One year ago, you purchased 100 shares of a stock. This morning you sold those shares
and realized a total return of 8.2 percent. Given this information, you know for sure the:
A. stock price increased by 8.2 percent over the last year.
B. stock increased in value over the past year.
C. stock paid a dividend.
D. dividend yield is greater than zero.
E. sum of the dividend yield and the capital gains yield is 8.2 percent.
A stock has a beta of 1.24, an expected return of 13.68 percent, and lies on the security
market line. A risk-free asset is yielding 2.8 percent. You want to create a $6,000
portfolio consisting of Stock A and the risk-free security such that the portfolio beta is
0.65. What rate of return should you expect to earn on your portfolio?
A. 8.50 percent
B. 9.16 percent
C. 9.33 percent
D. 9.41 percent
E. 9.56 percent
What is the net present value of a project that has an initial cost of $40,000 and
produces cash inflows of $8,000 a year for 11 years if the discount rate is 15 percent?
A. $798.48
B. $1,240.23
C. $1,869.69
D. $2,111.41
E. $2,470.01
Suzie Qs 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
You purchased a zero coupon bond one year ago for $291.22. The market interest rate is
now 8.75 percent. If the bond had 16 years to maturity when you originally purchased
it, what was your total return for the past year if the face value of the bond is $1,000?
A. -4.97 percent
B. -2.18 percent
C. 1.34 percent
D. 2.65 percent
E. 2.90 percent
Which one of the following terms refers to a bonds rate of return that is required by the
marketplace?
A. Coupon rate
B. Yield to maturity
C. Dirty yield
D. Call yield
E. Discount rate
The Inside Door has total debt of $78,600, total equity of $214,000, and a return on
equity of 14.5 percent. What is the return on assets?
A. 9.14 percent
B. 10.61 percent
C. 21.45 percent
D. 34.61 percent
E. 39.48 percent
What is the value today of $3,600 received at the end of each year for seven years if the
first payment is paid at the end of year 3 and the discount rate is 12 percent?
A. $11,694.21
B. $12,484.57
C. $13,097.52
D. $15,089.23
E. $16,429.52
Rocky Top pays a constant annual dividend. One year ago, when you purchased shares
of that stock at $12 a share, the dividend yield was 2 percent. Over this past year, the
inflation rate has been 2.6 percent. Today, the required return on this stock is 9 percent
and you just sold all of your shares. What is your total nominal return on this
investment? Round your answer to the nearest whole percentage.
A. -77 percent
B. -75 percent
C. -76 percent
D. 70 percent
E. 76 percent
Which one of the following statements is correct?
A. The risk-free rate of return has a risk premium of 1.0.
B. The reward for bearing risk is called the standard deviation.
C. Risks and expected return are inversely related.
D. The higher the expected rate of return, the wider the distribution of returns.
E. Risk premiums are inversely related to the standard deviation of returns.
Great Lakes Shipping is an all-equity firm with anticipated earnings before interest and
taxes of $439,000 annually forever. The present cost of equity is 16.4 percent.
Currently, the firm has no debt but is considering borrowing $1.25 million at 8.5
percent interest. The tax rate is 36 percent. What is the value of the levered firm?
A. $2,163,171
B. $2,406,519
C. $2,588,547
D. $2,666,667
E. $2,818,181
Soul Foods recently liquidated its fast-food division. That unit represented 25 percent of
the firms overall market value. Prior to the liquidation, the firms stock was selling for
$40 a share, the annual dividend was steady at $1.30 per share, and there were 16,000
shares outstanding. The firm is preparing to distribute the entire liquidation proceeds to
shareholders. How much will the liquidating dividend be per share?
A. $0.24
B. $1.30
C. $6.10
D. $7.40
E. $10.00
A new project you are considering is expected to generate an operating cash flow of
$45,620 and will initially free up $22,000 in net working capital. Purchases of fixed
assets costing $68,800 will be required to start up the project. What is the total cash
flow for this project at time zero?
A. -$68,800
B. -$46,800
C. -$1,040
D. -$26,580
E. -$41,220
Carters Gym currently has a 189-day operating cycle. The company is concentrating on
increasing its inventory turnover rate from 8.4 to 9.5 times. What will the firms new
operating cycle be if it can effectively make this change?
A. 183.97 days
B. 183.46 days
C. 187.00 days
D. 194.03 days
E. 196.34 days
A firm has total assets of $523,100, current assets of $186,500, current liabilities of
$141,000, and total debt of $215,000. What is the debt-equity ratio?
A. 0.48
B. 0.70
C. 1.10
D. 1.43
E. 2.13
New Labs just announced that it has received a patent for a product that will eliminate
all flu viruses. This news is totally unexpected and viewed as a major medical
advancement. Which one of the following reactions to this announcement indicates the
market for New Labs stock is efficient?
A. The price of New Labs stock remains unchanged.
B. The price of New Labs stock increases rapidly and then settles back to its
pre-announcement level.
C. The price of New Labs stock increases rapidly to a higher price and then remains at
that price.
D. All stocks quickly increase in value and then all but New Labs stock fall back to
their original values.
E. The value of all stocks suddenly increase and then level off at their higher values.