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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) 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
3) How are checks that are deposited into a typical lockbox handled?
A.The checks are deposited into a local bank which then overnights one check for the
entire amount to the firm
B.The checks are collected once a day, normally in the early morning, by a bank
employee
C.The checks are posted to the customer's account prior to being deposited
D.The checks are collected throughout the day and immediately deposited into the
firm's account
E.The checks are collected and sent overnight to the firm's main office for processing
4) Which one of the following statements related to the inventory period is correct?
A.The inventory period increases as the inventory turnover rate increases
B.The length of the inventory period depends on the length of the cash cycle
C.The inventory period is the average number of days a firm holds inventory on its
shelves
D.The inventory period is equal to the operating cycle minus the accounts payable
period
E.The inventory period has no effect on the cash cycle
5) Ben invested $5,000 twenty years ago with an insurance company that has paid him
5 percent simple interest on his funds. Charles invested $5,000 twenty years ago in a
fund that has paid him 5 percent interest, compounded annually. How much more
interest has Charles earned than Ben over the past 20 years?
A.$0
B.$2,109.16
C.$3,266.49
D.$7,109.16
E.$8,266.49
6) Municipal bonds are:
A.generally purchased by tax-exempt investors
B.risk-free
C.issued by federal, state, and local governmental bodies
D.zero coupon bonds
E.generally callable
7) Tuesday, December 1, is the ex-dividend date for Alpha stock. Which one of the
following dates is the record date? Assume there are no banking holidays to consider.
A.Friday, November 27
B.Monday, November 30
C.Wednesday, December 2
D.Thursday, December 3
E.Friday, December 4
8) Sarah earned a 2.9 percent real rate of return on her investments for the past year.
During that time, the risk-free rate was 4.1 percent and the inflation rate was 3.6
percent. What was her nominal rate of return?
A.5.30 percent
B.6.06 percent
C.6.60 percent
D.6.67 percent
E.6.91 percent
9) 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
10) The Sarbanes-Oxley Act in 2002 was prompted by which one of the following from
the 1990s?
A.Increased stock market volatility
B.Corporate accounting and financial fraud
C.Increased executive compensation
D.Increased foreign investment in U.S. stock markets
E.Increased use of tax loopholes
11) River City Gifts has an average collection period of 20 days and annual sales of
$650,000. What is the average investment in accounts receivable as shown on the
balance sheet?
A.$18,850
B.$20,375
C.$25,506
D.$28,900
E.$35,616
12) Which one of the following types of securities has no priority in a bankruptcy
proceeding?
A.Convertible bond
B.Senior debt
C.Common stock
D.Preferred stock
E.Straight bond
13) Which one of the following statements related to IPO underpricing is correct?
A.The IPOs of larger-sized firms tend to be more underpriced than the IPOs of
smaller-sized firms
B.IPO underpricing is limited to the U.S. markets
C.The percentage of underpricing remains stable over time in the U.S
D.The only period in the U.S. when underpricing produced first day returns of 50
percent or more was during the tech bubble of 1999-2000
E.Some of the greatest IPO underpricing has occurred in China
14) Over the last four years, a stock has had an arithmetic average return of 8.8 percent.
Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1
percent, respectively. What is the geometric average return for this four-year period?
A.7.83 percent
B.8.39 percent
C.8.67 percent
D.9.40 percent
E.9.97 percent
15) Tom and Jerri currently own 300 shares of Alpha stock. Each share is currently
worth $36. What will Tom and Jerri's investment in Alpha be worth if the company
declares a 4-for-3 stock dividend?
A.$6,075
B.$10,800
C.$19,000
D.$21,600
E.$28,800
16) Eric is considering an investment that will pay $5,000 a year for seven years,
starting one year from today. How much should she pay for this investment if she
wishes to earn a 13 percent rate of return?
A.$17,899.08
B.$18,023.88
C.$20,186.75
D.$22,113.05
E.$23,749.24
17) The spot rate is SF 1.0654 = $1. A hotel room in a resort area of Switzerland costs
SF 385. Based on absolute purchasing power parity, what should an identical room in
the U.S. cost?
A.$354.24
B.$361.37
C.$387.05
D.$410.18
E.$439.90
18) Given the following information for Electric Transport, find the WACC. Assume the
company's tax rate is 34 percent.
Debt: 7,500, 8.4 percent coupon bonds outstanding. $1,000 par value, 22 years to
maturity, selling for 103 percent of par, the bonds make semiannual payments.
Common stock: 195,000 shares outstanding, selling for $78 per share, beta is 1.21 .
Preferred stock: 11,000 shares of 6.35 percent preferred stock outstanding, currently
selling for $76 per share.
Market: 8 percent market risk premium and 5.1 percent risk-free rate.
A.11.49 percent
B.12.07 percent
C.12.42 percent
D.13.33 percent
E.13.80 percent
19) Which one of the following actions is indicative of a restrictive short-term financial
policy?
A.Granting increasing amounts of credit to customers
B.Expanding the number of inventory items carried
C.Increasing the firm's investment in the current accounts
D.Minimizing the cash balances held by the firm
E.Investing relatively large amounts in marketable securities
20) You are given the following exchange rates for the Canadian dollar versus the U.S.
dollar:
Which one of the following statements is correct given this information?
A.Last week, it took Can$0.8078 to purchase US$1
B.This week you can exchange one Canadian dollar for $1.2376 American
C.It is cheaper for an American to travel in Canada this week as compared to last week
D.The Canadian dollar depreciated from last week to this week
E.You would have made a profit if you invested U.S. $100 in Canadian dollars last
week and then converted your money back to U.S. dollars this week. Ignore any interest
earnings
21) Which one of the following is a working capital decision?
A.How should the firm raise additional capital to fund its expansion?
B.What debt-equity ratio is best suited to the firm?
C.What is the cost of debt financing?
D.Which type of debt is best suited to finance the inventory?
E.How much cash should the firm keep in reserve?
22) Which one of the following is an example of a liquidating dividend?
A.Valley Feed Mills recently sold its grain storage facility and is distributing the
proceeds of that sale to its shareholders
B.Kate's Winery has excess cash that it wishes to distribute to its shareholders in
addition to its normal cash dividend. This extra distribution usually occurs about once
every year
C.Kurt's Music is planning to increase its quarterly dividend by 3 percent
D.The Dried Florist is preparing to pay its first annual dividend of $0.08 per share
E.Hi Tek had an extraordinarily profitable year and has decided to do a one-time only
$10 per share cash dividend
23) Dragon Trucking just paid its annual regular cash dividend of $1.25 a share, along
with a special dividend of $0.25 a share. The company follows a policy of increasing its
dividend by 3 percent annually. Which one of the following is the best estimate of the
firm's next annual dividend payment?
A.$1.25
B.$1.29
C.$1.49
D.$1.50
E.$1.54
24) 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
25) A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of
Stock A is 1.29 while the beta of Stock B is 0.90 . One-half of the portfolio is invested
in the risk-free security. How much is invested in Stock A if the beta of the portfolio is
0.58?
A.$6,000
B.$9,000
C.$12,000
D.$15,000
E.$18,000
26) Uptown Construction is comparing two different capital structures. Plan I would
result in 23,000 shares of stock and $320,000 in debt. Plan II would result in 17,000
shares of stock and $260,000 in debt. The interest rate on the debt is 10 percent.
Ignoring taxes, EPS will be identical for Plans I and II when EBIT equals which one of
the following?
A.$8,550
B.$9,000
C.$9,600
D.$10,400
E.$10,750
27) The beta of a risky portfolio cannot be less than _____ nor greater than ____.
A.0; 1
B.1; the market beta
C.the lowest individual beta in the portfolio; market beta
D.the market beta; the highest individual beta in the portfolio
E.the lowest individual beta in the portfolio; the highest individual beta in the portfolio
28) Which one of the following best states the primary goal of inventory management?
A.Minimize the number of orders per year
B.Minimize the average inventory level
C.Minimize total inventory costs
D.Minimize the level of inventory for the most expensive items
E.Minimize opportunity costs
29) Which one of the following specifies the length of time that must pass after an
initial public offering (IPO) before insiders are permitted to sell their shares?
A.Lockup period
B.Quiet period
C.Comment period
D.Green Shoe period
E.Rights offer period
30) The operating cycle is equal to which one of the following?
A.Inventory period plus the accounts payable period
B.Accounts receivable period plus the cash cycle
C.Inventory period minus the accounts payable period plus the accounts receivable
period
D.Accounts receivable period plus the inventory period
E.Inventory period plus the cash cycle
31) Franklin Oil issued 150,000 shares of stock last week. The underwriters charged a
7.5 percent spread in exchange for agreeing to a firm commitment. The legal and
accounting fees amounted to $310,000 and the company incurred $65,000 in indirect
costs. The offer price was $31 a share. Within the first hour of trading, the stock price
increased to $34 a share. What was the flotation cost as a percentage of the funds
raised?
A.20.89 percent
B.24.03 percent
C.24.47 percent
D.26.55 percent
E.29.89 percent
32) West Coast Builders is offering preferred stock for sale with a 6.75 percent rate of
return. What is the amount of the annual dividend on this stock if the current market
price per share is $83.87?
A.$5.66
B.$6.09
C.$6.53
D.$7.50
E.$7.75
33) If today is year 0, what is the future value of the following cash flows 10 years from
now? Assume an interest rate of 7.8 percent per year.
A.$35,211.57
B.$37,235.16
C.$40,822.55
D.$42,321.68
E.$44,564.54
34) Phil's Dinor purchased some new equipment two years ago for $89,500. Today, it is
selling this equipment for $67,000. What is the aftertax cash flow from this sale if the
tax rate is 35 percent? 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.$58,586
B.$63,421
C.$67,000
D.$70,938
E.$74,875
35) Which one of the following best indicates a firm is utilizing its assets more
efficiently than it has in the past?
A.Decrease in the total asset turnover
B.Decrease in the capital intensity ratio
C.Increase in days' sales in receivables
D.Decrease in the profit margin
E.Decrease in the inventory turnover rate
36) Turner's Store had a profit margin of 6.8 percent, sales of $898,200, and total assets
of $798,000. If management set a goal of increasing the total asset turnover to 1.40
times, what would the new sales figure need to be, assuming no increase in total assets?
A.$860,333
B.$984,320
C.$1,088,500
D.$1,117,200
E.$1,257,480
37) Consider the following information on a portfolio of three stocks:
The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in
Stock C. If the expected T-bill rate is 3.90 percent, what is the expected risk premium
on the portfolio?
A.6.19 percent
B.6.90 percent
C.7.38 percent
D.7.72 percent
E.8.68 percent
38) 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
39) Charles Berkeley, Inc. just paid an annual dividend of $3.60 per share on its stock.
The dividends are expected to grow at a constant rate of 4.5 percent per year,
indefinitely. If investors require an 11 percent return on this stock, what will the price
be in 12 years?
A.$91.71
B.$93.62
C.$95.75
D.$98.15
E.$102.57
40) Which one of the following is the name given to a registration of securities under
SEC 415 which permits a firm to issue the securities over a two-year period?
A.Seasoned registration
B.Negotiated registration
C.Shelf registration
D.Extended registration
E.Delayed registration
