The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following
from the 1990s?
A. Increased stock market volatility
B. Corporate accounting and financial fraud
C. Increased executive compensation
D. Increased foreign investment in U.S. stock markets
E. Increased use of tax loopholes
A stock has a beta of 1.48 and an expected return of 17.3 percent. A risk-free asset
currently earns 4.6 percent. If a portfolio of the two assets has a beta of .98, then the
weight of the stock must be ___ and the risk-free weight must be___.
A. .56; .44
B. .34; .66
C. .44; .56
D. .66; .34
E. .72; .28
A common-size balance sheet helps financial managers determine:
A. which customers are paying on a timely basis.
B. if costs are increasing faster or slower than sales.
C. if changes are occurring in a firm’s mix of assets.
D. if a firm is generating more or less sales per dollar of assets than in prior years.
E. the rate at which the firm’s dividend payout is changing.
Charlene can afford car payments of $185 a month for 48 months. If the interest rate is
5.65 percent, how much money can she afford to borrow?
A. $7,931.44
B. $7,734.95
C. $7,899.60
D. $8,022.15
E. $8,422.09
Which report identifies the percentage of accounts receivable that are delinquent by 90
days or more?
A. Cash budget
B. 5 C’s of credit
C. Credit analysis
D. Aging schedule
E. Credit scoring report
World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a
debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm’s net
income?
A. $119,359.43
B. $88,303.33
C. $104,624.14
D. $121,548.09
E. $92,236.67
A firm has an average collection period of 37 days and factors all of its receivables
immediately at a discount of .98 percent. Assume all accounts are collected in full.
What is the firm’s effective cost of borrowing?
A. 9.98 percent
B. 10.13 percent
C. 10.24 percent
D. 10.38 percent
E. 10.20 percent
The Outlet Mall has a cost of equity of 16.3 percent, a pretax cost of debt of 7.9
percent, and a return on assets of 13.4 percent. Ignore taxes. What is the debt-equity
ratio?
A. .46
B. .53
C. .44
D. .59
E. .57
An employee has a claim on the cash flows of Martin’s Machines. This claim is defined
as a claim by one of the firm’s:
A. residual owners.
B. shareholders.
C. financiers.
D. provisional partners.
E. stakeholders.
Which one of the following represents the present value of the interest tax shield?
A. D ×(1 -Tc)
B. D/(1 -Tc)
C. D/Tc
D. D-D(Tc)
E. Tc×D
Appalachian Mountain Goods has paid increasing dividends of $.10, $.12, $.15, and
$.20 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 $12.50 a share. The risk-free rate is 3.4
percent and the market risk premium is 8.1 percent. What is the cost of equity for this
firm if its beta is 1.46?
A. 18.34 percent
B. 16.91 percent
C. 19.78 percent
D. 21.68 percent
E. 22.03 percent
Travis invests $5,500 today into a retirement account. He expects to earn 9.2 percent,
compounded annually, on his money for the next 13 years. After that, he wants to be
more conservative, so only expects to earn 6 percent, compounded annually. How much
money will he have in his account when he retires 25 years from now, assuming this is
the only deposit he makes into the account?
A. $29,411.20
B. $34,747.80
C. $34,616.56
D. $41,919.67
E. $42,003.12
Metal Fabricators recently sold its poorest performing division and realized netproceeds
from the transaction of $1.63 million. The firm has 320,000 shares of stock outstanding
and a market price of $49 a share. The firm is now preparing to distribute the entire sale
proceeds in the form of a liquidating dividend. What is the best estimate of the
ex-dividend stock price? Ignore taxes and market imperfections.
A. $43.91
B. $41.38
C. $44.40
D. $43.79
E. $44.14
A firm uses the extended economic order quantity approach to inventory management.
Which one of the following inventory levels is considered to be the minimum inventory
level given this approach?
A. Zero inventory
B. Reorder point level
C. Safety stock level
D. 50 percent of the reorder quantity
E. Safety stock plus the reorder quantity
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the
____ of those securities.
A. face value
B. market price
C. maturity
D. coupon rate
E. issue date
Which one of the following will generally receive the highest priority in a bankruptcy
liquidation, assuming the absolute priority rule is followed?
A. Claims by unsecured creditors
B. Employee wages
C. Government tax claims
D. Contributions to employee retirement plans
E. Bankruptcy administrative expenses
All else held constant, the present value of a bond increases when the:
A. coupon rate decreases.
B. yield to maturity decreases.
C. current yield increases.
D. time to maturity of a premium bond decreases.
E. time to maturity of a zero coupon bond increases.
You were recently hired by a firm as a project analyst. The owner of the firm is
unfamiliar with financial analysis and wants to know only what the expected dollar
return is per dollar spent on a given project. Which financial method of analysis will
provide the information that the owner requests?
A. Internal rate of return
B. Modified internal rate of return
C. Net present value
D. Profitability index
E. Payback
Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back
some time in the future. Which one of the following statements is correct?
A. The period of time she has to wait until she reaches her goal is unaffected by the
compounding of interest.
B. The lower the rate of interest she earns, the shorter the time she will have to wait to
reach her goal.
C. She will have to wait longer if she earns 6 percent compound interest instead of 6
percent simple interest.
D. The length of time she has to wait to reach her goal is directly related to the interest
rate she earns.
E. The period of time she has to wait decreases as the amount she invests increases.
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
What is the primary goal of financial management for a sole proprietorship?
A. Maximize net income given the current resources of the firm
B. Decrease long-term debt to reduce the risk to the owner
C. Minimize the tax impact on the proprietor
D. Maximize the market value of the equity
E. Minimize the reliance on fixed costs
Based on the past 88 years, the inflation rate averaged 3.0 percent and the U.S. Treasury
bill yield was 3.5 percent, and the historical risk premium on small-company stocks was
13.2 percent. If these averages hold, what nominal rate of return should you expect to
earn on small-company stocks over the next several years?
A. 15.5 percent
B. 16.7 percent
C. 19.7 percent
D. 13.5 percent
E. 13.7 percent
The specific location on the floor of an exchange where a particular security is traded is
called a:
A. box office.
B. Figure 6.
C. post.
D. trading booth.
E. seat.
The capital gains yield equals which one of the following?
A. Total yield
B. Required rate of return
C. Market rate of return
D. Dividend yield
E. Dividend growth rate
BJB stock has an expected return of 17.82 percent. The risk-free rate is 4.6 percent and
the market risk premium is 8.2 percent. What is the stock’s beta?
A. 1.47
B. 1.51
C. 1.61
D. 1.48
E. 1.68
Assume all else is equal. When comparing savings accounts, you should select the
account that has the:
A. lowest annual percentage rate.
B. highest annual percent rate.
C. highest stated rate.
D. lowest effective annual rate.
E. highest effective annual rate.
Dismal Outlook is unable to obtain financing for any new projects under any
circumstances. This company is faced with:
A. contingency planning.
B. soft rationing.
C. hard rationing.
D. real options.
E. sunk costs.
Outdoors Woods has annual credit sales of $14.38 million. The average collection
period is 12 days. What is the average investment in accounts receivable as shown on
the balance sheet? Assume a 365-day year.
A. $446,000
B. $524,000
C. $408,888
D. $472,767
E. $393,134
When conducting a financial analysis of a firm, financial analysts:
A. cannot use accounting information as it is historical.
B. rely solely on accounting information.
C. frequently use accounting information.
D. ignore accounting information but do use marketing information.
E. assume the future will be a repeat of the past as reflected in the firm’s accounting
reports.
Fast Kars has a return on equity of 22.3 percent, a profit margin of 14.2 percent, and
total equity of $467,000. What is the net income?
A. $69,608
B. $113,875
C. $104,141
D. $66,314
E. $109,897
You have $32,618 on deposit at the bank with no outstanding checks or deposits. If you
write a check for $8,900, what will be your book balance on that day if the check will
take 3 days to clear?
A. $23,718
B. $29,651
C. $41,518
D. $30,022
E. $32,618