Which one of the following methods of analysis has the greatest bias toward short-term
projects?
A. Net present value
B. Internal rate of return
C. Average accounting return
D. Profitability index
E. Payback
Today, you are borrowing $7,800 to purchase a car. What will be your monthly payment
if the loan is for four years at 6.45 percent interest?
A. $208.40
B. $221.50
C. $184.80
D. $180.24
E. $200.10
The 4.5 percent bond of JL Motors has a face value of $1,000, a maturity of 7 years,
semiannual interest payments, and a yield to maturity of 6.23 percent. What is the
current market price of the bond?
A. $945.08
B. $947.21
C. $903.05
D. $959.60
E. $912.40
The term structure of interest rates is primarily based on which three of the following?
I. Interest rate risk premium
II. Real rate of interest
III. Default risk premium
IV. Inflation premium
V. Liquidity premium
A. I, II, and V
B. I, III, and V
C. II, III, and IV
D. I, II, and IV
E. II, IV, and V
The required return on a stock is equal to which one of the following if the dividend on
the stock decreases by a constant percent per year?
A. (P0/D1) – g
B. (D1/P0)/g
C. Dividend yield + Capital gains yield
D. Dividend yield – Capital gains yield
E. Dividend yield x Capital gains yield
Beasley Enterprises stock has an expected return of 8.86 percent. The stock is expected
to return 12.5 percent in a normal economy and 16 percent in a boom. The probabilities
of a recession, normal economy, and a boom are 11 percent, 88 percent, and 1 percent,
respectively. What is the expected return if the economy is in a recession?
A. -20.91 percent
B. -18.71 percent
C. -13.28 percent
D. -4.76 percent
E. -22.72 percent
A flexible short-term financial policy will tend to have more of which of the following
than a restrictive short-term financial policy will?
I. Uncollectable accounts receivable
II. Work stoppages for lack of raw materials
III. Carrying costs
IV. Obsolete or out-of-date inventory
A. I and II only
B. III and IV only
C. II and III only
D. I, II, and III only
E. I, III, and IV only
You own 400 of the 21,000 outstanding shares of DLK stock. The firm just announced
that it will be issuing an additional 3,000 shares to the general public in a cash offer at
$16 per share. What type of event are you participating in if you opt to purchase 100 of
these additional shares?
A. Dutch auction
B. Seasoned equity offering
C. Private placement
D. IPO
E. Rights offer
Limited liability companies are primarily designed to:
A. allow a portion of their owners to enjoy limited liability while granting the other
portion of their owners control over the entity.
B. provide the benefits of the corporate structure only to foreign-based entities.
C. spin off a wholly owned subsidiary.
D. allow companies to reorganize themselves through the bankruptcy process.
E. provide limited liability while avoiding double taxation.
What is the beta of the following portfolio?
A. 1.08
B. 1.15
C. 1.04
D. 1.11
E. .99
Which of these actions is indicative of a restrictive short-term financial policy?
A. Granting increasing amounts of credit to customers
B. Expanding the number of inventory items carried
C. Increasing the firm’s investment in the current accounts
D. Minimizing the cash balances held by the firm
E. Investing relatively large amounts in marketable securities
One year ago, you purchased a 6 percent coupon bond with a face value of $1,000 when
it was selling for 98.6 percent of par. Today, you sold this bond for 101.2 percent of par.
What is your total dollar return on this investment?
A. $86
B. $60
C. $64
D. $74
E. $82
Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68
per share for the following two years. After that, the company plans to increase the
dividend by 3.4 percent annually. What is this stock’s current value at a discount rate of
13.7 percent?
A. $14.09
B. $17.28
C. $15.15
D. $16.08
E. $18.18
A project has projected values of: unit sales = 1,650, price per unit = $19, variable cost
per unit = $7, fixed costs per year = $4,700. The depreciation is $1,100 a year and the
tax rate is 34 percent. What effect would a decrease of $1 in the variable cost per unit
have on the operating cash flow?
A. -$8.58
B. -$1,089
C. -$912
D. $1,089
E. $912
Which of the following characteristics apply to U.S. Treasury bills?
I. Interest income taxed at both the federal and state level
II. Minimal, if any, default risk
III. Marketable, but not liquid
IV. Short maturities
A. I and III only
B. II and IV only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
Best Ever Toys just paid its annual dividend of $1.78 per share. The required return
is10.6 percent and the dividend growth rate is 1.23 percent. What is the expected value
of this stock five years from now?
A. $20.19
B. $20.44
C. $22.06
D. $18.45
E. $19.78
The price of a stock at Year 4 can be expressed as:
A. D0/(R + g4).
B. D0× (1 + R)5.
C. D1× (1 + R)5.
D. D4/(R – g).
E. D5/(R – g).
Which one of the following statements is correct?
A. Preferred stock can be callable.
B. Preferred stock generally has a stated liquidation value of $1,000 per share.
C. Dividend payments to preferred shareholders are tax-deductible expenses for the
issuing firm.
D. Preferred dividends are generally variable in amount.
E. Preferred shareholders receive preferential treatment over bondholders in a
liquidation.
Kendall is investing $3,333 today at 3 percent annual interest for three years. Which
one of the following will increase the future value of that amount?
A. Shortening the investment time period
B. Paying interest only on the principal amount
C. Paying simple interest rather than compound interest
D. Paying interest only at the end of the investment period rather than throughout the
investment period
E. Increasing the interest rate
On which one of the following dates are dividend checks mailed?
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date
A call provision grants the bond issuer the:
A. right to contact each bondholder to determine if he or she would like to extend the
term of his or her bonds.
B. option to exchange the bonds for equity securities.
C. right to automatically extend the bond’s maturity date.
D. right to repurchase the bonds on the open market prior to maturity.
E. option of repurchasing the bonds prior to maturity at a prespecified price.
The accounting statement that measures the revenues, expenses, and net income of a
firm over a period of time is called the:
A. statement of cash flows.
B. income statement.
C. GAAP statement.
D. balance sheet.
E. net working capital schedule.
The common stock of White’s Hardware closed at $42.15 a share today. Tomorrow
morning, the stock goes ex-dividend. The dividend that is being paid this quarter is
$1.26 a share. Assume the tax rate on dividends is 15 percent. All else equal, what
should the opening stock price be tomorrow morning?
A. $42.15
B. $40.94
C. $40.89
D. $41.08
E. $41.23
The goal of financial management is to increase the:
A. future value of the firm’s total equity.
B. book value of equity.
C. dividends paid per share.
D. current market value per share.
E. number of shares outstanding.
Which one of the following terms applies to a bond that initially sells at a deep discount
and only makes one payment to bondholders?
A. Callable
B. Income
C. Zero coupon
D. Convertible
E. Tax-free
Chick ‘N Fish is considering two different capital structures. The first option is an
all-equity firm with22,500 shares of stock. The second option consists of 18,750 shares
of stock plus $120,000 of debt at an interest rate of 7.8 percent. Ignore taxes. What is
the break-even level of earnings before interest and taxes (EBIT) between these two
options?
A. $62,813
B. $54,204
C. $60,410
D. $56,150
E. $61,290
PL Lumber stock is expected to return 22 percent in a booming economy, 15 percent in
a normal economy, and lose 2 percent in a recession. The probabilities of an economic
boom, normal state, or recession are 5 percent, 92 percent, and 3 percent, respectively.
What is the expected rate of return on this stock?
A. 14.84 percent
B. 14.23 percent
C. 14.51 percent
D. 15.47 percent
E. 15.26 percent
Theo’s has estimated quarterly sales, starting with Quarter 1, of $9,800, $10,700,
$12,400, and $14,600.Purchases are equal to 66 percent of the following quarter’s sales
and are payable in 90 days. Assume there are 30 days in each month. How much will
Theo’s pay its suppliers in the third quarter?
A. $9,636
B. $7,656
C. $8,184
D. $8,420
E. $9,860
Which one of the following is the best example of unsystematic risk?
A. Inflation exceeding market expectations
B. A warehouse fire
C. Decrease in corporate tax rates
D. Decrease in the value of the dollar
E. Increase in consumer spending
The common stock of Beasley International goes ex-dividend tomorrow. The stock
closed at a price of $28.06 a share today. This quarter, the company is paying a cash
dividend of $.17 a share and a liquidating dividend of $.23 a share. Assuming the tax
rate on dividends is 20 percent, what will be the ex-dividend price tomorrow morning?
A. $27.74
B. $27.68
C. $27.94
D. $33.96
E. $27.66
Which one of these statements is true concerning the price-earnings (PE) ratio?
A. A high PE ratio may indicate that a firm is expected to grow significantly.
B. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of
current earnings.
C. PE ratios are unaffected by the accounting methods employed by a firm.
D. The PE ratio is classified as a profitability ratio.
E. The PE ratio is a constant value for each firm.
Arts and Crafts Warehouse wants to issue 15-year, zero-coupon bonds that yield 7.5
percent. What price should it charge for these bonds if the face value is $1,000? Assume
semiannual compounding.
A. $308.15
B. $331.40
C. $356.08
D. $362.14
E. $369.94