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1) The net present value profile illustrates how the net present value of an investment is
affected by which one of the following?
A.Project's initial cost
B.Discount rate
C.Timing of the project's cash inflows
D.Inflation rate
E.Real rate of return
2) Your grandfather started his own business 52 years ago. He opened a savings account
at the end of his third month of business and contributed $x. Every three months since
then, he faithfully saved another $x. His savings account has earned an average rate of
4.5 percent annually. Today, his account is valued at $364,209.11. How much did your
grandfather save every three months?
A.$425.15
B.$428.67
C.$431.09
D.$443.13
E.$462.25
3) Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock
sells for $28.40 a share at a required return of 14 percent. What is the amount of the last
dividend this company paid?
A.$3.50
B.$3.55
C.$3.60
D.$3.65
E.$3.70
4) The recognition principle states that:
A.costs should be recorded on the income statement whenever those costs can be
reliably determined
B.costs should be recorded when paid
C.the costs of producing an item should be recorded when the sale of that item is
recorded as revenue
D.sales should be recorded when the payment for that sale is received
E.sales should be recorded when the earnings process is virtually completed and the
value of the sale can be determined
5) The Draiman, Inc. currently has $3,600 in cash. The company owes $41,800 to
suppliers for merchandise and $21,500 to the bank for a long-term loan. Customers owe
The Draiman $18,000 for their purchases. The inventory has a book value of $53,300
and an estimated market value of $61,200. If the store compiled a balance sheet as of
today, what would be the book value of the current assets?
A.$46,800
B.$55,600
C.$64,700
D.$74,900
E.$96,500
6) Miller and Sons is evaluating a project with the following cash flows:
The company uses a 10 percent interest rate on all of its projects. What is the MIRR of
the project using the reinvestment approach? The discounting approach? The
combination approach?
A.8.46 percent; 7.29 percent; 8.59 percent
B.8.46 percent; 7.38 percent; 8.61 percent
C.8.54 percent; 7.29 percent; 8.61 percent
D.8.54 percent; 7.38 percent; 8.59 percent
E.8.54 percent; 8.23 percent; 8.61 percent
7) One year ago, you purchased a 7.5 percent annual coupon bond for a clean price of
$980. The bond now has seven years remaining until maturity. Today, the yield to
maturity on this bond is 6.87 percent. How does today's clean price of this bond
compare to your purchase price?
A.4.24 percent lower
B.4.70 percent lower
C.5.48 percent lower
D.5.52 percent higher
E.6.61 percent higher
8) Lester's is a globally diverse company with multiple divisions and a cost of capital of
15.8 percent. Med, Inc. is a specialty firm in the medical equipment field with a cost of
capital of 13.7 percent. With the aging of America, both firms recognize the
opportunities that exist in the medical field and are considering expansion in this area.
At present, there is an opportunity for multiple firms to be involved in a new medical
devices project. Each project will require an initial investment of $8.4 million with
annual returns of $2.2 million per year for seven years. Which firm or firms, if either,
should become involved in the new projects?
A.Lester's only
B.Med, Inc. only
C.Both Lester's and Med, Inc
D.Neither Lester's nor Med, Inc
E.The answer cannot be determined based on the information provided
9) Madison Corner writes 20 checks a day for an average amount of $630 each. These
checks generally clear the bank 2.5 days after they are written. In addition, the firm
generally receives an average of $18,400 a day in checks. Deposited amounts are
available after 2 days. What is the amount of the firm's disbursement float?
A.$12,600
B.$25,800
C.$28,350
D.$29,840
E.$31,500
10) Frank's Oil Supply has a cash balance of $27 and a short-term loan balance of $50
at the beginning of quarter 1 . The net cash inflow for the first quarter is $68 and for the
second quarter there is a net cash outflow of $23. All cash shortfalls are funded with
short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as
interest each quarter. The minimum cash balance is $15. What is the short-term loan
balance at the end of the first quarter?
A.$0
B.$13
C.$15
D.$17
E.$18
11) Gino's Winery has net working capital of $29,800, net fixed assets of $64,800,
current liabilities of $34,700, and long-term debt of $23,000. What is the value of the
owners' equity?
A.$36,900
B.$66,700
C.$71,600
D.$89,400
E.$106,300
12) Black Water Mills is operating at its optimal point. Which one of the following
conditions exists given this firm's operating status?
A.Carrying costs exceed shortage costs
B.Carrying costs are equal to zero
C.Both carrying costs and shortage costs are at their minimum levels
D.Shortage costs are equal to zero
E.Shortage costs equal carrying costs
13) A stock has produced returns of 16.6 percent, 3.4 percent, 11.7 percent, and -9.2
percent over the past four years, respectively. What is the geometric average return?
A.5.16 percent
B.5.47 percent
C.6.23 percent
D.6.61 percent
E.10.12 percent
14) Which one of the following statements is correct?
A.All of the major stock exchanges are U.S. based
B.The NYSE was created by the National Association of Securities Dealers in the early
1970s
C.The American Stock Exchange is a dealer market
D.OTC markets have a physical trading floor generally located in either New York City
or Chicago
E.The primary purpose of the NYSE is to match buyers with sellers
15) BJB, Inc. stock has an expected return of 15.15 percent. The risk-free rate is 3.8
percent and the market risk premium is 8.6 percent. What is the stock's beta?
A.1.19
B.1.21
C.1.32
D.1.48
E.1.62
16) A proposed project requires an initial cash outlay of $849,000 for equipment and an
additional cash outlay of $48,500 in year 1 to cover operating costs. During years 2
through 4, the project will generate cash inflows of $354,000 a year. What is the net
present value of this project at a discount rate of 13 percent? Round your answer to the
nearest whole dollar.
A.-$152,232
B.-$66,391
C.$67,333
D.$128,612
E.$239,602
17) The following is the sales budget for Uptown Rentals, Inc. for the first quarter of
2013:
Credit sales are collected as follows:
60 percent in the month of sale
32 percent in the month after the sale
8 percent in the second month after the sale
The accounts receivable balance at the end of the previous quarter was $87,040
($73,600 of which was uncollected December sales). How much did the firm collect in
the month of February?
A.$118,533
B.$121,212
C.$135,208
D.$138,615
E.$147,040
18) Fig Newton Industries is considering a project and has developed the following
estimates: unit sales = 7,300, price per unit = $149, variable cost per unit = $91, fixed
costs = $216,400. The depreciation is $94,700 a year and the tax rate is 40 percent.
What effect would an increase of $1 in the selling price have on the operating cash
flow?
A.$4,380
B.$4,823
C.$5,316
D.$5,448
E.$7,300
19) Which one of the following is the correct formula for the future value of $500
invested today at 7 percent interest for 8 years?
A.FV = $500/[(1 + 0.08) 7]
B.FV = $500/[(1 + 0.07) 8]
C.FV = $500/(0.07 8)
D.FV = $500 (1 + 0.07)8
E.FV = $500 (1 + 0.08)7
20) Assume a canned soft drink costs $1 in the U.S. and $1.30 in Canada. At the same
time, the currency per U.S. dollar is Can$1.30. Which one of the following conditions
exists in this situation?
A.Absolute purchasing power parity
B.Interest rate parity
C.Relative purchasing power parity
D.Translation exposure
E.Equal spot and forward rates
21) Todd will be receiving a $10,000 bonus one year from now. The process of
determining how much that bonus is worth today is called:
A.aggregating
B.discounting
C.simplifying
D.compounding
E.extrapolating
22) Ernst Electrical has 9,000 shares of stock outstanding and no debt. The new CFO is
considering issuing $80,000 of debt and using the proceeds to retire 1,500 shares of
stock. The coupon rate on the debt is 7.5 percent. What is the break-even level of
earnings before interest and taxes between these two capital structure options?
A.$18,500
B.$21,000
C.$24,000
D.$32,500
E.$36,000
23) A firm has net income of $6,850 and interest expense of $2,130. The tax rate is 34
percent. What is the firm's times interest earned ratio?
A.3.22
B.5.19
C.5.38
D.5.87
E.6.33
24) Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million.
Last year, the government changed the emission requirements and this furnace cannot
meet those standards. Thus, Weston can no longer use the furnace, nor has it been able
to locate anyone willing to purchase the furnace. Given the current situation, the
furnace is best described as which type of cost?
A.Erosion
B.Book
C.Sunk
D.Market
E.Opportunity
25) A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over
the past four years, respectively. What is the standard deviation of these returns?
A.5.52 percent
B.5.86 percent
C.6.05 percent
D.6.47 percent
E.6.99 percent
26) Which one of the following is the best universal definition of an exchange rate?
A.Price of one country's currency expressed in terms of another country's currency
B.Number of foreign dollars that can be purchased for every one U.S. dollar paid
C.Price of a country's currency expressed in terms of that country's currency unit
D.Number of units of a currency that were originally required to obtain one euro when
a country adopted the euro as its official currency
E.Price that must be paid to obtain a good or service from another country
27) A protective covenant:
A.protects the borrower from unscrupulous practices by the lender
B.is designed to protect the bond dealer from potential legal liability related to the bond
issue
C.prevents a bond from being called
D.limits the actions of the borrower
E.guarantees that a bond will be repaid in full with interest
28) Gorman Distributors shows the following information on its 2014 income
statement: sales = $317,800; costs = $211,400; other expenses = $18,500; depreciation
expense = $31,200; interest expense = $2,100; taxes = $18,600; dividends = $12,000. In
addition, you're told that the firm issued $4,500 in new equity during 2014, and
redeemed $6,500 in outstanding long-term debt. If net fixed assets increased by $7,400
during the year, what was the addition to net working capital?
A.$17,900
B.$14,600
C.$15,800
D.$16,200
E.$17,400
29) You are trying to compare the financial performance of your firm to that of similar
firms. What are some of the key problems you might encounter in doing this
comparison?
30) How can a firm determine if its level of liquidity is appropriate?
31) Over the period of 1926-2011, U. S. Treasury bills had an average return of 3.8
percent while inflation averaged 3.1 percent. Based on this historical record, is it safe to
assume that an investor in U.S. Treasury bills will enjoy a positive real rate of return
each year? Why or why not?
32) What is the difference between a tender offer and a targeted repurchase?
33) What does it mean when a loan is amortized? Explain how amortization methods
can vary from one loan to another.
34) 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.
35) Explain why the DuPont identity is so useful to a financial manager.
36) Explain the basic structure and workings of a disbursement system that utilizes
zero-balance accounts.
37) Which is more important from a finance perspectivenet income or operating cash
flow? What is the difference between these two values?
