Lay’s Meat Market has 8,000 shares of stock outstanding at a price per share of $13.
What will the price per share be if the firm declares a 3-for-5 reverse stock split?
A. $7.80
B. $8.50
C. $13.00
D. $15.00
E. $21.67
Answer:
Stewart’s Office Supply has revised its office procedures such that it now takes one day
to prepare the daily deposit, rather than two days. Accounts payable are processed in
five days, rather than the previous four days, so that shipping and receiving can better
verify the charges before the checks are written. How will these revised procedures
affect the firm’s float?
A. Increase the disbursement float by one day
B. Decrease the collection float by one day
C. Decrease the net float by two days
D. Increase the net float by two days
E. There will be no effect on the firm’s float
Answer:
The total direct costs of a debt issue, when expressed as a percentage of gross proceeds,
tends to:
A. increase as the quality of the debt increases.
B. decrease as the size of the issue decreases.
C. decrease when the bonds are convertible rather than straight.
D. decrease as the proceeds of the bond issue increase.
E. be relatively the same regardless of the type or quality of the debt issue.
Answer:
Gabe’s Market is comparing two different capital structures. Plan I would result in
11,000 shares of stock and $225,000 in debt. Plan II would result in 14,000 shares of
stock and $150,000 in debt. The interest rate on the debt is 8 percent. Ignoring taxes,
compare both of these plans to an all-equity plan assuming that EBIT will be $45,000.
The all-equity plan would result in 20,000 shares of stock outstanding. Of the three
plans, the firm will have the highest EPS with _____ and the lowest EPS with ____.
A. Plan I; Plan II
B. Plan I; all-equity plan
C. Plan II; Plan I
D. Plan II; all-equity plan
E. all-equity plan; Plan I
Answer:
Which of the following are sources of cash?
I. decreasing accounts receivable
II. increasing inventory
III. increasing accounts payable
IV. 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
Answer:
Which one of the following terms could be defined as a new issue of common stock
offered to the general public by a firm that is currently publicly held?
A. Initial public offering
B. Private placement
C. Rights offer
D. Venture capital
E. Seasoned equity offering
Answer:
Which one of the following bonds is the least sensitive to changes in market interest
rates?
A. Zero coupon, 10 year
B. 6 percent annual coupon, 10 year
C. Zero coupon, 4 year
D. 8 percent annual coupon, 4 year
E. 6 percent annual coupon, 4 year
Answer:
The systematic risk principle states that the expected return on a risky asset depends
only on which one of the following?
A. Unique risk
B. Diversifiable risk
C. Asset-specific risk
D. Market risk
E. Unsystematic risk
Answer:
The financial statements of Backwater Marina reflect depreciation expenses of $41,600
and interest expenses of $27,900 for the year. The current assets increased by $31,800
and the net fixed assets increased by $28,600. What is the amount of the net capital
spending for the year?
A. $7,000
B. $21,600
C. $28,600
D. $60,400
E. $70,200
Answer:
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 company’s 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
Answer:
Waldale Pools has total equity of $289,100 and net income of $64,500. The debt-equity
ratio is 0.55 and the total asset turnover is 1.6. What is the profit margin?
A. 3.10 percent
B. 5.23 percent
C. 5.67 percent
D. 9.00 percent
E. 22.31 percent
Answer:
Isabella is considering three mutually exclusive options for the additional space she just
added to her specialty women’s store. The cost of the expansion was $127,000. She can
use this additional space to add a fabric and quilting section, add an exclusive gifts
department, or expand into imported decorator items for the home. She estimates the
present value of these options at $114,000 for fabric and quilting, $163,000 for
exclusive gifts, and $138,000 for decorator items. Which option(s), if any, should
Isabella accept?
A. None of these options
B. Fabric and quilting only
C. Exclusive gifts only
D. Exclusive gifts and decorator items only
E. All three options
Answer:
Which one of the following is most indicative of a flexible short-term financial policy?
A. High ratio of short-term debt to long-term debt
B. Relatively small investment in current assets
C. High ratio of current assets to sales
D. Low level of net working capital
E. Relatively low level of liquidity
Answer:
Which of the following have the potential to increase the net present value of a
proposed investment?
I. Ability to immediately shut down a project should the project become unprofitable
II. Ability to wait until the economy improves before making the investment
III. Option to place the investment on hold until a more favorable discount rate becomes
available
IV. Option to increase production beyond that initially projected
A. I only
B. I and IV only
C. II and III only
D. I, II, and IV only
E. I, II, III, and IV
Answer:
Berzett Industrial Products has both common and noncumulative preferred stock
outstanding. The dividends on these stocks are $1.10 per quarter per share of common
and $3.50 per quarter per share of preferred. The company has not paid any dividends
for the past two quarters but is expected to pay dividends on both the common and the
preferred stock next quarter. What is the minimum amount the firm must pay per share
to its preferred stockholders next quarter if it plans to pay a common dividend?
A. $0
B. $1.10
C. $3.50
D. $5.00
E. $7.00
Answer:
One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate
of 6.5 percent and pay interest annually. Today, the market rate of interest on these
bonds is 7.2 percent. How does the price of these bonds today compare to the issue
price?
A. 4.99 percent lower
B. 5.38 percent lower
C. 6.05 percent lower
D. 0.07 percent higher
E. 1.36 percent higher
Answer: