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
marginII. Return on assetsIII. Total asset turnoverIV. 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
Brickhouse is expected to pay annual dividends of $1.90 and $2.10 over the next two
years, respectively. After that, the company expects to pay a constant dividend of $2.30
a share. What is the value of this stock at a required return of 16 percent?
A. $12.44
B. $13.30
C. $13.89
D. $14.08
E. $14.60
Which one of the following statements is correct?
A. From a legal perspective, preferred stock is a form of corporate equity.
B. All classes of stock must have equal voting rights per share.
C. Common shareholders elect the corporate directors while the preferred shareholders
vote on mergers and acquisitions.
D. Dividends are tax-free income for individual investors.
E. Shareholders prefer noncumulative dividends over cumulative dividends.
Rock Bottom Carpets sells 5,600 carpets a year at an average price per carpet of $1,490.
The carrying cost per unit is $22.37. The company orders 500 carpets at a time and has
a fixed order cost of $69 per order. The carpets are sold out before they are restocked.
What is the economic order quantity?
A. 147 carpets
B. 166 carpets
C. 186 carpets
D. 315 carpets
E. 372 carpets
Which one of the following best defines legal bankruptcy?
A. Negotiating new payment terms with a firms creditors
B. A temporary technical insolvency
C. A legal proceeding for liquidating or reorganizing a business
D. The internal process of revising the capital structure of a firm
E. The failure of a firm to meet its financial obligations in a timely manner
The 7.5 percent preferred stock of Rock Bottom Floors is selling for $60 a share. What
is the firms cost of preferred stock if the tax rate is 35 percent and the par value per
share is $100?
A. 7.50 percent
B. 8.13 percent
C. 12.50 percent
D. 13.79 percent
E. 14.14 percent
Which of the following costs tend to rise when a firm switches to a flexible financial
policy from a restrictive financial policy?I. restocking costsII. lower prices to offset
limited selectionIII. storage costsIV. current asset opportunity costs
A. I and II only
B. III and IV only
C. I, III, and IV only
D. I, II, and III only
E. II, III, and IV only
The Undergrounds has annual sales of $1.46 million. The cost of goods sold is equal to
80 percent of sales. The firm has an average accounts receivable balance of $150,000
and an average accounts payable balance of $163,500. How many days on average does
it take the firm to pay its suppliers?
A. 7.14 days
B. 47.72 days
C. 49.81 days
D. 51.09 days
E. 56.67 days
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 firms equity
B. Shareholders wealth
C. Number of shares outstanding
D. Firms cash balance
E. Stock price
Santa Claus Enterprises has 174,000 shares of common stock outstanding at a current
price of $46 a share. The firm also has two bond issues outstanding. The first bond issue
has a total face value of $250,000, pays 7.7 percent interest annually, and currently sells
for 102.5 percent of face value. The second bond issue consists of 5,000 bonds that are
selling for $993 each. These bonds pay 6.5 percent interest annually and mature in eight
years. The tax rate is 34 percent. What is the capital structure weight of the firms debt?
A. 39.48 percent
B. 51.39 percent
C. 55.50 percent
D. 60.52 percent
E. 71.86 percent
The yield to maturity on a discount bond is:
A. equal to both the coupon rate and the current yield.
B. equal to the current yield but greater than the coupon rate.
C. greater than both the current yield and the coupon rate.
D. less than the current yield but greater than the coupon rate.
E. less than both the current yield and the coupon rate.
Which one of the following statements is correct regarding mortgage-backed securities
(MBSs)?
A. There is a separate MBS for each individual mortgage processed by a mortgage
broker.
B. An MBS is a type of debenture.
C. The originating bank is the seller of MBSs to investors.
D. Investors in MBSs are protected from default.
E. Investors in MBSs are subject to real estate deflation risk.
The Bermuda Triangle Store pays a constant dividend. Last year, the dividend yield was
5.4 percent when the stock was selling for $15 a share. What must the stock price be
today if the market currently requires a 3.8 percent dividend yield on this stock?
A. $21.32
B. $12.30
C. $11.59
D. $19.22
E. $22.48
Your German friend has decided to come and visit you in the U.S. You estimate the cost
of her trip at $2,600. What is the cost to her in euros if the U.S. dollar equivalent of the
euro is 1.3266?
A. 1,566.67
B. 1,959.90
C. 1,908.50
D. 2,716.34
E. 3,449.16
Joshuas Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a
profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is
the sustainable growth rate?
A. 6.98 percent
B. 7.20 percent
C. 7.33 percent
D. 7.54 percent
E. 7.91 percent
Your local athletic center is planning a $1.23 million expansion to its current facility.
This cost will be depreciated on a straight-line basis over a 20-year period. The
expanded area is expected to generate $524,000 in additional annual sales. Variable
costs are 48 percent of sales, the annual fixed costs are $79,400, and the tax rate is 35
percent. What is the operating cash flow for the first year of this project?
A. $118,336
B. $122,509
C. $147,027
D. $166,667
E. $219,323
Kates Korner Market monitors 3 percent of its inventory on a daily basis, another 20
percent on a weekly basis, and the remaining inventory on a quarterly basis. What
inventory management approach is being used?
A. ABC
B. EOQ
C. MRP
D. Q*
E. JIT