Soft and Cuddly is considering a new toy that will produce the following cash flows.
Should the company produce this toy if the firm requires a 15 percent rate of return?
A. Yes, because the projects rate of return is 10.21 percent
B. Yes, because the projects rate of return is 11.47 percent
C. No, because the projects rate of return is 10.21 percent
D. No, because the projects rate of return is 11.47 percent
E. No, because the internal rate of return is zero percent
All else constant, which one of the following will decrease the cash cycle?
A. Decreasing the credit period granted to a customer
B. Decreasing the inventory turnover rate
C. Decreasing the accounts payable period
D. Decreasing the accounts receivable turnover rate
E. Increasing the receivables period
Green Thumb Nursery has 6,000 shares of stock outstanding at a market price of $20 a
share. The earnings per share are $1.62. The firm has total assets of $315,000 and total
liabilities of $186,000. Today, the firm is repurchasing $4,800 worth of stock. Ignore
taxes. What will the earnings per share be after the stock repurchase?
A. $1.283
B. $1.232
C. $1.620
D. $1.688
E. $1.848
Assume the securities markets are strong form efficient. Given this assumption, you
should expect which one of the following to occur?
A. The risk premium on any security in that market will be zero.
B. The price of any one security in that market will remain constant at its current level.
C. Each security in the market will have an annual rate of return equal to the risk-free
rate.
D. The price of each security in that market will frequently fluctuate.
E. The prices of each security will fall to zero because the net present value of the
investments will be zero.
Aardvark, Inc. pays a constant annual dividend. At the end of trading on Wednesday,
the price of its stock was $ At the end of trading on the following day, the stock price
was $27. As a result of the decline in the stocks price, the dividend yield _____ while
the capital gains yield ____.
A. remained constant; remained constant
B. increased; remained constant
C. increased; increased
D. decreased; remained constant
E. decreased; decreased
The Townhouse Galleries offers credit to its customers at a rate of 1.6 percent per
month. What is the effective annual rate of this credit offer?
A. 18.45 percent
B. 19.09 percent
C. 19.41 percent
D. 20.04 percent
E. 20.98 percent
The owner of a trading license who trades on the floor of the NYSE for his or her
personal account is called a(n):
A. DMM.
B. independent broker.
C. floor trader.
D. stand-alone agent.
E. dealer.
Ten years from now, you will be inheriting $100,000. What is this inheritance worth to
you today if you can earn 5.5 percent interest, compounded annually?
A. $58,543.06
B. $63,215.46
C. $72,419.05
D. $72,798.47
E. $74,003.15
Joe and Rich are both considering investing in a project with the following cash flows.
Joe is content earning a 9 percent return, but Rich desires a return of 16 percent. Who, if
either, should accept this project?
A. Joe, but not Rich
B. Rich, but not Joe
C. Neither Joe nor Rich
D. Both Joe and Rich
E. Joe, and possibly Rich, who will be neutral on this decision as his net present value
will equal zero
Swizer Industries has two separate divisions. Division X has less risk so its projects are
assigned a discount rate equal to the firms WACC minus 0.5 percent. Division Y has
more risk and its projects are assigned a rate equal to the firms WACC plus 1 percent.
The company has a debt-equity ratio of 0.45 and a tax rate of 35 percent. The cost of
equity is 14.7 percent and the aftertax cost of debt is 5.1 percent. Presently, each
division is considering a new project. Division Ys project provides a 12.3 percent rate
of return and Division Xs project provides an 11.64 percent return. Which projects, if
any, should the company accept?
A. Accept both X and Y
B. Accept X and reject Y
C. Reject X and accept Y
D. Reject both X and Y
E. The answer cannot be determined based on the information provided.
Which one of the following will increase the current value of a stock?
A. Decrease in the dividend growth rate
B. Increase in the required return
C. Increase in the market rate of return
D. Decrease in the expected dividend for next year
E. Increase in the capital gains yield
A firm has earnings before interest and taxes of $25,380 with a net income of $14,220.
The taxes amounted to $5,400 for the year. During the year, the firm paid out $43,800
to pay off existing debt and then later borrowed an additional $24,000. What is the
amount of the cash flow to creditors?
A. -$14,040
B. $19,800
C. $25,560
D. $28,440
E. $29,790
Standards Life Insurance offers a perpetuity that pays annual payments of $100,000.
This contract sells for $2,750,000 today. What is the interest rate?
A. 3.64 percent
B. 3.87 percent
C. 4.10 percent
D. 4.21 percent
E. 4.39 percent
A stock has produced returns of 11 percent, 18 percent, -6 percent, -13 percent, and 21
percent for the past five years, respectively. What is the standard deviation of these
returns?
A. 7.75 percent
B. 8.87 percent
C. 9.23 percent
D. 14.99 percent
E. 16.64 percent
A stock produced returns of 19 percent, 27 percent, and -38 percent over three of the
past four years, respectively. The arithmetic average for the past four years is 7 percent.
What is the standard deviation of the stocks returns for the four-year period?
A. 11.63 percent
B. 15.94 percent
C. 19.70 percent
D. 26.25 percent
E. 30.21 percent
Scott borrowed $2,500 today. The loan agreement requires him to repay $2,685 in one
lump sum payment one year from now. This type of loan is referred to as a(n):
A. interest-only loan.
B. pure discount loan.
C. quoted rate loan.
D. compound interest loan.
E. amortized loan.
What is the key difference between an ordinary preferred stock and a money market
preferred stock?
A. Issuer
B. Maturity
C. Fixed versus floating dividend
D. Voting rights
E. Absence of any dividend
A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be
paid in four annual payments of $625 each, starting one year after the drawing. How
much would this prize be worth to you if you can earn 9 percent on your money?
A. $1,848.18
B. $1,934.24
C. $2,024.82
D. $2,450.14
E. $2,545.54