The LIBOR is primarily used as the basis for the rate charged on:
A. short-term debt in the Lisbon market.
B. mortgage loans in the Lisbon market.
C. Eurodollar loans in the London market.
D. U.S. federal funds.
E. interbank loans in the U.S.
Answer:
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
Answer:
The Cookie Shoppe expects sales of $437,500 next year. The profit margin is 5.3
percent and the firm has a 30 percent dividend payout ratio. What is the projected
increase in retained earnings?
A. $16,231
B. $17,500
C. $18,300
D. $20,600
E. $21,000
Answer:
You expect to receive $9,000 at graduation in 2 years. You plan on investing this money
at 10 percent until you have $60,000. How many years will it be until this occurs?
A. 18.78 years
B. 19.96 years
C. 21.90 years
D. 23.08 years
E. 25.00 years
Answer:
If a firm has the optimal amount of debt, then the:
A. direct financial distress costs must equal the present value of the interest tax shield.
B. value of the levered firm will exceed the value of the firm if it were unlevered.
C. value of the firm is minimized.
D. value of the firm is equal to VL + TC × D.
E. debt-equity ratio is equal to 1.0.
Answer:
A firm’s cost of capital:
A. will decrease as the risk level of the firm increases.
B. for a specific project is primarily dependent upon the source of the funds used for the
project.
C. is independent of the firm’s capital structure.
D. should be applied as the discount rate for any project considered by the firm.
E. depends upon how the funds raised are going to be spent.
Answer:
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for
a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly
payment on this loan will be $12,200. What is the effective annual rate on this loan?
A. 5.95 percent
B. 6.25 percent
C. 6.46 percent
D. 7.01 percent
E. 7.50 percent
Answer:
Which one of the following statements is correct concerning the NYSE?
A. The publicly traded shares of a NYSE-listed firm must be worth at least $250
million.
B. The NYSE is the largest dealer market for listed securities in the United States.
C. The listing requirements for the NYSE are more stringent than those of NASDAQ.
D. Any corporation desiring to be listed on the NYSE can do so for a fee.
E. The NYSE is an OTC market functioning as both a primary and a secondary market.
Answer:
Executive Tours has decided to take its firm public and has hired an investment firm to
handle this offering. The investment firm is serving as a(n):
A. aftermarket specialist.
B. venture capitalist.
C. underwriter.
D. seasoned writer.
E. primary investor.
Answer:
What is the net cash flow from investment activity for 2012?
A. -$1,840
B. -$1,680
C. -$80
D. $80
E. $1,840
Answer:
In the Black-Scholes option pricing formula, N(d1) is the probability that a
standardized, normally distributed random variable is:
A. less than or equal to N(d2).
B. less than one.
C. equal to one.
D. equal to d1.
E. less than or equal to d1.
Answer:
A project has a unit price of $5,000, a variable cost per unit of $3,750, fixed costs of
$17,000,000, and depreciation expense of $6,970,000. What is the accounting
break-even quantity?
A. 6,970 units
B. 10,030 units
C. 17,000 units
D. 18,470 units
E. 19,176 units
Answer:
Which one of the following statements correctly applies to the period 1926-2010?
A. Large-company stocks earned a higher average risk premium than did
small-company stocks.
B. Intermediate-term government bonds had a higher average return than long-term
corporate bonds.
C. Large-company stocks had an average annual return of 14.7 percent.
D. Inflation averaged 2.6 percent for the period.
E. U.S. Treasury bills had a positive average real rate of return.
Answer:
Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10
a share. Isabelle is a shareholder who exercised her rights option by buying all of the
rights to which she was entitled based on the number of shares she owns. Currently,
there are six shareholders who have opted not to participate in the rights offering.
Isabelle would like to purchase the unsubscribed shares. Which one of the following
will allow her to do so?
A. standby provision
B. oversubscription privilege
C. open offer privilege
D. new issues provision
E. overallotment provision
Answer:
On an average day, Town Center Hardware receives $2,420 in checks from customers.
These checks clear the bank in an average of 2.1 days. The applicable daily interest rate
is 0.025 percent. What is the maximum amount this store should pay to completely
eliminate its collection float? Assume each month has 30 days.
A. $1,152.38
B. $1,288.15
C. $2,109.16
D. $4,637.33
E. $5,082.00
Answer:
What is the cash flow to stockholders for 2011?
A. -$500
B. -$800
C. $500
D. $1,300
E. $2,100
Answer:
The Blue Star has sales of $387,000, costs of goods sold of $259,000, average accounts
receivable of $12,100, and average accounts payable of $12,600. How long does it take
for the firm’s credit customers to pay for their purchases?
A. 7.67 days
B. 9.24 days
C. 11.41 days
D. 11.88 days
E. 13.81 days
Answer:
You are analyzing a project and have gathered the following data:
Based on the internal rate of return of _____ percent for this project, you should _____
the project.
A. 14.67; accept
B. 17.91; accept
C. 14.67; reject
D. 17.91; reject
E. 18.46; reject
Answer:
Which one of the following will be constant for all securities if the market is efficient
and securities are priced fairly?
A. variance
B. standard deviation
C. reward-to-risk ratio
D. beta
E. risk premium
Answer:
The primary purpose of a flip-in provision is to:
A. increase the number of shares outstanding while also increasing the value per share.
B. dilute a corporate raider’s ownership position.
C. reduce the market value of each share of stock.
D. give the existing corporate directors the sole right to remove a poison pill.
E. provide additional compensation to any senior manager who loses his or her job as a
result of a corporate takeover.
Answer:
Westover Winds just paid a dividend of $2.10 per share. The company will increase its
dividend by 8 percent next year and will then reduce its dividend growth rate by 2
percentage points per year until it reaches the industry average of 2 percent dividend
growth, after which the company will keep a constant growth rate forever. What is the
price of this stock today given a required return of 11 percent?
A. $26.54
B. $28.99
C. $31.83
D. $32.06
E. $32.47
Answer:
Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year.
Common stock increased by $1,200 and retained earnings decreased by $310. What is
the net income for the year?
A. -$210
B. $990
C. $1,610
D. $1,910
E. $2,190
Answer:
Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2
percent and the market rate of return is 11.76 percent?
A. A
B. B
C. C
D. D
E. E
Answer:
Which one of the following standardizes items on the income statement and balance
sheet relative to their values as of a chosen point in time?
A. statement of standardization
B. statement of cash flows
C. common-base year statement
D. common-size statement
E. base reconciliation statement
Answer:
You just sold 600 shares of Wesley, Inc. stock at a price of $32.04 a share. Last year,
you paid $30.92 a share to buy this stock. Over the course of the year, you received
dividends totaling $1.20 per share. What is your total capital gain on this investment?
A. -$618
B. -$672
C. $672
D. $618
E. $720
Answer:
One year ago, you purchased a stock at a price of $33.49. The stock pays quarterly
dividends of $0.20 per share. Today, the stock is selling for $28.20 per share. What is
your capital gain on this investment?
A. -$5.49
B. -$5.29
C. -$4.76
D. -$4.16
E. -$5.09
Answer:
The Cow Pie Spreader Co. spends $214,000 a week to pay bills and maintains a lower
cash balance limit of $150,000. The standard deviation of the disbursements is $16,000.
The applicable weekly interest rate is 0.025 percent and the fixed cost of transferring
funds is $49. What is the firm’s cash balance target based on the Miller-Orr model?
A. $183,511
B. $208,511
C. $251,006
D. $254,545
E. $258,878
Answer:
Monika’s Dinor is operating at 94 percent of its fixed asset capacity and has current
sales of $611,000. How much can the firm grow before any new fixed assets are
needed?
A. 4.99 percent
B. 5.78 percent
C. 6.02 percent
D. 6.38 percent
E. 6.79 percent
Answer:
Which one of these statements related to growing annuities and perpetuities is correct?
A. The cash flow used in the growing annuity formula is the initial cash flow at time
zero.
B. Growth rates cannot be applied to perpetuities if you wish to compute the present
value.
C. The future value of an annuity will decrease if the growth rate is increased.
D. An increase in the rate of growth will decrease the present value of an annuity.
E. The present value of a growing perpetuity will decrease if the discount rate is
increased.
Answer:
Will has been purchasing $25,000 worth of New Tek stock annually for the past 15
years. His holdings are now worth $598,100. What is his annual rate of return on this
stock?
A. 6.13 percent
B. 6.24 percent
C. 6.29 percent
D. 6.32 percent
E. 6.36 percent
Answer:
The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio. What
is its internal growth rate?
A. 4.72 percent
B. 5.08 percent
C. 5.49 percent
D. 6.23 percent
E. 7.24 percent
Answer:
Which one of the following best illustrates that the management of a firm is adhering to
the goal of financial management?
A. increase in the amount of the quarterly dividend
B. decrease in the per unit production costs
C. increase in the number of shares outstanding
D. decrease in the net working capital
E. increase in the market value per share
Answer: