A U.S. company that wants to buy products from a foreign firm must generally buy that
country’s currency first.
If a capital budgeting project is a business in a particular field it may make sense to use
a beta common to that field in the security market line to estimate a risk-adjusted rate
for analysis of the project.
A well-diversified portfolio will act to reduce the variability of the returns on the stocks
within itself.
To evaluate a capital project with a dedicated source of funding, one should measure the
anticipated return of the project against the cost of the dedicated funding.
A lockbox system can eliminate processing float.
You are evaluating two projects with unequal lives. Purchase of a high-quality machine
will result in positive cash flows for nine years, while purchase of a medium-quality
machine will result in positive cash flows for six years. At the end of each respective
time period, the machine is expected to be worthless. How many times will the
medium-quality machine project have to be linked in order to come up with a common
time period?
A.Twice
B.Three times
C.Four times
D.Nine times
Last year Molex’s net cash provided by operating activities was $14.1 million and its
net cash used by investing activities was $20.7 million. If net cash provided by
financing activities was $9.8 million, what was the net increase (or decrease) in cash
during the year? Molex started the year with $2.1 million in cash.
A.$44.6 million
B.$3.2 million
C.$25.0 million
D.$5.3 million
Mattingly, Inc. uses 40,000 weberwalls per year. On average, weberwalls cost $12, and
the annual cost of carrying one in inventory is $1.50. The cost to place an order is $50.
Based on this information, what is Mattingly’s annual ordering cost for purchasing
weberwalls if they observe the EOQ model?
A.$1,155
B.$1,225
C.$1,633
D.$1,731
E.$2,450
A firm has the following balance sheet at the end of this year. Next year it expects sales
to increase 50% over this year’s level of $9,000, and anticipates retaining $2,000 of its
earnings.
According to the unmodified percentage of sales method, the amount of external funds
needed next year will be:
A.$8,750.
B.$10,750.
C.$7,000.
D.None of the above
If an investor requires a 10 percent return on a $1000 bond with a 7% coupon rate, what
will the investor be willing to pay for the bond today if it matures in 8 years and interest
is paid semiannually? What if interest is compounded and paid annually?
A.$839.95; $837.43
B.$1,194.80; $837.33
C.$837.43; $839.95
D.$840.45; $1,194.80
Morton Industries’ common stock sells for $54. Dividends are expected to continue to
grow at a rate of 8% annually. If Morton returns 13%, what was its most recent
dividend?
A.$2.70
B.$2.50
C.$4.00
D.None of the above
The average collection period measures the:
A.number of days from the time a typical credit sale is made until payment is received.
B.number of days it takes a typical check to “clear” through the banking system.
C.number of days beyond the end of the credit period before a typical customer
payment is received.
D.number of days before a typical account becomes delinquent.
If an inventory item has a base cost to the company of $50, and requires three hours of
labor at $15/hr. to be turned into a salable item, the value of that piece of inventory is at
least:
A.$65.
B.$165.
C.$95.
D.$45.
Which of the following are realistic motives for a stock split?
A.To increase the number of shares because successful companies have large numbers
of shares outstanding.
B.To reduce the stock’s price to keep it in a desirable trading range.
C.To immediately increase the market value of the firm’s stock.
D.a and b
TOYS4U stock is selling for $70 today. Similar stocks return 15%. You have estimated
a capital gains yield of 10%. Calculate the next dividend expected on the stock.
A.$2.00
B.$2.50
C.$3.00
D.$3.50
Which of the following accounts is (are) not part of a firm’s working capital?
A.Plant and equipment
B.Marketable securities
C.Cash
D.a and c
Over most of the twentieth century, which of the following was greater?
A.Equity returns
B.Debt returns
C.Inflation rate
D.They were all equal
Capital rationing may:
A.require omitting projects with higher IRRs while undertaking some with lower IRRs
because they fit into the budget constraint better.
B.be necessary because there is a budgetary limit on capital spending.
C.in practice be done intuitively for reasons that are not entirely financial.
D.All of the above
IRR is:
A.guaranteed to give the right answer.
B.not as good as the Payback method because it’s tedious and involved to calculate.
C.conceptually and mathematically very closely tied to NPV.
D.not involved in an “NPV Profile.”
Which of the following statements about time lines is false?
A.A time line is a graphic portrayal of a time value problem.
B.Time zero is the present point in time.
C.Future time periods are to the right of zero.
D.Time is portrayed along a vertical line.
What are the two primary drawbacks to the payback period method?
A.Difficult to calculate; ignores time value of money
B.Difficult to calculate; only works for long projects (e.g., 5 years or more)
C.Ignores time value of money; ignores cash flows after payback is reached
D.Only works for long projects; ignores cash flows after payback is reached
E.Difficult to calculate; ignores cash flows after payback is reached
Five years after an accident, you received $100,000 to pay the medical expenses
incurred at the time of the accident. What is the present value (at the time of the
accident) of the payment? Assume interest rates are 9%.
A.$153,900
B.$68,100
C.$65,000
D.$70,800
The beta of a stock:
A.measures its risk on a stand-alone basis.
B.measures its risk in a well-diversified portfolio.
C.is based on the historical relationship between the performance of that stock and the
performance of the market.
D.Both a. and b. are correct.
E.Both b. and c. are correct.
An initial “quiet period” begins when:
A.a company decides on the price of the stock.
B.a company files a registration statement with the SEC.
C.the SEC accepts the registration statement of a company by declaring it effective.
D.the bank allocates the IPO shares of a company among its investors.