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
The possibility that more than one discount rate can cause the net present value of an
investment to equal zero is referred to as:
A. duplication.
B. the net present value profile.
C. multiple rates of return.
D. the AAR problem.
E. the dual dilemma.
Which one of the following describes a Green Shoe provision?
A. Determination of underwriters’ fees
B. Guarantee of sale for all offered shares
C. Price auction
D. Overallotment option
E. Description of issue excluding the offer price
The checks received in a lockbox are deposited:
A. into a local bank and then transferred electronically to a concentration account.
B. into a local bank and immediately invested in short-term investments.
C. as soon as they are posted to the customer’s account.
D. the following day and immediately invested.
E. directly into an investment account.
A stock has an average return of 19.2 percent and a standard deviation of 10.7 percent.
In any one given year, you have a 95 percent chance that you will not lose more than
_____ percent nor earn more than ____ percent if you invest in this security.
A. -2.2; 38.2
B. -2.2; 40.6
C. -13.9; 28.9
D. -13.9; 39.6
E. -13.9; 50.3
Triangle Enterprises has no debt but can borrow at 9 percent. The firm’s WACC is
currently 14.7 percent, and there is no corporate tax. If the firm converts to 70 percent
debt, what will its cost of equity be?
A. 20.67 percent
B. 22.95 percent
C. 24.47 percent
D. 26.39 percent
E. 28.00 percent
Investors receive a total return of 13.7 percent on the common stock of Dexter
International. The stock is selling for $41.68 a share. What is the dividend growth rate if
the company plans to pay an annual dividend of $2.10 a share next year?
A. 7.42 percent
B. 8.66 percent
C. 10.75 percent
D. 11.60 percent
E. 13.70 percent
Bridgewater Furniture has sales of $811,000, costs of $658,000, and interest paid of
$21,800. The depreciation expense is $56,100 and the tax rate is 34 percent. At the
beginning of the year, the firm had retained earnings of $318,300 and common stock of
$250,000. At the end of the year, the firm has retained earnings of $322,500 and
common stock of $280,000. What is the amount of the dividends paid for the year?
A. $15,266
B. $19,466
C. $31,566
D. $41,066
E. $45,366
The market value of a firm’s fixed assets:
A. must exceed the book value of those assets.
B. is more predictable than the book value of those assets.
C. in addition to the firm’s net working capital reflects the true value of a firm.
D. is decreased annually by the depreciation expense.
E. is equal to the estimated current cash value of those assets.
You are debating between spending a week in Brazil or a week in Chile. You’ve
estimated the cost of the Brazilian trip at 56,300 reals and the Chilean trip at 13.6
million pesos. The currency per U.S. dollar is 2.2212 reals and 581.73 pesos. If you
prefer the less expensive trip, as measured in U.S. dollars, you should travel to _____
because you can save ____.
A. Brazil; you can save $1,460.45
B. Brazil; you can save $1,518.74
C. Chile; you can save $984.29
D. Chile; you can save $1,613.33
E. Chile; you can save $1,968.12
Firms that compile financial statements according to GAAP:
A. record income and expenses at the time they affect the firm’s cash flows.
B. have no discretion over the timing of recording either revenue or expense items.
C. must record all expenses when incurred.
D. can still manipulate their earnings to some degree.
E. record both income and expenses as soon as the amount for each can be ascertained.
On which one of the following dates do dividends become a liability of the issuer for
accounting purposes?
A. First day of the fiscal year in which the dividend is expected to be paid
B. Twelve months prior to the expected dividend payment date
C. On the declaration date
D. On the date of record
E. On the date of payment
The capital gains yield equals which one of the following?
A. Total yield
B. Current discount rate
C. Market rate of return
D. Dividend yield
E. Dividend growth rate