1) Given an interest rate of zero percent, the future value of a lump sum invested today
will always:
A.remain constant, regardless of the investment time period
B.decrease if the investment time period is shortened
C.decrease if the investment time period is lengthened
D.be equal to $0
E.be infinite in value
2) Suppose the Swiss franc exchange rate is Sf1.1426 = $1, and the euro exchange rate
is 0.7538 = $1. What is the cross rate in terms of Swiss francs per euro?
A.Sf1.5074 = 1
B.Sf1.5098 = 1
C.Sf1.5132 = 1
D.Sf1.5146 = 1
E.Sf1.5158 = 1
3) You are analyzing a project and have developed the following estimates: unit sales =
3,100, price per unit = $211, variable cost per unit = $115, fixed costs = $164,000. The
depreciation is $59,000 a year and the tax rate is 35 percent. What effect would the sale
of one more unit have on the operating cash flow?
A.$60.90
B.$61.40
C.$61.80
D.$62.40
E.$62.70
4) Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of
23.7 percent. If the firm earns $138,500 in taxable income, how much will it owe in
taxes?
A.$31,366.67
B.$31,500.00
C.$32,824.50
D.$39,957.25
E.$47,090.00
5) In a typical month, Abbot Tours received 60 checks totaling $139,000. These are
delayed 3.5 days on average. What is the average daily float? Assume 30 days in a
month.
A.$12,500
B.$13,333
C.$14,528
D.$16,217
E.$16,667
6) Which of the following statements correctly relate to M&M Proposition I, with
taxes?
I. Debt decreases the value of a firm.
II. The levered value of a firm exceeds the firm’s unlevered value.
III. The weighted average cost of capital (WACC) is constant.
IV. The optimal capital structure is zero debt.
A.I only
B.II only
C.II and III only
D.I and IV only
E.I, III, and IV only
7) Which one of the following characteristics generally applies to commercial paper?
A.Issued only by financial institutions
B.Issued only by corporations
C.Maturities limited to 90 days or less
D.Unsecured
E.Secured by accounts receivable
8) Your favorite running shoes cost $89 in the U.S. while the identical shoes cost
C$114.50 in Canada. According to purchasing power parity, what is the C$/$ exchange
rate?
A.C$0.7773/$1
B.C$0.8426/$1
C.C$0.9108/$1
D.C$1.2865/$1
E.C$1.3305/$1
9) The current spot rate between the U.K. and the U.S. is 0.6789 per $1. The expected
inflation rate in the U.S. is 2.1 percent. The expected inflation rate in the U.K. is 2.6
percent. If relative purchasing power parity exists, what will the exchange rate be next
year?
A.0.6755/$1
B.0.6410/$1
C.0.6823/$1
D.0.7023/$1
E.0.7110/$1
10) A corporate bond pays 7 percent interest. How much would a municipal bond have
to pay to be equivalent to this on an after-tax basis if you are in the 28 percent tax
bracket?
A.1.96 percent
B.2.28 percent
C.5.04 percent
D.9.72 percent
E.11.47 percent
11) Westcomb, Inc. had equity of $150,000 at the beginning of the year. At the end of
the year, the company had total assets of $195,000. During the year, the company sold
no new equity. Net income for the year was $72,000 and dividends were $44,640. What
is the sustainable growth rate?
A.15.32 percent
B.15.79 percent
C.17.78 percent
D.18.01 percent
E.18.24 percent
12) Short-run exposure to exchange rate risk is best illustrated by which one of the
following?
A.Change in book value when the market value of an asset remains constant
B.Daily fluctuations in the spot rate
C.Increases in the forward rate as the time to settlement increases
D.Changes in relative economic conditions between two countries
E.Unrealized foreign exchange gains
13) Metal Makers, Inc. purchased some welding equipment 6 years ago at a cost of
$579,000. Today, the company is selling this equipment for $110,000. The tax rate is 34
percent. What is the aftertax cash flow from this sale? The MACRS allowance
percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49,
8.93, 8.92, 8.93, and 4.46 percent.
A.$81,380
B.$95,220
C.$98,960
D.$101,540
E.$110,000
14) Ed’s Hardware is adding a new product line to its sales lineup. Initially, the firm will
stock $31,000 of the new inventory, which will be purchased on 30-days credit from a
supplier. The firm will also invest $6,000 in accounts receivable and $4,000 in
equipment. What amount should be included in the initial project costs for net working
capital?
A.-$41,000
B.-$37,000
C.-$10,000
D.-$6,000
E.-$2,000
15) Which one of the following correctly states a qualification an issuer must meet to be
qualified to use Rule 415 for shelf registration?
A.The issuer must never have defaulted on its debt
B.The issuer must have outstanding stock with a market value in excess of $250 million
C.The issuer must never have violated the Securities Act of 1934
D.The issuer must have an investment grade rating
E.The issuer cannot have defaulted on its debt within the past five years
16) Any person who owns a license to trade on the NYSE is called a:
A.dealer
B.floor trader
C.specialist
D.member
E.proxy
17) Ametek, Inc. is a billion dollar manufacturer of electronic instruments and motors
headquartered in Paoli, Pennsylvania. Use the following information on Ametek and
five other similar companies to value Ametek, Inc. on December 31, 2010.
*American Power Conversion has no interest-bearing debt outstanding.
MV = Market value; BV = Book value. Market value is estimated as book value of
interest-bearing debt + market value of equity. Earnings are fiscal year earnings.
18) A credit card has a stated interest rate of 13.9 percent. What is the APR if interest is
compounded monthly?
A.13.09 percent
B.13.46 percent
C.13.90 percent
D.14.56 percent
E.14.82 percent
19) Currently, you own a portfolio comprised of the following three securities. How
much of the riskiest security should you sell and replace with risk-free securities if you
want your portfolio beta to equal 90 percent of the market beta?
A.$7,023.15
B.$7,811.29
C.$8,666.67
D.$9,613.64
E.$10,318.50
20) Given the following information, what is the expected return on a portfolio that is
invested 30 percent in both stocks A and C, and 40 percent in stock B?
A.11.97 percent
B.12.94 percent
C.13.33 percent
D.13.84 percent
E.14.42 percent
21) A bond for which no specific property has been pledged as security is classified as
a:
A.bearer bond
B.trust deed bond
C.registered bond
D.debenture
E.sinking fund bond
22) Chick N Fish is considering two different capital structures. The first option
consists of 25,000 shares of stock. The second option consists of 15,000 shares of stock
plus $150,000 of debt at an interest rate of 7.5 percent. Ignore taxes. What is the
break-even level of earnings before interest and taxes (EBIT) between these two
options?
A.$2,813
B.$3,134
C.$16,410
D.$28,125
E.$31,338
23) Assume each month has 30 days and AmDocs has a 60-day accounts receivable
period. During the second calendar quarter of the year (April, May and June), AmDocs
will collect payment for the sales it made during which of the months listed below?
A.October, November, and December
B.November, December, and January
C.December, January, and February
D.January, February, and March
E.February, March, and April
24) This morning, you purchased a stock that will pay an annual dividend of $1.90 per
share next year. You require a 12 percent rate of return and the annual dividend
increases at 3.5 percent annually. What will your capital gain be on this stock if you sell
it three years from now?
A.$2.43
B.$2.51
C.$2.63
D.$2.87
E.$2.92
25) In the process of liquidation, some types of claims receive preference over other
claims. Which one of the following determines which type of claim is paid first?
A.Technical insolvency definition
B.Absolute priority rule
C.Accounting insolvency definition
D.Chapter 7 of the Federal Bankruptcy Reform Act of 1978
E.Securities and Exchange Commission
26) Which one of the following terms is defined as an underwriting for which the
underwriters assume full responsibility for any unsold shares?
A.Initial public offering
B.Best efforts underwriting
C.Firm commitment underwriting
D.Rights offer
E.Private placement
27) Which of the following statements related to the internal rate of return (IRR) are
correct?
I. The IRR is the discount rate at which an investment’s NPV equals zero.
II. An investment should be undertaken if the discount rate exceeds the IRR.
III. The IRR tends to be used more than net present value simply because its results are
easier to comprehend.
IV. The IRR is the best tool available for deciding between mutually exclusive
investments.
A.I and II only
B.I and III only
C.II and III only
D.I, II, and IV only
E.I, II, III, and IV
28) A firm has a return on equity of 16 percent, a return on assets of 11 percent, and a
40 percent dividend payout ratio. What is the sustainable growth rate?
A.5.72 percent
B.6.84 percent
C.7.12 percent
D.9.58 percent
E.10.62 percent
29) Today, you are buying a $1,000 face value bond at an invoice price of $987. The
bond has a 6 percent coupon and pays interest semiannually. There are 2 months until
the next coupon date. What is the clean price of this bond?
A.$947
B.$957
C.$967
D.$977
E.$987
30) The daily financial operations of a firm are primarily controlled by managing the:
A.total debt level
B.working capital
C.capital structure
D.capital budget
E.long-term liabilities
31) Eastern Hardwood Sales has total equity of $89,000, a profit margin of 4.8 percent,
an equity multiplier of 1.5, and a total asset turnover of 1.3. What is the amount of the
firm’s sales?
A.$168,200
B.$173,550
C.$181,430
D.$185,620
E.$187,500
32) On May 1, Vaya Corp. had a beginning cash balance of $175. Vaya’s sales for April
were $430 and May sales were $480. During May, the firm had cash expenses of $110
and made payments on accounts payable of $290. Vaya’s accounts receivable period is
30 days. What is the firm’s beginning cash balance on June 1?
A.$145
B.$155
C.$205
D.$215
E.$265
33) Which one of the following statements about a limited partnership is correct?
A.All partners have their losses limited to their capital investment in the partnership
B.All partners are treated equally
C.There must be at least one general partner
D.Equity financing is easy to obtain and unlimited
E.Any partner can transfer his or her ownership interest without ending the partnership
34) The specific location on the floor of an exchange where a particular security is
traded is called a:
A.box office
B.figure 6
C.specialist’s post
D.trading booth
E.seat
35) Which one of the following statements is correct?
A.All Chapter 7 bankruptcy filings must include a “workout” agreement
B.Firms must remain in bankruptcy for at least 18 months
C.Key employee retention plans (KERPS) are no longer legal
D.Labor contracts cannot be modified through the bankruptcy process
E.A firm can file for Chapter 11 bankruptcy even if the firm is solvent
36) You are comparing three investments, all of which pay $100 a month and have an 8
percent interest rate. One is ordinary annuity, one is an annuity due, and the third
investment is a perpetuity. Which one of the following statements is correct given these
three investment options?
A.To be the perpetuity, the payments must occur on the first day of each monthly period
B.The ordinary annuity would be more valuable than the annuity due if both had a life
of 10 years
C.The present value of the perpetuity has to be higher than the present value of either
the ordinary annuity or the annuity due
D.The future value of all three investments must be equal
E.The present value of all three investments must be equal
37) Your firm is contemplating the purchase of a new $674,000 computer-based order
entry system. The system will be depreciated straight-line to zero over its 6-year life. It
will be worth $58,000 at that time. You will save $185,000 before taxes per year in
order processing costs, and you will be able to reduce working capital by $29,000 at the
beginning of the project. Working capital will revert back to normal at the end of the
project. If the tax rate is 34 percent, what is the IRR for this project?
A.12.51 percent
B.12.79 percent
C.13.01 percent
D.13.53 percent
E.14.20 percent
38) The Printing Company stock is selling for $32.60 a share based on a 14 percent rate
of return. What is the amount of the next annual dividend if the dividends are increasing
by 2.5 percent annually?
A.$3.48
B.$3.52
C.$3.57
D.$3.66
E.$3.75
39) A “floater” bond frequently has a:
A.flexible deferred call period
B.fixed yield-to-maturity but a flexible coupon payment
C.a government guarantee
D.fixed-dollar obligation
E.a put provision
40) Below is a recent income statement for Gatlin Camera:
Calculate Gatlin’s free cash flow in this year assuming it spent $510 on new capital
equipment and increased current assets net of noninterest-bearing current liabilities
$340.
41) Explain how staggering offsets some of the benefits associated with cumulative
voting.
42) What are the differences between a regular cash dividend, a liquidating dividend, a
special dividend, and an extra cash dividend?
43) Which type of financial market, dealer or auction, is best suited to expanding
internationally and why?
44) Provide two arguments in favor of IPO underpricing and two arguments against
IPO underpricing.
45) Explain what capital structure management is and give three examples of capital
structure decisions.
46) Edna’s Laundry Services just completed pro forma statements using the percentage
of sales approach. The pro forma shows a projected external financing need of -$5,500.
Interpret this figure. What are the firm’s options in this case?
47) You want to have $2.5 million saved on the day you retire. Explain how you can
minimize the amount of cash you must invest in order to achieve this goal.