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1) Cindy is taking out a loan today. The cash amount that she will receive today is equal
to the present value of the lump sum payment that she will be required to pay two years
from today. Which type of loan is this?
A.Principal-only
B.Amortized
C.Interest-only
D.Compound
E.Pure discount
2) All else constant, the weighted average cost of capital for a risky, levered firm will
decrease if:
A.the firm's bonds start selling at a premium rather than at a discount
B.the market risk premium increases
C.the firm replaces some of its debt with preferred stock
D.corporate taxes are eliminated
E.the dividend yield on the common stock increases
3) Which one of the following terms refers to the basic factors that are reviewed when
evaluating the creditworthiness of a potential customer?
A.Terms of sale
B.Cash concentration
C.Five Cs of credit
D.Collection policy
E.Credit score
4) Decatur Marina has a line of credit with a local bank that permits it to borrow up to
$1.3 million at any time. The interest rate is 0.60 percent per month. The bank charges
compound interest and also requires that 5 percent of the amount borrowed be deposited
into a non-interest-bearing account. What is the effective annual interest rate on this
loan?
A.6.68 percent
B.7.43 percent
C.7.74 percent
D.7.83 percent
E.8.91 percent
5) You are scheduled to receive $7,500 in three years. When you receive it, you will
invest it for eight more years at 7.5 percent per year. How much will you have in eleven
years?
A.$13,376.08
B.$14,428.09
C.$15,110.24
D.$16,113.33
E.$16,617.07
6) What is the NPV of the following set of cash flows at a discount rate of zero percent?
What if the discount rate is 15 percent?
A.-$41,700; -$8,665.07
B.-$41,700; $1,208.19
C.$0; $1,208.19
D.$2,500; $1,208.19
E.$2,500; -$8,665.07
7) Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of
23.7 percent. If the firm earns $138,500 in taxable income, how much will it owe in
taxes?
A.$31,366.67
B.$31,500.00
C.$32,824.50
D.$39,957.25
E.$47,090.00
8) A firm offers terms of 2/5, net 30 . What effective annual interest rate does the firm
earn when a customer does not take the discount?
A.21.69 percent
B.24.42 percent
C.28.97 percent
D.31.08 percent
E.34.31 percent
9) Which one of the following will decrease the aftertax cost of debt for a firm?
A.Decrease in the firm's beta
B.Increase in tax rates
C.Increase in the risk-free rate of return
D.Decrease in the market price of the debt
E.Decrease in a bond's yield to maturity
10) Which one of the following is a capital structure decision?
A.Determining the optimal inventory level
B.Establishing the preferred debt-equity level
C.Selecting new equipment to purchase
D.Setting the terms of sale for credit sales
E.Determining when suppliers should be paid
11) You have $175,000 on deposit with no outstanding checks or uncleared deposits.
One day you write a check for $18,000. What is your book balance?
A.$157,000
B.$158,500
C.$175,000
D.$178,500
E.$189,000
12) Cinram Machines has the following estimates for its new gear assembly project:
price = $1,340 per unit; variable costs = $348 per unit; fixed costs = $5.1 million;
quantity = 82,000 units. Suppose the company believes all of its estimates are accurate
only to within 5 percent. What value should the company use for its total variable costs
when performing its best-case scenario analysis?
A.$26,578,064
B.$28,464,660
C.$28,536,000
D.$28,802,130
E.$30,864,538
13) Given the following partial stock quote, what is the amount of the next annual
dividend if yesterday's closing price was $23.60?
A.$0.78
B.$0.81
C.$1.15
D.$1.19
E.$1.23
14) What is the legal document called that is provided to potential investors and
describes a new security offering?
A.Security agreement
B.Prospectus
C.Public statement
D.Registration statement
E.Formal filing
15) Home Grown Tomatoes stock returned 28.7 percent, 2.6 percent, 13.1 percent, 12.2,
and 11.8 percent over the past five years, respectively. What is the arithmetic average
return for this period?
A.13.68 percent
B.14.62 percent
C.15.10 percent
D.15.93 percent
E.17.10 percent
16) Float is defined as the difference between which of the following?
A.Beginning cash balance and the ending cash balance as shown on a cash budget
B.Ledger balance and the available balance
C.Book balance and the ledger balance
D.Collections and disbursements for any given period of time
E.Available balance and the collected balance
17) Which one of the following is basically equivalent to a 2-for-1 stock split?
A.20 percent stock dividend
B.25 percent stock dividend
C.50 percent stock dividend
D.100 percent stock dividend
E.200 percent stock dividend
18) Rock Bottom Carpets sells 5,600 carpets a year at an average price per carpet of
$1,490. The carrying cost per unit is $22.37. The company orders 500 carpets at a time
and has a fixed order cost of $69 per order. The carpets are sold out before they are
restocked. What is the economic order quantity?
A.147 carpets
B.166 carpets
C.186 carpets
D.315 carpets
E.372 carpets
19) Farmer's Supply, Inc. is considering opening a clothing store, which would be a new
line of business for the firm. Management has decided to use the cost of capital of a
similar clothing store as the discount rate that should be used to evaluate this proposed
expansion. Which one of the following terms is used to describe the approach Farmer's
Supply is taking to establish an appropriate discount rate for the project?
A.Equity approach
B.After tax approach
C.Subjective approach
D.Market play
E.Pure play approach
20) Over the past year, a firm decreased its current assets and increased its current
liabilities. As a result, the firm's net working capital:
A.had to increase
B.had to decrease
C.could have remained constant if the amount of the decrease in current assets equaled
the amount of the increase in current liabilities
D.could have either increased, decreased, or remained constant
E.was unaffected as the changes occurred in the firm's current accounts
21) Stewart's Office Supply has revised its office procedures such that it now takes one
day to prepare the daily deposit, rather than two days. Accounts payable are processed
in five days, rather than the previous four days, so that shipping and receiving can better
verify the charges before the checks are written. How will these revised procedures
affect the firm's float?
A.Increase the disbursement float by one day
B.Decrease the collection float by one day
C.Decrease the net float by two days
D.Increase the net float by two days
E.There will be no effect on the firm's float
22) Peterboro recently defaulted on a bank loan. To avoid a bankruptcy proceeding, the
bank agreed to a composition. This composition would do which one of the following?
A.Forgive the loan payment in its entirety
B.Extend the due date on the missed loan payment
C.Reduce the amount of the loan payments so Peterboro can pay on time
D.Transfer some of Peterboro's assets to the bank in lieu of the loan payment
E.Transfer all the equity shares in Peterboro to the lending bank
23) Michael Jackson, Inc. currently has an operating cycle of 154 days and a cash cycle
of 38 days. The firm is implementing some changes that will reduce the inventory
period by 16 days and decrease the receivables period by 4 days on average. The
accounts payable period will be decreased by 4 days. How many days will be in the
new cash cycle once all of these changes become effective?
A.15 days
B.16 days
C.22 days
D.55 days
E.61 days
24) The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction
method. The bids received are as follows:
Bidder D will receive _____ shares and pay a price per share of _____.
A.0; $0
B.700; $37.00
C.272; $37.00
D.272; $38.75
E.700; $38.75
25) Precision Engineering invested $110,000 at 6.5 percent interest, compounded
annually for 4 years. How much interest on interest did the company earn over this
period of time?
A.$2,481.25
B.$2,911.30
C.$3,014.14
D.$3,250.00
E.$3,333.33
26) A bond has a par value of $1,000, a current yield of 7.5 percent, and semiannual
interest payments. The bond quote is 98.6 . What is the amount of each coupon
payment?
A.$32.07
B.$36.98
C.$37.50
D.$72.31
E.$75.00
27) Cash flow to stockholders is defined as:
A.cash flow from assets plus cash flow to creditors
B.operating cash flow minus cash flow to creditors
C.dividends paid plus the change in retained earnings
D.dividends paid minus net new equity raised
E.net income minus the addition to retained earnings
28) Suzie Q's has these projected sales estimates:
The company collects 18 percent of its sales in the month of sale, 69 percent in the
month following the month of sale, and another 11 percent in the second month
following the month of sale. Two percent of sales are never collected. What is the
amount of the September collections?
A.$25,863
B.$27,209
C.$29,406
D.$31,288
E.$34,516
29) Empire Industries is considering adding a new product to its lineup. This product is
expected to generate sales for four years after which time the product will be
discontinued. What is the project's net present value if the firm wants to earn a 13
percent rate of return?
A.$3,505.52
B.$3,767.24
C.$4,312.65
D.$4,519.58
E.$4,902.71
30) Which one of the following statements concerning disbursement float is correct?
A.Disbursement float is the period of time between a firm making a bank deposit and
the funds from that deposit being available to the firm
B.Disbursement float decreases when a check is delayed in the mail due to an extended
holiday weekend
C.Disbursement float causes the available balance to exceed the ledger balance
D.Disbursement float is being totally eliminated by the Check Clearing Act for the 21st
Century
E.Disbursement float exists when the available balance is less than the book balance
31) Isaac only has $690 today but needs $800 to buy a new laptop. How long will he
have to wait to buy the laptop if he earns 5.4 percent compounded annually on his
savings?
A.2.29 years
B.2.48 years
C.2.51 years
D.2.77 years
E.2.81 years
32) Last year, Isaac earned 10.6 percent on her investments while U.S. Treasury bills
yielded 3.8 percent and the inflation rate was 3.1 percent. What real rate of return did
she earn on her investments last year?
A.6.63 percent
B.7.27 percent
C.8.56 percent
D.9.24 percent
E.10.39 percent
33) Chelsie Enterprises declared a dividend to shareholders of record on Monday,
February 8, that is payable on Friday, February 26 . Carla knows that her dividend
check normally arrives three business days after the check is written. On which one of
the following days should she expect to receive her dividend check?
A.Wednesday, February 10
B.Thursday, February 11
C.Monday, March 1
D.Tuesday, March 2
E.Wednesday, March 3
34) Which one of the following is included in the market value of a firm but not in the
book value?
A.Raw materials
B.Partially built inventory
C.Tax liability
D.Reputation of the firm
E.Value of a partially depreciated machine
35) Jasper Industrial has no debt outstanding and a total market value of $110,000.
Earnings before interest and taxes, EBIT, are projected to be $12,000 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be
15 percent higher. If there is a recession, then EBIT will be 20 percent lower. Jasper
Industrial is considering a $35,000 debt issue with a 7 percent interest rate. The
proceeds will be used to repurchase shares of stock. There are currently 7,500 shares
outstanding. Ignore taxes for this problem. What is the percentage change in EPS when
a normal economy slips into recession?
A.-33 percent
B.-25 percent
C.-20 percent
D.-16 percent
E.-10 percent
36) Which one of the following combinations will always result in an increased
dividend yield?
A.Increase in the stock price combined with a lower dividend amount
B.Increase in the stock price combined with a higher dividend amount
C.Decrease in the stock price combined with a lower dividend amount
D.Decrease in the stock price combined with a higher dividend amount
E.Increase in the stock price combined with a constant dividend amount
37) Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 40 percent in Stock A, 35 percent in Stock B, and the
remainder in Stock C?
A.11.86 percent
B.12.72 percent
C.13.16 percent
D.13.43 percent
E.13.57 percent
38) Sand Mountain Resort has a 45 percent tax rate. Its total interest payment for the
year just ended was $6.8 million. What is the interest tax shield?
A.$3,006,500
B.$3,060,000
C.$3,410,600
D.$3,525,000
E.$3,618,000
39) Based on the capital asset pricing model, which one of the following must increase
the expected return on an individual security, all else constant?
A.An increase in the risk level of that security as measured by the standard deviation
B.An increase in the risk-free rate given a security beta of 1.42
C.A decrease in the market rate of return given a security beta of 1.13
D.A decrease in the market rate of return given a security beta of .78
E.A decrease in the risk-free rate given a security beta of 1.06
40) The 'say on pay" portion of the Dodd-Frank Wall Street Reform and Consumer
Protection Act requires corporations to do which one of the following?
A.Give the chair of the board the final say on executive pay
B.Give the firm's creditors a nonbinding say on executive pay
C.Give the firm's creditors a binding say on executive pay
D.Give shareholders a nonbinding vote on executive pay
E.Give shareholders a binding vote on executive pay
