Quali Tech wants to raise $21 million to purchase equipment by issuing new securities.
Management estimates the issue will cost the firm $320,000 for accounting, legal, and
other costs. The underwriting spread is 7.5 percent and the issue price is $22 per share.
How many shares of stock must be sold if Quali Tech is to receive sufficient funds to
purchase all the desired equipment?
A. 1,008,010 shares
B. 1,021,121 shares
C. 1,047,666 shares
D. 1,147,666 shares
E. 1,110,333 shares
You are considering an equipment purchase costing $187,000. This equipment will be
depreciated straight-line to zero over its three-year life. What is the average accounting
return if this equipment produces the following net income?
A. 12.29 percent
B. 14.38 percent
C. 15.67 percent
D. 16.51 percent
E. 21.00 percent
Stock A comprises 28 percent of Susans portfolio. Which one of the following terms
applies to the 28 percent?
A. Portfolio variance
B. Portfolio standard deviation
C. Portfolio weight
D. Portfolio expected return
E. Portfolio beta
Mark Andersons Legal Aid has the following estimated revenue.
Assume each month has 30 days and the accounts receivable period is 60 days. How
much does the firm expect to collect in May?
A. $14,800
B. $15,600
C. $16,350
D. $16,400
E. $17,900
Which one of the following statements is correct?
A. A prepack is a plan of liquidation used to distribute a firms assets.
B. Bankruptcy courts have “cram-down” powers.
C. The absolute priority rule must be strictly followed in all bankruptcy proceedings.
D. Creditors cannot force a firm into bankruptcy even though they might like to do so.
E. A reorganization plan can be approved only if the firms creditors all agree with the
plan.
Which one of the following will increase the cash flow from assets for a tax-paying
firm, all else constant?
A. An increase in net capital spending
B. A decrease in the cash flow to creditors
C. An increase in depreciation
D. An increase in the change in net working capital
E. A decrease in dividends paid
The 8 percent, $1,000 face value bonds of Sweet Sue Foods are currently selling at
$1,057. These bonds have 16 years left until maturity. What is the current yield?
A. 7.38 percent
B. 7.57 percent
C. 8.00 percent
D. 8.23 percent
E. 8.28 percent
Slys just arranged a three-year direct business loan. Which one of the following terms
matches this loan arrangement?
A. Term loan
B. Private placement
C. Rights offer
D. Seasoned offer
E. Shelf offer
Marthas Sweet Shop reduced its fixed assets this year without affecting the shops
operations, sales, or equity. This reduction will increase which of the following ratios?I.
Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equity
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Which one of the following applies to a general partnership?
A. The firms operations must be controlled by a single partner.
B. Any one of the partners can be held solely liable for all of the partnerships debt.
C. The profits of the firm are taxed as a separate entity.
D. Each partners liability for the firms debts is limited to each partners investment in
the firm.
E. The profits of a general partnership are taxed the same as those of a corporation.
Roller Coasters has a cost of equity of 15.4 percent, a return on assets of 11.3 percent,
and a cost of debt of 7.3 percent. There are no taxes. What is the firms weighted
average cost of capital?
A. 7.30 percent
B. 11.20 percent
C. 12.97 percent
D. 15.40 percent
E. Cannot be determined from the information provided.
Which one of the following is the equity risk arising from the daily operations of a
firm?
A. Strategic risk
B. Financial risk
C. Liquidity risk
D. Industry risk
E. Business risk
What is the goal of financial management for a sole proprietorship?
A. Maximize net income given the current resources of the firm
B. Decrease long-term debt to reduce the risk to the owner
C. Minimize the tax impact on the proprietor
D. Maximize the market value of the equity
E. Minimize the reliance on fixed costs
The net working capital invested in a project is generally:
A. a sunk cost.
B. an opportunity cost.
C. recouped in the first year of the project.
D. recouped at the end of the project.
E. depreciated to a zero balance over the life of the project.