Which one of the following is true if the managers of a firm accept only projects that
have a profitability index greater than 1.5?
A. The firm should increase in value each time the firm accepts a new project.
B. The firm is most likely steadily losing value.
C. The price of the firms stock should remain constant.
D. The net present value of each new project is zero.
E. The internal rate of return on each new project is zero.
Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously delinquent
so your firm has offered to arrange a payment plan in the hopes that it might at least
collect a portion of this receivable. Your firms offer consists of weekly payments for
one year at an interest rate of 3 percent. What is the amount of each payment?
A. $2,229.90
B. $2,318.11
C. $2,409.18
D. $2,599.04
E. $2,706.33
The Blue Lagoon has a return on equity of 18.9 percent, an equity multiplier of 1.9, and
a total asset turnover of 1.45. What is the profit margin?
A. 2.76 percent
B. 3.57 percent
C. 4.90 percent
D. 6.85 percent
E. 14.60 percent
Which one of the following is generally considered to be the best form of analysis if
you have to select a single method to analyze a variety of investment opportunities?
A. Payback
B. Profitability index
C. Accounting rate of return
D. Internal rate of return
E. Net present value
Your portfolio has provided you with returns of 8.6 percent, 14.2 percent, -3.7 percent,
and 12.0 percent over the past four years, respectively. What is the geometric average
return for this period?
A. 7.25 percent
B. 7.54 percent
C. 7.57 percent
D. 7.63 percent
E. 9.55 percent
Judys Boutique just paid an annual dividend of $1.65 on its common stock. The firm
increases its dividend by 2.5 percent annually. What is the rate of return on this stock if
the current stock price is $38.20 a share?
A. 6.93 percent
B. 7.37 percent
C. 7.54 percent
D. 8.19 percent
E. 8.33 percent
Which one of the following measures the amount of systematic risk present in a
particular risky asset relative to that in an average risky asset?
A. Squared deviation
B. Beta coefficient
C. Standard deviation
D. Mean
E. Variance
You purchased an item costing $5,900 on April 15. The terms of sale were 1/5, net 20.
What is the last day you can pay the discounted price?
A. April 20
B. April 22
C. April 28
D. May 2
E. May 5
Which one of the following supports the theory that the value of a firm increases as the
firms level of debt increases?
A. M&M Proposition I, without taxes
B. M&M Proposition II, without taxes
C. M&M Proposition I, with taxes
D. Static theory of capital structure
E. No theory suggests this.
The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield
and reported in your textbook, are based on the:
A. largest 20 percent of the stocks traded on the NYSE.
B. stock returns for the largest 10 percent of the publicly traded firms in the U.S.
C. returns of the 100 largest firms in the U.S.
D. returns of all the stocks listed on the NYSE.
E. stocks of the 500 companies included in the S&P 500 index.
Which one of the following is a graphical representation of the operating and cash
cycles?
A. Operations line
B. Production period
C. Cash flow time line
D. Inventory flow chart
E. Customer service line
Gee Whiz Underwriters retains the difference between its buying price and its offering
price on new securities. What is this amount called?
A. Markup
B. Commission
C. Rights price
D. Spread
E. Offer
Which one of the following best defines cash concentration?
A. Combining all of a firms receipts into one bank deposit
B. Combining a weeks worth of cash receipts into one bank deposit
C. Combining cash from multiple banks into a firms main bank accounts
D. Using multiple lockboxes for collecting cash payments
E. Combining a firms bills so that disbursement checks are mailed only monthly
A loan that compounds interest monthly has an EAR of 14.40 percent. What is the
APR?
A. 13.53 percent
B. 13.59 percent
C. 13.96 percent
D. 14.07 percent
E. 14.10 percent
Which one of the following is the best example of systematic risk?
A. Discovery of a major gas field
B. Decrease in textile imports
C. Increase in agricultural exports
D. Decrease in gross domestic product
E. Decrease in management bonuses for banking executives
As of Monday morning, the ledger balance and the available balance for a firm was
$3,600. During the day, the firm wrote three checks in the amounts of $230, $590, and
$870. The firm deposited a check for $350 and a check for $920. What is the amount of
the collection float as of the end of the day?
A. $420
B. $580
C. $840
D. $1,270
E. $1,690
Stock J has a beta of 1.47 and an expected return of 15.8 percent. Stock K has a beta of
1.05 and an expected return of 11.9 percent. What is the risk-free rate if these securities
both plot on the security market line?
A. 2.15 percent
B. 3.34 percent
C. 3.88 percent
D. 4.41 percent
E. 4.68 percent