If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is .
94, what is the return on assets?
A. 4.42 percent
B. 6.08 percent
C. 6.39 percent
D. 6.92 percent
E. 6.70 percent
Anne plans to save $40 a week, starting next week,for ten years and earn a rate of return
of 4.6 percent, compounded weekly. After the ten years, she will discontinue saving and
invest her account at 6.5 percent, compounded annually. How long from now will it be
before she has accumulated a total of $50,000?
A. 10.32 years
B. 21.14 years
C. 15.08 years
D. 11.14 years
E. 20.32 years
Which one of the following actions will decrease the operating cycle?
A. Increasing inventory
B. Paying suppliers faster
C. Paying for more inventory with cash rather than credit
D. Granting customers more time to pay for their credit purchases
E. Lessening the production time needed to manufacture a good for sale
Which one of the following statements is correct?
A. Peer group analysis is easier when a firm is a conglomerate versus when it has only a
single line of business.
B. Peer group analysis is easier when seasonal firms have different fiscal years.
C. Peer group analysis is simplified when firms use varying methods of depreciation.
D. Comparing results across geographic locations is easier since all countries now use a
common set of accounting standards.
E. Adjustments have to be made when comparing the income statements of firms that
use different methods of accounting for inventory.
Consider the following two mutually exclusive projects:
Whichever project you choose, if any, you require a rate of return of 14 percent 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
Healthy Foods has a book value per share of $32.68, earnings per share of $3.09, and a
price-earnings ratio of 16.8. What is the market-to-book ratio?
A. 1.08
B. 1.59
C. 1.99
D. 2.47
E. 2.16
The Donut Hut has sales of $68,000, current assets of $11,300, net income of $5,100,
net fixed assets of $54,900, total debt of $23,800, and dividends of $800. What is the
sustainable growth rate?
A. 10.48 percent
B. 11.29 percent
C. 11.79 percent
D. 12.08 percent
E. 12.39 percent
Delphino’s has sales for the year of $127,300 and cost of goods sold of $86,700. The
firm carries an average inventory of $14,300 and has an average accounts payable
balance of $13,600. What is the inventory period?
A. 89.02 days
B. 58.68 days
C. 31.29 days
D. 60.20 days
E. 81.36 days
A nine-year project is expected to generate annual revenues of $137,800, variable costs
of $82,600, and fixed costs of $11,000. The annual depreciation is $23,500 and the tax
rate is 34 percent. What is the annual operating cash flow?
A. $14,301
B. $13,662
C. $35,052
D. $36,506
E. $37,162
Kate is analyzing a proposed project to determine how changes in the sales quantity
would affect the project’s net present value. What type of analysis is being conducted?
A. Sensitivity analysis
B. Erosion planning
C. Scenario analysis
D. Benefit-cost analysis
E. Opportunity cost analysis
BL Motors has sales for the year of $287,400, cost of goods sold equal to 68 percent of
sales, and an average inventory of $37,800. The profit margin is 7 percent and the tax
rate is 34 percent. How many days on average does it take the firm to sell an inventory
item?
A. 75.68 days
B. 81.46 days
C. 70.60 days
D. 78.74 days
E. 82.03 days
Shoe Box Stores is currently an all-equity firm with 25,000 shares of stock outstanding.
Management is considering changing the capital structure to 35 percent debt. The
interest rate on the debt would be 8 percent. Ignore taxes. Jamie owns 600 shares of
Shoe Box Stores stock that is priced at $22 a share. What should Jamie do if she prefers
the all-equity structure but Shoe Box Stores adopts the new capital structure?
A. Borrow money and buy an additional 180 shares
B. Borrow money and buy an additional 210 shares
C. Keep her shares but loan out all of the dividend income at 8 percent
D. Sell 210 shares and loan out the proceeds at 8 percent
E. Sell 180 shares and loan out the proceeds at 8 percent
The security market line is defined as a positively sloped straight line that displays the
relationship between the:
A. beta and standard deviation of a portfolio.
B. systematic and unsystematic risks of a security.
C. nominal and real rates of return.
D. expected return and beta of either a security or a portfolio.
E. risk premium and beta of a portfolio.
If intermediate-term, default-free, pure discount bonds have a higher rate of return than
either the comparable shorter-term or longer-term bonds, the term structure of interest
rates will be:
A. upward sloping.
B. flat.
C. humped.
D. downward sloping.
E. double-humped.
If an investment is producing a return that is equal to the required return, the
investment’s net present value will be:
A. positive.
B. greater than the project’s initial investment.
C. zero.
D. equal to the project’s net profit.
E. less than, or equal to, zero.
The UpTowner writes 39 checks a day for an average amount of $918 each. These
checks generally clear the bank 2.5 days after they are written. In addition, the firm
generally receives an average of $53,419 a day in checks. The checks that are received
are deposited immediately and the funds are generally available the following day.
What is the amount of the firm’s disbursement float?
A. $36,086
B. $89,505
C. $17,333
D. $53,419
E. $106,838
Both Projects A and B are acceptable as independent projects. However, the selection of
either one of these projects eliminates the option of selecting the other project. Which
one of the following terms best describes the relationship between Project A and Project
B?
A. Mutually exclusive
B. Conventional
C. Multiple choice
D. Dual return
E. Crosswise
Kurt’s Music has a line of credit with a local bank that permits it to borrow up to
$650,000 at any time. The interest rate is .64 percent per month. The bank charges
compound interest and also requires that 2 percent of the amount borrowed be deposited
into a non-interest-bearing account. How much interest will the firm pay if it needs
$200,000 of cash for three months to pay its operating expenses?
A. $3,943.50
B. $3,949.21
C. $4,017.02
D. $3,864.63
E. $3,902.11
Production equipment is classified as:
A. a net working capital item.
B. a current liability.
C. a current asset.
D. a tangible fixed asset.
E. an intangible fixed asset.
A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,
with the first payment coming 6.5 years from now. If the discount rate is 7 percent,
compounded semiannually, what is the value of this annuity 4 years from now?
A. $37,139.58
B. $38,399.20
C. $40,687.14
D. $41,811.67
E. $42,618.52
Judy’s Boutique just paid an annual dividend of $1.48 on its common stock and
increases its dividend by 2.2 percent annually. What is the rate of return on this stock if
the current stock price is $29.60 a share?
A. 7.31 percent
B. 8.37 percent
C. 7.54 percent
D. 8.19 percent
E. 8.33 percent
National Distributors has $1,000 face value bonds outstanding with a market price of
$1,013. The bonds pay interest semiannually, mature in 11 years, and have a yield to
maturity of 6.87 percent. What is the current yield?
A. 7.39 percent
B. 6.95 percent
C. 6.48 percent
D. 7.61 percent
E. 6.77 percent
Which one of the following conditions exists at the point where a firm maximizes its
value?
A. The tax benefit from an additional dollar of debt is zero.
B. Financial distress costs are equal to zero.
C. The debt-equity ratio is 1.0.
D. WACC is minimized.
E. The cost of equity is minimized.
The Toy Store has beginning retained earnings of $318,423. For the year, the company
earned net income of $11,318 and paid dividends of $7,500. The company also issued
$25,000 worth of new stock. What is the value of the retained earnings account at the
end of the year?
A. $320,445
B. $322,695
C. $327,375
D. $322,241
E. $335,255
A corporate bond pays 6.65 percent interest. How much would a municipal bond have
to pay to be equivalent to this on an after tax basis if you are in the 25 marginal percent
tax bracket?
A. 8.31percent
B. 6.28 percent
C. 4.99 percent
D. 7.75 percent
E. 8.87 percent
If a project with conventional cash flows has a profitability index of 1.0, the project
will:
A. never pay back.
B. have a negative net present value.
C. have a negative internal rate of return.
D. produce more cash inflows than outflows in today’s dollars.
E. have an internal rate of return that equals the required return.
Which characteristic generally applies to commercial paper?
A. Issued only by financial institutions
B. Issued only by corporations
C. Maturities limited to 90 days or less
D. Unsecured
E. Secured by accounts receivable
J.S. and Co. has estimated quarterly sales for next year, starting with Quarter 1, of
$13,800, $15,200, $17,300, and $16,500. Purchases are equal to 65 percent of the
following quarter’s sales. What is the cash outlay for accounts payable for Quarter 3 if
the firm has a 30-day accounts payable period? Assume each month has 30 days.
A. $9,938.33
B. $10,898.33
C. $13,486.67
D. $11,966.67
E. $12,503.33
Dock Side Loaders has 12,500 shares of stock outstanding at a market price of $51 each
and earnings per share of $2.24. The firm has decided to repurchase $62,475 worth of
stock. What will the PE ratio be after the repurchase, all else held constant?
A. 21.08
B. 22.77
C. 19.03
D. 20.22
E. 20.54
Professional Properties is considering remodeling the office building it leases to
Heartland Insurance. The remodeling costs are estimated at $2.8 million. If the building
is remodeled, Heartland Insurance has agreed to pay an additional $820,000 a year in
rent for the next five years. The discount rate is 12.5 percent. What is the benefit of the
remodeling project to Professional Properties?
A. $119,666.04
B. -$89,072.00
C. $105,214.70
D. $108,399.15
E. -$111,417.03
You would like to create a portfolio that is equally invested in a risk-free asset and two
stocks. One stock has a beta of 1.39. What does the beta of the second stock have to be
if you want the portfolio to be equally as risky as the overall market?
A. .72
B. .97
C. 1.23
D. 1.55
E. 1.61
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. remained constant.
D. could have either increased, decreased, or remained constant.
E. was unaffected as the changes occurred in the firm’s current accounts.
Over the past five years, a stock returned 6.2 percent, -10.4 percent, -2.2 percent, 16.9
percent, and 5.8 percent, respectively. What is the variance of these returns?
A. .008351
B. .076290
C. .010439
D. .012547
E. .091306