1) The Good Life Store has sales of $79,600. The cost of goods sold is $48,200 and the
other costs are $18,700. Depreciation is $8,300 and the tax rate is 34 percent. What is
the net income?
A.$2,904
B.$8,382
C.$11,204
D.$14,660
E.$16,682
2) Appalachian Mountain Goods has paid increasing dividends of $.0.12, $0.18, $0.20,
and $0.25 a share over the past four years, respectively. The firm estimates that future
increases in its dividends will be equal to the arithmetic average growth rate over these
past four years. The stock is currently selling for $12.60 a share. The risk-free rate is 3.2
percent and the market risk premium is 9.1 percent. What is the cost of equity for this
firm if its beta is 1.26?
A.14.34 percent
B.16.91 percent
C.19.78 percent
D.22.96 percent
E.24.03 percent
3) You are analyzing a project and have developed the following estimates. The
depreciation is $14,800 a year and the tax rate is 35 percent. What is the base case
operating cash flow?
A.$18,770
B.$18,972
C.$21,433
D.$21,690
E.$22,410
4) Lester’s has a market value balance sheet as shown below. The firm currently has
7,500 shares of stock outstanding at a price per share of $40. Net income is $9,500.
The firm has decided to repurchase $20,000 worth of its outstanding stock. What will
the firm’s PE ratio be after this repurchase, all else held constant?
A.23.39
B.28.76
C.29.47
D.30.13
E.32.16
5) On which one of the following dates is the determination made as to which
shareholders will receive a dividend payment?
A.Date of record
B.Ex-dividend date
C.Payment date
D.Declaration date
E.Public announcement date
6) Ready To Go is an all-equity firm specializing in hot ready-to-eat meals.
Management has estimated the firm’s earnings before interest and taxes will be
$175,000 annually forever. The present cost of equity is 15.1 percent. Currently, the
firm has no debt but is considering borrowing $750,000 at 9 percent interest. The tax
rate is 34 percent. What is the value of the unlevered firm?
A.$623,017
B.$646,511
C.$704,141
D.$764,901
E.$855,200
7) Which one of the following is a correct value to use if you are conducting a best-case
scenario analysis?
A.Sales price that is most likely to occur
B.Lowest expected level of sales quantity
C.Lowest expected salvage value
D.Highest expected need for net working capital
E.Lowest expected value for fixed costs
8) Computing the present value of a future cash flow to determine what that cash flow
is worth today is called:
A.compounding
B.factoring
C.time valuation
D.simple cash flow valuation
E.discounted cash flow valuation
9) Gulf Shores Inn is comparing two separate capital structures. The first structure
consists of 260,000 shares of stock and no debt. The second structure consists of
200,000 shares of stock and $1.5 million of debt. What is the price per share of equity?
A.$18
B.$21
C.$25
D.$30
E.$33
10) Which one of the following 5 Cs refers to the general economic climate in a
customer’s line of business?
A.Capital
B.Conditions
C.Capacity
D.Character
E.Collateral
11) Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2
percent. The firm uses the subjective approach to determine project discount rates.
Currently, the firm is considering a project to which it has assigned an adjustment factor
of -0.5 percent. The firm’s tax rate is 34 percent and its debt-equity ratio is 0.45 . The
project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a
year for 5 years. What is the net present value of the project?
A.$121,619
B.$328,895
C.$514,370
D.$561,027
E.$628,721
12) Burke’s Corner currently sells blue jeans and T-shirts. Management is considering
adding fleece tops to its inventory to provide a cooler weather option. The tops would
sell for $49 each with expected sales of 3,600 tops annually. By adding the fleece tops,
management feels the firm will sell an additional 220 pairs of jeans at $59 a pair and
350 fewer T-shirts at $18 each. The variable cost per unit is $36 on the jeans, $9 on the
T-shirts, and $21 on the fleece tops. With the new item, the depreciation expense is
$27,000 a year and the fixed costs are $62,000 annually. The tax rate is 34 percent.
What is the project’s operating cash flow?
A.$27,789
B.$34,708
C.$36,049
D.$38,419
E.$40,201
13) The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and
sells for $42 a share. The tax rate is 35 percent. What is the firm’s cost of preferred
stock?
A.9.67 percent
B.14.88 percent
C.15.07 percent
D.15.59 percent
E.16.47 percent
14) Which one of the following will increase cash flow from assets but not affect the
operating cash flow?
A.Increase in depreciation
B.Increase in accounts receivable
C.Sale of a fixed asset
D.Decrease in cost of goods sold
E.Increase in sales
15) The Insolvent Insurance Co. will pay you $2,500 a year for 10 years in exchange for
$30,000 today. What interest rate will you earn on this annuity?
A.-3.18 percent
B.3.18 percent
C.5.50 percent
D.5.55 percent
E.5.60 percent
16) The annual interest divided by the face value of a bond is referred to as the:
A.market rate
B.call rate
C.coupon rate
D.current yield
E.yield-to-maturity
17) A good steak dinner in the U.S. costs $49 while the exact meal costs 660 pesos
across the border in Mexico. Based on purchasing power parity, what is the implied
peso/$ exchange rate?
A.Ps0.0833/$1
B.Ps12.00/$1
C.Ps14.42/$1
D.Ps14.67/$1
E.Ps15.08/$1
18) Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $17 a share.
Boyd Enterprises just declared a 10 percent stock dividend. How many shares will
Heidi own and what will the price per share be after the dividend?
A.360; $15.45
B.360; $18.70
C.440; $15.45
D.440; $17.00
E.440; $18.70
19) You are comparing two possible capital structures for a firm. The first option is an
all-equity firm. The second option involves the use of $3.8 million of debt. The
break-even point between these two financing options occurs when the earnings before
interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial
to the firm:
A.whenever EBIT is less than $428,000
B.only when EBIT is $428,000
C.whenever EBIT exceeds $428,000
D.only if the debt is decreased by $428,000
E.only if the debt is increased by $428,000
20) Sam wants to invest $5,000 for 5 years. Which one of the following rates will
provide him with the largest future value?
A.5 percent simple interest
B.5 percent interest, compounded annually
C.6 percent interest, compounded annually
D.7 percent simple interest
E.7 percent interest, compounded annually
21) One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon
rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these
bonds is 7.2 percent. How does the price of these bonds today compare to the issue
price?
A.4.99 percent lower
B.5.38 percent lower
C.6.05 percent lower
D.0.07 percent higher
E.1.36 percent higher
22) A stock has a market price of $46.10 and pays a $2.40 annual dividend. What is the
dividend yield?
A.4.13 percent
B.4.84 percent
C.5.21 percent
D.5.52 percent
E.5.78 percent
23) Which one of the following is a use of cash?
A.Selling inventory at cost
B.Paying a supplier for inventory you purchased last month
C.Borrowing money from a local bank
D.Collecting payment from a customer
E.Selling a fixed asset such as a piece of machinery
24) Scott borrowed $2,500 today. The loan agreement requires him to repay $2,685 in
one lump sum payment one year from now. This type of loan is referred to as a(n):
A.interest-only loan
B.pure discount loan
C.quoted rate loan
D.compound interest loan
E.amortized loan
25) Tally Ho Inn has annual sales of $737,000. Earnings before interest and taxes is
equal to 21 percent of sales. For the period, the firm paid $7,900 in interest. What is the
profit margin if the tax rate is 35 percent?
A.12.46 percent
B.12.95 percent
C.13.33 percent
D.15.29 percent
E.16.11 percent
26) Which one of the following will reduce the disbursement float of a firm?
A.Mailing a check from a very remote location
B.Mailing an unsigned check so that it must be returned for a signature
C.Paying a loan payment at the bank rather than mailing a check to the bank
D.Requiring that all checks be held one day before mailing so they can be reviewed by
a manager
E.Writing checks on a zero-balance account rather than on the master account
27) Kennedy’s has the following estimated quarterly sales for next year.
The accounts receivable period is 70 days. What is the expected accounts receivable
balance at the end of the second quarter? Assume each month has 30 days.
A.$4,400
B.$5,600
C.$10,267
D.$12,000
E.$13,200