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1) The modified internal rate of return is specifically designed to address the problems
associated with which one of the following?
A.Mutually exclusive projects
B.Unconventional cash flows
C.Long-term projects
D.Negative net present values
E.Crossover points
2) 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
3) Freedom Health Centers has total equity of $861,300, sales of $1.48 million, and a
profit margin of 5.2 percent. What is the return on equity?
A.5.82 percent
B.6.49 percent
C.7.18 percent
D.8.68 percent
E.8.94 percent
4) Sunshine Rentals has a debt-equity ratio of 0.84 . Return on assets is 7.9 percent, and
total equity is $438,000. What is the net income?
A.$41,147.09
B.$54,311.29
C.$63,667.68
D.$48,887.02
E.$50,458.95
5) Which one of the following statements concerning annuities is correct?
A.The present value of an annuity is equal to the cash flow amount divided by the
discount rate
B.An annuity due has payments that occur at the beginning of each time period
C.The future value of an annuity decreases as the interest rate increases
D.If unspecified, you should assume an annuity is an annuity due
E.An annuity is an unending stream of equal payments occurring at equal intervals of
time
6) Travel America Coaches currently sells 15,000 motor homes per year at $94,000
each, and 1,500 luxury motor coaches per year at $159,000 each. The company wants to
introduce a low-range camper to fill out its product line; it hopes to sell 6,000 of these
campers per year at $14,500 each. An independent consultant has determined that if
Travel Coaches introduces the new campers, it should boost the sales of its existing
motor homes by 1,500 units per year, and reduce the sales of its luxury motor coaches
by 450 units per year. What amount should be used as the annual sales figure when
evaluating this project?
A.$87,000,000
B.$97,400,000
C.$156,450,000
D.$186,750,000
E.$228,000,000
7) Which of the following duties belong to the underwriters of a firm commitment
securities offer?
I. Duty to offer the Green Shoe provision to all investors who buy at the offer price
II. Duty to set the offer price
III. Duty to distribute the offered shares
IV. Duty to purchase any unsold shares
A.I and III only
B.II and IV only
C.II, III, and IV only
D.I, II, and III only
E.I, II, III, and IV
8) The checks received in a lockbox are deposited:
A.into a local bank and then transferred electronically to a concentration account
B.into a local bank and immediately invested in short-term investments
C.as soon as they are posted to the customer's account
D.the following day and immediately invested
E.directly into an investment account
9) If a security plots to the right and below the security market line, then the security
has ____ systematic risk than the market and is ____.
A.more; overpriced
B.more; underpriced
C.less; overpriced
D.less; underpriced
E.less; correctly priced
10) Which one of the following statements is correct concerning dividends in the U.S.?
A.The total amount of dividends paid by the S&P 500 companies has increased steadily
every year since 1985
B.Only financial sector firms decreased dividends in 2008
C.Dividend amounts tend to react quickly to changes in the economy
D.Firms tend to quickly adjust their dividends to changes in the firm's earnings per
share
E.There are less than 75 companies in the U.S. that have consistently increased their
dividends for at least the past 25 years
11) You purchase a bond with an invoice price of $1,120. The bond has a coupon rate of
8.5 percent, semiannual coupons, and there are three months to the next coupon date.
What is the clean price of the bond?
A.$1,086.35
B.$1,098.75
C.$1,105.20
D.$1,132.50
E.$1,157.50
12) What is the key difference between an ordinary preferred stock and a money market
preferred stock?
A.Issuer
B.Maturity
C.Fixed versus floating dividend
D.Voting rights
E.Absence of any dividend
13) You will receive annual payments of $2,400 at the end of each year for 15 years.
The first payment will be received in year 6 . What is the present value of these
payments if the discount rate is 7 percent?
A.$11,465.20
B.$12,018.52
C.$13,299.80
D.$15,585.16
E.$16,856.60
14) You have just won the lottery! You can either receive $5,000 a year for 15 years or
$50,000 as a lump sum payment today. What is the interest rate on the annuity option?
A.5.56 percent
B.5.68 percent
C.6.20 percent
D.6.39 percent
E.6.50 percent
15) The stated interest rate is the interest rate expressed:
A.as if it were compounded one time per year
B.as the quoted rate compounded by 12 periods per year
C.in terms of the rate charged per day
D.in terms of the interest payment made each period
E.in terms of an effective rate
16) All else constant, which of the following will increase the aftertax cost of debt for a
firm?
I. Increase in the yield to maturity of the firm's outstanding debt
II. Decrease in the yield to maturity of the firm's outstanding debt
III. Increase in the firm's tax rate
IV. Decrease in the firm's tax rate
A.I only
B.I and III only
C.I and IV only
D.II and III only
E.II and IV only
17) Which one of the following best describes a portfolio?
A.Risky security
B.Security equally as risky as the overall market
C.New issue of stock
D.Group of assets held by an investor
E.Investment in a risk-free security
18) Martha's Fabric House has sales of $137,200, total equity of $74,400, and a
debt-equity ratio of 0.45 . What is the capital intensity ratio?
A.0.79
B.0.83
C.1.06
D.1.20
E.1.27
19) The spot rate on the Canadian dollar is 1.25. Interest rates in Canada are expected to
average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the
expected exchange rate three years from now?
A.Can$1.2960
B.Can$1.2841
C.Can$1.2613
D.Can$1.2108
E.Can$1.1971
20) At the end of this month, Les will start saving $150 a month for retirement through
his company's retirement plan. His employer will contribute an additional $0.50 for
every $1.00 that he saves. If he is employed by this firm for 30 more years and earns an
average of 10.5 percent on his retirement savings, how much will Les have in his
retirement account 30 years from now?
A.$389,406.19
B.$401,005.25
C.$540,311.67
D.$566,190.22
E.$603,289.01
21) The Shoe Box is considering adding a new line of winter footwear to its product
lineup. Which of the following are relevant cash flows for this project?
I. Decreased revenue from products currently being offered if this new footwear is
added to the lineup
II. Revenue from the new line of footwear
III. Money spent to date looking for a new product line to add to the store's offerings
IV. Cost of new counters to display the new line of footwear
A.I and IV only
B.II and IV only
C.II and III only
D.I, II, and IV only
E.II, III, and IV only
22) Which one of the following is the abbreviation for the U.S. government coding
system that classifies a firm by its specific type of business operations?
A.BEC
B.SED
C.BID
D.SIC
E.SBC
23) Jeffries, Inc. has 6 percent coupon bonds on the market that have 11 years left to
maturity. The bonds make annual payments. If the YTM on these bonds is 7.4 percent,
what is the current bond price?
A.$895.88
B.$897.08
C.$903.14
D.$921.42
E.$933.33
24) Kim placed an order with her broker to purchase 400 shares of each of three IPOs
that are being released this month. Each IPO has an offer price of $23 a share. The
number of shares allocated to Kim, along with the closing stock price at the end of the
first day of trading for each stock, are as follows:
What is Kim's total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A.-$1,330
B.-$540
C.-$230
D.$1,330
E.$2,370
25) Steve owns a store that caters primarily to men and their hobbies. He is
contemplating greatly expanding the hunting and fishing section of the store. If he does
this, he expects his fishing and hunting sales will increase, his camping gear sales will
increase, and his model train sales will decrease. Which of the following should Steve
include in his revenue projection for the expansion project?
I. Increase in fishing and hunting sales
II. Increase in camping gear sales
III. Decrease in model train sales
A.I only
B.II only
C.I and III only
D.II and III only
E.I, II, and III
26) One year ago, LaTresa purchased 600 shares of Outland Co. stock for $3,600. The
stock does not pay any regular dividends but it did pay a special dividend of $0.30 a
share last week. This morning, she sold her shares for $7.25 a share. What was the total
return on this investment?
A.18.00 percent
B.20.83 percent
C.22.50 percent
D.25.83 percent
E.28.24 percent
27) ADP, Inc. needs to raise $43 million to finance its expansion into new markets. The
company will sell new shares of equity via a general cash offering to raise the needed
funds. The SEC filing fee and associated administrative expenses of the offering are
$389,000. If the offer price is $38 per share and the company's underwriters charge a
spread of 9 percent, how many shares need to be sold?
A.1,254,743 shares
B.1,354,743 shares
C.1,406,211 shares
D.1,514,141 shares
E.1,587,923 shares
28) Which of the following features are advantages of the dividend growth model?
I. Easy to understand
II. Model simplicity
III. Constant dividend growth rate
IV. Model's applicability to all common stocks
A.II only
B.I and III only
C.II and IV only
D.I and II only
E.I, II, and III only
29) 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
30) Which one of the following indicators offers the best assurance that a project will
produce value for its owners?
A.PI equal to zero
B.Negative rate of return
C.Positive AAR
D.Positive IRR
E.Positive NPV
31) The Play House's December 31, 2013, balance sheet showed net fixed assets of
$1,238,000 and the December 31, 2014, balance sheet showed net fixed assets of
$1,416,000. The company's 2014 income statement showed a depreciation expense of
$214,600. What was the firm's net capital spending for 2014?
A.$36,600
B.$42,400
C.$392,600
D.$404,400
E.$416,600
32) Lester lent money to The Corner Store by purchasing bonds issued by the store. The
rate of return that he and the other lenders require is referred to as the:
A.pure play cost
B.cost of debt
C.weighted average cost of capital
D.subjective cost
E.cost of equity
33) You purchase a bond with a coupon rate of 7 percent, semiannual coupons, and a
clean price of $1,011. If the next coupon payment is due in four months, what is the
invoice price?
A.$1,022.67
B.$1,029.36
C.$1,031.00
D.$1,037.67
E.$1,044.33
34) Assume the SEC approved the registration statement for a new securities issue this
morning. Which one of the following statements must be true about this issue?
A.The red herrings can now be distributed as the distribution was awaiting the SEC
approval
B.The waiting period started when the approval was received this morning
C.The SEC believes the issue will be a profitable investment for all purchases made at
the offer price
D.The issuer is following all the required rules and regulations in regard to this issue
E.The final prospectuses were all delivered or the SEC would not have approved the
issue
35) Mark Anderson's Legal Aid has the following estimated revenue.
Assume each month has 30 days and the accounts receivable period is 60 days. How
much does the firm expect to collect in May?
A.$14,800
B.$15,600
C.$16,350
D.$16,400
E.$17,900
36) A firm uses the extended economic order quantity approach to inventory
management. Which one of the following inventory levels is considered to be the
minimum inventory level given this approach?
A.Zero inventory
B.Reorder point level
C.Safety stock level
D.50 percent of the reorder quantity
E.Safety stock plus the reorder quantity
37) The Piano Movers can borrow at 7.5 percent. The firm currently has no debt, and
the cost of equity is 16 percent. The current value of the firm is $540,000. What will the
value be if the firm borrows $160,000 and uses the proceeds to repurchase shares? The
corporate tax rate is 40 percent.
A.$528,000
B.$540,000
C.$552,000
D.$571,000
E.$604,000
38) Which one of the following types of bonds permits its issuer to forego paying
interest payments if certain natural events cause significant losses?
A.PETS
B.PUT
C.CAT
D.PINES
E.LIBOR
39) Which of the following are money market securities?
I. Jumbo CDs
II. Short-term municipal debt
III. U.S. Treasury bills
IV. Commercial paper
A.I and IV only
B.II and III only
C.I, II, and IV only
D.II, III, and IV only
E.I, II, III, and IV
40) The one-year forward rate for the Swiss franc is SF 1.1375 = $1. The spot rate is SF
1.1426 = $1. The interest rate on a risk-free asset in Switzerland is 3.3 percent. If
interest rate parity exists, a one-year risk-free security in the U.S. is yielding _____
percent.
A.2.28
B.2.51
C.2.98
D.3.40
E.3.76
