
E.$12,620
30) Which one of the following terms is used to describe international bonds issued in a
single country and generally denominated in that country's currency?
A.Eurobonds
B.American Depositary Receipts
C.Foreign bonds
D.Swaps
E.Gilts
31) The stock price of Russell, Inc. is $81. Investors require a 14 percent rate of return
on similar stocks. If the company plans to pay a dividend of $4.20 next year, what
growth rate is expected for the company's stock price?
A.7.99 percent
B.8.00 percent
C.8.12 percent
D.8.37 percent
E.8.81 percent
32) Tattler, Inc. has declared a $4.60 per share dividend. Suppose capital gains are not
taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be
withheld at the time the dividend is paid. Tattler sells for $87 per share, and the stock is
about to go ex-dividend. What do you think the ex-dividend price will be?
A.$82.40
B.$83.32
C.$85.08
D.$86.67
E.$87.00
33) Which one of the following statements is correct?
A.Bond markets have less daily trading volume than equity markets
B.There are fewer bond issues than there are equity issues
C.Municipal bond prices are highly transparent
D.Bond markets are dealer based
E.Most bond trades occur on the NYSE
34) Your parents spent $6,200 to buy 500 shares of stock in a new company 13 years
ago. The stock has appreciated 9 percent per year on average. What is the current value
of those 500 shares?
A.$18,824.17
B.$19,007.99
C.$19,580.92
D.$20,515.08
E.$22,449.92
35) Which one of the following refers to a customer's willingness to meet his or her
credit obligations?
A.Capital
B.Conditions
C.Capacity
D.Character
E.Collateral
36) International Traders has common stock outstanding at a market price of $53 per
share. The total market value of the firm is $6,603,800. The firm plans on liquidating
one of its divisions for $550,000 in cash and distributing the proceeds to the
shareholders in the form of a liquidating dividend. What will be the amount per share of
that dividend?
A.$3.197
B.$4.414
C.$4.620
D.$4.714
E.$4.782
