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1) Doris' Boutique has 4,000 shares of stock outstanding at a price per share of $15.
What will the price per share be if the firm pays a $1.30 per share dividend? Ignore
taxes and market imperfections.
A.$13.70
B.$15.40
C.$15.80
D.$16.00
E.$18.20
2) A risky security has less risk than the overall market. What must the beta of this
security be?
A.0
B.> 0 but < 1
C.1
D.> 1
E.The beta cannot be determined based on the information provided
3) A cost-cutting project will decrease costs by $58,500 a year. The annual depreciation
on the project's fixed assets will be $10,300 and the tax rate is 34 percent. What is the
amount of the change in the firm's operating cash flow resulting from this project?
A.$24,552
B.$26,791
C.$25,805
D.$38,610
E.$42,112
4) Given the following information, what is the expected return on a portfolio that is
invested 35 percent in Stock A, 45 percent in Stock B, and the balance in Stock C?
A.11.84 percent
B.12.53 percent
C.12.91 percent
D.13.46 percent
E.13.87 percent
5) Blooming Gardens has an inventory turnover of 16 . This means the firm:
A.sells its entire inventory every 16 days
B.stocks its inventory only every 16 days
C.buys 16 days of inventory with each order
D.sells its inventory by granting customers 16 days' credit
E.sells its inventory an average of 16 times each year
6) Katie's Dinor spent $84,000 to refurbish its current facility. The firm borrowed 80
percent of the refurbishment cost at 9.2 percent interest for five years. What is the
amount of each monthly payment?
A.$1,108.91
B.$1,282.16
C.$1,333.33
D.$1,401.49
E.$1,487.06
7) A firm expects to increase its annual dividend by 20 percent per year for the next two
years and by 15 percent per year for the following two years. After that, the company
plans to pay a constant annual dividend of $3 a share. The last dividend paid was $1 a
share. What is the current value of this stock if the required rate of return is 12 percent?
A.$17.71
B.$18.97
C.$20.50
D.$21.08
E.$21.69
8) Which of the following practices will reduce a firm's collection float?
I. Installing a lockbox system
II. Utilizing zero-balance accounts
III. Depositing checks daily rather than weekly
IV. Reducing the processing delay by one day
A.I and III only
B.II and IV only
C.I, II, and III only
D.I, III, and IV only
E.I, II, III, and IV
9) A proposed project will increase a firm's accounts payables. This increase is
generally:
A.treated as an erosion cost
B.treated as an opportunity cost
C.a sunk cost and should be ignored
D.a cash outflow at time zero and a cash inflow at the end of the project
E.a cash inflow at time zero and a cash outflow at the end of the project
10) The common stock of Hillshire Farms has yielded 16.3 percent, 7.2 percent, 11.8
percent, -3.6 percent, and 9.7 percent over the past five years, respectively. What is the
geometric average return?
A.7.91 percent
B.8.03 percent
C.8.07 percent
D.8.27 percent
E.9.64 percent
11) The risk-free rate is 4.2 percent and the expected return on the market is 12.3
percent. Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a
beta of 0.75 and an expected return of 11.4 percent. Are these stocks correctly priced?
Why or why not?
A.No, Stock A is underpriced and Stock B is overpriced
B.No, Stock A is overpriced and Stock B is underpriced
C.No, Stock A is overpriced but Stock B is correctly priced
D.No, Stock A is underpriced but Stock B is correctly priced
E.Yes, both stocks are correctly priced
12) Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000
back some time in the future. Which one of the following statements is correct?
A.The period of time she has to wait until she reaches her goal is unaffected by the
compounding of interest
B.The lower the rate of interest she earns, the shorter the time she will have to wait to
reach her goal
C.She will have to wait longer if she earns 6 percent compound interest instead of 6
percent simple interest
D.The length of time she has to wait to reach her goal is directly related to the interest
rate she earns
E.The period of time she has to wait decreases as the amount she invests today
increases
13) You are buying a bond at a clean price of $1,140. The bond has a face value of
$1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment
is one month from now. What is the dirty price of this bond?
A.$1,000.00
B.$1,146.67
C.$1,173.33
D.$1,176.67
E.$1,180.00
14) The 7.5 percent preferred stock of Rock Bottom Floors is selling for $60 a share.
What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value
per share is $100?
A.7.50 percent
B.8.13 percent
C.12.50 percent
D.13.79 percent
E.14.14 percent
15) Soul Foods has a $12 million bond issue outstanding with a coupon rate of 6.75
percent and a yield to maturity of 7.27 percent. What is the present value of the tax
shield if the tax rate is 30 percent?
A.$283,500
B.$360,000
C.$3,053,400
D.$3,560,000
E.$3,600,000
16) Ruby Falls has an average collection period of 35 days. Its average daily investment
in receivables is $71,000. What are annual credit sales?
A.$727,272
B.$740,429
C.$914,414
D.$1,450,200
E.$1,707,500
17) Currently, you can exchange $1 for 100.37 yen or 0.7538 in New York. In Tokyo,
the exchange rate is 1 = 0.0077. If you have $1,200, how much profit can you earn
using triangle arbitrage?
A.$18.08
B.$25.27
C.$30.32
D.$31.50
E.$33.14
18) Hughes Motors will sell you a $15,000 car for $380 a month for 48 months. What is
the interest rate?
A.9.28 percent
B.9.35 percent
C.9.53 percent
D.9.86 percent
E.9.94 percent
19) Haywood and More have a market value balance sheet as shown below. The firm
currently has 5,000 shares of stock outstanding at a market price per share of $35.40.
Net income is $9,500.
The firm has decided to spend $8,000 and pay an extra cash dividend. What will the
firm's PE ratio be after this dividend is paid, all else held constant? Ignore taxes.
A.14.20
B.16.67
C.18.63
D.21.22
E.24.50
20) Which one of the following is an intangible fixed asset?
A.Inventory
B.Machinery
C.Copyright
D.Account receivable
E.Building
21) Which one of the following decreases net income but does not affect the operating
cash flow of a firm that owes no taxes for the current year?
A.Indirect cost
B.Direct cost
C.Noncash item
D.Period cost
E.Variable cost
22) You are given the following information concerning Around Town Tours:
Debt: 8,500, 7.1 percent coupon bonds outstanding, with 14 years to maturity and a
quoted price of 102.6 . These bonds pay interest semiannually.
Common stock: 265,000 shares of common stock selling for $76 per share. The stock
has a beta of 0.92 and will pay a dividend of $2.48 next year. The dividend is expected
to grow by 4 percent per year indefinitely.
Preferred stock: 7,500 shares of 6 percent preferred stock selling at $88 per share.
Market: A 13.2 percent expected return, a 4.5 percent risk-free rate, and a 34 percent tax
rate.
Calculate the WACC for this firm.
A.8.22 percent
B.8.67 percent
C.9.29 percent
D.9.57 percent
E.10.08 percent
23) Rocket City Space Camp has annual credit sales of $16 million. The average
collection period is 35 days. What is the average investment in accounts receivable as
shown on the balance sheet?
A.$646,000
B.$824,000
C.$1,408,888
D.$1,534,247
E.$1,693,134
24) Sherpa Movers has just gone public. Under a firm commitment agreement, the firm
received $34.40 for each of the 3.5 million shares sold. The initial offering price was
$37 per share, and the stock rose to $43 per share in the first few minutes of trading.
Sherpa Movers paid $896,000 in legal and other direct costs and $225,000 in indirect
costs. What was the flotation cost as a percentage of the funds raised?
A.22.91 percent
B.23.85 percent
C.24.49 percent
D.26.17 percent
E.28.60 percent
25) Which one of the following terms is defined as an underwriting for which the
underwriters assume full responsibility for any unsold shares?
A.Initial public offering
B.Best efforts underwriting
C.Firm commitment underwriting
D.Rights offer
E.Private placement
26) One year ago, Debra purchased 4,200 shares of KNF stock for $177,072. Today, she
sold those shares for $48.10 a share. What is the capital gains yield on this investment if
the dividend yield is 4.1 percent?
A.10.79 percent
B.11.23 percent
C.13.07 percent
D.15.04 percent
E.14.53 percent
27) The expected return on a security depends on which of the following?
I. Risk-free rate of return
II. Amount of the security's unique risk
III Market rate of return
IV. Standard deviation of returns
A.I and III only
B.II and IV only
C.II, III, and IV only
D.I, III, and IV only
E.I, II, III, and IV
28) The one-year forward rate for the British pound is £0.6781 = $1. The spot rate is
£0.6789 = $1. The interest rate on a risk-free asset in the UK is 4.6 percent. If interest
rate parity exists, what is the one-year risk-free rate in the U.S.?
A.4.68 percent
B.4.72 percent
C.4.77 percent
D.4.83 percent
E.4.87 percent
29) Carter's Gym currently has a 189-day operating cycle. The company is
concentrating on increasing its inventory turnover rate from 8.4 to 9.5 times. What will
the firm's new operating cycle be if it can effectively make this change?
A.183.97 days
B.183.46 days
C.187.00 days
D.194.03 days
E.196.34 days
