1) Andersen’s Nursery has sales of $318,400, costs of $199,400, depreciation expense
of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out
$16,500 in dividends. What is the addition to retained earnings?
A.$36,909
B.$42,438
C.$44,141
D.$47,208
E.$47,615
2) Which one of the following events must occur before a firm can offer a liquidating
dividend?
A.Bankruptcy filing
B.Insolvency declaration
C.Asset sale
D.Negative equity
E.Failed bond issue
3) Sensitivity analysis:
A.looks at the most reasonably optimistic and pessimistic results for a project
B.helps identify the variable within a project that presents the greatest forecasting risk
C.is used for projects that cannot be analyzed by scenario analysis because the cash
flows are unconventional
D.is generally conducted prior to scenario analysis just to determine if the range of
potential outcomes is acceptable
E.illustrates how an increase in operating cash flow caused by changing both the
revenue and the costs simultaneously will change the net present value for a project
4) Stanley Enterprises is acquiring Berkley, Inc. for $899,000. Berkley has agreed to
accept annual payments of $210,000 at an interest rate of 7.5 percent. How many years
will it take Stanley Enterprises to pay for this purchase?
A.5.00 years
B.5.14 years
C.5.35 years
D.5.47 years
E.5.60 years
5) The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are
needed to purchase 2,500 Swiss francs?
A.$2,021.21
B.$2,192.98
C.$2,664
D.$2,850.00
E.$2,918.46
6) Kathryn owns 18,700 shares of Global Importers. Her shares have a total market
value of $787,270. In total, the firm has 65,000 shares outstanding. Each share is
entitled to one vote under the straight voting policy of the firm. The next election is in
four months at which time two directors are up for election. How much more must
Kathryn invest in this firm to guarantee that she is elected to the board?
A.$0
B.$513,361
C.$581,022
D.$647,280
E.$711,010
7) Which one of the following analytical methods is based on net income?
A.Profitability index
B.Internal rate of return
C.Average accounting return
D.Modified internal rate of return
E.Payback
8) Isaac only has $690 today but needs $800 to buy a new laptop. How long will he
have to wait to buy the laptop if he earns 5.4 percent compounded annually on his
savings?
A.2.29 years
B.2.48 years
C.2.51 years
D.2.77 years
E.2.81 years
9) The tax shield approach to computing the operating cash flow, given a tax-paying
firm:
A.ignores both interest expense and taxes
B.separates cash inflows from cash outflows
C.considers the changes in net working capital resulting from a new project
D.is based on the fact that depreciation does not affect the operating cash flows
E.recognizes that depreciation creates a cash inflow
10) Kurt wants to have $25,000 in an investment account 4 years from now. The
account will pay 0.2 percent interest per month. If he saves money every month,
starting one month from now, how much will he have to save each month to reach his
goal?
A.$496.75
B.$497.03
C.$497.75
D.$501.03
E.$502.14
11) Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000
back some time in the future. Which one of the following statements is correct?
A.The period of time she has to wait until she reaches her goal is unaffected by the
compounding of interest
B.The lower the rate of interest she earns, the shorter the time she will have to wait to
reach her goal
C.She will have to wait longer if she earns 6 percent compound interest instead of 6
percent simple interest
D.The length of time she has to wait to reach her goal is directly related to the interest
rate she earns
E.The period of time she has to wait decreases as the amount she invests today
increases
12) Klaus Toys just paid its annual dividend of $1.40. The required return is 16 percent
and the dividend growth rate is 2 percent. What is the expected value of this stock five
years from now?
A.$11.04
B.$11.26
C.$11.67
D.$12.41
E.$12.58
13) Roscoe’s purchased new machinery three years ago for $1.8 million. The machinery
can be sold to Stewart’s today for $1.2 million. Roscoe’s current balance sheet shows
net fixed assets of $960,000, current liabilities of $348,000, and net working capital of
$121,000. If all the current assets were liquidated today, the company would receive
$518,000 cash. The book value of the firm’s assets today is _____ and the market value
is _____.
A.$1,081,000; $1,308,000
B.$1,081,000; $1,718,000
C.$1,307,000; $1,429,000
D.$1,429,000; $1,308,000
E.$1,429,000; $1,718,000
14) The federal government has a tax claim on the cash flows of The Window Store.
This claim is defined as a claim by one of the firm’s:
A.residual owners
B.shareholders
C.financiers
D.provisional partners
E.stakeholders
15) Semi-strong form market efficiency states that the value of a security is based on:
A.all public and private information
B.historical information only
C.all publicly available information
D.all publicly available information plus any data that can be gathered from insider
trading
E.random information with no clear distinction as to the source of that information
16) Which one of the following features applies to NASDAQ but not the NYSE?
A.Trading in the crowd
B.Multiple market maker system
C.SuperDot
D.Broker market
E.Physical trading floor
17) 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
18) One year ago, you purchased a 6 percent coupon bond with a face value of $1,000
when it was selling for 101.2 percent of par. Today, you sold this bond for 99.8 percent
of par. What is your total dollar return on this investment?
A.$46
B.$60
C.$67
D.$74
E.$82
19) Which one of the following describes systemic risk?
A.Risk that affects a large number of assets
B.An individual security’s total risk
C.Diversifiable risk
D.Asset specific risk
E.Risk unique to a firm’s management
20) Which of the following terms can be used to describe unsystematic risk?
I. asset-specific risk
II. diversifiable risk
III. market risk
IV. unique risk
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
21) Which of the following factors favor the issuance of debt in the financing decision?
I. Market signaling
II. Distress costs
III. Management incentives
IV. Financial flexibility
A.I and II only
B.I and III only
C.II and IV only
D.I, II, and III only
E.I, II, and IV only
22) A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a
$1,000 face value, and a maturity date 21 years from today. What is the current yield?
A.7.91 percent
B.8.47 percent
C.9.04 percent
D.9.38 percent
E.9.46 percent
23) Black Stone Furnaces wants to build a new facility. The cost of capital for this
investment is primarily dependent upon which one of the following?
A.Firm’s overall source of funds
B.Source of the funds used to build the facility
C.Current tax rate
D.The nature of the investment
E.Firm’s historical average rate of return
24) Swizer Industries has two separate divisions. Division X has less risk so its projects
are assigned a discount rate equal to the firm’s WACC minus 0.5 percent. Division Y
has more risk and its projects are assigned a rate equal to the firm’s WACC plus 1
percent. The company has a debt-equity ratio of .45 and a tax rate of 35 percent. The
cost of equity is 14.7 percent and the aftertax cost of debt is 5.1 percent. Presently, each
division is considering a new project. Division Y’s project provides a 12.3 percent rate
of return and division X’s project provides an 11.64 percent return. Which projects, if
any, should the company accept?
A.Accept both X and Y
B.Accept X and reject Y
C.Reject X and accept Y
D.Reject both X and Y
E.The answer cannot be determined based on the information provided
25) The Furniture Showroom offers credit to its customers at a rate of 1.4 percent per
month. What is the effective annual rate of this credit offer?
A.15.97 percent
B.16.52 percent
C.16.80 percent
D.17.34 percent
E.18.16 percent
26) Which one of the following will reduce the disbursement float of a firm?
A.Mailing a check from a very remote location
B.Mailing an unsigned check so that it must be returned for a signature
C.Paying a loan payment at the bank rather than mailing a check to the bank
D.Requiring that all checks be held one day before mailing so they can be reviewed by
a manager
E.Writing checks on a zero-balance account rather than on the master account
27) Which one of the following transactions occurred in the primary market?
A.Maria gave 100 shares of Alto stock to her best friend
B.Gene purchased 300 shares of Alto stock from Ted
C.South Wind Products sold 1,000 shares of newly issued stock to Mike
D.Terry sold 3,000 shares of Uno stock to his brother
E.The president of Trecco, Inc. sold 500 shares of Trecco stock to his son
28) Centre Bank pays 2.5 percent interest, compounded annually, on its savings
accounts. Country Bank pays 2.5 percent simple interest on its savings accounts. You
want to deposit sufficient funds today so that you will have $1,500 in your account 2
years from today. The amount you must deposit today:
A.is the same regardless of which bank you choose because they both pay compound
interest
B.is the same regardless of which bank you choose because they both pay simple
interest
C.is the same regardless of which bank you choose because the time period is the same
for both banks
D.will be greater if you invest with Centre Bank
E.will be greater if you invest with Country Bank
29) The current yield on a bond is equal to the annual interest divided by which one of
the following?
A.Issue price
B.Maturity value
C.Face amount
D.Current market price
E.Current par value
30) Which one of the following is included in net working capital?
A.Newly purchased equipment with a useful life of six years
B.Mortgage on a building payable over the next 12 years
C.Interest on a long-term debt
D.10-year bonds issued to the general public
E.Invoice from a supplier for inventory purchased
31) Six years from now, you will be inheriting $100,000. What is this inheritance worth
to you today if you can earn 6.5 percent interest, compounded annually?
A.$68,533.41
B.$70,008.21
C.$72,419.05
D.$72,798.47
E.$74,003.15
32) Lester’s has a market value balance sheet as shown below. The firm currently has
7,500 shares of stock outstanding at a price per share of $40. Net income is $9,500.
The firm has decided to repurchase $20,000 worth of its outstanding stock. What will
the firm’s PE ratio be after this repurchase, all else held constant?
A.23.39
B.28.76
C.29.47
D.30.13
E.32.16
33) Frank Town Farms has sales of $481,600, costs of $379,700, depreciation expense
of $32,100, and interest paid of $8,400. The tax rate is 32 percent. How much net
income did the firm earn for the period?
A.$41,752
B.$43,090
C.$43,380
D.$45,671
E.$45,886
34) You want to save $200 a month for the next 24 years and hope to earn an average
rate of return of 11 percent. How much more will you have at the end of the 24 years if
you invest your money at the beginning of each month rather than the end of each
month?
A.$1,611.29
B.$1,807.70
C.$2,238.87
D.$2,569.14
E.$2,707.27
35)
Please refer to Oscar’s financial statements. All of Oscar’s costs and net working capital
vary directly with sales. Sales are projected to increase by 10 percent. What is the pro
forma accounts receivable balance for next year?
A.$949
B.$1,034
C.$1,113
D.$1,730
E.$2,670
36) Steve is considering investing $3,600 a year for 40 years. How much will this
investment be worth at the end of the 40 years if he earns an average annual rate of
return of 11.6 percent? Assume Steve invests his first payment of the end of this year.
A.$1,887,411.26
B.$1,919,200.08
C.$2,103,018.90
D.$2,311,416.67
E.$2,471,685.70