Both Projects A and B are acceptable as independent projects. However, the selection of
either one of these projects eliminates the option of selecting the other project. Which
one of the following terms best describes the relationship between Project A and Project
B?
A. Mutually exclusive
B. Conventional
C. Multiple choice
D. Dual return
E. Crosswise
Which one of the following is the slope of the security market line?
A. Risk-free rate
B. Market risk premium
C. Beta coefficient
D. Risk premium on an individual asset
E. Market rate of return
Given the current tax laws, which one of the following statements is correct?
A. Both stock repurchases and cash dividends are treated equally for tax purposes for
individual shareholders.
B. Stock repurchases give individual shareholders more control over their personal
taxes than do cash dividends.
C. Cash dividends are preferable to stock repurchases from the individual shareholder
point of view.
D. Stock repurchases offer more tax benefits to the issuer than do cash dividends.
E. Cash dividends offer more tax benefits than do stock repurchases for the issuer.
An increase in the accounts receivable period will do which one of the following?
A. Lengthen the accounts payable period
B. Shorten the inventory period
C. Shorten the operating cycle
D. Lengthen the cash cycle
E. Shorten the accounts payable period
Aarons Rentals has 58,000 shares of common stock outstanding at a market price of
$36 a share. The common stock just paid a $1.64 annual dividend and has a dividend
growth rate of 2.8 percent. There are 12,000 shares of 6 percent preferred stock
outstanding at a market price of $51 a share. The preferred stock has a par value of
$100. The outstanding bonds mature in 17 years, have a total face value of $750,000, a
face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8
percent interest, semiannually. The tax rate is 34 percent. What is the firms weighted
average cost of capital?
A. 7.74 percent
B. 8.68 percent
C. 9.29 percent
D. 9.97 percent
E. 10.30 percent
Which one of the following is the best universal definition of an exchange rate?
A. Price of one countrys currency expressed in terms of another countrys currency
B. Number of foreign dollars that can be purchased for every one U.S. dollar paid
C. Price of a countrys currency expressed in terms of that countrys currency unit
D. Number of units of a currency that were originally required to obtain one euro when
a country adopted the euro as its official currency
E. Price that must be paid to obtain a good or service from another country
What is the year 2 depreciation on equipment costing $166,000 if it is classified as
five-year property for MACRS purposes? The MACRS allowance percentages are as
follows, commencing with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
A. $37,620
B. $38,200
C. $41,984
D. $48,398
E. $53,120
A stock has a market price of $46.10 and pays a $2.40 annual dividend. What is the
dividend yield?
A. 4.13 percent
B. 4.84 percent
C. 5.21 percent
D. 5.52 percent
E. 5.78 percent
Mountaintop Market is offering 60,000 shares of stock to the public in a general cash
offer. The offer price is $30 a share and the underwriters spread is 9 percent. The
administrative costs are estimated at $310,000. How much will Hilltop Market receive
from this stock offering assuming the issue is completely sold?
A. $1,370,800
B. $1,328,000
C. $1,490,000
D. $1,638,000
E. $1,800,000
You would like to create a portfolio that is equally invested in a risk-free asset and two
stocks. One stock has a beta of 1.15. What does the beta of the second stock have to be
if you want the portfolio to be equally as risky as the overall market?
A. 0.78
B. 0.97
C. 1.23
D. 1.55
E. 1.85
Moore & Moore has just finished projecting its expected cash receipts and expenditures
for next year. What is this projection called?
A. Operating projection
B. Receivables schedule
C. Balance sheet
D. Cash budget
E. Compromise policy
One year ago, Peyton purchased 3,600 shares of Broncos stock for $101,124. Today, he
sold those shares for $26.60 a share. What is the total return on this investment if the
dividend yield is 1.9 percent?
A. -3.98 percent
B. -3.40 percent
C. -2.29 percent
D. 1.10 percent
E. 3.40 percent
Better Chocolates has a new project that requires $975,000 of equipment. What is the
depreciation in year 6 of this project if the equipment is classified as seven-year
property for MACRS purposes? The MACRS allowance percentages are as follows,
commencing with year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
A. $77,294
B. $77,301
C. $82,988
D. $86,970
E. $139,327
Chasteen, Inc. is considering an investment with an initial cost of $185,000 that would
be depreciated straight-line to a zero book value over the life of the project. The cash
inflows generated by the project are estimated at $76,000 for the first two years and
$30,000 for the following two years. What is the internal rate of return?
A. 6.44 percent
B. 6.94 percent
C. 7.43 percent
D. 7.55 percent
E. 8.11 percent
After successfully completing your corporate finance class, you feel the next challenge
ahead is to serve on the board of directors of Marine Enterprises. Unfortunately, you
will be the only individual voting for you. If Marine Enterprises has 350,000 shares
outstanding and the stock currently sells for $52, how much will it cost you to buy a
seat if the company uses straight voting? Assume Marine Enterprises uses cumulative
voting and there are five open seats in the current election; how much will it cost you to
buy a seat now?
A. $9,100,000; $3,640,000
B. $9,100,000; $3,033,385
C. $9,100,052; $3,548,052
D. $9,100,052; $3,033,385
E. $9,100,052; $3,640,000
A bond dealer sells at the _____ price and buys at the _____ price.
A. clean; dirty
B. dirty; clean
C. bid; asked
D. asked; bid
E. asked; asked
The required return on a stock is equal to which one of the following if the dividend on
the stock decreases by 1 percent per year?
A. (P0/D1) – g
B. (D1/P0)/g
C. Dividend yield + capital gains yield
D. Dividend yield – capital gains yield
E. Dividend yield x capital gains yield