1) The dividend growth model can be used to value the stock of firms that pay which
type of dividends?
I. Constant annual dividend
II. Annual dividend with a constant increasing rate of growth
III. Annual dividend with a constant decreasing rate of growth
IV. Zero dividend
A.I only
B.II only
C.II and III only
D.I, II, and III only
E.I, II, III, and IV
2) Stock A has a beta of 1.47 while Stock B has a beta of 1.08 and an expected return of
13.2 percent. What is the expected return on Stock A if the risk-free rate is 4.5 percent
and both stocks have equal reward-to-risk premiums?
A.12.12 percent
B.15.07 percent
C.16.34 percent
D.16.89 percent
E.17.78 percent
3) Roscoe’s purchased new machinery three years ago for $1.8 million. The machinery
can be sold to Stewart’s today for $1.2 million. Roscoe’s current balance sheet shows
net fixed assets of $960,000, current liabilities of $348,000, and net working capital of
$121,000. If all the current assets were liquidated today, the company would receive
$518,000 cash. The book value of the firm’s assets today is _____ and the market value
is ____.
A.$1,081,000; $1,308,000
B.$1,081,000; $1,718,000
C.$1,307,000; $1,429,000
D.$1,429,000; $1,308,000
E.$1,429,000; $1,718,000
4) If the market price of existing publicly traded shares declines due to the
announcement of a seasoned issue of stock, the decline is referred to as which one of
the following?
A.Spread
B.Direct underwriting cost
C.Underpricing
D.Direct issue cost
E.Abnormal return
5) All else constant, an increase in a firm’s cost of debt:
A.could be caused by an increase in the firm’s tax rate
B.will result in an increase in the firm’s cost of capital
C.will lower the firm’s weighted average cost of capital
D.will lower the firm’s cost of equity
E.will increase the firm’s capital structure weight of debt
6) The Saw Mill has a return on assets of 6.1 percent, a total asset turnover rate of 1.8,
and a debt-equity ratio of 1.6 . What is the return on equity?
A.4.26 percent
B.9.76 percent
C.12.28 percent
D.15.86 percent
E.19.03 percent
7) For the year, Movers United has net income of $31,800, net new equity of $7,500,
and an addition to retained earnings of $24,200. What is the amount of the dividends
paid?
A.$100
B.$7,500
C.$7,600
D.$15,100
E.$16,700
8) Sixty years ago, your grandparents opened two savings accounts and deposited $200
in each account. The first account was with City Bank at 3 percent, compounded
annually. The second account was with Country Bank at 3.5 percent, compounded
annually. Which one of the following statements is true concerning these accounts?
A.The City Bank account is currently worth $1,201.54
B.The City Bank account has earned $211.19 more in interest than the Country Bank
account
C.The Country Bank account is currently worth $1,526.08
D.The Country Bank account has paid $367.48 more in interest than the City Bank
account
E.The Country Bank account has paid $397.30 more in interest than the City Bank
account
9) A $1,000 face value bond is currently quoted at 101.2 . The bond pays semiannual
payments of $28.50 each and matures in six years. What is the coupon rate?
A.2.72 percent
B.2.85 percent
C.5.00 percent
D.5.63 percent
E.5.70 percent
10) Circle K Stores has net income of $41,000, a profit margin of 3.7 percent, and a
return on assets of 9 percent. What is the capital intensity ratio?
A.0.41
B.0.86
C.1.16
D.1.34
E.2.43
11) The balance sheet of a firm shows current liabilities of $56,300 and long-term debt
of $289,200 as of last year. Current liabilities are $76,900 and long-term debt is
$248,750 as of today, which is the end of the current year. The financial statements for
the current year reflect an interest paid amount of $29,700 and dividends of $19,000.
What is the amount of the net new borrowing?
A.-$40,450
B.$40,450
C.$64,750
D.$70,150
E.$78,250
12) Turner Industries started a new project three months ago. Sales arising from this
project are exceeding all expectations. Given this, which one of the following is
management most apt to implement?
A.Option to wait
B.Soft rationing
C.Strategic option
D.Option to abandon
E.Option to expand
13) For the period 1926-2011, which one of the following had the smallest risk
premium?
A.Large-company stocks
B.Small-company stocks
C.Long-term corporate bonds
D.U.S. Treasury bills
E.Long-term government bonds
14) Cash flow to creditors is equal to:
A.cash flow from assets plus cash flow to stockholders
B.beginning total liabilities minus ending total liabilities plus interest paid
C.beginning long-term debt minus ending long-term debt plus interest paid
D.ending total debt minus beginning total debt plus interest paid
E.ending long-term debt minus beginning long-term debt plus interest paid
15) When using the pure play approach for a proposed investment, a firm is primarily
seeking a rate of return that:
A.is based on the actual source of funds that will be used to fund the project
B.creates a positive net present value for the project
C.reflects the size and life of the project
D.most closely correlates with the proposed investment’s internal rate of return
E.best matches the risk level of the proposed investment
16) Kate’s Korner Market monitors 3 percent of its inventory on a daily basis, another
20 percent on a weekly basis, and the remaining inventory on a quarterly basis. What
inventory management approach is being used?
A.ABC
B.EOQ
C.MRP
D.Q*
E.JIT
17) The Undergrounds Coffee Shop has total assets of $85,300 and an equity multiplier
of 1.53 . What is the debt-equity ratio?
A.0.28
B.0.35
C.0.50
D.0.53
E.0.67
18) 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
19) A U.S. Treasury bond pays 9.5 percent interest. You are in the 25 percent tax
bracket. What is your after-tax yield on this bond?
A.1.28 percent
B.2.23 percent
C.7.13 percent
D.8.35 percent
E.9.50 percent
20) The Cookie Shops’ purchases are equal to 70 percent of the following month’s sales.
The accounts payable period for purchases is 30 days while all other expenditures are
paid in the month they are incurred. Assume each month has 30 days. The company has
compiled the following information.
What is the total amount of the firm’s disbursements for the month of May?
A.$5,990
B.$6,170
C.$6,410
D.$6,571
E.$6,880
21) Which one of the following has the highest effective annual rate?
A.6 percent compounded annually
B.6 percent compounded semiannually
C.6 percent compounded quarterly
D.6 percent compounded monthly
E.All the other answers have the same effective annual rate
22) Consider the following information:
What is the variance of a portfolio invested 30 percent each in Stocks A and B and 40
percent in Stock C?
A.0.000065
B.0.000163
C.0.000289
D.0.000528
E.0.001740
23) A firm has a return on equity of 16 percent, a return on assets of 11 percent, and a
30 percent dividend payout ratio. What is the sustainable growth rate?
A.5.72 percent
B.6.84 percent
C.7.12 percent
D.11.38 percent
E.12.61 percent
24) Webster Mining is considering the purchase of a new sorting machine. The quote
consists of a quarterly payment of $29,600 for seven years at 8 percent interest. What is
the purchase price of the equipment?
A.$621,380.92
B.$629,925.66
C.$687,418.22
D.$774,311.28
E.$836,267.35
25) Overnight Trucking recently purchased a new truck costing $150,800. The firm
financed this purchase at 8.6 percent interest with monthly payments of $2,100. How
many years will it take the firm to pay off this debt?
A.7.04 years
B.7.22 years
C.8.10 years
D.8.23 years
E.8.44 years
26) Which one of the following is an aftermarket function performed by the
underwriters of a securities issue?
A.Distributing the registration statements
B.Distributing the red herrings
C.Filing a letter of comment with the SEC
D.Exercising the Green Shoe option
E.Setting the market price
27) Which one of the following can be classified as an annuity but not as a perpetuity?
A.Increasing monthly payments forever
B.Increasing quarterly payments for six years
C.Unequal payments each year for nine years
D.Equal annual payments for life
E.Equal weekly payments forever
28) 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
29) Your firm has cash of $3,800, accounts receivable of $8,600, inventory of $33,100,
and net working capital of $1,100. What is the cash ratio?
A.0.08
B.0.09
C.0.90
D.1.21
E.3.45
30) Fred is the owner of a local feed store. Which one of the following ratios should he
compute if he wants to know how long the store can pay its bills given the amount of
cash the store currently has?
A.Current ratio
B.Debt ratio
C.Cash coverage ratio
D.Quick ratio
E.Cash ratio
31) Tri-City Grocers is a chain of grocery stores that just hired a new CFO. Which of
the following actions would you expect this CFO to adopt given her statement that she
wants to implement a more flexible financing policy for the firm?
I. easing the credit terms given to customers
II. increasing the amount of inventory carried by each grocery store
III. borrowing funds to keep more cash available for store operations
IV. decreasing the firms’ investments in marketable securities
A.I and III only
B.II and IV only
C.I, II, and III only
D.II, III, and IV only
E.I, II, III, and IV