Santa Klaus Toys just paid its annual dividend of $1.40. The required return is 8 percent
and the dividend growth rate is 1 percent. What is the expected value of this stock five
years from now?
A. $20.82
B. $21.23
C. $22.06
D. $23.45
E. $23.78
Which one of the following premiums is paid on a corporate bond due to its tax status?
A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
Which one of the following will decrease the net working capital of a firm?
A. Obtaining a three-year loan and using the proceeds to buy inventory
B. Collecting a payment from a credit customer
C. Obtaining a five-year loan to buy equipment
D. Selling inventory at a profit
E. Making a payment on a long-term debt
Tattler, Inc. has declared a $4.60 per share dividend. Suppose capital gains are not
taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be
withheld at the time the dividend is paid. Tattler sells for $87 per share, and the stock is
about to go ex-dividend. What do you think the ex-dividend price will be?
A. $82.40
B. $83.32
C. $85.08
D. $86.67
E. $87.00
Phil is reviewing ABC Company’s dividend policy as it relates to the firm’s
shareholders. As part of this review, he wants to divide shareholders into two basic
categories in respect to dividend payments. The first group will be shareholders who are
taxed on dividend income and the second group will be shareholders who receive some
form of tax break on dividend income. Which of the following types of shareholders
should be placed in the tax-favored second group?I. CorporateII. Pension fundIII.
IndividualsIV. Trust funds
A. I only
B. III only
C. I and III only
D. II and IV only
E. I, II, and IV only
The Cracker Barrel has a beta of 0.98, a dividend growth rate of 3.2 percent, a stock
price of $33 a share, and an expected annual dividend of $1.06 per share next year. The
market rate of return is 11.2 percent and the risk-free rate is 3.7 percent. What is the
firm’s cost of equity?
A. 7.74 percent
B. 8.73 percent
C. 9.30 percent
D. 9.72 percent
E. 17.46 percent
The common stock of Sweet Treats is valued at $10.80 a share. The company increases
its dividend by 8 percent annually and expects its next dividend to be $0.40 per share.
What is the total rate of return on this stock?
A. 8.00 percent
B. 11.07 percent
C. 11.17 percent
D. 11.70 percent
E. 12.00 percent
The Green House has a profit margin of 5.6 percent on sales of $311,200. The firm
currently has 15,000 shares of stock outstanding at a market price of $11.60 per share.
What is the price-earnings ratio?
A. 9.98
B. 10.02
C. 11.50
D. 11.93
E. 12.84
The equity multiplier is equal to:
A. one plus the debt-equity ratio.
B. one plus the total asset turnover.
C. total debt divided by total equity.
D. total equity divided by total assets.
E. one divided by the total asset turnover.
T.L.C. Enterprises just revised its capital structure from a debt-equity ratio of 0.30 to a
debt-equity ratio of 0.45. The firm’s shareholders who prefer the old capital structure
should:
A. sell some shares and hold the sale proceeds in cash.
B. sell all of their shares and loan out the entire sale proceeds.
C. do nothing.
D. sell some shares and loan out the sale proceeds.
E. borrow funds and purchase more shares.
The term structure of interest rates represents the relationship between which of the
following?
A. Nominal rates on risk-free and risky bonds
B. Real rates on risk-free and risky bonds
C. Nominal and real rates on default-free, pure discount bonds
D. Market and coupon rates on default-free, pure discount bonds
E. Nominal rates on default-free, pure discount bonds and time to maturity
The Toy Store has beginning retained earnings of $28,975. For the year, the company
earned net income of $4,680 and paid dividends of $1,600. The company also issued
$3,000 worth of new stock. What is the value of the retained earnings account at the end
of the year?
A. $20,445
B. $22,695
C. $27,375
D. $32,055
E. $35,255
The Pier Import Store has cash of $34,600 and accounts receivable of $54,200. The
inventory cost $92,300 and can be sold today for $146,900. The fixed assets were
purchased at a cost of $234,500 of which $107,900 has been depreciated. The fixed
assets can be sold today for $199,000. What is the total book value of the firm’s assets?
A. $127,800
B. $307,700
C. $346,800
D. $382,300
E. $415,600
Which one of the following statements concerning financial leverage is correct?
A. Financial leverage increases profits and decreases losses.
B. Financial leverage has no effect on a firm’s return on equity.
C. Financial leverage refers to the use of common stock.
D. Financial leverage magnifies both profits and losses.
E. Increasing financial leverage will always decrease the earnings per share.
The goal of financial management is to increase the:
A. future value of the firm’s total equity.
B. book value of equity.
C. dividends paid per share.
D. current market value per share.
E. number of shares outstanding.
A stock has a beta of 1.47 and an expected return of 16.6 percent. The risk-free rate is
4.8 percent. What is the slope of the security market line?
A. 6.49 percent
B. 7.28 percent
C. 8.03 percent
D. 9.03 percent
E. 9.99 percent