1) A bond has a $1,000 face value, a market price of $1,045, and pays interest payments
of $80 every year. What is the coupon rate?
A.6.76 percent
B.7.00 percent
C.7.12 percent
D.8.00 percent
E.8.14 percent
2) Larry’s Gun Shop has sales of $189,000, a profit margin of 5.6 percent, and a capital
intensity ratio of 0.79 . What is the return on assets?
A.4.42 percent
B.6.08 percent
C.6.39 percent
D.6.92 percent
E.7.09 percent
3) As of this morning, your firm had a ledger balance of $775 with no outstanding
deposits or checks. Today, your firm deposited six checks in the amount of $79 each
and wrote a check in the amount of $330. What is the amount of the collection float as
of the end of the day?
A.$115
B.$240
C.$330
D.$474
E.$775
4) Which one of the following statements related to stock buybacks is correct?
A.Stock buybacks are a means of obtaining shares for employee stock option grants
B.Stock buybacks are becoming rare and may soon disappear totally
C.In 2007 and 2008, U.S. companies issued more shares than they repurchased
D.Firms are permitted only one large share repurchase program
E.Share repurchases are limited to 10 percent of the firm’s outstanding shares
5) Western Electric has 23,000 shares of common stock outstanding at a price per share
of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent
preferred stock outstanding at a price of $48 a share. The preferred stock has a par value
of $100. The outstanding debt has a total face value of $350,000 and currently sells for
102 percent of face. The yield to maturity on the debt is 8.49 percent. What is the firm’s
weighted average cost of capital if the tax rate is 34 percent?
A.12.69 percent
B.13.44 percent
C.14.19 percent
D.14.47 percent
E.14.92 percent
6) Marcos &Sons has no debt. Its current total value is $58 million. What will the
company’s value be if it sells $21 million in debt and has a tax rate of 34 percent?
Assume debt proceeds are used to repurchase equity.
A.$58,220,000
B.$60,370,000
C.$62,330,000
D.$64,560,000
E.$65,140,000
7) 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
8) Planters Bank pays 5 percent simple interest on its savings account balances,
whereas Centura Bank pays 5 percent compounded annually. If you made a $12,000
deposit in each bank, how much more money would you earn from your Centura Bank
account at the end of 20 years?
A.$7,155.84
B.$7,839.57
C.$7,960.47
D.$8,400.09
E.$8,784.14
9) Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms
bought $60,000 worth of equipment last year. Both firms are in the 35 percent tax
bracket. The operating cash flows for each firm are identical except for the depreciation
effects. Given this, you know the:
A.depreciation expense for Firm A will be greater than Firm B’s expense every year
B.equipment has a higher value on Firm B’s books than on Firm A’s at the end of year 2
C.operating cash flow of Firm A is less than that of Firm B for year 2
D.market value of Firm A’s equipment is greater than the market value of Firm B’s
equipment
E.market value of Firm B’s equipment is greater than the market value of Firm A’s
equipment
10) Percentage returns:
I. are easy to understand.
II. relay information about a security more easily than dollar returns do.
III. are not affected by the amount of the investment.
IV. can be easily separated into dividend yield and capital gain yield.
A.II and III only
B.I and III only
C.I, II, and III only
D.I, II, and IV only
E.I, II, III, and IV
11) Which one of the following terms refers to the length of time a firm grants its
customers to pay for their purchases?
A.Lockbox period
B.Discount period
C.Credit period
D.Cash cycle
E.Receivables turnover period
12) Which one of the following categories has the widest frequency distribution of
returns for the period 1926-2011?
A.Small-company stocks
B.U.S. Treasury bills
C.Long-term government bonds
D.Inflation
E.Large-company stock
13) You want to buy a new sports car from Roy’s Cars for $51,800. The contract is in
the form of a 48-month annuity due at a 9.2 percent APR. What will your monthly
payment be?
A.$1,284.13
B.$1,309.29
C.$1,345.70
D.$1,352.98
E.$1,384.32
14) Which of the following are true statements?
I. Venture capitalists tend to be long-term investors in a firm.
II. Venture capital is relatively easy to obtain for most new firms.
III. Venture capitalists generally have an exit strategy.
IV. Venture capitalists tend to specialize in one type of financing for a select type of
firm.
A.I and II only
B.III and IV only
C.I and III only
D.I and IV only
E.II and IV only
15) You’re trying to determine whether or not to expand your business by building a
new manufacturing plant. The plant has an installation cost of $26 million, which will
be depreciated straight-line to zero over its three-year life. If the plant has projected net
income of $2,348,000, $2,680,000, and $1,920,000 over these three years, what is the
project’s average accounting return (AAR)?
A.11.69 percent
B.14.14 percent
C.15.08 percent
D.17.82 percent
E.19.21 percent
16) The Steel Factory is considering a project that will produce annual cash flows of
$36,800, $45,500, $56,200, and $21,800 over the next four years, respectively. What is
the internal rate of return if the initial cost of the project is $135,000?
A.7.56 percent
B.9.19 percent
C.11.28 percent
D.12.24 percent
E.12.83 percent
17) Peterboro Supply has a current accounts receivable balance of $391,648. Credit
sales for the year just ended were $5,338,411. How long did it take on average for credit
customers to pay off their accounts during the past year?
A.24.78 days
B.26.78 days
C.29.09 days
D.31.15 days
E.33.33 days
18) Which one of the following statements concerning underwriting is correct?
A.Underwriters exercise the Green Shoe option whenever the market price of an IPO
declines initially
B.Underwriters guarantee the number of shares to be sold in a best efforts underwriting
C.Competitive underwriting is generally more expensive than negotiated underwriting
D.The majority of equity underwritings in the U.S. are competitive underwritings
E.Underwriters may receive warrants as part of their compensation
19) Suppose your company needs to raise $28 million and you want to issue 20-year
bonds for this purpose. Assume the required return on your bond issue will be 8 percent,
and you’re evaluating two issue alternatives: an 8 percent annual coupon and a zero
coupon bond. Your company’s tax rate is 25 percent. In 20 years, what will your
company’s repayment be if you issue the coupon bonds? What if you issue the zeros?
(Assume annual compounding on the zero coupon bond.)
A.$28.00 million; $122.12 million
B.$28.00 million; $130.51 million
C.$30.00 million; $122.12 million
D.$30.24 million; $130.51 million
E.$30.24 million; $122.12 million
20) A firm has net working capital of $3,800 and current assets of $11,700. What is the
current ratio?
A.0.34
B.0.60
C.1.48
D.1.65
E.2.92
21) Fried Foods has sales of $238,900, total assets of $217,000, total equity of
$121,300, net income of $18,700, and dividends paid of $7,000. What is the internal
growth rate?
A.5.48 percent
B.5.70 percent
C.5.98 percent
D.7.34 percent
E.7.92 percent
22) The primary purpose of protective covenants is to help:
A.reduce interest rate risk
B.the issuer in case of default
C.protect bondholders from issuer actions
D.bondholders whose bonds are called
E.convert bearer bonds into registered form
23) Which one of the following activities is most apt to reduce the inventory period?
A.Replacing slow-moving items with faster-selling products
B.Replacing fresh foods with canned goods
C.Manufacturing a product for inventory rather than for an order
D.Increasing the amount of inventory on hand
E.Decreasing the number of times the inventory turns over per year
24) Which one of the following qualifies as an annuity?
A.Weekly grocery bill
B.Clothing purchases
C.Car repairs
D.Auto loan payment
E.Medical bills
25) The Lumber Yard has the following projected sales.
The firm collects 50 percent of its sales in the month of sale, 47 percent in the month
following the month of sale, and another 2 percent in the second month following the
month of sale. The firm never collects 1 percent of its sales. What is the amount of the
July collections?
A.$169,819
B.$171,508
C.$173,215
D.$175,500
E.$176,655
26) Graphic Designs has 120,000 shares of cumulative preferred stock outstanding.
Preferred shareholders are supposed to be paid $1.50 per quarter per share in dividends.
However, the firm has encountered financial problems and has not paid any dividends
for the past three quarters. How much will the firm have to pay per share of preferred
next quarter if the firm also wishes to pay a common stock dividend?
A.$3.00
B.$4.50
C.$6.00
D.$7.50
E.$9.00
27) The Embroidery Shoppe had beginning retained earnings of $18,670. During the
year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200,
dividends of $950, and interest paid of $478. The tax rate is 35 percent. What is the
retained earnings balance at the end of the year?
A.$21,883.25
B.$22,193.95
C.$22,833.24
D.$23,783.24
E.$30,393.95
28) Mercury Homes just declared a 4-for-3 stock split. Which of the following occurred
as a result of this split?
I. Number of shares outstanding increased by one-third
II. Number of shares outstanding decreased by one-fourth
III. Price per share increased by one-third
IV. Price per share decreased by one-fourth
A.I only
B.I and III only
C.I and IV only
D.II and III only
E.II and IV only