Franklin Oil issued 150,000 shares of stock last week. The underwriters charged a 7.5
percent spread in exchange for agreeing to a firm commitment. The legal and
accounting fees amounted to $310,000 and the company incurred $65,000 in indirect
costs. The offer price was $31 a share. Within the first hour of trading, the stock price
increased to $34 a share. What was the flotation cost as a percentage of the funds
raised?
A. 20.89 percent
B. 24.03 percent
C. 24.47 percent
D. 26.55 percent
E. 29.89 percent
Answer:
Over the period of 1926-2011:
A. long-term government bonds underperformed long-term corporate bonds.
B. small-company stocks underperformed large-company stocks.
C. inflation exceeded the rate of return on U.S. Treasury bills.
D. U.S. Treasury bills outperformed long-term government bonds.
E. large-company stocks outperformed all other investment categories.
Answer:
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
Answer:
An investment has an initial cost of $300,000 and a life of four years. This investment
will be depreciated by $60,000 a year and will generate the net income shown below.
Should this project be accepted based on the average accounting rate of return (AAR) if
the required rate is 9.5 percent? Why or why not?
A. Yes, because the AAR less than 9.5 percent
B. Yes, because the AAR is 9.5 percent
C. Yes, because the AAR is greater than 9.5 percent
D. No, because the AAR is 9.5 percent
E. No, because the AAR is greater than 9.5 percent
Answer:
You have just won the lottery! You can either receive $5,000 a year for 15 years or
$50,000 as a lump sum payment today. What is the interest rate on the annuity option?
A. 5.56 percent
B. 5.68 percent
C. 6.20 percent
D. 6.39 percent
E. 6.50 percent
Answer:
M&M Proposition II, without taxes, states that the:
A. capital structure of a firm is highly relevant.
B. weighted average cost of capital decreases as the debt-equity ratio decreases.
C. cost of equity increases as a firm increases its debt-equity ratio.
D. return on equity is equal to the return on assets multiplied by the debt-equity ratio.
E. return on equity remains constant as the debt-equity ratio increases.
Answer:
What is the value today of $3,600 received at the end of each year for seven years if the
first payment is paid at the end of year 3 and the discount rate is 12 percent?
A. $11,694.21
B. $12,484.57
C. $13,097.52
D. $15,089.23
E. $16,429.52
Answer:
Which one of the following is an example of a liquidating dividend?
A. Valley Feed Mills recently sold its grain storage facility and is distributing the
proceeds of that sale to its shareholders.
B. Kate’s Winery has excess cash that it wishes to distribute to its shareholders in
addition to its normal cash dividend. This extra distribution usually occurs about once
every year.
C. Kurt’s Music is planning to increase its quarterly dividend by 3 percent.
D. The Dried Florist is preparing to pay its first annual dividend of $0.08 per share.
Answer:
If you accept a job as a domestic security analyst for a brokerage firm, you are most
likely working in which one of the following financial areas?
A. International finance
B. Private placements
C. Corporate finance
D. Capital management
E. Investments
Answer:
The net present value:
A. decreases as the required rate of return increases.
B. is equal to the initial investment when the internal rate of return is equal to the
required return.
C. method of analysis cannot be applied to mutually exclusive projects.
D. is directly related to the discount rate.
Answer:
If inflation is expected to steadily decrease in the future, the term structure of interest
rates will most likely be:
A. upward sloping.
B. flat.
C. humped.
D. downward sloping.
E. double-humped.
Answer:
The Chip Dip Co. has 15,500 shares of stock outstanding, grants one vote per share, and
uses straight voting. How many shares must you control to guarantee that you will be
elected to the firm’s board of directors if there are three open seats?
A. 5,167 shares
B. 5,134 shares
C. 3,876 shares
D. 7,751 shares
E. 7,134 shares
Answer:
Your coin collection contains ten 1939 silver dollars. If your great grandparents
purchased them for their face value when they were new, how much will your
collection be worth when you retire in 2050, assuming they appreciate at a 5.1 percent
annual rate?
A. $2,243.63
B. $2,329.29
C. $2,348.98
D. $2,499.78
E. $2,644.29
Answer:
A firm offers credit terms of 1/5, net 25. How long is the net credit period?
A. 1 day
B. 5 days
C. 20 days
D. 25 days
E. 30 days
Answer:
Which one of the following cannot be computed?
A. Future value of an ordinary annuity
B. Future value of a perpetuity
C. Present value of a perpetuity
D. Present value of an annuity due
E. Present value of an ordinary annuity
Answer:
Best Western has $1,000 face value bonds outstanding. These bonds pay interest
semiannually, mature in six years, and have a 5 percent coupon. The current price is
quoted at 101. What is the yield to maturity?
A. 2.32 percent
B. 4.64 percent
C. 5.00 percent
D. 5.13 percent
E. 5.27 percent
Answer:
Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860,
accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?
A. 0.08
B. 0.25
C. 0.30
D. 0.46
E. 0.51
Answer: