The Egg House just borrowed $260,000 to build a new restaurant. The loan terms call
for equal annual payments at the end of each year. The loan is for 15 years at an APR of
8 percent. How much of the first annual payment will be used to reduce the principal
balance?
A. $8,311.62
B. $9,575.68
C. $10,211.08
D. $10,554.60
E. $11,420.90
Which one of the following statements is correct?
A. A portfolio that contains at least 30 diverse individual securities will have a beta of
1.0.
B. Any portfolio that is correctly valued will have a beta of 1.0.
C. A portfolio that has a beta of 1.12 will lie to the left of the market portfolio on a
security market line graph.
D. A risk-free security plots at the origin on a security market line graph.
E. An underpriced security will plot above the security market line.
An investment has an initial cost of $420,000 and will generate the net income amounts
shown below. This investment will be depreciated straight-line to zero over the
four-year life of the project. Should this project be accepted based on the average
accounting rate of return if the required rate is 16 percent? Why or why not?
A. Yes, because the AAR is equal to 16 percent
B. Yes, because the AAR is greater than 16 percent
C. Yes, because the AAR is less than 16 percent
D. No, because the AAR is greater than 16 percent
E. No, because the AAR is less than 16 percent
Farmers Supply, Inc. is considering opening a clothing store, which would be a new line
of business for the firm. Management has decided to use the cost of capital of a similar
clothing store as the discount rate that should be used to evaluate this proposed
expansion. Which one of the following terms is used to describe the approach Farmers
Supply is taking to establish an appropriate discount rate for the project?
A. Equity approach
B. Aftertax approach
C. Subjective approach
D. Market play
E. Pure play approach
Shanes Music has a line of credit with a local bank that permits it to borrow up to
$750,000 at any time. The interest rate is 0.28 percent per month. The bank charges
compound interest and also requires that 4 percent of the amount borrowed be deposited
into a non-interest-bearing account. How much interest will the firm pay if it needs
$500,000 of cash for four months to pay its operating expenses?
A. $5,857.88
B. $5,949.21
C. $6,017.02
D. $6,039.91
E. $6,208.11
There are four open positions on the board of directors of Double Tree Hotels. The
company has 360,000 shares of stock outstanding. Each share is entitled to one vote.
How many shares of stock must you own to guarantee your personal election to the
board of directors if the firm uses cumulative voting?
A. 36,001 shares
B. 75,001 shares
C. 77,001 shares
D. 72,000 shares
E. 72,001 shares
Christie is buying a new car today and is paying a $500 cash down payment. She will
finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly
payments of $450 each with the first payment due 30 days from today. Which one of
the following statements is correct concerning this purchase?
A. The present value of the car is equal to $500 + (36 x $450).
B. The $500 is the present value of the purchase.
C. The car loan is an annuity due.
D. To compute the initial loan amount, you must use a monthly interest rate.
E. The future value of the loan is equal to 36 x $450.
Which one of the following defines the cash cycle?
A. Inventory period plus the accounts receivable period
B. Inventory period plus the accounts payable period
C. Operating cycle minus the inventory period
D. Operating cycle minus the accounts payable period
E. Operating cycle minus the accounts receivable period
Gleason, Inc. elects its board of directors on a staggered basis using cumulative voting.
This implies that:
A. if there are two open seats, then the candidate with the highest number of votes and
the candidate with the lowest number of votes will be selected.
B. the candidates for the open seats are voted for in individual elections.
C. all open positions are filled with one round of voting, assuming there are no tie
votes.
D. shareholders can accumulate their votes over multiple years and cast all those votes
in one election.
E. the firms entire board of directors is elected annually in one combined election.
Which one of the following is a disbursement account into which funds are transferred
from a master account only as the funds are needed to cover checks presented for
payment?
A. Lockbox account
B. Cash concentration account
C. Ledger account
D. Zero-balance account
E. Cash clearing account
Stock A has an expected return of 15.6 percent and a beta of 1.27. Stock B has an
expected return of 11.4 percent and a beta of 0.89. Both stocks have the same
reward-to-risk ratio. What is the risk-free rate?
A. 1.56 percent
B. 2.28 percent
C. 2.79 percent
D. 3.35 percent
E. 3.92 percent
Ted currently owns 100 shares of a publicly traded stock that he would like to sell.
Which one of the following provides the most efficient means for Ted to sell his shares?
A. Issuer-sponsored Dutch auction
B. Proxy statement
C. Private placement transaction
D. Stakeholder purchase
E. Secondary market transaction
Which one of the following terms could be defined as a new issue of common stock
offered to the general public by a firm that is currently publicly held?
A. Initial public offering
B. Private placement
C. Rights offer
D. Venture capital
E. Seasoned equity offering
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.