1) The manager of Gloria’s Boutique has approved Carla’s application for credit. The
maximum payment that has been approved is $65 a month for 24 months. The APR is
15.7 percent. What is the maximum initial purchase that Carla can make given this
credit approval?
A.$1,288.90
B.$1,300.00
C.$1,331.42
D.$1,350.00
E.$1,428.46
2) 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
3) Your parents just gave you a gift of $15,000. You are investing this money for 12
years at 5 percent simple interest. How much money will you have at the end of the 12
years?
A.$15,750
B.$16,000
C.$17,375
D.$24,000
E.$26,938
4) You just borrowed $3,000 from your bank and agreed to repay the interest on an
annual basis and the principal at the end of 3 years. What type of loan did you obtain?
A.Interest-only
B.Amortized
C.Perpetual
D.Pure discount
E.Lump sum
5) What is the net present value of a project with the following cash flows if the
discount rate is 14 percent?
A.$742.50
B.$801.68
C.$823.92
D.$899.46
E.$901.15
6) Which one of the following best defines cash concentration?
A.Combining all of a firm’s receipts into one bank deposit
B.Combining a week’s worth of cash receipts into one bank deposit
C.Combining cash from multiple banks into a firm’s main bank accounts
D.Using multiple lockboxes for collecting cash payments
E.Combining a firm’s bills so that disbursement checks are only mailed monthly
7) Which one of the following is a drawback of cash dividends?
A.Firms may have to forego positive net present value projects
B.Stock prices tend to increase as annual dividend amounts increase
C.Cash dividends support stock prices
D.Dividends are felt to be directly related to agency costs
E.Dividend-paying firms tend to attract a wider field of investors than do
non-dividend-paying firms
8) Flemington Farms is evaluating an extra dividend versus a share repurchase. In either
case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock
currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes and
other imperfections. The PE ratio will be ____ if the firm issues the dividend as
compared to ____ if the firm does the share repurchase.
A.24.87; 24.87
B.24.87; 26.79
C.26.79; 24.87
D.26.79; 26.79
E.26.79; 27.13
9) Which one of the following portfolios will have a beta of zero?
A.A portfolio that is equally as risky as the overall market
B.A portfolio that consists of a single stock
C.A portfolio comprised solely of U. S. Treasury bills
D.A portfolio with a zero variance of returns
E.No portfolio can have a beta of zero
10) Precision Manufacturing had the following operating results for 2010: sales =
$38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense
= $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were
$14,300, current assets were $8,700, and current liabilities were $6,600. At the end of
the year, net fixed assets were $13,900, current assets were $9,200, and current
liabilities were $7,400. The tax rate for 2010 was 34 percent. What is the cash flow
from assets for 2010?
A.$8,047
B.$8,292
C.$8,658
D.$9,492
E.$9,964
11) The Tattler has a printing press sitting idly in its back room. The press has no
market value to another printer because the machine utilizes old technology. The firm
could get $125 for the press as scrap metal. The press is 6 years old and originally cost
$148,000. The current book value is $2,370. The president of the firm is considering a
new project and feels he can use this press for that project. What value, if any, should be
assigned to the press as an initial cost of the new project?
A.$0
B.$125
C.$2,245
D.$2,370
E.$2,495
12) Payback is best used to evaluate which type of projects?
A.Low-cost, short-term
B.High-cost, short-term
C.Low-cost, long-term
D.High-cost, long-term
E.Any size of long-term project
13) Interest rate parity defines the relationships among which of the following?
A.Spot exchange rates, future exchange rates, interest rates, and inflation rates
B.Real and nominal interest rates across countries
C.Real interest and inflation rates
D.Forward exchange rates, relative interest rates, and spot exchange rates
E.Spot exchange rates, forward exchange rates, nominal interest rates, and real interest
rates
14) Which one of the following is a measure of long-term solvency?
A.Price-earnings ratio
B.Profit margin
C.Equity multiplier
D.Receivables turnover
E.Quick ratio
15) Which one of the following best describes a portfolio?
A.Risky security
B.Security equally as risky as the overall market
C.New issue of stock
D.Group of assets held by an investor
E.Investment in a risk-free security
16) Slightly Used Goods has cash of $2,150, inventory of $28,470, fixed assets of
$9,860, accounts payable of $11,900, and accounts receivable of $4,660. What is the
cash ratio?
A.0.08
B.0.18
C.0.32
D.0.46
E.0.51
17) Which one of the following is the best example of a raw material?
A.Set of tires for an automaker
B.Partially assembled airplane
C.Cabinets ready to be shipped
D.Can of paint waiting to be sold
E.Cell phone waiting to be encased
18) What is the payback period for a project with the following cash flows?
A.2.56 years
B.2.89 years
C.3.17 years
D.3.74 years
E.never
19) Which one of the following is a correct value to use if you are conducting a best
case scenario analysis?
A.Sales price that is most likely to occur
B.Lowest expected level of sales quantity
C.Lowest expected salvage value
D.Highest expected need for net working capital
E.Lowest expected value for fixed costs
20) Kurt’s Forest Products is currently issuing both 5-year and 10-year bonds at par. The
bonds each pay 6.5 percent annual interest and have face values of $1,000. You decide
to purchase one of each of these bonds. Assume the yield to maturity on each of these
bonds is 7.4 percent one year from now. Given this, you will realize _____ percent
price depreciation on the 5-year bond and _____ percent price depreciation on the
10-year bond.
A.3.02; 3.39
B.3.02; 4.08
C.3.02; 5.77
D.3.39; 4.08
E.3.39; 5.77
21) Smelly Perfumes sells 3,500 units of its perfume collection each year at a price per
unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by
40 percent of the customers. What is the amount of the company’s accounts receivable?
A.$54,849
B.$58,246
C.$61,003
D.$64,815
E.$67,778
22) A debt-free firm has net income of $128,400, taxes of $46,200, and depreciation of
$21,300. What is the operating cash flow?
A.$82,200
B.$103,500
C.$107,100
D.$149,700
E.$195,900
23) A limited liability company:
A.is a hybrid between a sole proprietorship and a partnership
B.prefers its profits be taxed as personal income to its owners
C.that meets the IRS criteria to be an LLC will be taxed like a corporation
D.provides limited liability for some, but not all, of its owners
E.cannot be created for professional service firms, such as accountants and attorneys
24) You have $5,000 you want to invest for the next 45 years. You are offered an
investment plan that will pay you 6 percent per year for the next 15 years and 10
percent per year for the last 30 years. How much will you have at the end of the 45
years? How much will you have if the investment plan pays you 10 percent per year for
the first 15 years and 6 percent per year for the next 30 years?
A.$201,516.38 ; $201,516.38
B.$209,092.54; $201,516.38
C.$209,092.54; $119,959.94
D.$209,092.54; $209,092.52
E.$221,408.97; $119,949.94
25) The Global Network has sales of $418,700, cost of goods sold of $264,900, and
inventory of $61,900. What is the inventory turnover rate?
A.1.33
B.4.28
C.6.76
D.7.14
E.8.47
26) 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
27) Which one of the following is an indicator that an investment is acceptable?
A.Modified internal rate of return equal to zero
B.Profitability index of zero
C.Internal rate of return that exceeds the required return
D.Payback period that exceeds the required period
E.Negative average accounting return
28) The following table presents financial information for Boss Stores, Inc., a retail
chain store in the U.S.
Use the information from Boss’s annual financial statements. What is the retention ratio
for 2009?
A.0.32
B.0.68
C.0.97
D.1.00
E.None of the above
29) You are comparing two possible capital structures for a firm. The first option is an
all-equity firm. The second option involves the use of $3.8 million of debt. The
break-even point between these two financing options occurs when the earnings before
interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial
to the firm:
A.whenever EBIT is less than $428,000
B.only when EBIT is $428,000
C.whenever EBIT exceeds $428,000
D.only if the debt is decreased by $428,000
E.only if the debt is increased by $428,000
30) Hardware and Moore has an expected return of 12.9 percent and a beta of 1.21. The
expected return on the market is 11.7 percent. What is the risk-free rate?
A.3.87 percent
B.4.24 percent
C.4.61 percent
D.5.38 percent
E.5.99 percent
31) Preston Fencing Company’s sales, half of which are for cash and the other half sold
on credit, over the past three months were:
a. Estimate Preston’s cash receipts in October if the company’s collection period is 30
days.
b. Estimate Preston’s cash receipts in October if the company’s collection period is 45
days.
c. What would be the October balance of accounts receivable for Preston Fencing if the
company’s collection period is 30 days? 45 days?
32) A stock has paid dividends of $1.80, $1.85, $2.00, $2.20, and $2.25 over the past
five years, respectively. What is the average capital gains yield?
A.2.80 percent
B.3.24 percent
C.4.45 percent
D.5.34 percent
E.5.79 percent
33) The amount by which a firm’s tax bill is reduced as a result of the depreciation
expense is referred to as the depreciation:
A.tax shield
B.credit
C.erosion
D.opportunity cost
E.adjustment
34) An increase in which one of the following will increase net income?
A.Fixed costs
B.Depreciation
C.Marginal tax rate
D.Revenue
E.Dividends
35) Which one of the following is defined as an agreement to exchange two securities
or two currencies?
A.Hedge
B.Swap
C.SWIFT
D.Gilt
E.Arbitrage
36) Alpha Zeta is considering purchasing some new equipment costing $390,000. The
equipment will be depreciated on a straight line basis to a zero book value over the
four-year life of the project. Projected net income for the four years is $18,900,
$21,300, $26,700, and $25,000. What is the average accounting rate of return?
A.11.78 percent
B.11.93 percent
C.12.01 percent
D.12.49 percent
E.13.20 percent
37) Computing the present value of a growing perpetuity is most similar to computing
the current value of which one of the following?
A.Non-dividend-paying stock
B.Stock with a constant dividend
C.Stock with irregular dividends
D.Stock with a constant growth dividend
E.Stock with growing dividends for a limited period of time
38) The Import Store has cash of $34,600 and accounts receivable of $54,200. The
inventory cost $92,300 and can be sold today for $146,900. The fixed assets were
purchased at a cost of $234,500 of which $87,900 has been depreciated. The fixed
assets can be sold today for $199,000. What is the total book value of the firm’s assets?
A.$309,900
B.$327,700
C.$346,800
D.$382,300
E.$434,700
39) Swanton Foods has a book value per share of $12.68, earnings per share of $1.21,
and a price-earnings ratio of 17.6. What is the market-to-book ratio?
A.1.32
B.1.68
C.1.99
D.2.47
E.2.61
40) Explain the time value of money principle and also identify the underlying
assumption of that principle.
41) As CFO of Nile Holdings, a carpet wholesaler, you have the following information
as of December 2011:
Nile has an attractive investment opportunity, and to finance it, must decide whether to
issue $100 million in new debt or new equity.
Calculate next year’s times burden covered ratio and earnings per share if Nile sells 2
million new shares at $50 a share instead of raising new debt.
42) Explain the difference between systematic and unsystematic risk, and why one of
these types of risks is rewarded with a risk premium while the other type is not.
43) The following table presents a four-year forecast for Kenmore Air, Inc.:
Estimate the fair market value of Kenmore Air at the end of 2012. Assume that after
2016, earnings before interest and tax will remain constant at $200 million, depreciation
will equal capital expenditures in each year, and working capital will not change.
Kenmore Air’s weighted-average cost of capital is 11 percent and its tax rate is 40
percent.
44) Selected financial information for Hard Knock Doors is presented below:
Do you think Hard Knock Doors is having a problem financing its growth?