The tax shield approach to computing the operating cash flow, given a tax-paying firm:
A. ignores both interest expense and taxes.
B. separates cash inflows from cash outflows.
C. considers the changes in net working capital resulting from a new project.
D. is based on the fact that depreciation does not affect the operating cash flows.
E. recognizes that depreciation creates a cash inflow.
During the past year, ABC stock has sold for as little as $19 a share and a much as $33
a share. Which one of the following terms applies to these prices?
A. Benchmark values
B. Price splits
C. Price dividers
D. Split range
E. Trading range
Sam wants to invest $5,000 for 5 years. Which one of the following rates will provide
him with the largest future value?
A. 5 percent simple interest
B. 5 percent interest, compounded annually
C. 6 percent interest, compounded annually
D. 7 percent simple interest
E. 7 percent interest, compounded annually
You are analyzing a project and have developed the following estimates: unit sales =
3,100, price per unit = $215, variable cost per unit = $115, fixed costs = $164,000. The
depreciation is $59,000 a year and the tax rate is 35 percent. What effect would the sale
of one more unit have on the operating cash flow?
A. $60.90
B. $61.40
C. $61.80
D. $65.00
E. $65.70
Charles Berkeley, Inc. just paid an annual dividend of $3.60 per share on its stock. The
dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. If
investors require an 11 percent return on this stock, what will the price be in 12 years?
A. $91.71
B. $93.62
C. $95.75
D. $98.15
E. $102.57
A project has an initial requirement of $261,000 for fixed assets and $27,000 for net
working capital. The fixed assets will be depreciated to a zero book value over the
four-year life of the project and have an estimated salvage value of $78,000. All of the
net working capital will be recouped at the end of the project. The annual operating
cash flow is $96,200 and the discount rate is 13 percent. What is the projects net present
value if the tax rate is 35 percent?
A. $42,011
B. $43,333
C. $45,799
D. $47,880
E. $47,919
The Candy Cane Store has the following estimated sales.
Purchases are equal to 64 percent of the following quarters sales. Assume each month
has 30 days, the accounts receivable period is 30 days and the accounts payable period
is 45 days. How much will the firm pay its suppliers in the third quarter?
A. $16,379
B. $16,811
C. $18,514
D. $20,947
E. $21,920
Ben & Terrys has an expected return of 12.9 percent and a beta of 1.25. The expected
return on the market is 11.7 percent. What is the risk-free rate?
A. 3.87 percent
B. 4.24 percent
C. 4.61 percent
D. 6.29 percent
E. 6.92 percent
Which one of the following is the minimum required rate of return on a new investment
that makes that investment attractive?
A. Risk-free rate
B. Market risk premium
C. Expected return minus the risk-free rate
D. Market rate of return
E. Cost of capital
Teds Toys just reconciled its bank account and has $12,300 in outstanding deposits and
$31,400 in checks outstanding. The firms checkbook has a positive balance. The firm
sells on a cash basis only and deposits its receipts on a daily basis. The deposited funds
are available to the firm the following day. The firm writes and mails checks on a daily
basis also. These checks generally clear the bank in three days. What do you know
about the firms float given this information?
A. The firm has disbursements float but no collection float.
B. The collection float exceeds the disbursement float.
C. The firm has a net collection float.
D. The disbursement float exceeds the collection float.
E. Since transactions occur daily, the firm has no float.
Which one of the following specifies the length of time that must pass after an initial
public offering (IPO) before insiders are permitted to sell their shares?
A. Lockup period
B. Quiet period
C. Comment period
D. Green Shoe period
E. Rights offer period
Which one of the following is a key provision of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005?
A. Disallowance of bankruptcy prepacks
B. Right granted to creditors to file their own reorganization plan once a firm is in
bankruptcy for 18 months
C. Disallowance of all management bonus payments while a firm is in bankruptcy
D. Requirement that only creditors can file reorganization plans for a bankrupt firm
E. Requirement for all Chapter 11 bankruptcies to be converted to Chapter 7
bankruptcies after 18 months
Your grandparents just gave you a gift of $15,000. You are investing this money for 12
years at 6 percent simple interest. How much money will you have at the end of the 12
years?
A. $15,900
B. $16,000
C. $17,375
D. $25,800
E. $26,938
General Importers announced today that its next annual dividend will be $2.60 per
share. After that dividend is paid, the company expects to encounter some financial
difficulties and is going to suspend dividends for five years. Following the suspension
period, the company expects to pay a constant annual dividend of $1.30 per share. What
is the current value of this stock if the required return is 18 percent?
A. $3.01
B. $3.55
C. $3.89
D. $4.27
E. $4.88
You have just purchased a new warehouse. To finance the purchase, youve arranged for
a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly
payment on this loan will be $10,800. What is the APR? The EAR?
A. 7.67 percent; 7.94 percent
B. 7.67 percent; 8.03 percent
C. 7.72 percent; 7.94 percent
D. 7.72 percent; 8.03 percent
E. 7.75 percent; 8.03 percent
When you were born, your parents opened an investment account in your name and
deposited $500 into the account. The account has earned an average annual rate of
return of 4.8 percent. Today, the account is valued at $36,911.22. How old are you?
A. 74.47 years
B. 76.67 years
C. 81.08 years
D. 87.33 years
E. 91.75 years
Roscoes purchased new machinery three years ago for $1.8 million. The machinery can
be sold to Stewarts today for $1.2 million. Roscoes current balance sheet shows net
fixed assets of $960,000, current liabilities of $348,000, and net working capital of
$121,000. If all the current assets were liquidated today, the company would receive
$518,000 cash. The book value of the firms assets today is _____ and the market value
is ____.
A. $1,081,000; $1,308,000
B. $1,081,000; $1,718,000
C. $1,307,000; $1,429,000
D. $1,429,000; $1,308,000
E. $1,429,000; $1,718,000