Martha’s Fabric House has sales of $137,200, total equity of $74,400, and a debt-equity
ratio of 0.45. What is the capital intensity ratio?
A. 0.79
B. 0.83
C. 1.06
D. 1.20
E. 1.27
Answer:
The payback period is the length of time it takes an investment to generate sufficient
cash flows to enable the project to:
A. produce a positive annual cash flow.
B. produce a positive cash flow from assets.
C. offset its fixed expenses.
D. offset its total expenses.
E. recoup its initial cost.
Answer:
Which one of the following statements is correct?
A. All secondary markets are dealer markets.
B. All secondary markets are broker markets.
C. All stock trades between existing shareholders are secondary market transactions.
D. All stock transactions are secondary market transactions.
E. All Dutch auction sales are secondary market transactions.
Answer:
The amount by which a firm’s tax bill is reduced as a result of the depreciation expense
is referred to as the depreciation:
A. tax shield.
B. credit.
C. erosion.
D. opportunity cost.
E. adjustment.
Answer:
Which one of the following will increase the operating cash flow as computed using the
tax shield approach?
A. Decrease in depreciation
B. Decrease in sales
C. Increase in variable costs
D. Decrease in fixed costs
E. Increase in the tax rate
Answer:
Industrial Services is analyzing a proposed investment that would initially require
$538,000 of new equipment. This equipment would be depreciated on a straight-line
basis to a zero balance over the four-year life of the project. The estimated salvage
value is $187,000. The project requires $39,000 initially for net working capital, all of
which will be recouped at the end of the project. The projected operating cash flow is
$194,900 a year. What is the internal rate of return on this project if the relevant tax rate
is 34 percent?
A. 15.54 percent
B. 15.92 percent
C. 18.01 percent
D. 18.67 percent
E. 20.49 percent
Answer:
Business Solutions, Inc. is expected to pay its first annual dividend of $1.00 per share
three years from now. Starting in year 6, the company is expected to start increasing the
dividend by 2 percent per year. What is the value of this stock today at a required return
of 12 percent?
A. $7.70
B. $8.09
C. $8.29
D. $9.03
E. $9.34
Answer:
Jeff deposits $3,000 into an account which pays 2.5 percent interest, compounded
annually. At the same time, Kurt deposits $3,000 into an account paying 5 percent
interest, compounded annually. At the end of three years:
A. Both Jeff and Kurt will have accounts of equal value.
B. Kurt will have twice the money saved that Jeff does.
C. Kurt will earn exactly twice the amount of interest that Jeff earns.
D. Kurt will have a larger account value than Jeff will.
E. Jeff will have more money saved than Kurt.
Answer:
You can exchange $1 for either 0.7773 euro or 0.6220 British pound. What is the
cross-rate between the pound and the euro?
A. 0.7519/€1
B. 0.8756/€1
C. 0.8002/€1
D. 1.0852/€1
E. 1.2497/€1
Answer:
Denbo’s, Inc. has total equity of $389,600, long-term debt of $116,400, net working
capital of $1,600, and total assets of $627,600. What is the total debt ratio?
A. 0.19
B. 0.38
C. 0.67
D. 1.49
E. 3.85
Answer:
The common stock of Beasley International goes ex-dividend tomorrow. The stock
closed at a price of $34.65 a share today. This quarter, the company is paying a cash
dividend of $0.24 a share and a liquidating dividend of $0.60 a share. Ignoring taxes
and assuming that all else is held constant, what will the ex-dividend price be tomorrow
morning?
A. $32.76
B. $33.00
C. $33.81
D. $33.96
E. $34.05
Answer:
Anna pays 1.5 percent interest monthly on her credit card account. When the interest
rate on that debt is expressed as if it were compounded only annually, the rate would be
referred to as the:
A. annual percentage rate.
B. compounded rate.
C. quoted rate.
D. stated rate.
Answer:
When you refer to a bond’s coupon, you are referring to which one of the following?
A. Difference between the purchase price and the face value
B. Annual interest divided by the current bond price
C. Difference between the bid and ask price
D. Annual interest payment
E. Principal amount of the bond
Answer:
Ted’s Toys just reconciled its bank account and has $12,300 in outstanding deposits and
$31,400 in checks outstanding. The firm’s checkbook has a positive balance. The firm
sells on a cash basis only and deposits its receipts on a daily basis. The deposited funds
are available to the firm the following day. The firm writes and mails checks on a daily
basis also. These checks generally clear the bank in three days. What do you know
about the firm’s float given this information?
A. The firm has disbursements float but no collection float.
B. The collection float exceeds the disbursement float.
C. The firm has a net collection float.
D. The disbursement float exceeds the collection float.
E. Since transactions occur daily, the firm has no float.
Answer:
A person who executes customer orders to buy and sell securities on the floor of the
NYSE is called a:
A. floor trader.
B. DMM.
C. runner.
D. commission broker.
E. market maker.
Answer:
The 6 percent coupon bonds of Precision Engineering are selling for 98 percent of par
value. The bonds mature in eight years and pay interest semiannually. These bonds have
current yield of _____ percent, a yield to maturity of _____ percent, and an effective
annual yield of _____ percent.
A. 6.12; 6.32; 6.36
B. 6.12; 6.32; 6.42
C. 6.12; 6.36; 6.42
D. 6.23; 6.32; 6.36
E. 6.23; 6.36; 6.42
Answer:
AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a
market price of $974. The bonds pay interest annually and have a yield to maturity of
4.03 percent. What is the coupon rate?
A. 3.75 percent
B. 4.20 percent
C. 4.25 percent
D. 7.50 percent
E. 8.40 percent
Answer:
Western Electric has 23,000 shares of common stock outstanding at a price per share of
$57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent
preferred stock outstanding at a price of $48 a share. The preferred stock has a par value
of $100. The outstanding debt has a total face value of $350,000 and currently sells for
102 percent of face. The yield to maturity on the debt is 8.49 percent. What is the firm’s
weighted average cost of capital if the tax rate is 34 percent?
A. 12.69 percent
B. 13.44 percent
C. 14.19 percent
D. 14.47 percent
E. 14.92 percent
Answer:
Companies can list their stock on which one of the following without having to meet
listing requirements or filing financial statements with the SEC?
A. NASDAQ Capital Market
B. Over-the-Counter Bulletin Board
C. Pink sheets
D. NASDAQ Global Market
E. NYSE
Answer:
A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be
paid in four annual payments of $625 each, starting one year after the drawing. How
much would this prize be worth to you if you can earn 9 percent on your money?
A. $1,848.18
B. $1,934.24
C. $2,024.82
D. $2,450.14
E. $2,545.54
Answer:
Which one of the following statements is correct?
A. A longer payback period is preferred over a shorter payback period.
B. The payback rule states that you should accept a project if the payback period is less
than one year.
C. The payback period ignores the time value of money.
D. The payback rule is biased in favor of long-term projects.
E. The payback period considers the timing and amount of all of a project’s cash flows.
Answer:
A limited liability company:
A. is a hybrid between a sole proprietorship and a partnership.
B. prefers its profits be taxed as personal income to its owners.
C. that meets the IRS criteria to be an LLC will be taxed like a corporation.
D. provides limited liability for some, but not all, of its owners.
E. cannot be created for professional service firms, such as accountants and attorneys.
Answer:
The ex-dividend date is defined as _____ day(s) before the date of record.
A. three business
B. three
C. two business
D. two
E. one
Answer:
The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and
pay interest annually. Currently, the bonds are quoted at 95.27 and mature in 3.5 years.
What is the yield to maturity?
A. 7.88 percent
B. 8.02 percent
C. 8.18 percent
D. 8.79 percent
E. 9.14 percent
Answer: