The App Store needs to raise $2.2 million for an expansion project. The firm wants to
raise this money by selling zero coupon bonds with a par value of $1,000 that mature in
20 years. The market yield on similar bonds is 8.8 percent. How many bonds must The
App Store sell to raise the money it needs? (Assume semiannual compounding.)
A. 2,200 bonds
B. 3,450 bonds
C. 11,508 bonds
D. 11,797 bonds
E. 12,315 bonds
Lawlers BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends of
$4,500. What is the plowback ratio?
A. 46.32 percent
B. 49.78 percent
C. 50.23 percent
D. 58.09 percent
E. 62.99 percent
Baxter & Baxter has total assets of $710,000. There are 45,000 shares of stock
outstanding with a market value of $28 a share. The firm has a profit margin of 7.1
percent and a total asset turnover of 1.29. What is the price-earnings ratio?
A. 16.38
B. 17.99
C. 19.38
D. 20.12
E. 22.41
What is the beta of the following portfolio?
A. 1.13
B. 1.15
C. 1.17
D. 1.21
E. 1.23
A good steak dinner in the U.S. costs $49 while the exact meal costs 660 pesos across
the border in Mexico. Based on purchasing power parity, what is the implied peso/$
exchange rate?
A. Ps0.0833/$1
B. Ps12.00/$1
C. Ps14.42/$1
D. Ps14.67/$1
E. Ps15.08/$1
Kim placed an order with her broker to purchase 400 shares of each of three IPOs that
are being released this month. Each IPO has an offer price of $23 a share. The number
of shares allocated to Kim, along with the closing stock price at the end of the first day
of trading for each stock, are as follows:
What is Kims total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$1,330
B. -$540
C. -$230
D. $1,330
E. $2,370
You are analyzing a project and have developed the following estimates: unit sales =
2,600, price per unit = $56, variable cost per unit = $39, fixed costs = $24,700. The
depreciation is $15,800 a year and the tax rate is 35 percent. What effect would a
decrease of $1 in the variable cost per unit have on the operating cash flow?
A. -$2,600
B. -$1,742
C. -$912
D. $1,690
E. $2,600
If inflation is expected to steadily decrease in the future, the term structure of interest
rates will most likely be:
A. upward sloping.
B. flat.
C. humped.
D. downward sloping.
E. double-humped.
Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B?
A. 2.77 percent
B. 4.13 percent
C. 6.67 percent
D. 8.91 percent
E. 9.36 percent
Tim Taylor Tools is a young start-up company. No dividends will be paid on the stock
over the next eight years because the firm needs to plow back its earnings to fuel
growth. The company will then pay a $9 per share dividend in year 8 and will increase
the dividend by 4 percent per year thereafter. If the required return on this stock is 12
percent, what is the current share price?
A. $42.64
B. $45.44
C. $57.23
D. $81.95
E. $100.13
You are comparing three investments, all of which pay $100 a month and have an 8
percent interest rate. One is ordinary annuity, one is an annuity due, and the third
investment is a perpetuity. Which one of the following statements is correct given these
three investment options?
A. To be the perpetuity, the payments must occur on the first day of each monthly
period.
B. The ordinary annuity would be more valuable than the annuity due if both had a life
of 10 years.
C. The present value of the perpetuity has to be higher than the present value of either
the ordinary annuity or the annuity due.
D. The future value of all three investments must be equal.
E. The present value of all three investments must be equal.
Over the period of 1926-2011:
A. long-term government bonds underperformed long-term corporate bonds.
B. small-company stocks underperformed large-company stocks.
C. inflation exceeded the rate of return on U.S. Treasury bills.
D. U.S. Treasury bills outperformed long-term government bonds.
E. large-company stocks outperformed all other investment categories.
On which one of the following dates is the determination made as to which
shareholders will receive a dividend payment?
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date
MLK, Inc. wants to issue new 15-year bonds for some much-needed expansion
projects. The company currently has 6.5 percent coupon bonds on the market that sell
for $975.00, make semiannual payments, and mature in 15 years. What coupon rate
should the company set on its new bonds if it wants them to sell at par?
A. 3.38 percent
B. 6.37 percent
C. 6.50 percent
D. 6.67 percent
E. 6.77 percent
Float is defined as the difference between which of the following?
A. Beginning cash balance and the ending cash balance as shown on a cash budget
B. Ledger balance and the available balance
C. Book balance and the ledger balance
D. Collections and disbursements for any given period of time
E. Available balance and the collected balance
What is the beta of the following portfolio?
A. 0.98
B. 1.02
C. 1.11
D. 1.14
E. 1.20
Since there are no perfect or ideal standard ratios for a firm, why is ratio analysis still
considered a valuable management tool?
Draw a graph that illustrates the relationship between interest rates and the present
value of $1,000 to be received in one year.
Check kiting has been a means, although neither an ethical nor legal means, of allowing
a firm to use its uncollected cash. How did the Check Clearing Act for the 21st Century
(Check 21) affect this practice?
Explain the primary goal of the Sarbanes-Oxley Act in 2002 and discuss whether or not
this act appears to be effectively meeting that goal.
Draw a basic flowchart that depicts the components of collection time. Be sure to label
all key points and explain the various components. In addition, offer one suggestion for
decreasing the time required for each component.
What are some of the pros and cons of a JIT inventory management system?
Identify four parties that have a demand for U.S. dollars and explain why they wish to
obtain those dollars.
Explain why the marginal tax rate, rather than the average tax rate, is used when
computing the cash flows from a proposed new project.
Explain why a firm might prefer a stock repurchase rather than an increase in the firms
regular dividend.
Explain how a firm can structure its operations such that it creates its own internal
hedge to long-run exposure to exchange rate risk.