Match the following:
1>Retained earnings A. The accumulated earnings of a company
that have not been distributed to shareholders as dividends.
2>Dividends B. Earnings distributed to a firm’s owners
3>Paid in excess C. The amount paid for stock above its par
value
4>Common stock D. The par value of outstanding stock
You wish to have $10,000 per year as a retirement supplement for 20 years (from age
65-85). You are now 40 years old. How much must you save each year for the next 25
years if you assume your savings will earn 12% annually?
A.$560.17
B.$1,499.99
C.$5,403.87
D.None of the above
Zimmerman Inc. issued $1,000, 25-year bonds 5 years ago at a coupon rate of 10%
compounded semiannually. There were 3,000 bonds issued and similar bonds are now
selling to yield 12% annually. Zimmerman does not have preferred stock and the market
value of equity is $3,000,000. Calculate the component weight of debt based on market
values. (Round to nearest whole percentage)
A.41%
B.46%
C.54%
D.59%
Which of the following describe(s) the Economic Order Quantity (EOQ)?
A.The quantity at which carrying and ordering costs are equal.
B.The quantity that minimizes total inventory cost (ordering plus carrying).
C.The quantity that eliminates stockouts.
D.Both a and b describe EOQ.
E.All of the above describe EOQ.
Harris Inc. has EBIT of $1,500 and debt of $5,000 on which it pays 12% interest. Its
EPS is currently $2.35 per share. Management anticipates a difficult period ahead and
fears EBIT could decline by as much as 20%. What will the new EPS be if that
happens?
A.$1.88
B.$1.41
C.$1.57
D.Can’t tell from the information given
Which of the following statements is/are TRUE?
A.A yield curve plots interest rates against time to maturity.
B.A normal yield curve is upward sloping.
C.Average expected inflation is reflected in interest rates.
D.Both a & c
E.All of the above
A manufacturing firm purchases a retail chain that sells its products is an example of
____.
A.a horizontal merger
B.a vertical merger
C.a conglomerate merger
D.a competition reduction merger
Risk is:
A.the probability that return will be less than expected.
B.the standard deviation of the probability distribution of returns.
C.variability in return.
D.All of the above
The cost of capital can be described best as the:
A.rate a firm pays for the use of invested funds.
B.the minimum return required of capital budgeting projects that are about as risky as
the firm.
C.Either of the above
D.None of the above
What is the resulting capital structure after an LBO if prior to the deal the firm had
$225Min equity and $10M in debt, and the acquiring group bought the company’s stock
at book value contributing $20M of its own money and borrowing the rest?
A.Debt $10M; Equity $215M
B.Debt $215M; Equity $10M
C.Debt $215M; Equity $20M
D.Debt $225M; Equity $10M
The Lever Crowbar Company has a target capital structure of 70 percent debt and 30
percent equity with no preferred stock. The firm doesn’t plan to raise equity capital
beyond next year’s retained which have a cost of 15%. Debt costs the company 8
percent before taxes of 40%. What is Lever’s weighted average cost of capital.
A.4.50%
B.14.0%
C.7.60%
D.7.86%
Haverly, Inc. has borrowed $100,000. The loan is subject to a 10% compensating
balance and has an effective interest rate of 13.33%. Calculate the quoted interest rate
on the loan. (Round to nearest whole percent)
A.10%
B.11%
C.12%
D.13%
What type of option is the right to purchase stock at a fixed price for a specified period?
A.Flexibility option
B.Financial option
C.Legal option
D.Timing option
What is the return on stockholders’ equity for a firm with a return on sales of 5.2
percent, sales of $620,000, an equity multiplier of 1.8, and total assets of $380,000?
A.8.48%
B.5.74%
C.15.27%
D.9.36%
Stocks and bonds are financial assets that are called ____.
A.alternative assets
B.commodities
C.real assets
D.securities