Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of
23.7 percent. If the firm earns $138,500 in taxable income, how much will it owe in
taxes?
A. $31,366.67
B. $31,500.00
C. $32,824.50
D. $39,957.25
E. $47,090.00
How long will it take to double your savings if you earn 7.2 percent interest,
compounded annually?
A. 8.89 years
B. 9.02 years
C. 9.34 years
D. 9.97 years
E. 11 years
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
You are assigned the task of computing the expected return on a portfolio containing
several individual stocks. Which one of the following statements is correct concerning
this task?
A. The expected rate of return on the portfolio must be positive.
B. The arithmetic average of the betas for each security held in the portfolio must equal
1.0.
C. The portfolio beta must be 1.0.
D. The summation of the return deviation from the portfolio expected return for each
economic state must equal zero.
E. The standard deviation of the portfolio must equal 1.0.
You are given the following exchange rates for the Canadian dollar versus the U.S.
dollar:
Which one of the following statements is correct given this information?
A. Last week, it took Can$0.8078 to purchase US$1.
B. This week you can exchange one Canadian dollar for $1.2376 American.
C. It is cheaper for an American to travel in Canada this week as compared to last week.
D. The Canadian dollar depreciated from last week to this week.
E. You would have made a profit if you invested U.S. $100 in Canadian dollars last
week and then converted your money back to U.S. dollars this week. Ignore any interest
earnings.
Harters Meats has an average collection period of 36 days and factors all of its
receivables immediately at a 1.2 percent discount. Assume all accounts are collected in
full. What is the firms effective cost of borrowing?
A. 12.88 percent
B. 12.94 percent
C. 12.97 percent
D. 13.02 percent
E. 13.07 percent
Six years ago, China Exporters paid cash for a new packaging machine that cost
$287,000. Three years ago, the firm spent $3,900 on repairs and modifications to the
machine. The machine is now fully depreciated and has just sat idly in a back corner of
the shop for the past seven months. The estimated value of the machine today is
$125,500. The firm is considering using this machine in a new project. If it does so,
what value should be assigned to this machine and included in the initial costs of the
new project?
A. $0
B. $3,900
C. $125,500
D. $127,400
E. $143,500
Lake City Plastics currently produces plastic plates and silverware. The company is
considering expanding its product offerings to include plastic serving trays. Which of
the following are cash flows relevant to the new product?I. Molds needed to form the
serving traysII. Projected increase in plate and silverware sales if the trays are
producedIII. A portion of the production managers current annual salary of $75,000IV.
Raw materials used in the production of the serving trays
A. I and IV only
B. III and IV only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV
Semistrong 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.
Which one of the following statements is correct?
A. Oral offers can be made for new securities during the waiting period.
B. A Green Shoe letter must be provided to all investors who purchase shares of a new
equity offering.
C. Corporate directors have the authority to authorize additional shares of stock for a
new issue.
D. The underwriters must approve any increase in the authorized number of shares for a
firm.
E. When issuing new securities, the first step is the distribution of the prospectus.
The stated interest rate is the interest rate expressed:
A. as if it were compounded one time per year.
B. as the quoted rate compounded by 12 periods per year.
C. in terms of the rate charged per day.
D. in terms of the interest payment made each period.
E. in terms of an effective rate.
Mercury Homes just declared a 4-for-3 stock split. Which of the following occurred as a
result of this split?I. Number of shares outstanding increased by one-thirdII. Number of
shares outstanding decreased by one-fourthIII. Price per share increased by one-thirdIV.
Price per share decreased by one-fourth
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
The Flour Baker is considering a project with the following cash flows. Should this
project be accepted based on its internal rate of return if the required return is 11
percent?
A. Yes, because the projects rate of return is 7.78 percent
B. Yes, because the projects rate of return is 9.36 percent
C. No, because the projects rate of return is 7.78 percent
D. No, because the projects rate of return is 9.36 percent
E. No, because the projects rate of return is 13.08 percent