Shoe Box Stores is currently an all-equity firm with 28,000 shares of stock outstanding.
Management is considering changing the capital structure to 40 percent debt. The
interest rate on the debt would be 9 percent. Ignore taxes. Jamie owns 400 shares of
Shoe Box Stores stock that is priced at $17 a share. What should Jamie do if she prefers
the all-equity structure but Shoe Box Stores adopts the new capital structure?
A. Borrow money and buy an additional 160 shares
B. Borrow money and buy an additional 180 shares
C. Keep her shares but loan out all of the dividend income at 9 percent
D. Sell 160 shares and loan out the proceeds at 9 percent
E. Sell 180 shares and loan out the proceeds at 9 percent
A six-year, semiannual coupon bond is selling for $991.38. The bond has a face value
of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?
A. 4.50 percent
B. 4.60 percent
C. 6.00 percent
D. 9.00 percent
E. 9.19 percent
Captain Kurts Enterprises has a receivables turnover rate of 12.8, a payables turnover
rate of 11.9, and an inventory turnover rate of 15.6. What is the length of the firms
operating cycle?
A. 24.89 days
B. 39.80 days
C. 51.92 days
D. 62.56 days
E. 83.77 days
If the financial markets are efficient then:
A. stock prices should remain constant.
B. stock prices should increase or decrease slowly as new events are analyzed and the
information is absorbed by the markets.
C. an increase in the value of one security should be offset by a decrease in the value of
another security.
D. stock prices will change only when an event actually occurs, not at the time the
event is anticipated.
E. stock prices should respond only to unexpected news and events.
Which of the following individuals commonly use finance in the course of their job?I.
Chief financial officersII. AccountantsIII. Security analystsIV. Strategic managers
A. I and II only
B. III and IV only
C. I and III only
D. I, II, and III only
E. I, II, III, and IV
Whitts BBQ has sales of $348,000, a profit margin of 8.1 percent, and a capital
intensity ratio of 0.70. What is the total asset turnover rate?
A. 1.04
B. 1.08
C. 1.13
D. 1.29
E. 1.43
The cash cycle is equal to which one of the following?
A. Inventory period minus the accounts payable period
B. Operating cycle plus the accounts payable period
C. Operating cycle minus the accounts receivable period
D. Accounts receivable period minus the accounts payable period plus the inventory
period
E. Inventory period minus the accounts receivable period minus the accounts payable
period
Which one of the following statements is correct?
A. Generally speaking, the size of a firm has no effect on its tendency to pay dividends.
B. The market crash and the accounting scandals in the early 2000s tended to cause
financially stable firms to cease paying cash dividends.
C. The majority of firms either started paying or increased their dividends per share in
response to the May 2003 change in dividend taxation.
D. Firms tend to prefer cash dividends over share repurchases for their flexibility and
tax benefits.
E. A non-dividend-paying firm is more apt to do a stock repurchase than to commence
paying dividends.
Highly liquid assets:
A. increase the probability a firm will face financial distress.
B. appear on the right side of a balance sheet.
C. generally produce a high rate of return.
D. can be sold quickly at close to full value.
E. include all intangible assets.
A broker is an agent who:
A. trades on the floor of an exchange for himself or herself.
B. buys and sells from inventory.
C. offers new securities for sale to dealers only.
D. is ready to buy or sell at any time.
E. brings buyers and sellers together.
A firm is reviewing a project that has an initial cost of $71,000. The project will
produce annual cash inflows, starting with year 1, of $8,000, $13,400, $18,600,
$33,100, and finally in year 5, $37,900. What is the profitability index if the discount
rate is 11 percent?
A. 0.92
B. 0.98
C. 1.02
D. 1.07
E. 1.12
Hometown Builders is borrowing $150,000 today for five years. The loan is an
interest-only loan with an APR of 8.5 percent. Payments are to be made annually. What
is the amount of the first annual payment?
A. $12,750.00
B. $20,610.90.00
C. $30,029.18
D. $36,461.10
E. $41,300.00
Kellys uses the firms WACC as the required return for some of its projects. For other
projects, the firms uses a rate equal to WACC plus 1 percent, while another set of
projects is assigned rates equal to WACC minus some amount. Which one of the
following factors should be the key factor the firm uses to determine the amount of the
adjustment it will make when assigning the project a discount rate?
A. Firm beta
B. Date for project commencement
C. Risk level of project
D. Division within the firm that will be assigned to manage the project
E. Current debt-equity ratio
Which of the following are cash inflows from net working capital?I. Increase in
accounts payableII. Increase in inventoryIII. Decrease in accounts receivableIV.
Decrease in fixed assets
A. II only
B. III only
C. I and III only
D. III and IV only
E. I, II, and III only
Terry invested $2,000 today in an investment that pays 6.5 percent annual interest.
Which one of the following statements is correct, assuming all interest is reinvested?
A. Terry will earn the same amount of interest each year.
B. Terry could have the same future value and invest less than $2,000 initially if he
could earn more than 6.5 percent interest.
C. Terry will earn an increasing amount of interest each and every year even if he
should decide to withdraw the interest annually rather than reinvesting the interest.
D. Terrys interest for year two will be equal to $2,000 x 0.065 x 2.
E. Terry will be earning simple interest.
LaDoris Boutique has 4,500 shares of stock outstanding at a price per share of $20. The
firm has decided to repurchase 600 of those shares in the open market. What will the
price per share be after the share repurchase is completed? Ignore taxes and market
imperfections.
A. $17.80
B. $18.40
C. $18.80
D. $20.00
E. $20.20
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
You have been told that you need $25,600 today in order to have $100,000 when you
retire 35 years from now. What rate of interest was used in the present value
computation? Assume interest is compounded annually.
A. 3.97 percent
B. 4.15 percent
C. 4.29 percent
D. 4.53 percent
E. 4.58 percent
Which one of the following inventory management approaches determines the finished
goods inventory level and then works backward until the raw material needs are
determined?
A. Extended EOQ
B. Just-in-time
C. ABC approach
D. Materials requirements planning
E. Economic order quantity