British Motor Works is reviewing its current accounts to determine how a proposed
project might affect the account balances. The firm estimates the project will initially
require $67,000 in additional current assets and $32,000 in additional current liabilities.
The firm also estimates the project will require an additional $7,000 a year in current
assets for each one of the four years of the project. How much net working capital will
the firm recoup at the end of the project assuming that all net working capital can be
recaptured?
A. -$85,000
B. $25,000
C. $63,000
D. $68,000
E. $85,000
Chandler Tire Co. is trying to decide which one of two projects it should accept. Both
projects have the same start-up costs. Project 1 will produce annual cash flows of
$52,000 a year for six years. Project 2 will produce cash flows of $48,000 a year for
eight years. The company requires a 15 percent rate of return. Which project should the
company select and why?
A. Project 1, because the annual cash flows are greater than those of Project 2
B. Project 1, because the present value of its cash inflows exceeds those of Project 2 by
$14,211.62
C. Project 2, because the total cash inflows are $70,000 greater than those of Project 1
D. Project 2, because the present value of the cash inflows exceeds those of Project 1 by
$18,598.33
E. It does not matter as both projects have almost identical present values.
Net working capital is defined as:
A. the depreciated book value of a firms fixed assets.
B. the value of a firms current assets.
C. available cash minus current liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
Which one of the following is a system for managing demand-dependent inventories
that minimizes the amount of inventory on hand?
A. Inventory flow log
B. Materials requirements planning
C. Just-in-time inventory system
D. Kanban
E. Keiretsu
During the year, The Dalton Firm had sales of $3,210,000. Cost of goods sold,
administrative and selling expenses, and depreciation expenses were $2,540,000,
$389,000, and $112,000, respectively. In addition, the company had an interest expense
of $118,000 and a tax rate of 34 percent. (Ignore any tax loss carryback or carryforward
provisions.) What is its operating cash flow?
A. $263,660
B. $271,420
C. $273,330
D. $285,400
E. $287,700
Which of the following are sources of cash?I. decreasing accounts receivableII.
increasing inventoryIII. increasing accounts payableIV. increasing common stock
A. I and III only
B. II and IV only
C. II and III only
D. I and IV only
E. I, III, and IV only
James Fabricators just liquidated its poorest performing division and realized net
proceeds from the transaction of $2.2 million. The firm has 200,000 shares of stock
outstanding at a market price of $62 a share. Which one of the following is the best
estimate of the stocks post-dividend price per share if the firm distributes the entire
liquidation proceeds in the form of a liquidating dividend? Ignore taxes and market
imperfections.
A. $51.00
B. $51.38
C. $53.40
D. $58.79
E. $62.00
Innovative Technologies has 50,000 shares of stock outstanding at a market price of $8
a share. Which one of the following stock splits should the firm declare if it wants to
increase the stock price to exactly $20 a share? Ignore any taxes or market
imperfections.
A. 5-for-2 stock split
B. 3-for-1 stock split
C. 1-for-3-reverse stock split
D. 2-for-5 reverse stock split
E. 3-for-10 reverse stock split
This morning, Lambert Materials bought 10,000 of its outstanding shares in the open
market. What type of transaction was this?
A. Stock payout
B. Stock distribution
C. Stock dividend
D. Stock repurchase
E. Stock reversal
Last year, The Pizza Joint added $4,100 to retained earnings from sales of $93,600. The
company had costs of $74,400, dividends of $2,500, and interest paid of $1,400. The
tax rate was 34 percent. What was the amount of the depreciation expense?
A. $7,300
B. $7,500
C. $7,800
D. $8,100
E. $8,400
Which one of the following is an equity account?
A. Paid-in surplus
B. Bonds payable
C. Patent
D. Depreciation
E. Net fixed assets
Corporate shareholders:
A. are proportionately liable for the firms debts.
B. are protected from all losses.
C. have the ability to change the corporations bylaws.
D. receive tax-free distributions since all profits are taxed at the corporate level.
E. have basically no control over the actual corporation.
Sugar and Spice stock is expected to produce the following returns given the various
states of the economy. What is the expected return on this stock?
A. 7.89 percent
B. 8.56 percent
C. 9.43 percent
D. 10.05 percent
E. 10.50 percent
The spot rate between the UK and the U.S. is 0.6789 = $1, while the one-year forward
rate is 0.6782 = $1. The risk-free rate in the UK is 3.1 percent. The risk-free rate in the
U.S. is 2.9 percent. How much profit can you earn on a loan of $2,000 by utilizing
covered interest arbitrage?
A. -$4.09
B. -$2.78
C. $3.15
D. $6.13
E. $8.55
International Exchange has three divisions: A, B, and C. Division A has the least risk
and Division C has the most risk. The firm has an aftertax cost of debt of 6.1 percent
and a cost of equity of 14.3 percent. The firm is financed with 35 percent debt and 65
percent equity. Division As projects are assigned a discount rate that is 3 percent less
than the firms weighted average cost of capital. What is the discount rate applicable to
Division A?
A. 7.98 percent
B. 8.27 percent
C. 8.44 percent
D. 9.48 percent
E. 13.43 percent
Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that
are being released this month. Each IPO has an offer price of $16 a share. The number
of shares allocated to Alicia along with the closing stock price at the end of the first day
of trading for each stock, are as follows:
What is Alicias total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$425
B. -$260
C. -$150
D. $375
E. $550
The owners equity accounts for Speed Boats are shown here:
How many shares will be outstanding if the firm declares a 1-for-6 reverse stock split?
A. 5,833 shares
B. 9,167 shares
C. 18,000 shares
D. 35,000 shares
E. 330,000 shares
The Jones Brothers recently established a trust fund that will provide annual
scholarships of $12,000 indefinitely. These annual scholarships can best be described
by which one of the following terms?
A. Ordinary annuity
B. Annuity due
C. Amortized payment
D. Perpetuity
E. Continuation