Traditional Bank has an issue of preferred stock with a $4.80 stated dividend that just
sold for $80 a share. What is the banks cost of preferred stock?
A. 5.91 percent
B. 6.00 percent
C. 6.23 percent
D. 6.47 percent
E. 7.32 percent
The risk premium for an individual security is based on which one of the following
types of risk?
A. Total
B. Surprise
C. Diversifiable
D. Systematic
E. Unsystematic
Wesson Metals has an outstanding loan that calls for equal annual payments of
$9,768.46 over the life of the loan. The original loan amount was $50,000 at an APR of
8.5 percent. How much of the second loan payment is interest?
A. $3,525.61
B. $3,780.93
C. $4,250.00
D. $5,409.16
E. $5,987.53
Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set the
most optimal offer price for the securities. Which one of the following might the firm
consider to address this uncertainty?
A. Extended quiet period
B. Extended lockup period
C. Best efforts underwriting
D. Dutch auction underwriting
E. Standby underwriting
You purchased 1,500 shares of KFC stock five years ago and have earned annual
returns of 7.1 percent, 11.2 percent, 5.25 percent, -4.7 percent, and 11.8 percent,
respectively. What is your arithmetic average return?
A. 4.47 percent
B. 6.13 percent
C. 6.23 percent
D. 6.47 percent
E. 8.01 percent
You are using a net present value profile to compare Project A and B, which are
mutually exclusive. Which one of the following statements correctly applies to the
crossover point between these two?
A. The internal rate of return for Project A equals that of Project B, but generally does
not equal zero.
B. The internal rate of return of each project is equal to zero.
C. The net present value of each project is equal to zero.
D. The net present value of Project A equals that of Project B, but generally does not
equal zero.
E. The net present value of each project is equal to the respective projects initial cost.
Which one of the following statements concerning financial leverage is correct?
A. The benefits of leverage are unaffected by the amount of a firms earnings.
B. The use of leverage will always increase a firms earnings per share.
C. The shareholders of a firm are exposed to less risk anytime a firm uses financial
leverage.
D. Changes in the capital structure of a firm will generally change the firms earnings
per share.
E. Financial leverage is beneficial to a firm only when the firm has negative earnings.
Which one of the following is a unique characteristic of an income bond?
A. Interest income is tax-free.
B. Interest income is paid at the time of issuance.
C. Coupon payments are dependent on the issuers income.
D. Coupon payments are paid on a regular monthly basis.
E. Coupon payments can be converted into equity shares.
Consider the following two mutually exclusive projects:
Whichever project you choose, if any, you require a 14 percent return on your
investment.
If you apply the payback criterion, you will choose Project ______;
if you apply the NPV criterion, you will choose Project ______;
if you apply the IRR criterion, you will choose Project _____;
if you choose the profitability index criterion, you will choose Project ___.
Based on your first four answers, which project will you finally choose?
A. A; B; A; A; B
B. A; A; B; B; A
C. A; A; B; B; B
D. B; A; B; A; A
E. B; A; B; B; A
Which one of the following best illustrates the concept of derived demand?
A. A minimum wage worker tends to buy more off-brand products than do more highly
paid professionals.
B. A windshield company has to step up production because auto sales are increasing.
C. A grocery store is selling more fresh fruits and vegetables because people are
improving their diets.
D. Restaurant sales are rising because unemployment is falling.
E. Retail stores have higher sales around the holiday season than in other seasons of the
year.
The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.
Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of
0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or
why not?
A. No, Stock A is underpriced and Stock B is overpriced.
B. No, Stock A is overpriced and Stock B is underpriced.
C. No, Stock A is overpriced but Stock B is correctly priced.
D. No, Stock A is underpriced but Stock B is correctly priced.
E. Yes, both stocks are correctly priced.
The ex-dividend date is defined as _____ day(s) before the date of record.
A. three business
B. three
C. two business
D. two
E. one
If the appropriate discount rate for the following cash flows is 11.7 percent per year,
what is the present value of the cash flows?
A. $71,407.19
B. $74,221.80
C. $78,270.77
D. $80,407.16
E. $81,121.03
Appalachian Mountain Goods has paid increasing dividends of $.0.12, $0.18, $0.20,
and $0.25 a share over the past four years, respectively. The firm estimates that future
increases in its dividends will be equal to the arithmetic average growth rate over these
past four years. The stock is currently selling for $12.60 a share. The risk-free rate is 3.2
percent and the market risk premium is 9.1 percent. What is the cost of equity for this
firm if its beta is 1.26?
A. 14.34 percent
B. 16.91 percent
C. 19.78 percent
D. 22.96 percent
E. 24.03 percent
When, if ever, will the geometric average return exceed the arithmetic average return
for a given set of returns?
A. When the set of returns includes only risk-free rates.
B. When the set of returns has a wide frequency distribution.
C. When the set of returns has a very narrow frequency distribution.
D. When all of the rates of return in the set of returns are equal to each other.
E. Never
The primary goal of financial management is to maximize which one of the following
for a corporation?
A. Current profits
B. Market share
C. Number of shares outstanding
D. Market value of existing stock
E. Revenue growth
Youre trying to determine whether or not to expand your business by building a new
manufacturing plant. The plant has an installation cost of $26 million, which will be
depreciated straight-line to zero over its three-year life. If the plant has projected net
income of $2,348,000, $2,680,000, and $1,920,000 over these three years, what is the
projects average accounting return (AAR)?
A. 11.69 percent
B. 14.14 percent
C. 15.08 percent
D. 17.82 percent
E. 19.21 percent
If an investment is producing a return that is equal to the required return, the
investments net present value will be:
A. positive.
B. greater than the projects initial investment.
C. zero.
D. equal to the projects net profit.
E. less than, or equal to, zero.
Assume that clienteles exist. Given this assumption, which one of the following
statements is correct?
A. A firm can increase its share price by increasing its dividend payout.
B. Dividend policy is irrelevant as long as each clientele group is currently satisfied.
C. All firms will adopt a high-dividend-payout policy.
D. All dividends become irrelevant.
E. All firms should adopt a low-dividend-payout policy.
Which one of the following is contained in the corporate bylaws?
A. Procedures for electing corporate directors
B. State of incorporation
C. Number of authorized shares
D. Intended life of the corporation
E. Business purpose of the corporation