The Wire House purchases its inventory one quarter prior to the quarter of sale. The
purchase price is 55 percent of the sales price. The accounts payable period is 45 days.
The accounts payable balance at the beginning of quarter one is $62,000. What is the
amount of the expected disbursements for quarter two given the following expected
quarterly sales?
A. $20,500
B. $21,725
C. $24,250
D. $26,000
E. $26,675
Answer:
Fixed Appliance Co. wishes to maintain a growth rate of 8 percent a year, a constant
debt-equity ratio of 0.42, and a dividend payout ratio of 50 percent. The ratio of total
assets to sales is constant at 1.3. What profit margin must the firm achieve?
A. 12.92 percent
B. 13.46 percent
C. 13.56 percent
D. 14.33 percent
E. 14.74 percent
Answer:
The buyer of an option contract:
A. receives the option premium in exchange for an obligation to either buy or sell an
underlying asset.
B. pays an option premium in exchange for a right to buy or sell an underlying asset
during a specified period of time.
C. pays the strike price at the time the option is purchased and in exchange receives the
right to exercise the option at any time during the option period.
D. receives the option premium in exchange for guaranteeing the purchase or sale of an
underlying asset if called upon to do so.
E. pays the option premium in exchange for receiving the strike price at a later date.
Answer:
A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5
percent over the past six years. What is the geometric average return for this time
period?
A. 4.26 percent
B. 4.67 percent
C. 5.13 percent
D. 5.39 percent
E. 5.60 percent
Answer:
A hedge between which two of the following firms is most apt to reduce each firm’s
financial risk exposure?
A. wheat farmer and bakery
B. oil producer and coal miner
C. wheat grower and pharmaceutical firm
D. pastry bakery and cotton farmer
E. shoe manufacturer and coat manufacturer
Answer:
If you ignore taxes and costs, a stock repurchase will:
I. reduce the total assets of a firm.
II. decrease the earnings per share.
III. reduce the PE ratio more so than an equivalent stock dividend.
IV. reduce the total equity of a firm.
A. I and III only
B. I and IV only
C. II and IV only
D. I, III, and IV only
E. II, III, and IV only
Answer:
A year ago, you purchased 300 shares of Stellar Wood Products, Inc. stock at a price of
$8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold
all of your shares for $4.80 per share. What is your total dollar return on this
investment?
A. -$382
B. -$1,372
C. -$1,528
D. -$1,116
E. -$1,360
Answer:
A firm is currently operating at full capacity. Net working capital, costs, and all assets
vary directly with sales. The firm does not wish to obtain any additional equity
financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive
external financing need, that need will be met by:
A. accounts payable.
B. long-term debt.
C. fixed assets.
D. retained earnings.
E. common stock.
Answer:
The incremental cash flows of leasing consider which of the following?
I. cost of the asset
II. lease payment amount
III. applicable tax rate
IV. annual depreciation expense
A. I and III only
B. II and IV only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Answer:
S.L. Moffatt, Inc. has paid a quarterly dividend of $1.20 per share for the last ten
quarters. Which one of the following is most apt to cause the firm to reduce the amount
of its next dividend payment?
A. decrease in the next quarter’s revenue
B. decrease in the next quarter’s net income
C. loss of a major customer which lowers the firm’s outlook for the next few years
D. major lump sum cash outflow next month to settle a class action product liability
lawsuit on a product that is no longer produced
E. decrease in the number of new projects under consideration as compared to last year
Answer:
Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British
pounds based on today’s exchange rate of $1 = £0.62. The traders agree to settle this
trade within two business day. What is this exchange called?
A. swap
B. option trade
C. futures trade
D. forward trade
E. spot trade
Answer:
Which one of the following considers all of the options implicit in a project?
A. expansion planning
B. contingency planning
C. asset management review
D. prospective evaluation
E. strategic evaluation
Answer:
Consider the following information for Kaleb’s Kickboxing:
What is the sustainable rate of growth?
A. 11.87 percent
B. 12.29 percent
C. 12.52 percent
D. 13.42 percent
E. 13.58 percent
Answer:
Farmer Jones raises several hundred acres of corn and would suffer a significant loss
should the price of corn decline at harvest time. Which one of the following would he
be doing if he purchased financial securities to offset this price risk?
A. abating
B. deriving
C. hedging
D. forwarding
E. manipulating
Answer:
The Pancake House has sales of $1,642,000, depreciation of $27,000, and net working
capital of $218,000. The firm has a tax rate of 35 percent and a profit margin of 6
percent. The firm has no interest expense. What is the amount of the operating cash
flow?
A. $98,520
B. $125,520
C. $147,480
D. $268,480
E. $343,520
Answer:
Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights
offering by this firm. As a result, Roy will most likely be subject to:
A. an oversubscription cost.
B. underpricing.
C. dilution.
D. the Green Shoe provision.
E. a locked in period.
Answer:
Tucker’s Trucking is considering a project with a discounted payback period just equal
to the project’s life. The projections include a sales price of $38, variable cost per unit
of $18.50, and fixed costs of $32,000. The operating cash flow is $19,700. What is the
break-even quantity?
A. 631 units
B. 1,211 units
C. 1,641 units
D. 2,301 units
E. 2,651 units
Answer:
Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store
yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is
the name given to this bill?
A. ledger statement
B. warranty
C. indenture
D. receipt
E. invoice
Answer:
Treynor Industries is investing in a new project. The minimum rate of return the firm
requires on this project is referred to as the:
A. average arithmetic return.
B. expected return.
C. market rate of return.
D. internal rate of return.
E. cost of capital.
Answer:
The Metallurgical Specialty Co. deals strictly with four customers. The average amount
each customer pays per month along with the collection delay associated with each
payment is shown below. Given this information, what is the weighted average delay?
Assume each month has 30 days.
A. 1.98 days
B. 2.04 days
C. 2.09 days
D. 2.16 days
E. 2.23 days
Answer:
Triangle arbitrage:
I. is a profitable situation involving three separate currency exchange transactions.
II. helps keep the currency market in equilibrium.
III. opportunities can exist in either the spot or the forward market.
IV. is based solely on differences in exchange ratios between spot and futures markets.
A. I and IV only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
Answer:
An ECN is best described as:
A. an electronic network which transmits orders directly to the floor of the NYSE.
B. the network used in the primary market for selling newly issued shares.
C. the international trading network of the NYSE.
D. a website that allows individual investors to trade directly with one another.
E. a computerized network used by independent brokers.
Answer:
You are borrowing money today at 8.48 percent, compounded annually. You will repay
the principal plus all the interest in one lump sum of $12,800 two years from today.
How much are you borrowing?
A. $9,900.00
B. $10,211.16
C. $10,877.04
D. $11,401.16
E. $11,250.00
Answer:
Which one of the following variables is the exponent in the present value formula?
A. present value.
B. future value.
C. interest rate.
D. time.
E. There is no exponent in the present value formula.
Answer:
An increase in which one of the following will increase a firm’s quick ratio without
affecting its cash ratio?
A. accounts payable
B. cash
C. inventory
D. accounts receivable
E. fixed assets
Answer:
Inside information has the least value when financial markets are:
A. weak form efficient.
B. semiweak form efficient.
C. semistrong form efficient.
D. strong form efficient.
E. inefficient.
Answer:
You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 8.68 percent
and the face value is $1,000. What is the current market price?
A. $106.67
B. $108.18
C. $182.80
D. $221.50
E. $228.47
Answer:
Cookie Dough Manufacturing has a target debt-equity ratio of 0.5. Its cost of equity is
15 percent, and its cost of debt is 11 percent. What is the firm’s WACC given a tax rate
of 31 percent?
A. 12.53 percent
B. 12.78 percent
C. 13.11 percent
D. 13.48 percent
E. 13.67 percent
Answer:
Which of the following accounts are included in working capital management?
I. accounts payable
II. accounts receivable
III. fixed assets
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. II, III, and IV only
Answer:
You purchased four April futures contracts on gold when the price quote was 692.5.
Given today’s closing prices as shown in the table, what is your current profit or loss?
Gold – 100 troy oz.: U.S. dollars and cents per troy oz.
A. $18,600
B. $21,000
C. $21,800
D. $23,680
E. $26,080
Answer:
Al owns 800 shares of The Good Life Co. The company recently issued a statement that
it will pay a dividend per share of $0.55 this year and a $0.60 per share dividend next
year. Al does not want any dividend income this year but does want as much dividend
income as possible next year. Al earns 9 percent on his investments. Ignoring taxes,
what will Al’s total homemade dividend be next year?
A. $910.20
B. $920.00
C. $930.50
D. $941.80
E. $959.60
Answer:
The Floral Shoppe and Maggie’s Flowers are all-equity firms. The Floral Shoppe has
2,500 shares outstanding at a market price of $16.50 a share. Maggie’s Flowers has
5,000 shares outstanding at a price of $17 a share. Maggie’s Flowers is acquiring The
Floral Shoppe for $42,900 in cash. The incremental value of the acquisition is $1,200.
What is the net present value of acquiring The Floral Shoppe to Maggie’s Flowers?
A. -$450
B. $275
C. $500
D. $2,400
E. $3,700
Answer: