1) Charles Henri is considering investing $36,000 in a project that is expected to
provide him with cash inflows of $12,000 in each of the first two years and $18,000 for
the following year. At a discount rate of zero percent this investment has a net present
value of ____, but at the relevant discount rate of 17 percent the project’s net present
value is ____.
A.$0; -$5,739
B.$0; -$3,406
C.$6,000; -$5,739
D.$6,000; -$3,406
E.$6,000; $1,897
2) Kessler, Inc. has accounts receivable of $31,600, total assets of $311,500, cost of
goods sold of $208,400, and a capital intensity ratio of 1.08 . What is the accounts
receivable turnover rate?
A.8.99
B.9.13
C.9.42
D.9.61
E.9.72
3) Which one of the following tends to be the primary attitude of firms’ toward their
dividend policy?
A.Dividends should be increased annually no matter what
B.Dividends should be flexible and adjusted annually in response to changes in the
firm’s earnings
C.The costs associated with cutting dividends are perceived to be less than the costs of
obtaining external financing
D.Once a dividend is increased, it should not be decreased
E.Dividend smoothing is talked about but is not really a factor that affects dividend
decisions
4) Today, you are borrowing $13,800 to purchase a car. What will be your monthly
payment amount if the loan is for four years at 7.5 percent interest?
A.$298.40
B.$321.150
C.$333.67
D.$380.24
E.$400.10
5) You purchased a zero coupon bond one year ago for $291.22. The market interest
rate is now 8.75 percent. If the bond had 16 years to maturity when you originally
purchased it, what was your total return for the past year if the face value of the bond is
$1,000?
A.-4.97 percent
B.-2.18 percent
C.1.34 percent
D.2.65 percent
E.2.90 percent
6) Last year, you earned a rate of return of 12.37 percent on your bond investments.
During that time, the inflation rate was 3.6 percent. What was your real rate of return?
A.6.30 percent
B.7.60 percent
C.7.75 percent
D.8.47 percent
E.8.70 percent
7) Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860,
accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?
A.0.08
B.0.25
C.0.30
D.0.46
E.0.51
8) A stock has produced returns of 11 percent, 18 percent, -6 percent, -13 percent, and
21 percent for the past five years, respectively. What is the standard deviation of these
returns?
A.7.75 percent
B.8.87 percent
C.9.23 percent
D.14.99 percent
E.16.64 percent
9) The quiet period is designed to do which one of the following?
A.Prevent the original investors in a firm from selling their shares and destabilizing a
security’s price during the first six months of public trading
B.Ensure that all potential investors have fair access to identical information
C.Ensure that all bidders are heard in a Dutch auction
D.Stabilize the aftermarket
E.Quiet the market so the SEC can fairly evaluate a new securities offer
10) Which one of the following represents the rate of return a firm must earn on its
assets if it is to maintain the current value of its securities?
A.Cost of equity
B.Internal rate of return
C.Aftertax cost of debt
D.Weighted average cost of capital
E.Debt-equity ratio
11) Common-size financial statements present all balance sheet account values as a
percentage of:
A.the forecasted budget
B.sales
C.total equity
D.total assets
E.last year’s account value
12) Abbott & Costello has the following estimated sales.
Purchases are equal to 75 percent of the following quarter’s sales. What is the estimated
amount of purchases for quarter 2?
A.$5,209
B.$5,508
C.$5,848
D.$7,125
E.$7,720
13) Cross Town Cookies is an all-equity firm with a total market value of $720,000.
The firm has 150,000 shares of stock outstanding. Management is considering issuing
$200,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase
shares. The projected earnings before interest and taxes are $58,600. What are the
anticipated earnings per share if the debt is issued? Ignore taxes.
A.$0.25
B.$0.33
C.$0.38
D.$0.41
E.$0.47
14) A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,
with the first payment coming 6.5 years from now. If the discount rate is 7 percent
compounded semiannually, what is the value of this annuity 4 years from now?
A.$37,139.58
B.$38,399.20
C.$40,687.14
D.$41,811.67
E.$42,618.52
15) Which one of the following is the date on which the board of directors agrees to pay
a dividend and passes a resolution to do so?
A.Date of record
B.Ex-dividend date
C.Payment date
D.Declaration date
E.Public announcement date
16) Assume there are no taxes or imperfections. Given this assumption, which one of
the following statements is correct?
A.A cash dividend has no effect on the market price of the payer’s stock
B.A cash dividend decreases shareholder wealth
C.Stock repurchases decrease the market value per share
D.Both a cash dividend and a share repurchase increase a firm’s PE ratio
E.A stock repurchase has the same effect on a firm’s market value balance sheet as does
a cash dividend
17) Erin’s purchases from suppliers in a quarter are equal to 67 percent of the next
quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other
expenses are 30 percent of sales, and interest and dividends are $90 per quarter. No
capital expenditures are planned. Projected quarterly sales are:
Sales for the first quarter of the following year are projected at $1,510. What is the
amount of the firm’s total cash outlay for the third quarter?
A.$1,990
B.$1,420
C.$1,480
D.$1,530
E.$1,550
18) You can exchange $1 for either Can$1.2512 or 100.37. What is the cross-rate
between the Canadian dollar and the Japanese yen?
A.Can$0.0125/1
B.Can$0.013723/1
C.Can$0.014582/1
D.Can$80.2191/1
E.Can$131.0818/1
19) The balance sheet of Binger, Inc. has the following balances:
What is the amount of the change in net working capital?
A.-$8,100
B.-$7,400
C.$7,700
D.$8,000
E.$8,100
20) A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9
percent over the past five years, respectively. Based on these five years, what is the
probability that an investor in this stock will lose more than 17.06 percent in any one
given year?
A.0.50 percent
B.1.00 percent
C.1.25 percent
D.2.50 percent
E.5.00 percent
21) Which one of the following statements related to the static theory of capital
structure is correct?
A.A firm begins to lose value as soon as the first dollar of debt is incurred
B.The actual value of a firm continually rises in direct proportion to the increased use
of debt
C.The linear function of a firm’s value has a constant positive slope
D.A firm’s value is maximized when a firm operates at its optimal debt level
E.The value of a firm will automatically decrease whenever the debt-equity ratio is
decreased
22) Which one of the following is most apt to align management’s priorities with
shareholders’ interests?
A.Increasing employee retirement benefits
B.Compensating managers with shares of stock that must be held for three years before
the shares can be sold
C.Allowing a manager to decorate his or her own office once he or she has been in that
office for a period of three years or more
D.Increasing the number of paid holidays that long-term employees are entitled to
receive
E.Allowing employees to retire early with full retirement benefits
23) Which one of the following would be the most common evidence of indebtedness
when a sale is made on open account?
A.Sight draft
B.Commercial draft
C.Banker’s acceptance
D.Promissory note
E.Invoice
24) Santa Claus Enterprises has 174,000 shares of common stock outstanding at a
current price of $46 a share. The firm also has two bond issues outstanding. The first
bond issue has a total face value of $250,000, pays 7.7 percent interest annually, and
currently sells for 102.5 percent of face value. The second bond issue consists of 5,000
bonds that are selling for $993 each. These bonds pay 6.5 percent interest annually and
mature in eight years. The tax rate is 34 percent. What is the capital structure weight of
the firm’s debt?
A.39.48 percent
B.51.39 percent
C.55.50 percent
D.60.52 percent
E.71.86 percent
25) A firm earns $0.18 in profit for every $1 of equity in the firm. The company
borrows $0.60 for every $1 of equity. What is the firm’s return on assets?
A.8.85 percent
B.11.25 percent
C.25.15 percent
D.26.07 percent
E.28.33 percent
26) Which one of the following is an advantage of being a limited partner?
A.Nontaxable share of any profits
B.Control over the daily operations of the firm
C.Losses limited to capital invested
D.Unlimited profits without risk of incurring a loss
E.Active market for ownership interest
27) The sustainable growth rate is defined as the maximum rate at which a firm can
grow given which of the following conditions?
A.No new external financing of any kind
B.No new debt but additional external equity equal to the increase in retained earnings
C.New debt and external equity in equal proportions
D.New debt and external equity, provided the debt-equity ratio remains constant
E.No new equity and a constant debt-equity ratio
28) Which one of the following will increase the operating cycle?
A.Decreasing the accounts payable period
B.Increasing the accounts payable turnover rate
C.Increasing the cash cycle
D.Decreasing the accounts receivable turnover rate
E.Decreasing the inventory period
29) Stock prices tend to _____ following the announcement of a new equity issue and
tend to _____ following the announcement of a new debt issue.
A.increase; increase
B.increase; decrease
C.increase; remain relatively constant
D.decrease; increase
E.decrease; remain relatively constant
30) The current yield on a bond is equal to the annual interest divided by which one of
the following?
A.Issue price
B.Maturity value
C.Face amount
D.Current market price
E.Current par value
31) Chick ‘N Fish is considering two different capital structures. The first option
consists of 25,000 shares of stock. The second option consists of 15,000 shares of stock
plus $150,000 of debt at an interest rate of 7.5 percent. Ignore taxes. What is the
break-even level of earnings before interest and taxes (EBIT) between these two
options?
A.$2,813
B.$3,134
C.$16,410
D.$28,125
E.$31,338