LOG, Inc. currently has 300,000 shares of stock outstanding that sell for $73 per share.
Assuming no market imperfections or tax effects exist, what will the share price be after
LOG has a 5-for-3 stock split?
A. $43.80
B. $45.60
C. $73.00
D. $109.18
E. $121.67
Answer:
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10
years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of
return on both annuities is 8 percent. Which one of the following statements is correct
given this information?
A. The present value of Annuity A is equal to the present value of Annuity B.
B. Annuity B will pay one more payment than Annuity A will.
C. The future value of Annuity A is greater than the future value of Annuity B.
D. Annuity B has both a higher present value and a higher future value than Annuity A.
E. Annuity A has a higher future value but a lower present value than Annuity B.
Answer:
Which one of the following best exemplifies unsystematic risk?
A. Unexpected economic collapse
B. Unexpected increase in interest rates
C. Unexpected increase in the variable costs for a firm
D. Sudden decrease in inflation
E. Expected increase in tax rates
Answer:
What is the key difference between an ordinary preferred stock and a money market
preferred stock?
A. Issuer
B. Maturity
C. Fixed versus floating dividend
D. Voting rights
E. Absence of any dividend
Answer:
According to purchasing power parity, if a Big Mac sells for $3.89 in the United States
and 47.25 pesos in Mexico, what is the peso/$ exchange rate?
A. Ps0.0739 = $1
B. Ps0.0823 = $1
C. Ps11.29 = $1
D. Ps12.15 = $1
E. Ps14.32 = $1
Answer:
In the process of liquidation, some types of claims receive preference over other claims.
Which one of the following determines which type of claim is paid first?
A. Technical insolvency definition
B. Absolute priority rule
C. Accounting insolvency definition
D. Chapter 7 of the Federal Bankruptcy Reform Act of 1978
E. Securities and Exchange Commission
Answer:
Which one of the following is the equity risk arising from the capital structure selected
by a firm?
A. Strategic risk
B. Financial risk
C. Liquidity risk
D. Industry risk
E. Business risk
Answer:
The Glass Ceiling paid an annual dividend of $2.20 per share last year. Management
just announced that future dividends will increase by 2.8 percent annually. What is the
amount of the expected dividend in year 5?
A. $2.39
B. $2.41
C. $2.46
D. $2.53
E. $2.58
Answer:
Which one of the following is the best universal definition of an exchange rate?
A. Price of one country’s currency expressed in terms of another country’s currency
B. Number of foreign dollars that can be purchased for every one U.S. dollar paid
C. Price of a country’s currency expressed in terms of that country’s currency unit
D. Number of units of a currency that were originally required to obtain one euro when
a country adopted the euro as its official currency
E. Price that must be paid to obtain a good or service from another country
Answer:
Gabella’s is an all-equity firm that has 21,000 shares of stock outstanding at a market
price of $40 a share. The firm has earnings before interest and taxes of $84,000 and has
a 100 percent dividend payout ratio. Ignore taxes. Gabella’s has decided to issue
$160,000 of debt at a rate of 12 percent and use the proceeds to repurchase shares. Terry
owns 400 shares of Gabella’s stock and has decided to continue holding those shares.
How will Gabella’s debt issue affect Terry’s annual dividend income?
A. Decrease from $2,400 to $1,840
B. Increase from $2,400 to $2,160
C. Decrease from $1,600 to $1,525
D. Increase from $1,600 to $2,094
E. No change
Answer:
The Christmas Tree Farms, Inc. currently has 45,000 shares of stock outstanding and no
debt. The price per share is $17.50. The firm is considering borrowing funds at 7.5
percent interest and using the proceeds to repurchase 4,000 shares of stock. Ignore
taxes. How much is the firm borrowing?
A. $52,500
B. $70,000
C. $110,500
D. $125,000
E. $140,000
Answer:
Which one of the following statements is correct?
A. If the IRR exceeds the required return, the profitability index will be less than 1.0.
B. The profitability index will be greater than 1.0 when the net present value is
negative.
C. When the internal rate of return is greater than the required return, the net present
value is positive.
D. Projects with conventional cash flows have multiple internal rates of return.
E. If two projects are mutually exclusive, you should select the project with the shortest
payback period.
Answer:
Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6
percent interest. The annuity costs $200,000 today. What is the amount of each annuity
payment?
A. $7,546.70
B. $7,600.00
C. $7,773.10
D. $7,800.00
E. $7,856.25
Answer:
Kris will receive $800 a month for the next five years from an insurance settlement. The
interest rate is 4 percent, compounded monthly, for the first two years and 5 percent,
compounded monthly, for the final three years. What is this settlement worth to him
today?
A. $36,003.18
B. $38,219.97
C. $41,388.71
D. $43,066.22
E. $45,115.16
Answer:
You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000,
an 8 percent coupon, and pays interest semiannually. The next coupon payment is one
month from now. What is the dirty price of this bond?
A. $1,000.00
B. $1,146.67
C. $1,173.33
D. $1,176.67
E. $1,180.00
Answer:
Financial statement analysis:
A. is primarily used to identify account values that meet the normal standards.
B. is limited to internal use by a firm’s managers.
C. provides useful information that can serve as a basis for forecasting future
performance.
D. provides useful information to shareholders but not to debtholders.
E. is enhanced by comparing results to those of a firm’s peers but not by comparing
results to prior periods.
Answer:
Which one of the following best states the primary goal of inventory management?
A. Minimize the number of orders per year
B. Minimize the average inventory level
C. Minimize total inventory costs
D. Minimize the level of inventory for the most expensive items
E. Minimize opportunity costs
Answer:
Explain how the process of dividend smoothing affects the dividend growth rate as
compared to the earnings growth rate.
Answer:
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.
Answer:
In words, explain how the crossover rate is computed and why the net present value
profile is useful.
Answer:
Explain the basic structure and workings of a disbursement system that utilizes
zero-balance accounts.
Answer:
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?
Answer:
How are preferred stock dividends treated for tax purposes by the issuer, an individual
shareholder, and a corporate shareholder?
Answer:
Over the period of 1926-2011, U. S. Treasury bills had an average return of 3.8 percent
while inflation averaged 3.1 percent. Based on this historical record, is it safe to assume
that an investor in U.S. Treasury bills will enjoy a positive real rate of return each year?
Why or why not?
Answer: