1) Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the
stock price?
A.$74.48
B.$76.68
C.$85.68
D.$112.98
2) Which of these is defined as an exchange rate regime where a currency’s price is
fixed to the value of another currency or to a basket of other currencies?
A.fixed peg arrangement
B.freely floating regime
C.currency market regime
D.managed-floating regime
3) Suppose that Wind Em Corp. currently has the balance sheet shown below, and that
sales for the year just ended were $15 million. The firm also has a profit margin of 23
percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all
assets and current liabilities are expected to grow with sales, what is the necessary
increase in assets?
A.$240,000
B.$3,333,333.33
C.$1,366,957.14
D.$1,840,000
4) A stock is expected to pay a $5.00 dividend per share. The growth rate is expected to
be -2%. If investors demand 8% on this stock, what is the expected price of the stock 5
years from now?
A.$54.68
B.$45.20
C.$41.06
D.$53.12
5) ABC has a net profit margin of 4.3% on Sales of $12,000,000. The firm has 250,000
shares outstanding. If the firm’s P/E is 16 times, how much is the stock selling for?
A.$41.72
B.$35.96
C.$25.40
D.$33.02
6) Future Value Given a 4 percent interest rate, compute the year 6 future value of
deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.
A.$4,353
B.$5,070.78
C.$5,191.68
D.$5,484.56
7) Future and Present Value of an Annuity Due If you start making $25 monthly
contributions today and continue them for 4 years, what’s their future value if the
compounding rate is 6 percent APR? What is the present value of this annuity?
A.$101.26, $99.26
B.$1,352.45, $1,064.51
C.$1,359.21, $1,069.83
D.$2,171.02, $1,516.03
8) Standard Deviation The past five monthly returns for K and Company are 4.25
percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.75 percent. What is the
standard deviation of these returns?
A.1.40%
B.3.37%
C.3.53%
D.0.12%
9) Suppose you sell a fixed asset for $99,000 when its book value is $129,000. If your
company’s marginal tax rate is 39%, what will be the effect on cash flows of this sale
(i.e., what will be the after-tax cash flow of this sale)?
A.$80,700
B.$110,700
C.$77,300
D.$84,800
10) A local bank is contemplating opening a new branch bank in a large superstore
across town from their main office. It is estimated that the new branch will generate
$20,000 after expenses each month. The manager wonders if all these revenues should
be considered an incremental cash flow. Given this information, which of the following
statements is correct?
A.$20,000 is generated by the new branch bank and therefore it is an incremental cash
flow
B.We would first need to assess the opportunity cost of placing a branch in a different
location to answer this question
C.Some amount less than the $20,000 is incremental because of substitutionary effects
D.Some amount less than the $20,000 is incremental because of complementary effects
11) Which of the following are main issuers of bonds?
A.U.S. Treasury bonds
B.Corporate bonds
C.Municipal bonds
D.All of these
12) Calculating Fees on a Loan Commitment Calculate the total fees a firm would have
to pay when its bank offers the firm the following loan commitment: A loan
commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of
20 basis points. The take-down on the loan is 80%.
A.$10,000
B.$25,000
C.$27,000
D.$33,000
13) Currency Exchange Compute the amount of foreign currency that can be purchased
for $400,000:
1 Indian Rupee = $0.02250
A.400,000 Rupee
B.360,000,000 Rupee
C.9,000 Rupee
D.17,777,777.78 Rupee
14) Future Value of an Annuity Due If the future value of an ordinary, 7-year annuity is
$10,000 and interest rates are 4 percent, what’s the future value of the same annuity
due?
A.$9,615.38
B.$10,000.00
C.$10,400.00
D.$10,700.00
15) Suppose a firm has had the historical sales figures shown below. What would be the
forecast for next year’s sales using the nave approach?
A.$10,000,000
B.$10,550,000
C.$10,840,000
D.$12,000,000
16) The board of directors _____________.
A.are hired by the CEO
B.are elected by shareholders
C.have unlimited liability since they oversee the day-to-day operations of the firm
D.are employed by the Securities Exchange Commission to ensure its rules and
regulations have been met
17) Which of the following will directly impact the cost of debt?
A.Capital Structure
B.Debt Ratio
C.Coupon Rate
D.Competition within the industry
18) Your client has been given a trust fund valued at $1 million. She cannot access the
money until she turns 68 years old, which is in 12 years. At that time, she can withdraw
$30,000 per month. If the trust fund is invested at a 7% interest rate, how many months
will it last your client once she starts to withdraw the money?
A.77.05 months
B.81.05 months
C.99.05 months
D.119.05 months
19) Projects A and B are mutually exclusive. Project A costs $20,000 and is expected to
generate cash inflows of $7,500 for 4 years. Project B costs $10,000 and is expected to
generate a single cash flow in year 4 of $20,000. The cost of capital is 12%. Which
project would you accept and why?
A.Project B because it has the higher NPV
B.Project B because it has the higher IRR
C.Project A because it has the higher NPV
D.Project A because it has the higher IRR
20) Which of the following is a true statement regarding the appropriate tax rate to be
used in the WACC?
A.One would use the marginal tax rate that the firm paid the prior year
B.One would use the average tax rate that the firm paid the prior year
C.One would use the weighted average of the marginal tax rates that would have been
paid on the taxable income shielded by the interest deduction
D.One would use the marginal tax rates that would have been paid on the taxable
income shielded by the interest deduction
21) If a firm has a cash cycle of 25 days and an operating cycle of 57 days, what is its
average payment period?
A.25 days
B.32 days
C.57 days
D.82 days
22) Which of following is a situation in which you would want to use the CAPM
approach for estimating the component cost of equity?
A.When you are able to estimate the market risk premium with certainty
B.When you are able to estimate the risk-free rate with certainty
C.When you are able to estimate the firm’s beta with certainty
D.When the firm pays a constant dividend
23) You are considering a stock investment in one of two firms (A and B), both of
which operate in the same industry. A finances its $20 million in assets with $18 million
in debt and $2 million in equity. B finances its $20 million in assets with $2 million in
debt and $18 million in equity. Calculate the debt-to-equity ratio for the two firms.
A.Firm A: 9 times; Firm B: 1.11 times
B.Firm A: 19 times; Firm B: .11 times
C.Firm A: 9 times; Firm B: .11 times
D.Firm A: 19 times; Firm B: 1.11 times
24) Mr. Husker’s Tuxedos, Corp. began the year 2011 with $205 million in retained
earnings. The firm earned net income of $30 million in 2011 and paid $5 million to its
preferred stockholders and $12 million to its common stockholders. What is the
year-end 2011 balance in retained earnings for Mr. Husker’s Tuxedos?
A.$193,000,000
B.$200,000,000
C.$213,000,000
D.$218,000,000
25) Which of the following is the amount of external financing a firm must seek in
order to change the asset base as necessary to support a different level of sales?
A.additional funds needed
B.capital intensity ratio
C.current ratio
D.spontaneous assets
26) Your company doesn’t face any taxes and has $200 million in assets, currently
financed entirely with equity. Equity is worth $10 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for
EBIT depend upon which state of the economy occurs this year, with the possible
values of EBIT and their associated probabilities as shown below:
The firm is considering switching to a 40-percent debt capital structure, and has
determined that they would have to pay an 8 percent yield on perpetual debt in either
event. What will be the break-even EBIT?
A.$13.6 million
B.$15 million
C.$16 million
D.$20 million
27) Suppose a firm has a retention ratio of 80 percent, net income of $10 million, and 2
million shares outstanding. What would be the dividend per share paid out on the firm’s
stock?
A.$1.00
B.$2.00
C.$4.00
D.$5.00
28) Happy Feet would like to maintain their cash account at a minimum level of
$75,000, but expects the standard deviation in net daily cash flows to be $5,000; the
effective annual rate on marketable securities to be 7 percent per year; and the trading
cost per sale or purchase of marketable securities to be $150 per transaction. What will
be their optimal upper cash limit?
A.$80,000.00
B.$99,755.64
C.$76,593.42
D.$149,266.92
29) Which of the following will increase the operating cycle?
A.The cash cycle decreases by 1 day but the average payment period increases by 2.5
days
B.The days’ sales in inventory decreases by 1 days but the average collection period
increases by 2 days
C.COGS stays the same but inventory increases
D.All of these will increase the operating cycle
30) Exchange Rate Quote Convert the following indirect quote to a dollar direct quote:
$1 = 48.210 Philippine Peso
A.$0.0207
B.$1.0207
C.$4.8210
D.$0.4821
31) A financial manager has determined that the appropriate discount rate for a foreign
project is 17 percent. However, that discount rate applies in the United States using
dollars. What discount rate should be used in the foreign country using the foreign
currency? The inflation rate in the United States and in the foreign country is expected
to be 3 percent and 8 percent, respectively.
A.17%
B.20%
C.22%
D.25%
32) Which of the following activities will increase a firm’s current ratio?
A.Purchase inventory using cash
B.Buy equipment with a short-term bank loan
C.Accrued wages and taxes increase
D.None of these statements will increase a firm’s current ratio
33) Suppose a firm has a retention ratio of 10 percent, net income of $40 million, and 4
million shares outstanding. What would be the dividend per share paid out on the firm’s
stock?
A.$0.10
B.$1.00
C.$9.00
D.$10.00
34) A small business owner visits his bank to ask for a loan. The owner states that she
can repay a loan at $1,250 per month for the next 3 years and then $500 per month for
two years after that. If the bank is charging customers 12% APR, how much would it be
willing to lend the business owner?
A.$45,058.15
B.$45,911.64
C.$46,055.21
D.$46,813.94
35) Calculating Costs of Issuing Debt Basketball Games, Inc., with the help of its
investment bank recently issued $5 million of new debt. The offer price (and face value)
on the debt was $1,000 per bond and the underwriter’s spread was 6 percent of the gross
proceeds. What is the amount of capital funding Basketball Games, Inc., raised through
this debt offering?
A.$1,000
B.$0.30 million
C.$4.7 million
D.$5 million
36) Cindy’s Computer Corp. is considering a merger with Bobby’s Hard Drive, Inc.
Cindy’s total operating costs of producing services are $2.1 million for a sales volume
(SC) of $13 million. Bobby’s total operating costs of producing services are $2.5
million for a sales volume (SB) of $7 million. If the two firms merge, calculate the total
average cost (TAC) for the merged firm assuming no synergies.
A.23%
B.17%
C.19%
D.21%
37) Which of the following is an unsecured short-term promissory note issued by a
public firm to raise short-term cash, often to finance working capital requirements?
A.initial public offering
B.angel capital
C.venture capital
D.commercial paper