1) Kris will receive $800 a month for the next five years from an insurance settlement.
The interest rate is 4 percent, compounded monthly, for the first two years and 5
percent, compounded monthly, for the final three years. What is this settlement worth to
him today?
A.$36,003.18
B.$38,219.97
C.$41,388.71
D.$43,066.22
E.$45,115.16
2) The Veggie Hut has net income of $26,400, total equity of $102,700, and total assets
of $189,500. The dividend payout ratio is 0.30 . What is the internal growth rate?
A.7.99 percent
B.8.57 percent
C.10.81 percent
D.16.87 percent
E.21.94 percent
3) A firm has two open positions on its board of directors. How many shares do you
need to own to guarantee your own election to the board if the firm has 12,500 shares of
stock outstanding and uses cumulative voting? Each share is granted one vote.
A.3,334 shares
B.4,168 shares
C.5,251 shares
D.5,501 shares
E.6,251 shares
4) Which one of the following reduces the number of shares outstanding but does not
change a firm’s total equity?
A.Stock split
B.Distribution
C.Reverse split
D.Liquidation
E.Redemption
5) The one-year forward rate between the U.S. and Japan is 122.47 = $1. A one-year
risk-free security in Japan is yielding 5.3 percent while it is 4.6 percent in the U.S.
Assume interest rate parity exists. What is the spot rate between the U.S. and Japan?
A.120.41
B.121.08
C.121.66
D.121.94
E.122.03
6) A stock has an average return of 19.2 percent and a standard deviation of 10.7
percent. In any one given year, you have a 95 percent chance that you will not lose
more than _____ percent nor earn more than ____ percent if you invest in this security.
A.-2.2; 38.2
B.-2.2; 40.6
C.-13.9; 28.9
D.-13.9; 39.6
E.-13.9; 50.3
7) Greenbriar Grain and Feed has the following estimated sales.
Purchases are equal to 75 percent of the following quarter’s sales. The accounts
receivable period is 30 days and the accounts payable period is 60 days. Assume there
are 30 days in each month. How much will the firm owe its suppliers at the end of
quarter 2?
A.$3,692
B.$3,807
C.$4,355
D.$4,550
E.$5,027
8) During the past year, Arther Anderson Services paid $360,800 in interest along with
$48,000 in dividends. The company issued $230,000 of stock and $200,000 of new
debt. The company reduced the balance due on the old debt by $225,000. What is the
amount of the cash flow to creditors?
A.-$88,200
B.$51,400
C.$161,800
D.$385,800
E.$585,800
9) What is the net present value of the following cash flows if the relevant discount rate
is 8.0 percent?
A.$1,482.15
B.$4,529.59
C.$23,507.19
D.$54,211.40
E.$71,402.02
10) Essary Brothers has 39,000 shares of stock outstanding at a price per share of $59.
How many shares will be outstanding if the firm does a 3-for-2 stock split?
A.24,000 shares
B.39,000 shares
C.55,667 shares
D.58,500 shares
E.61,000 shares
11) The Bread Basket needs to raise $38 million to expand its operations nationally. The
company will sell new shares of common stock using a general cash offering. The
underwriters charge a 7.65 percent spread, the administrative costs are $395,000, and
the offer price is $26 per share. How many shares of stock must be sold for The Bread
Basket to receive the total funds it desires?
A.1,599,059 shares
B.1,638,311 shares
C.1,647,222 shares
D.1,814,141 shares
E.1,833,333 shares
12) What is the primary purpose of a lockup agreement?
A.Ensures the lead underwriter maintains an economic interest in the IPO it is
managing
B.Ensures the issuer of new securities receives a minimally agreed upon amount from
the issue
C.Ensures no research reports are issued during the waiting period
D.Ensures company insiders maintain an economic interest in the issuer of an IPO for a
minimum period of time
E.Ensures an IPO is not underpriced by more than 5 percent
13) Which one of the following refers to the relationship between nominal returns, real
returns, and inflation?
A.Call premium
B.Fisher effect
C.Conversion ratio
D.Bid-ask spread
E.Clean-dirty spread
14) Elkins Feed Lot is an all-equity firm with positive net income. Which one of the
following will result if the firm pays a cash dividend?
A.Number of shares outstanding will increase
B.Earnings per share will decrease
C.Total assets will remain constant
D.Price-earnings ratio will decrease
E.Total equity will increase
15) Your aunt loaned you money at 1.00 percent interest per month. What is the APR of
this loan?
A.11.88 percent
B.12.00 percent
C.12.16 percent
D.16.00 percent
E.16.28 percent
16) The Chip Dip Co. has 15,500 shares of stock outstanding, grants one vote per share,
and uses straight voting. How many shares must you control to guarantee that you will
be elected to the firm’s board of directors if there are three open seats?
A.5,167 shares
B.5,134 shares
C.3,876 shares
D.7,751 shares
E.7,134 shares
17) You currently own a portfolio valued at $56,000 that has a beta of 1.28 . You have
another $10,000 to invest and would like to invest it in a manner such that the portfolio
beta decreases to 1.20 . What does the beta of the new investment have to be?
A.0.75
B.0.79
C.0.86
D.0.92
E.1.15
18) Which one of the following statements related to securities dealers is correct?
A.Dealers match buyers with sellers
B.Dealers buy and sell from their own inventory
C.Dealers operate on a physical trading floor
D.Dealers operate exclusively in auction markets
E.Dealers are limited to trading nonlisted stocks
19) Chinese Importers wants to raise $58 million to expand its operations into South
America. The company will sell new shares of common stock using a general cash
offering. The underwriters charge a 7.8 percent spread, the administrative costs are
$411,000, and the offer price is $35 per share. How many shares of stock must be sold
if the firm is to raise the funds it desires?
A.1,648,315 shares
B.1,810,071 shares
C.1,911,502 shares
D.1,989,415 shares
E.2,051,515 shares
20) The accounting statement that measures the revenues, expenses, and net income of
a firm over a period of time is called the:
A.statement of cash flows
B.income statement
C.GAAP statement
D.balance sheet
E.net working capital schedule
21) Which one of the following statements concerning the balance sheet is correct?
A.Total assets equal total liabilities minus total equity
B.Net working capital is equal total assets minus total liabilities
C.Assets are listed in descending order of liquidity
D.Current assets are equal to total assets minus net working capital
E.Shareholders’ equity is equal to net working capital minus net fixed assets plus
long-term debt
22) Which of the following have the potential to increase the net present value of a
proposed investment?
I. Ability to immediately shut down a project should the project become unprofitable
II. Ability to wait until the economy improves before making the investment
III. Option to place the investment on hold until a more favorable discount rate becomes
available
IV. Option to increase production beyond that initially projected
A.I only
B.I and IV only
C.II and III only
D.I, II, and IV only
E.I, II, III, and IV
23) The stock of Southern United is priced at $40 a share and has a dividend yield of
2.1 percent. The firm pays constant annual dividends. What is the amount of the next
dividend per share?
A.$0.021
B.$0.210
C.$0.840
D.$0.871
E.$0.875
24) The Green Tomato purchased a parcel of land six years ago for $299,500. At that
time, the firm invested $64,000 grading the site so that it would be usable. Since the
firm wasn’t ready to use the site itself at that time, it decided to lease the land for
$28,000 a year. The Green Tomato is now considering building a hotel on the site as the
rental lease is expiring. The current value of the land is $355,000. The firm has no loans
or mortgages secured by the property. What value should be included in the initial cost
of the hotel project for the use of this land?
A.$0
B.$299,500
C.$355,000
D.$363,500
E.$419,000
25) Todd and Cathy created a firm that is a separate legal entity and will share
ownership of that firm on a 50-50 basis. Which type of entity did they create if they
have no personal liability for the firm’s debts?
A.Limited partnership
B.Corporation
C.Sole proprietorship
D.General partnership
E.Public company
26) For which one of the following instruments does a bank guarantee payment by the
buyer?
A.Money market preferred stock
B.Commercial paper
C.Banker’s acceptance
D.Invoice
E.Time draft
27) The Tool Box needs to purchase a new machine costing $1.46 million. Management
is estimating the machine will generate cash inflows of $223,000 the first year and
$600,000 for the following three years. If management requires a minimum 12 percent
rate of return, should the firm purchase this particular machine? Why or why not?
A.Yes, because the IRR is 10.75 percent
B.Yes, because the IRR is 12.74 percent
C.No, because the IRR is 10.75 percent
D.No, because the IRR is 12.74 percent
E.The answer cannot be determined as there are multiple IRRs
28) World United stock currently plots on the security market line and has a beta of 1.04
. Which one of the following will increase that stock’s rate of return without affecting
the risk level of the stock, all else constant?
A.An increase in the risk-free rate
B.Decrease in the security’s beta
C.Overpricing of the stock in the marketplace
D.Increase in the market risk-to-reward ratio
E.Decrease in the market rate of return
29) Depreciation does which one of the following for a profitable firm?
A.Increases net income
B.Increases net fixed assets
C.Decreases net working capital
D.Lowers taxes
E.Has no effect on net income
30) Triangle Enterprises has no debt but can borrow at 9 percent. The firm’s WACC is
currently 14.7 percent, and there is no corporate tax. If the firm converts to 70 percent
debt, what will its cost of equity be?
A.20.67 percent
B.22.95 percent
C.24.47 percent
D.26.39 percent
E.28.00 percent
31) Rochester, Inc. has 7,500 shares of stock outstanding at a market price of $42 each
and earnings per share of $1.90. The firm has decided to repurchase $63,000 worth of
stock. What will the PE ratio be after the repurchase, all else held constant?
A.$1.30
B.$1.44
C.$1.90
D.$2.02
E.$2.38
32) Which one of the following is a disbursement account into which funds are
transferred only as needed to cover the demands for payment?
A.Master account
B.Controlled disbursement account
C.Bank controlled account
D.Investment account
E.Safety stock account
33) The historical record for the period 1926-2011 shows that the annual nominal rate
of return on:
A.risk-free securities has averaged around 5 percent
B.the Consumer Price Index has been positive every year
C.U.S. Treasury bills have had a positive rate of return for every year in the period
D.U.S. Treasury bills is constant
E.large company stocks has averaged around 9 percent
34) Any person who owns a license to trade on the NYSE is called a:
A.dealer
B.floor trader
C.DMM
D.member
E.proxy
35) Suppose a stock had an initial price of $74 per share, paid a dividend of $0.80 per
share during the year, and had an ending share price of $77. What was the capital gains
yield?
A.2.70 percent
B.3.29 percent
C.3.78 percent
D.4.05 percent
E.4.94 percent
36) Beasley Enterprises stock has an expected return of 11.5 percent. Given the
information below, what is the expected return if the economy is in a recession?
A.-5.72 percent
B.-11.71 percent
C.-11.28 percent
D.-10.76 percent
E.5.72 percent
37) Which one of the following is the tax rate that applies to the next dollar of taxable
income that a firm earns?
A.Average tax rate
B.Variable tax rate
C.Marginal tax rate
D.Absolute tax rate
E.Contingent tax rate
38) You own a $222,000,000 portfolio that is invested in Stocks A and B. The portfolio
beta is equal to the market beta. Stock A has an expected return of 18.7 percent and has
a beta of 1.42 . Stock B has a beta of 0.88. What is the value of your investment in
Stock A?
A.$38,600
B.$42,333
C.$44,500
D.$49,333
E.$47,200
39) The Medicine Shoppe has a return on equity of 19.2 percent, a profit margin of 11.6
percent, and total equity of $738,000. What is the net income?
A.$85,608
B.$113,875
C.$141,696
D.$146,542
E.$149,897
40) Today, Stacy is investing $26,000 at 6.0 percent, compounded annually, for 4 years.
How much additional income could he earn if he had invested this amount at 7 percent,
compounded annually?
A.$1,043.11
B.$1,256.30
C.$1,401.16
D.$1,442.79
E.$1,484.08