February 27, 2019

Which one of the following statements is correct?

A. Firms should accept low risk projects prior to funding high risk projects.

B. Making subjective adjustments to a firm's WACC when determining project discount

rates unfairly punishes low-risk divisions within a firm.

C. A project that is unacceptable today might be acceptable tomorrow given a change in

market returns.

D. The pure play method is most frequently used for projects involving the expansion

of a firm's current operations.

E. Firms that elect to use the pure play method for determining a discount rate for a

project cannot subjectively adjust the pure play rate.

What is the annual percentage rate on a loan with a stated rate of 2.25 percent per

quarter?

A. 9.00 percent

B. 9.09 percent

C. 9.18 percent

D. 9.27 percent

E. 9.31 percent

Over the past six months, you have watched as your parent's retirement savings have

declined in value by 45 percent due to a severe financial market downturn. As a result,

you have decided that you will never invest in stocks for your own retirement but will

instead keep all of your money in an insured bank account. Which behavior

characteristic have you developed as a result of the market downturn?

A. myopic loss aversion

B. get-evenitis

C. self-attribution bias

D. mental accounting

E. regret aversion

A monthly interest rate expressed as an annual rate would be an example of which one

of the following rates?

A. stated rate

B. discounted annual rate

C. effective annual rate

D. periodic monthly rate

E. consolidated monthly rate

Which one of the following statements is correct?

A. The quiet period commences when a registration statement is filed with the SEC and

ends on the day the IPO shares commence trading.

B. Lockup agreements outline how oversubscribed IPO shares will be allocated.

C. Additional IPO shares can be issued in accordance with the lockup agreement.

D. Quiet period restrictions only apply to the issuer of new securities.

E. A TV interview with a firm's CFO could cause a forced delay in the firm's IPO.

Silo Mills has a beta of 0.87 and a cost of equity of 11.9 percent. The risk-free rate of

return is 2.8 percent. The firm is currently considering a project that has a beta of 1.03

and a project life of 6 years. What discount rate should be assigned to this project?

A. 13.33 percent.

B. 13.57 percent.

C. 13.62 percent.

D. 13.84 percent.

E. 14.09 percent.

The dollar amount of a bond's par value that is exchangeable for one share of stock is

called the:

A. conversion premium.

B. par value.

C. conversion value.

D. conversion price.

Hightower Pharmacy just paid a $3.10 annual dividend. The company has a policy of

increasing the dividend by 3.8 percent annually. You would like to purchase 100 shares

of stock in this firm but realize that you will not have the funds to do so for another four

years. If you require a 16 percent rate of return, how much will you be willing to pay

per share for the 100 shares when you can afford to make this investment?

A. $29.50

B. $30.62

C. $31.12

D. $31.78

E. $32.47

Assume that Fake Stone, Inc. is operating at 88 percent of capacity. All costs and net

working capital vary directly with sales. What is the amount of the pro forma net fixed

assets for next year if sales are projected to increase by 13 percent?

A. $19,600

B. $20,406

C. $21,500

D. $21,667

E. $22,148

Your father helped you start saving $20 a month beginning on your 5th birthday. He

always made you deposit the money into your savings account on the first day of each

month just to "start the month out right." Today completes your 17th year of saving and

you now have $6,528.91 in this account. What is the rate of return on your savings?

A. 5.15 percent

B. 5.30 percent

C. 5.47 percent

D. 5.98 percent

E. 6.12 percent

You are considering a project with conventional cash flows and the following

characteristics:

Which of the following statements is correct given this information?

I. The discount rate used in computing the net present value was less than 11.63

percent.

II. The discounted payback period must be less than 2.98 years.

III. The discount rate used in the computation of the profitability ratio was 11.63

percent.

IV. This project should be accepted as the internal rate of return exceeds the required

return.

A. I and II only

B. III and IV only

C. I, II, and IV only

D. II, III, and IV only

E. I, II, III, and IV

Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any

additional equity financing. The firm maintains a constant debt-equity ratio of .0.55, a

total asset turnover ratio of 1.30, and a profit margin of 9.0 percent. What must the

dividend payout ratio be?

A. 26.26 percent

B. 38.87 percent

C. 49.29 percent

D. 61.13 percent

E. 73.74 percent

Your firm spends $346,000 a week to pay bills and maintains a lower cash balance limit

of $150,000. The standard deviation of your disbursements is $28,700. The applicable

interest rate is 5 percent and the fixed cost of transferring funds is $60. What is your

optimal average cash balance based on the BAT model?

A. $103,900

B. $146,500

C. $182,200

D. $207,800

E. $249,900

Which one of the following actions will tend to increase the accounts receivable period?

Assume the accounts receivable period is currently 34 days.

A. tightening the standards for granting credit to customers

B. refusing to grant additional credit to any customer who pays late

C. increasing the finance charges applied to all customer balances outstanding over

thirty days

D. granting discounts for cash sales

E. eliminating the discount for early payment by credit customers

Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of

January through April, respectively. The accounts receivable period is 28 days. What is

the accounts receivable balance at the end of March? Assume a year has 360 days.

A. $420

B. $426

C. $440

D. $450

E. $482

A graphical representation of the operating and cash cycles is called a(n):

A. operating chart.

B. cash flow time line.

C. production flow line.

D. component chart.

E. working time line.

Your portfolio has a beta of 1.12. The portfolio consists of 20 percent U.S. Treasury

bills, 50 percent stock A, and 30 percent stock B. Stock A has a risk-level equivalent to

that of the overall market. What is the beta of stock B?

A. 1.47

B. 1.52

C. 1.69

D. 1.84

E. 2.07

Galaxy Products is comparing two different capital structures, an all-equity plan (Plan

I) and a levered plan (Plan II). Under Plan I, Galaxy would have 178,500 shares of

stock outstanding. Under Plan II, there would be 71,400 shares of stock outstanding and

$1.79 million in debt outstanding. The interest rate on the debt is 10 percent and there

are no taxes. What is the breakeven EBIT?

A. $287,878.78

B. $298,333.33

C. $351,111.11

D. $333,333.33

E. $341,414.14

Dixie Supply has total assets with a current book value of $368,900 and a current

replacement cost of $486,200. The market value of these assets is $464,800. What is the

value of Tobin's Q?

A. .86

B. .92

C. .96

D. 1.01

E. 1.06

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:

A. permits creditors to file a prepack immediately after a firm files for bankruptcy

protection.

B. prevents creditors from submitting any reorganization plans.

C. prevents firms from filing for bankruptcy protection more than once.

D. permits key employee retention plans only if an employee has another job offer.

E. allows firms to pay bonuses to all key employees to entice those employees to

remain in the firm's employ.

Jennifer owns 12,000 shares of Calico Clothing. Currently, there are 1.6 million shares

of stock outstanding. The company has just announced a rights offering whereby

200,000 shares are being offered for sale at a subscription price of $14 a share. The

current stock price is $16 a share. Assume that Jennifer sells her rights and that all

rights are exercised. What percentage of the firm will Jennifer own after the rights

offering?

A. 0.67 percent

B. 0.75 percent

C. 0.86 percent

D. 0.93 percent

E. 1.01 percent

A stock is currently selling for $55 a share. The risk-free rate is 4 percent and the

standard deviation is 18 percent. What is the value of d1 of a 9-month call option with a

strike price of $57.50?

A. -0.01506

B. -0.01477

C. -0.00574

D. 0.00042

E. 0.00181

Existing shareholders:

A. may or may not have a preemptive right to newly issued shares.

B. must purchase new shares whenever rights are issued.

C. are prohibited from selling their rights.

D. are generally well advised to let the rights they receive expire.

Gene's Art Gallery is notoriously known as a slow-payer. The firm currently needs to

borrow $27,500 and only one company will even deal with them. The terms of the loan

call for daily payments of $100. The first payment is due today. The interest rate is 21.9

percent, compounded daily. What is the time period of this loan? Assume a 365 day

year.

A. 264.36 days

B. 280.81 days

C. 300.43 days

D. 316.46 days

E. 341.09 days

The expected return on a stock computed using economic probabilities is:

A. guaranteed to equal the actual average return on the stock for the next five years.

B. guaranteed to be the minimal rate of return on the stock over the next two years.

C. guaranteed to equal the actual return for the immediate twelve month period.

D. a mathematical expectation based on a weighted average and not an actual

anticipated outcome.

M&M Proposition II is the proposition that:

A. the capital structure of a firm has no effect on the firm's value.

B. the cost of equity depends on the return on debt, the debt-equity ratio, and the tax

rate.

C. a firm's cost of equity is a linear function with a slope equal to (RA - RD).

D. the cost of equity is equivalent to the required rate of return on a firm's assets.

E. the size of the pie does not depend on how the pie is sliced.

You own a bond that has a 6 percent annual coupon and matures 5 years from now. You

purchased this 10-year bond at par value when it was originally issued. Which one of

the following statements applies to this bond if the relevant market interest rate is now

5.8 percent?

A. The current yield-to-maturity is greater than 6 percent.

B. The current yield is 6 percent.

C. The next interest payment will be $30.

D. The bond is currently valued at one-half of its issue price.

A bakery generally enters into a forward contract in wheat as a:

A. hedger.

B. speculator.

C. spot trader.

D. broker.

E. spectator.

You own one call option with an exercise price of $40 on S'more Good stock. The stock

is currently selling for $41 a share but is expected to sell for either $37 or $43 a share in

one year. The risk-free rate of return is 4.25 percent and the inflation rate is 3.6 percent.

What is the current call option price if the option expires one year from now?

A. $0.55

B. $0.69

C. $1.37

D. $2.43

E. $2.75

The ex-dividend date is defined as _____ business day(s) before the date of record.

A. 1

B. 2

C. 3

D. 5

E. 10