Which of the following characteristics apply to a perpetuity?
I. Constant cash flow dollar amount
II. Unequal cash flow dollar amount
III. Limited time period
IV. Infinite time period
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I plus either III or IV
Answer:
At 10 percent interest, how long does it take to quadruple your money?
A. 14.33 years
B. 14.55 years
C. 15.11 years
D. 15.36 years
E. 15.56 years
Answer:
PayDay Loans is offering a special on one-year loans. The company will loan you
$5,000 today in exchange for one payment of $5,900 one year from now. What is the
APR on this loan?
A. 10.63 percent
B. 11.20 percent
C. 11.63 percent
D. 17.93 percent
E. 18.00 percent
Answer:
A cost-cutting project will decrease costs by $58,500 a year. The annual depreciation on
the project’s fixed assets will be $10,300 and the tax rate is 34 percent. What is the
amount of the change in the firm’s operating cash flow resulting from this project?
A. $24,552
B. $26,791
C. $25,805
D. $38,610
E. $42,112
Answer:
Which one of the following correctly matches a country with its currency?
A. Canada’”pound
B. China’”yuan
C. Mexico’”real
D. Japan’”lira
E. United Kingdom’”euro
Answer:
The Draiman, Inc. currently has $3,600 in cash. The company owes $41,800 to
suppliers for merchandise and $21,500 to the bank for a long-term loan. Customers owe
The Draiman $18,000 for their purchases. The inventory has a book value of $53,300
and an estimated market value of $61,200. If the store compiled a balance sheet as of
today, what would be the book value of the current assets?
A. $46,800
B. $55,600
C. $64,700
D. $74,900
E. $96,500
Answer:
Tennessee Valley Antiques would like to issue new equity shares if its cost of equity
declines to 10.5 percent. The company pays a constant annual dividend of $1.80 per
share. What does the market price of the stock need to be for the firm to issue the new
shares?
A. $14.48
B. $14.83
C. $17.14
D. $17.92
E. $18.80
Answer:
Traditional Bank has an issue of preferred stock with a $4.80 stated dividend that just
sold for $80 a share. What is the bank’s cost of preferred stock?
A. 5.91 percent
B. 6.00 percent
C. 6.23 percent
D. 6.47 percent
E. 7.32 percent
Answer:
The capital asset pricing model:
A. assumes the market has a beta of zero.
B. rewards investors based on total risk.
C. considers the time value of money.
D. applies to portfolios but not to individual securities.
E. assumes the market risk premium is constant over time.
Answer:
In which one of the following situations would the payback method be the preferred
method of analysis?
A. A project that can easily be expanded
B. Two mutually exclusive projects
C. A proposed expansion of a firm’s current operations
D. Different-sized projects
E. Investment funds available only for a limited period of time
Answer:
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
Answer:
Kline Construction is an all-equity firm that has projected perpetual earnings before
interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax
rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent
annual coupon bonds at par. What is the levered value of the firm?
A. $5,278,164
B. $5,541,085
C. $6,422,225
D. $6,713,185
E. $7,385,695
Answer:
The Fruit Mart is an all-equity firm with a current cost of equity of 19.6 percent. The
estimated earnings before interest and taxes are $315,000 annually forever. Currently,
the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest.
The tax rate is 33 percent. What is the value of the unlevered firm?
A. $849,207
B. $853,571
C. $856,411
D. $1,019,307
E. $1,076,786
Answer:
Your local athletic center is planning a $1.23 million expansion to its current facility.
This cost will be depreciated on a straight-line basis over a 20-year period. The
expanded area is expected to generate $524,000 in additional annual sales. Variable
costs are 48 percent of sales, the annual fixed costs are $79,400, and the tax rate is 35
percent. What is the operating cash flow for the first year of this project?
A. $118,336
B. $122,509
C. $147,027
D. $166,667
E. $219,323
Answer:
A U.S. Treasury bond pays 9.5 percent interest. You are in the 25 percent tax bracket.
What is your after-tax yield on this bond?
A. 1.28 percent
B. 2.23 percent
C. 7.13 percent
D. 8.35 percent
E. 9.50 percent
Answer:
Which one of the following statements is true?
A. The current yield on a par value bond will exceed the bond’s yield to maturity.
B. The yield to maturity on a premium bond exceeds the bond’s coupon rate.
C. The current yield on a premium bond is equal to the bond’s coupon rate.
D. A premium bond has a current yield that exceeds the bond’s coupon rate.
Answer:
Based on the period 1926-2011, what rate of return should you expect to earn over the
long-term if you are unwilling to bear risk?
A. Between 0 and 1 percent
B. Between 1 and 2 percent
C. Between 2 and 3 percent
D. Between 3 and 4 percent
E. Between 4 and 5 percent
Answer:
What is the future value of $20 a week for 10 years at 6 percent interest? Assume the
first payment occurs at the end of this week.
A. $14,239.14
B. $14,361.08
C. $14,727.15
D. $15,003.14
E. $15,221.80
Answer:
Green Earth’s monthly purchases are equal to 70 percent of the following month’s sales.
The accounts payable period for purchases is 30 days. All other expenses are paid when
incurred. Assume each month has 30 days and August sales are $18,500. The company
has compiled the following information.
What is the projected amount of disbursements for the month of July?
A. $13,910
B. $14,550
C. $16,100
D. $16,430
E. $16,760
Answer: