Book Title
Fundamentals of Corporate Finance Standard Edition 9th Edition

FIN 51418

February 26, 2019
Zylo, Inc. preferred stock pays a $7.50 annual dividend. What is the maximum price
you are willing to pay for one share of this stock today if your required return is 9.75
A. $32.26
B. $35.48
C. $72.68
D. $76.92
E. $79.81
A project has an initial cost of $6,500. The cash inflows are $900, $2,200, $3,600, and
$4,100 over the next four years, respectively. What is the payback period?
A. 1.73 years
B. 2.51 years
C. 2.94 years
D. 3.51 years
E. 3.94 years
The Mountain Top Shoppe has sales of $512,000, average accounts receivable of
$31,400 and average accounts payable of $24,800. The cost of goods sold is equivalent
to 71 percent of sales. How long does it take The Mountain Top Shoppe to pay its
A. 21.76 days
B. 22.38 days
C. 24.90 days
D. 25.89 days
E. 26.67 days
Boston Free Press has a dividend policy whereby the firm pays a constant annual
dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock
outstanding. The company:
A. must always show a current liability of $2,400, ($2.40 × 1,000), for dividends
B. must still declare each dividend before it becomes an actual company liability.
C. is obligated to pay $2.40 per share each year in perpetuity.
D. will be declared in default if it does not pay at least $2.40 per share per year on a
timely basis.
E. has a liability that must be paid at a later date should the company miss paying an
annual dividend payment.
You are scheduled to receive $30,000 in two years. When you receive it, you will invest
it for 5 more years, at 8 percent per year. How much money will you have 7 years from
A. $39,909.19
B. $41,381.16
C. $44,079.84
D. $47,209.19
E. $51,414.73
Which one of the five Cs of credit refers to the general economic situation in the
customer's line of business?
A. capacity
B. character
C. conditions
D. capital
E. collateral
What is the information content effect?
A. any type of new information that causes a firm to cease paying dividends
B. any news announcement that was anticipated and thus produces no reaction from
C. the primary contributing data that helps directors determine the amount of a
particular dividend payment
D. any type of reaction from a shareholder in response to a news announcement related
to the stock issuer
E. the financial market's reaction to a change in the amount of a firm's dividend
You invest $4,000 today at 6.5 percent, compounded continuously. How much will this
investment be worth 8 years from now?
A. $6,620
B. $6,728
C. $7,311
D. $7,422
E. $7,791
The Presque Isle Center has branch operations in three states. Each branch deals with a
local bank. However, all excess funds in these branch bank accounts are transferred on
a daily basis to the firm's primary bank located near the firm's home office. This routine
of transferring cash to the primary bank on a regular basis is referred to as:
A. cash concentration.
B. strategic cash disbursement.
C. transfer flotation.
D. payables management.
E. float management.
A project has average net income of $5,600 a year over its 6-year life. The initial cost of
the project is $98,000 which will be depreciated using straight-line depreciation to a
book value of zero over the life of the project. The firm wants to earn a minimum
average accounting return of 11.5 percent. The firm should _____ the project because
the AAR is _____ percent.
A. accept; 5.71
B. accept; 9.90
C. accept; 11.43
D. reject; 5.71
E. reject; 11.43
You own a portfolio with the following expected returns given the various states of the
economy. What is the overall portfolio expected return?
A. 6.49 percent
B. 8.64 percent
C. 8.87 percent
D. 9.05 percent
E. 9.23 percent
Frozen Foods Delivery is considering the purchase of a delivery truck costing $49,000.
The truck can be leased for 3 years at $19,500 per year or it can be purchased at an
interest rate of 7.5 percent. The estimated life of the truck is 3 years. The corporate tax
rate is 34 percent. The company does not expect to owe any taxes for the next several
years due to accumulated net operating losses. The firm uses straight-line depreciation.
What is the net advantage to leasing?
A. -$1,710
B. -$866
C. $304
D. $1,006
E. $1,394
Which one of the following will best reduce the risk of a project by lowering the degree
of operating leverage?
A. hiring temporary workers from an employment agency rather than hiring part-time
production employees
B. subcontracting portions of the project rather than purchasing new equipment to do all
the work in-house
C. leasing equipment on a long-term basis rather than buying equipment
D. lowering the projected selling price per unit
E. changing the proposed labor-intensive production method to a more capital intensive
You are considering a project that has been assigned a discount rate of 14 percent. If
you start the project today, you will incur an initial cost of $8,500 and will receive cash
inflows of $5,550 a year for two years. If you wait one year to start the project, the
initial cost will rise to $9,200 and the cash flows will increase to $5,800 a year for two
years. What is the value of the option to wait?
A. -$331.40
B. -$194.46
C. $228.51
D. $230.49
E. $334.68
When a firm has flotation costs equal to 7 percent of the funding need, project analysts
A. increase the project's discount rate to offset these expenses by multiplying the firm's
WACC by 1.07.
B. increase the project's discount rate to offset these expenses by dividing the firm's
WACC by (1 - 0.07).
C. add 7 percent to the firm's WACC to get the discount rate for the project.
D. increase the initial project cost by multiplying that cost by 1.07.
E. increase the initial project cost by dividing that cost by (1 - 0.07).
Cash flow to stockholders is defined as:
A. the total amount of interest and dividends paid during the past year.
B. the change in total equity over the past year.
C. cash flow from assets plus the cash flow to creditors.
D. operating cash flow minus the cash flow to creditors.
E. dividend payments less net new equity raised.
A strong argument can be made that the collapse of the savings and loan industry began
A. the inflation rates in the U.S. began rising rapidly.
B. the volatility of interest rates increased significantly.
C. fluctuating commodity prices became the norm.
D. the Bretton Woods accord became effective.
Which one of the following statements is correct?
A. Funds received via automated clearinghouse transfers are available that day.
B. A depository transfer check is the most costly means of transferring funds into a cash
concentration account.
C. The means selected to transfer funds into a concentration account depends primarily
upon the size of the transfers.
D. Concentration accounts are used to transfer funds to lockbox locations as needed.
E. The most expedient means of transferring funds into a concentration account is a
wire transfer.
If you excel in analyzing the future outlook of firms, you would prefer the financial
markets be ____ form efficient so that you can have an advantage in the marketplace.
A. weak
B. semiweak
C. semistrong
D. strong
E. perfect
Assume the shareholders of a target firm benefit from being acquired in a stock
transaction. Given this, these shareholders are most apt to realize the largest benefit if
A. acquiring firm has the better management team and replaces the target firm's
B. management of the target firm is more efficient than the management of the
acquiring firm which replaces them.
C. management of both the acquiring firm and the target firm are as equivalent as
D. current management team of the target firm is kept in place even though the
managers of the acquiring firm are more suited to manage the target firm's situation.
E. current management team of the target firm is technologically knowledgeable but yet
Which one of the following will decrease the net present value of a project?
A. increasing the value of each of the project's discounted cash inflows
B. moving each of the cash inflows back to a later time period
C. decreasing the required discount rate
D. increasing the project's initial cost at time zero
E. increasing the amount of the final cash inflow
Your credit card company quotes you a rate of 17.9 percent. Interest is billed monthly.
What is the actual rate of interest you are paying?
A. 19.03 percent
B. 19.21 percent
C. 19.44 percent
D. 19.57 percent
E. 19.72 percent
Stacy purchased a stock last year and sold it today for $3 a share more than her
purchase price. She received a total of $0.75 in dividends. Which one of the following
statements is correct in relation to this investment?
A. The dividend yield is expressed as a percentage of the selling price.
B. The capital gain would have been less had Stacy not received the dividends.
C. The total dollar return per share is $3.
D. The capital gains yield is positive.
Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover
of 3.2, and a current ratio of 2.9. What is the cost of goods sold?
A. $980,000
B. $1,060,000
C. $1,200,000
D. $1,400,000
E. $1,560,000
What is the internal growth rate of Fake Stone, Inc. assuming the payout ratio remains
A. 5.20 percent
B. 5.55 percent
C. 7.36 percent
D. 7.49 percent
E. 8.77 percent
You recently purchased three put option contracts on Guillepsi stock with an exercise
price of $42.50. What is the total intrinsic value of these contracts if the stock is
currently selling for $43.70 a share?
A. -$360
B. -$120
C. $0
D. $120
E. $360
Theo needs $40,000 as a down payment for a house 6 years from now. He earns 3.5
percent on his savings. Theo can either deposit one lump sum today for this purpose or
he can wait a year and deposit a lump sum. How much additional money must he
deposit if he waits for one year rather than making the deposit today?
A. $878.98
B. $911.13
C. $1,138.90
D. $1,348.03
E. $1,420.18
Shelf registration allows a firm to register multiple issues at one time with the SEC and
then sell those registered shares anytime during the subsequent:
A. 3 months.
B. 6 months.
C. 180 days.
D. 2 years.
E. 5 years.
You just won a national sweepstakes! For your prize, you opted to receive never-ending
payments. The first payment will be $12,500 and will be paid one year from today.
Every year thereafter, the payments will increase by 3.5 percent annually. What is the
present value of your prize at a discount rate of 8 percent?
A. $166,666.67
B. $248,409.19
C. $277,777.78
D. $291,006.12
E. $300,000.00
Employee stock options are primarily designed to do which one of the following?
A. provide employees with put options on their shares of company stock
B. provide an immediately vested benefit to key employees
C. influence the actions and priorities of employees
D. distribute excess cash to key employees to avoid corporate taxation
E. provide an immediate capital gain to certain employees