Tri-City Grocers is a chain of grocery stores that just hired a new CFO. Which of the
following actions would you expect this CFO to adopt given her statement that she
wants to implement a more flexible financing policy for the firm?
I. easing the credit terms given to customers
II. increasing the amount of inventory carried by each grocery store
III. borrowing funds to keep more cash available for store operations
IV. decreasing the firms’ investments in marketable securities
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
Answer:
A project requires $360,000 of equipment that is classified as seven-year property. What
is the depreciation expense in year 3 given the following MACRS depreciation
allowances, starting with year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46
percent?
A. $38,033
B. $41,267
C. $51,444
D. $62,964
E. $88,164
Answer:
Early Works had $87,600 in net fixed assets at the beginning of the year. During the
year, the company purchased $6,400 in new equipment. It also sold, at a price of
$2,300, some old equipment with a book value of $1,100. The depreciation expense for
the year was $3,700. What is the net fixed asset balance at the end of the year?
A. $76,400
B. $78,800
C. $80,000
D. $89,200
E. $89,400
Answer:
If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent,
what is the approximate real rate of interest? The exact real rate?
A. 0.40 percent; 3.89 percent
B. 0.40 percent; 3.98 percent
C. 6.00 percent; 5.67 percent
D. 6.00 percent; 5.87 percent
E. 6.00 percent; 5.92 percent
Answer:
Shoreline Foods pays a constant annual dividend of $1.60 a share and currently sells for
$28.50 a share. What is the rate of return?
A. 4.56 percent
B. 5.39 percent
C. 5.61 percent
D. 6.63 percent
E. 6.91 percent
Answer:
Which one of the following statements is correct? Assume the pretax cost of debt is less
than the cost of equity.
A. A firm may change its capital structure if the government changes its tax policies.
B. A decrease in the dividend growth rate increases the cost of equity.
C. A decrease in the systematic risk of a firm will increase the firm’s cost of capital.
D. A decrease in a firm’s debt-equity ratio will decrease the firm’s cost of capital.
E. The cost of preferred stock decreases when the tax rate increases.
Answer:
Lisa has $1,000 in cash today. Which one of the following investment options is most
apt to double her money?
A. 6 percent interest for 3 years
B. 12 percent interest for 5 years
C. 7 percent interest for 9 years
D. 8 percent interest for 9 years
E. 6 percent interest for 10 years
Answer:
All else held constant, which one of the following statements is correct concerning the
accounts payable period?
A. The accounts payable period is equal to 365/(Sales/Average accounts payable).
B. A decrease in the accounts payable period will increase the operating cycle.
C. An increase in the accounts payable period will decrease the cash cycle.
D. A decrease in the accounts payable period will decrease the operating cycle.
E. An increase in the accounts payable turnover rate decreases the cash cycle.
Answer:
Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock
sells for $28.40 a share at a required return of 14 percent. What is the amount of the last
dividend this company paid?
A. $3.50
B. $3.55
C. $3.60
D. $3.65
E. $3.70
Answer:
Which one of the following is most apt to decrease the accounts receivable period?
A. Increasing the time granted to customers to pay for purchases
B. Shortening the cash cycle
C. Increasing the discount for cash payment
D. Selling inventory slower
E. Paying suppliers faster
Answer:
Which one of the following best describes an initial public offering?
A. Shares held by a firm’s founder
B. Any newly issued shares offered to the general public
C. Shares issued to the public on a cash basis
D. The first sale of equity shares to the general public
E. Any shares initially offered to a firm’s existing shareholders
Answer:
Your grandparents would like to establish a trust fund that would pay annual payments
to you and your heirs of $100,000 a year forever. How much do your parents need to
deposit into this trust fund today to achieve their goal if the fund can earn 6 percent
interest?
A. $678,342.13
B. $700,000.00
C. $1,413,435.76
D. $1,620,975.32
E. $1,666,666.67
Answer:
A particular set of golf clubs in the U.S. costs $1,100. According to absolute purchasing
power parity, what should the identical set of clubs cost in the UK when the spot rate is
0.6703 = $1?
A. 1,641.06
B. 1,728.08
C. 633.80
D. 647.50
E. 737.33
Answer:
Katie’s Dinor spent $84,000 to refurbish its current facility. The firm borrowed 80
percent of the refurbishment cost at 9.2 percent interest for five years. What is the
amount of each monthly payment?
A. $1,108.91
B. $1,282.16
C. $1,333.33
D. $1,401.49
E. $1,487.06
Answer:
A negative cash flow to stockholders indicates a firm:
A. had a negative cash flow from assets.
B. had a positive cash flow to creditors.
C. paid dividends that exceeded the amount of the net new equity.
D. repurchased more shares than it sold.
E. received more from selling stock than it paid out to shareholders.
Answer:
You want to buy a new sports coupe for $84,600, and the finance office at the
dealership has quoted you a 7.1 percent APR loan for 48 months to buy the car. What
will your monthly payments be? What is the effective annual rate on this loan?
A. $2,017.84; 7.24 percent
B. $2,017.84; 7.29 percent
C. $2,017.84; 7.34 percent
D. $2,029.78; 7.29 percent
E. $2,029.78; 7.34 percent
Answer:
Which one of the following measures the amount of systematic risk present in a
particular risky asset relative to that in an average risky asset?
A. Squared deviation
B. Beta coefficient
C. Standard deviation
D. Mean
E. Variance
Answer: