Which one of these statements is true?
A. The cumulative finance surplus requirement is computed prior to adjusting for the
minimum cash balance.
B. A financially sound firm will always have a positive quarterly net cash flow.
C. A negative cumulative cash surplus indicates a borrowing need.
D. Most firms plan on maintaining a zero cash balance.
E. The minimum cash balance generally increases on a quarterly basis.
Answer:
The total asset turnover ratio measures the amount of:
A. total assets needed for every $1 of sales.
B. sales generated by every $1 in total assets.
C. fixed assets required for every $1 of sales.
D. net income generated by every $1 in total assets.
E. net income than can be generated by every $1 of fixed assets.
Answer:
The cost of equity should be lowest when the debt to equity ratio is:
A. zero.
B. .20
C. .25
D. .50
E. 1.00
Answer:
When the debt-to-value ratio changes over time, the best method(s) to use when
evaluating a project is:
A. APV.
B. FTE.
C. WACC.
D. either APV or WACC.
E. either FTE or WACC.
Answer:
Studies have found that firms with large investments in tangible assets tend to have: A.
the same capital structure as the average firm in the overall market.
A. zero debt.
B. ANSC. high leverage.
C. less debt.
D. about the same debt-equity ratios and firms with small investments in tangible
assets.
Answer:
The decision to grant credit should consider all of the following except the:
A. delay in revenues from granting credit.
B. immediate costs of granting credit.
C. probability of nonpayment.
D. cost of short-term borrowing.
E. fixed costs incurred during the credit period.
Answer:
Which one of the following statements is true?
A. You must know the discount rate to compute the NPV but you can compute the IRR
without having a discount rate.
B. You must have a discount rate to compute, NPV, IRR, PI, and discounted payback.
C. Payback uses the same discount rate as that applied in the NPV calculation.
D. Financing projects can only ever have one IRR.
E. Discounted payback is a better method than payback and is more frequently used in
practice.
Answer:
The term structure of interest rates reflects the:
A. real rate of interest.
B. real rate of interest plus the inflation premium.
C. nominal interest rate plus the interest rate risk premium.
D. pure time value of money.
E. real rate, inflation premium, interest rate risk premium, and the liquidity premium.
Answer:
Currently, $1 will buy Can$1.1417 while $1.1243 will buy €1. What is the Can$/€
exchange rate?
A. Can$.9709 = €1
B. Can$.9848 = €1
C. Can$1.0155 = €1
D. Can$1.3624 = €1
E. Can$1.2836 = €1
Answer:
Ignoring capital gains as an alternative, the tax law changes in 2003 tend to favor a:
A. lower dividend policy.
B. constant dividend policy.
C. zero-dividend policy.
D. higher dividend policy.
E. restrictive dividend policy.
Answer:
The present value break-even point is superior to the accounting break-even point
because the present value break-even method:
A. is more complicated to calculate.
B. covers the economic opportunity costs of the investment.
C. is equivalent to sensitivity analysis.
D. covers the fixed costs of production, which the accounting break-even does not.
E. provides an economic profit over and above the required rate of return.
Answer:
Firm X is planning on merging with Firm Y. Firm X currently has 3,500 shares of stock
outstanding at a market price of $25 a share. Firm Y has 400 shares outstanding at a
price of $22 a share. The merger will create $500 of synergy. How many of its shares
should Firm X offer in exchange for all of Firm Y’s share if it wants its acquisition cost
to be $9,000?
A. 408
B. 359
C. 409
D. 360
E. 375
Answer:
Southern Markets is considering a project with total sales of $17,500, total variable
costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. The
depreciation expense is $2,400 a year. What is the contribution margin per unit?
A. $4.50
B. $10.50
C. $14.14
D. $19.09
E. $19.25
Answer:
The extended version of the percentage of sales method:
A. assumes that all net income will be paid out in dividends to stockholders.
B. assumes that all net income will be retained by the firm and offset by a reduction in
debt.
C. is based on a capital intensity ratio of 1.0.
D. requires that all financial statement accounts change at the same rate.
E. separates accounts that vary with sales from those that do not vary with sales.
Answer:
The point where a project produces a rate of return equal to the required return is
known as the:
A. point of zero profit.
B. internal break-even point.
C. accounting break-even point.
D. present value break-even point.
E. income break-even point.
Answer:
The cost of equity for RJ Corporation is 8.4 percent and the debt-equity ratio is .6. The
expected return on the market is 10.4 percent and the risk-free rate is 3.8 percent. Using
the common assumption for the debt beta, what is the asset beta?
A. .70
B. .44
C. .62
D. .67
E. .59
Answer:
Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first
annuity payment made on the date of purchase. What is the value of the annuity on the
purchase date given a discount rate of 7 percent?
A. $54,282.98
B. $52,970.07
C. $56,677.98
D. $56,191.91
E. $66,916.21
Answer:
Jillian owns an option which gives her the right to purchase shares of WAN stock at a
price of $20 a share. Currently, WAN stock is selling for $24.50. Jillian would like to
profit on this option but is not permitted to exercise it for another two weeks. She
believes the stock will decline in value before the two weeks is up. What should she do?
A. sell her option today
B. put in an order to exercise her option on its expiration date
C. convert her European option into an American option
D. put in an order to exercise her option as soon as she is permitted to do so
E. convert her American option into a European option
Answer:
Firms hold cash to satisfy the transaction motive. This means that cash is held to:
A. meet disbursements for normal operations.
B. balance the flow between cash inflows and outflows.
C. meet unexpected emergency cash needs.
D. meet disbursements for normal operations and to balance the flow between cash
inflows and outflows.
E. offset fees that would otherwise be charged by the firm’s bank.
Answer:
Cash flow to stockholders is defined as:
A.cash dividends paid.
B.repurchases of equity less new equity sold minus cash dividends paid.
C.cash flow from financing less cash flow to creditors.
D.cash dividends paid plus repurchases of equity minus new equity financing.
E.cash flow from assets plus cash flow to creditors.
Answer:
The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25
each. The firms expects to raise $200,000 via a rights offering at a subscription price of
$20. How many rights must be submitted to acquire one new share?
A. .20
B. .80
C. 5.00
D. 1.25
E. 4.00
Answer:
Simpson Enterprises is considering a new project with cash inflows of $325,000 for the
indefinite future. Cash costs are 63 percent of the cash inflows. The initial cost of the
investment is $425,000. The tax rate is 35 percent and the unlevered cost of equity is 17
percent. What is the net present value of the project?
A. $34,779.41
B. $44,347.48
C. $78,162.50
D. $204,584.78
E. $121,089.16
Answer:
Sound Systems (SS) has 200,000 shares of common stock outstanding at a market price
of $37 a share. SS recently paid an annual dividend in the amount of $1.20 per share.
The dividend growth rate is 4 percent. SS also has 4,500 bonds outstanding with a face
value of $1,000 per bond that are selling at 99 percent of par. The bonds have a 6
percent coupon and a 6.7 percent yield to maturity. If the tax rate is 34 percent, what is
the weighted average cost of capital?
A. 5.33%
B. 5.87%
C. 6.49%
D. 6.26%
E. 7.28%
Answer:
Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will
be repaid in 10 years. The company plans to issue the bonds at par value and pay
interest semiannually. Which one of the following statements is correct?
A. The bonds will pay 19 interest payments and one principal payment.
B. The bonds will initially sell at a discount.
C. At maturity, the bonds will pay a final payment of $1,055.
D. The bonds will pay ten equal coupon payments.
E. At issuance, the bond’s yield to maturity is 5.5 percent.
Answer:
All else held constant, interest rate risk will increase when the time to maturity:
A. decreases or the coupon rate increases.
B. decreases or the coupon rate decreases.
C. increases or the coupon rate increases.
D. increases or the coupon rate decreases.
E. decreases and the coupon rate equals zero.
Answer:
Duration is a measure of the:
A. yield to maturity of a bond.
B. coupon yield of a bond.
C. price of a bond.
D. effective maturity of a bond.
E. probability of a bond defaulting.
Answer:
Beaksley, Inc. is a very cyclical type of business which is reflected in its dividend
policy. The firm pays a $2.00 a share dividend every other year with a payment being
paid today. Five years from now, the company is repurchasing all of the outstanding
shares at a price of $50 a share. What is the current value of one share at a discount rate
of 12 percent?
A. $34.03
B. $31.24
C. $33.78
D. $27.89
E. $34.99
Answer:
Suppose the spot rate on the Indian rupee is Rs62.2025, the risk-free nominal rate in the
U.S. is 7.6 percent, and the Indian risk-free nominal rate is 6.2 percent. Which one of
the following one-year forward rates best establishes the approximate interest rate
parity condition?
A. Rs62.3089
B. Rs61.3317
C. Rs62.8840
D. Rs63.0733
E. Rs61.8420
Answer:
The gain from exercising a warrant is _____ the gain from exercising a comparable call
option. ANS$$ANSA. less than
A. generally greater than
B. always greater than
C. equal to
D. either equal to or greater than
Answer:
Commercial paper is generally issued:
A. by large firms.
B. for 190 days or less.
C. by commercial banks.
D. for 90 to 180 days.
E. at the prime rate offered by the firm’s bank.
Answer:
What is the net working capital for 2015?
A.
$11,45
B.
$12,240
C.
$4,955
D.
$9,915
E.
Answer:
A miller who needs wheat to mill into flour most likely uses the futures market for
taking a:
A. long hedge position to lock in production costs.
B. short hedge position to lock in delivery.
C. long hedge position to lock in a sales price for flour.
D. seller’s position in wheat.
E. speculator’s position in wheat.
Answer:
Ignore commissions, taxes, and other imperfections. If a firm substitutes a repurchase
for a cash dividend, the primary difference will be an increase in the
A. earnings per share.
B. total value received by each investor.
C. total earnings of the firm.
D. excess cash reserves of the firm.
E. number of shares outstanding.
Answer:
The cash flow to stockholders must be positive when:
A.the dividends paid are less than the amount of net new equity raised.
B.the net sale of common stock exceeds the amount of dividends paid.
C.no income is distributed but new shares of stock are sold.
D.the cash flow from assets is positive and also exceeds the cash flow to creditors.
E.both the cash flow to assets and the cash flow to creditors are positive.
Answer: