1) A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and
has a yield to maturity of 6.23 percent. What is the current market price of the bond?
A.$945.08
B.$947.21
C.$959.09
D.$959.60
E.$962.40
2) Which one of the following terms refers to the best option that was foregone when a
particular investment is selected?
A.Side effect
B.Erosion
C.Sunk cost
D.Opportunity cost
E.Marginal cost
3) Suppose Gallinger Corp. has the following characteristics:
Shares outstanding: 1,000,000
Current share price: $10
Total debt: $1,000,000
Total cash: $500,000
Based on the formula above, what is the enterprise value of Gallinger Corp.?
A.$9,500,000
B.$10,500,000
C.$11,500,000
D.$12,000,000
E.$13,500,000
4) Jamie is employed as a commercial loan officer for a regional bank centered in the
midwestern section of the U.S. Her job falls into which one of the following areas of
finance?
A.International finance
B.Financial institutions
C.Corporate finance
D.Capital management
E.Investments
5) You have $1,100 today and want to triple your money in 5 years. What interest rate
must you earn if the interest is compounded annually?
A.18.08 percent
B.19.90 percent
C.22.15 percent
D.24.57 percent
E.27.21 percent
6) Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The
loan term is six years. Since he borrowed the money, Travis has been making annual
payments of $700 to the bank. Which type of loan does he have?
A.Interest-only
B.Pure discount
C.Compound
D.Amortized
E.Complex
7) Leslie Printing has net income of $26,310 for the year. At the beginning of the year,
the firm had common stock of $55,000, paid-in surplus of $11,200, and retained
earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The
firm does not pay dividends. What is the amount of the net new equity raised during the
year?
A.$1,500
B.$2,500
C.$2,700
D.$48,420
E.$48,310
8) The Green Shoe option is most apt to be exercised when an IPO is ______ and
_____.
A.underpriced; oversubscribed
B.underpriced; undersubscribed
C.correctly priced; neither over- nor undersubscribed
D.overpriced; oversubscribed
E.overpriced; undersubscribed
9) An all-equity firm has net income of $28,300, depreciation of $7,500, and taxes of
$2,050. What is the firm’s operating cash flow?
A.$17,850
B.$21,950
C.$26,250
D.$35,800
E.$36,750
10) The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are
needed to purchase 2,000 Swiss francs?
A.$1,021.21
B.$1,754.39
C.$2,280.00
D.$2,850.00
E.$2,918.46
11) Greenwood Motels has filed a petition for bankruptcy but hopes to continue its
operations both during and after the bankruptcy process. Which one of the following
terms best applies to this situation?
A.Chapter 7 bankruptcy
B.Liquidation
C.Technical insolvency
D.Accounting insolvency
E.Reorganization
12) You currently own a portfolio valued at $80,000 that is equally as risky as the
market. Given the information below, what is the beta of Stock C?
A.0.91
B.0.95
C.1.04
D.1.13
E.1.18
13) A bond dealer sells at the _____ price and buys at the _____ price.
A.clean; dirty
B.dirty; clean
C.bid; asked
D.asked; bid
E.asked; asked
14) Which one of the following is the rate that most international banks charge when
they loan Eurodollars to other banks?
A.ADR
B.LIBOR
C.Cross-rate
D.Gilt rate
E.Swap rate
15) Which one of the following is included in net working capital?
A.Land
B.Accounts payable
C.Equipment
D.Depreciation
E.Dividend
16) The net working capital invested in a project is generally:
A.a sunk cost
B.an opportunity cost
C.recouped in the first year of the project
D.recouped at the end of the project
E.depreciated to a zero balance over the life of the project
17) Madison Square Stores has a $20 million bond issue outstanding that currently has
a market value of $18.6 million. The bonds mature in 6.5 years and pay semiannual
interest payments of $35 each. What is the firm’s pretax cost of debt?
A.4.21 percent
B.8.42 percent
C.7.58 percent
D.7.74 percent
E.7.80 percent
18) Fiddler’s Music Stores’ stock has a risk premium of 9.6 percent while the inflation
rate is 4.1 percent and the risk-free rate is 3.9 percent. What is the expected return on
this stock?
A.12.3 percent
B.12.7 percent
C.13.5 percent
D.13.7 percent
E.16.5 percent
19) Eurobonds are best defined as international bonds issued in _____ and denominated
in ____.
A.a single country; multiple currencies
B.a single country; a single currency
C.multiple countries; multiple currencies
D.multiple countries; a single currency
E.Euroland; euros
20) Capital budgeting includes the evaluation of which of the following?
A.Size of future cash flows only
B.Size and timing of future cash flows only
C.Timing and risk of future cash flows only
D.Risk and size of future cash flows only
E.Size, timing, and risk of future cash flows
21) Which one of the following bonds is most apt to have the smallest liquidity
premium?
A.Treasury bill
B.Corporate bond issued by a new firm
C.Municipal bond issued by the State of New York
D.Municipal bond issued by a rural city in Alaska
E.Corporate bond issued by General Motors (GM)
22) During the past year, ABC stock has sold for as little as $19 a share and a much as
$33 a share. Which one of the following terms applies to these prices?
A.Benchmark values
B.Price splits
C.Price dividers
D.Split range
E.Trading range
23) Which one of the following is an example of a perpetuity?
A.Trust income of $1,200 a year forever
B.Retirement pay of $2,200 a month for 20 years
C.Lottery winnings of $1,000 a month for life
D.Car payment of $260 a month for 60 months
E.Apartment rent payment of $800 a month for one year
24) Your firm has an average collection period of 52 days. Current practice is to factor
all receivables immediately at a 2.2 percent discount. What is the effective cost of
borrowing in this case? Assume that default is extremely unlikely.
A.16.12 percent
B.16.18 percent
C.16.90 percent
D.17.53 percent
E.17.59 percent
25) You want to create a $48,000 portfolio that consists of three stocks and has an
expected return of 14.5 percent. Currently, you own $16,700 of Stock A and $24,200 of
Stock B. The expected return for Stock A is 18.7 percent, and for Stock B it is 11.2
percent. What is the expected rate of return for Stock C?
A.13.67 percent
B.14.14 percent
C.15.38 percent
D.15.87 percent
E.16.11 percent
26) What is the future value of $4,900 invested for 8 years at 7 percent compounded
annually?
A.$8,397.74
B.$8,419.11
C.$8,511.15
D.$8,513.06
E.$8,520.22
27) Kyle Electric has three positive net present value opportunities. Unfortunately, the
firm has not been able to find financing for any of these projects. Which one of the
following terms best describes the firm’s situation?
A.Sensitivity analysis
B.Capital rationing
C.Soft rationing
D.Contingency planning
E.Sunk cost
28) For the most recent year, Wilson Enterprises had sales of $689,000, cost of goods
sold of $470,300, depreciation expense of $61,200, and additions to retained earnings
of $48,560. The firm currently has 12,000 shares of common stock outstanding, and the
previous year’s dividends per share were $1.18. Assuming a 35 percent tax rate, what
was the times interest earned ratio?
A.1.47
B.2.09
C.2.58
D.3.15
E.3.67
29) Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable
income. Suppose both firms have identified a new project that will increase taxable
income by $12,000. The additional project will increase Able Co.’s taxes by _____ and
Bravo Co.’s taxes by ____.
A.$1,800; $1,800
B.$4,080; $4,080
C.$4,080; $4,680
D.$4,680; $4,080
E.$4,680; $4,680
30) You are making a $120,000 investment and feel that a 20 percent rate of return is
reasonable given the nature of the risks involved. You feel you will receive $48,000 in
the first year, $54,000 in the second year, and $56,000 in the third year. You expect to
pay out $12,000 as an additional investment in the fourth year. What is the net present
value of this investment given your expectations?
A.-$15,879.63
B.-$4,305.56
C.$15,879.63
D.$16,233.33
E.$18,534.25
31) The balance sheet for Oasis, Inc. is shown here in market value terms. There are
30,000 shares of stock outstanding.
The company has announced it is going to repurchase $40,000 worth of stock. What
will the price per share be after the repurchase?
A.$36.29
B.$38.17
C.$38.67
D.$39.42
E.$39.89
32) Billingsley, Inc. is borrowing $60,000 for five years at an APR of 8 percent. The
principal is to be repaid in equal annual payments over the life of the loan with interest
paid annually. Payments will be made at the end of each year. What is the total payment
due for year 3 of this loan?
A.$13,920
B.$14,880
C.$15,220
D.$15,840
E.$16,800
33) You are having a discussion with one of your classmates on dividend policy. Your
classmate states that dividend policy is totally irrelevant. Write a response to this
statement justifying that in the real world, dividend policy does matter.
34) Give an example of a potential agency problem for a corporation and identify
means by which the firm can help reduce or eliminate that problem.
35) Explain why a firm might prefer a stock repurchase rather than an increase in the
firm’s regular dividend.
36) What is LIBOR and what role does it play in international finance?
37) Check kiting has been a means, although neither an ethical nor legal means, of
allowing a firm to use its uncollected cash. How did the Check Clearing Act for the 21st
Century (Check 21) affect this practice?