Which one of the following tends to be true for the average investor?
A. They frequently earn initially high returns on IPOs when shares are undersubscribed.
B. They generally receive their full allocation of shares even when an IPO is
oversubscribed.
C. They often encounter the “winners curse.”
D. They are protected from losses by the Green Shoe provision.
E. Average investors are not allowed to purchase IPOs at the offer price.
The operating cycle is equal to which one of the following?
A. Inventory period plus the accounts payable period
B. Accounts receivable period plus the cash cycle
C. Inventory period minus the accounts payable period plus the accounts receivable
period
D. Accounts receivable period plus the inventory period
E. Inventory period plus the cash cycle
Which one of the following is the annuity present value formula?
A. C x {{1 – [1/(1 + )t]}/}
B. C x {1 – [1/(1 + )t]} –
C. C x {1 – [/(1 + )t]}/
D. C x {{1 – [1/(1 x )t]} x }
E. C x {1 – [/(1 x )t]} x
The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and
pay interest annually. Currently, the bonds are quoted at 95.27 and mature in 3.5 years.
What is the yield to maturity?
A. 7.88 percent
B. 8.02 percent
C. 8.18 percent
D. 8.79 percent
E. 9.14 percent
Which one of the following will tend to increase the length of the credit period?
A. Decrease in product cost
B. Decrease in consumer demand
C. Decrease in collateral value
D. Increase in credit risk
E. Increase in product standardization
Soul Foods has a $12 million bond issue outstanding with a coupon rate of 6.75 percent
and a yield to maturity of 7.27 percent. What is the present value of the tax shield if the
tax rate is 30 percent?
A. $283,500
B. $360,000
C. $3,053,400
D. $3,560,000
E. $3,600,000
Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15
years. Yesterday, the firm announced the dividend will increase next year by 10 percent
and will stay at the level through year 3, after which time the dividends will increase by
2 percent annually. The required return on this stock is 12 percent. What is the current
value per share?
A. $25.51
B. $26.08
C. $24.57
D. $26.02
E. $26.84
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
The Fruit Mart is an all-equity firm with a current cost of equity of 19.6 percent. The
estimated earnings before interest and taxes are $315,000 annually forever. Currently,
the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest.
The tax rate is 33 percent. What is the value of the unlevered firm?
A. $849,207
B. $853,571
C. $856,411
D. $1,019,307
E. $1,076,786
Baugh and Essary reports the following account balances: inventory of $17,600,
equipment of $128,300, accounts payable of $24,700, cash of $11,900, and accounts
receivable of $31,900. What is the amount of the current assets?
A. $46,700
B. $56,000
C. $61,400
D. $175,000
E. $199,700
The average accounting return:
A. measures profitability rather than cash flow.
B. discounts all values to todays dollars.
C. is expressed as a percentage of an investments current market value.
D. will equal the required return when the net present value equals zero.
E. is used more often by CFOs than the internal rate of return.
Outdoor Sports is considering adding a miniature golf course to its facility. The course
would cost $138,000, would be depreciated on a straight-line basis over its five-year
life, and would have a zero salvage value. The estimated income from the golfing fees
would be $72,000 a year with $24,000 of that amount being variable cost. The fixed
cost would be $11,600. In addition, the firm anticipates an additional $14,000 in
revenue from its existing facilities if the golf course is added. The project will require
$3,000 of net working capital, which is recoverable at the end of the project. What is
the net present value of this project at a discount rate of 12 percent and a tax rate of 34
percent?
A. $11,309
B. $11,628
C. $12,737
D. $14,439
E. $14,901
You are analyzing a project and have developed the following estimates. The
depreciation is $7,600 a year and the tax rate is 34 percent. What is the worst-case
operating cash flow?
A. -$1,311
B. -$641
C. $274
D. $599
E. $1,206