ADP, Inc. needs to raise $32 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. If the offer price is $45 per share and the companys underwriters charge an 8.25
percent spread, how many shares need to be sold?
A. 648,729 shares
B. 691,208 shares
C. 723,467 shares
D. 775,053 shares
E. 775,323 shares
You currently own a portfolio valued at $56,000 that has a beta of 1.28. You have
another $10,000 to invest and would like to invest it in a manner such that the portfolio
beta decreases to 1.20. What does the beta of the new investment have to be?
A. 0.75
B. 0.79
C. 0.86
D. 0.92
E. 1.15
A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the
past four years, respectively. What is the standard deviation of these returns?
A. 5.52 percent
B. 5.86 percent
C. 6.05 percent
D. 6.47 percent
E. 6.99 percent
Today, Sweet Snacks is investing $491,000 in a new oven. As a result, the company
expects its cash flows to increase by $64,000 a year for the next two years and by
$98,000 a year for the following three years. How long must the firm wait until it
recovers all of its initial investment?
A. 3.97 years
B. 4.18 years
C. 4.46 years
D. 4.70 years
E. The project never pays back.
Which one of the following is the best definition of Eurocurrency?
A. Any paper money used by a country that has adopted the euro as its common
currency
B. Money deposited in a financial institution outside the country whose currency is
involved
C. Both paper and coins officially adopted under the euro system of coinage
D. U.S. dollars owned by any country that has adopted the euro as its currency
E. Any exchange of funds between two countries that have adopted the euro as their
official currency
If today is year 0, what is the future value of the following cash flows 10 years from
now? Assume an interest rate of 7.8 percent per year.
A. $35,211.57
B. $37,235.16
C. $40,822.55
D. $42,321.68
E. $44,564.54
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of
$19,300, and owners equity of $21,100. What is the value of the net working capital?
A. $9,800
B. $10,400
C. $18,900
D. $21,300
E. $23,200
Aardvaark & Co. has sales of $291,200, cost of goods sold of $163,300, net profit of
$11,360, net fixed assets of $154,500, and current assets of $89,500. What is the total
asset turnover rate?
A. 1.08
B. 1.11
C. 1.19
D. 1.24
E. 1.28
The recognition principle states that:
A. costs should be recorded on the income statement whenever those costs can be
reliably determined.
B. costs should be recorded when paid.
C. the costs of producing an item should be recorded when the sale of that item is
recorded as revenue.
D. sales should be recorded when the payment for that sale is received.
E. sales should be recorded when the earnings process is virtually completed and the
value of the sale can be determined.
Whitts BBQ would like to issue some semiannual coupon bonds at par. Comparable
bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent,
and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its
bonds?
A. 9.00 percent
B. 9.16 percent
C. 9.50 percent
D. 9.68 percent
E. 10.00 percent
Kate is the CFO of a major firm and has the job of assigning discount rates to each
project that is under consideration. Kates method of doing this is to assign an
incrementally higher rate as the risk level of the project increases over that of the
current firm. Likewise, she assigns lower rates as the risk level declines. Which one of
the following approaches is Kate using to assign the discount rates?
A. Pure play approach
B. Divisional rating
C. Subjective approach
D. Straight WACC approach
E. Equity rating