February 26, 2019

Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every

March and September. The bonds are investment grade and sell at par. The bonds are

callable at a price equal to the present value of all future interest and principal payments

discounted at a rate equal to the comparable Treasury rate plus 0.50 percent. Which of

the following correctly describe the features of this bond?

I. bond rating of B

II. "make whole" call price

III. $1,000 face value

IV. offer price of $1,000

A. I and III only

B. III and IV only

C. I, III, and IV only

D. II, III, and IV only

E. I, II, III, and IV

The value of a firm is maximized when the:

A. cost of equity is maximized.

B. tax rate is zero.

C. levered cost of capital is maximized.

D. weighted average cost of capital is minimized.

E. debt-equity ratio is minimized.

The main purpose of a cash concentration account is to:

A. decrease collection float.

B. decrease disbursement float.

C. consolidate funds.

D. replace a lockbox system.

E. cover compensating balance requirements.

Atlas Builders deals strictly with five customers. The average amount each customer

pays per month along with the collection delay associated with each payment is shown

below. Given this information, what is the amount of the average daily receipts?

Assume every month has 30 days.

A. $1,143.33

B. $2,546.67

C. $2,983.33

D. $6,166.67

E. $6,860.00

The real rate of return on a stock is approximately equal to the nominal rate of return:

A. multiplied by (1 + inflation rate).

B. plus the inflation rate.

C. minus the inflation rate.

D. divided by (1 + inflation rate).

E. divided by (1- inflation rate).

With firm commitment underwriting, the issuing firm:

A. is unsure of the total amount of funds it will receive until after the offering is

completed.

B. is unsure of the number of shares it will actually issue until after the offering is

completed.

C. knows exactly how many shares will be purchased by the general public during the

offer period.

D. retains the financial risk associated with unsold shares.

E. knows up-front the amount of money it will receive from the stock offering.

Travis & Sons has a capital structure which is based on 40 percent debt, 5 percent

preferred stock, and 55 percent common stock. The pre-tax cost of debt is 7.5 percent,

the cost of preferred is 9 percent, and the cost of common stock is 13 percent. The

company's tax rate is 39 percent. The company is considering a project that is equally as

risky as the overall firm. This project has initial costs of $325,000 and annual cash

inflows of $87,000, $279,000, and $116,000 over the next three years, respectively.

What is the projected net present value of this project?

A. $68,211.04

B. $68,879.97

C. $69,361.08

D. $74,208.18

E. $76,011.23

A company is considering a project with a cash break-even point of 22,600 units. The

selling price is $28 a unit, the variable cost per unit is $13, and depreciation is $14,000.

What is the projected amount of fixed costs?

A. $325,000

B. $339,000

C. $342,000

D. $348,000

E. $353,000

If an IPO is underpriced then the:

A. investors in the IPO are generally unhappy with the underwriters.

B. issue is less likely to sell out.

C. stock price will generally decline on the first day of trading.

D. issuing firm is guaranteed to be successful in the long term.

E. issuing firm receives less money than it probably should have.

Today, you are retiring. You have a total of $411,016 in your retirement savings and

have the funds invested such that you expect to earn an average of 7.10 percent,

compounded monthly, on this money throughout your retirement years. You want to

withdraw $2,500 at the beginning of every month, starting today. How long will it be

until you run out of money?

A. 31.97 years

B. 34.56 years

C. 42.03 year

D. 48.19 years

E. You will never run out of money.

What is the cash coverage ratio for 2009?

A. 9.43

B. 10.53

C. 11.64

D. 11.82

E. 12.31

Today, you are buying a one-year call on Piper Sons stock with a strike price of $27.50

per share and a one-year risk-free asset which pays 3.5 percent interest. The cost of the

call is $1.40 per share and the amount invested in the risk-free asset is $26.57. How

much total profit will you earn on these purchases if the stock has a market price of $29

one year from now?

A. $0.10

B. $0.85

C. $1.03

D. $1.11

E. $1.17

You just acquired a mortgage in the amount of $249,500 at 6.75 percent interest,

compounded monthly. Equal payments are to be made at the end of each month for

thirty years. How much of the first loan payment is interest? (Assume each month is

equal to 1/12 of a year.)

A. $925.20

B. $1,206.16

C. $1,403.44

D. $1,511.21

E. $1,548.60

A manufacturing firm has a 90 day collection period. The firm produces seasonal

merchandise and thus has the least sales during the first quarter of a year and the

highest level of sales during the fourth quarter of a year. The firm maintains a relatively

steady level of production which means that its cash disbursements are fairly equal in

all quarters. The firm is most apt to face a cash-out situation in:

A. the first quarter.

B. the second quarter.

C. the third quarter.

D. the fourth quarter.

E. any quarter with equal probabilities of occurrence.

You are doing some comparison shopping. Five stores offer the product you want at

basically the same price. Which one of the following stores offers the best credit terms

if you plan on taking the discount?

A. store A

B. store B

C. store C

D. store D

E. store E

Which one of the following statements is correct?

A. Price levels increased more in the late 1800's than they did in the late 1900's in the

U.S.

B. 10-year U.S. Treasury interest rates since 1979 have been managed by the Federal

Reserve such that the rates vary by less than 50 basis points in any given year.

C. The Bretton Woods accord has reduced exchange rate volatility between the U.S.

dollar and the U.K. pound since it was passed in 1993.

D. Both U.S. inflation rates and exchange rates are more volatile now than they were 50

years ago.

E. Oil prices have tended to stabilize over the past twenty years.

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has

2,500 shares outstanding at a market price of $16.50 a share. Maggie's Flowers has

5,000 shares outstanding at a price of $17 a share. Maggie's Flowers is acquiring The

Floral Shoppe for $42,900 in cash. The incremental value of the acquisition is $1,200.

What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

A. -$450

B. $275

C. $500

D. $2,400

E. $3,700

The annual annuity stream of payments that has the same present value as a project's

costs is referred to as which one of the following?

A. yearly incremental costs

B. sunk costs

C. opportunity costs

D. erosion cost

E. equivalent annual cost

Which one of the following managers determines when a supplier will be paid?

A. controller

B. payables manager

C. credit manager

D. purchasing manager

E. production manager

What is the standard deviation of the returns on a portfolio that is invested 52 percent in

stock Q and 48 percent in stock R?

A. 1.66 percent

B. 2.47 percent

C. 2.63 percent

D. 3.28 percent

E. 3.41 percent

"Cat" bonds are primarily designed to help:

A. municipalities survive economic recessions.

B. corporations respond to overseas competition.

C. the federal government cope with huge deficits.

D. corporations recover from involuntary reorganizations.

E. insurance companies fund excessive claims.

Your holiday ski vacation was great, but it unfortunately ran a bit over budget. All is not

lost. You just received an offer in the mail to transfer your $5,000 balance from your

current credit card, which charges an annual rate of 18.7 percent, to a new credit card

charging a rate of 9.4 percent. You plan to make payments of $510 a month on this debt.

How many less payments will you have to make to pay off this debt if you transfer the

balance to the new card?

A. 0.36 payments

B. 0.48 payments

C. 1.10 payments

D. 1.23 payments

E. 2.49 payments

The capital structure weights used in computing the weighted average cost of capital:

A. are based on the book values of total debt and total equity.

B. are based on the market value of the firm's debt and equity securities.

C. are computed using the book value of the long-term debt and the book value of

equity.

D. remain constant over time unless the firm issues new securities.

E. are restricted to the firm's debt and common stock.

Underwater Experimental is considering a project which requires the purchase of

$498,000 of fixed assets. The net present value of the project is $22,500. Equity shares

will be issued as the sole means of financing the project. What will the new book value

per share be after the project is implemented given the following current information on

the firm?

A. $13.25

B. $13.70

C. $14.23

D. $14.94

E. $15.60

A convertible bond has a face value of $5,000 and a conversion price of $80. The bond

has a 6 percent coupon, pays interest semi-annually, and matures in 12 years. Similar

bonds are yielding 7.5 percent. The current price of the stock is $41.20 per share. What

is the conversion value of this bond?

A. $1,680

B. $2,415

C. $2,575

D. $4,651

E. $5,000

Where does most of the trading in Eurobonds occur?

A. Munich

B. Frankfurt

C. London

D. New York

E. Paris

Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays

interest on January 1 and July 1. Which one of the following prices represents your total

cost of purchasing this bond today?

A. clean price

B. dirty price

C. asked price

D. quoted price

E. bid price

In the spot market, $1 is currently equal to 0.6211. Assume the expected inflation rate in

the U.K. is 2.6 percent while it is 4.3 percent in the U.S. What is the expected exchange

rate four years from now if relative purchasing power parity exists?

A. 0.5799

B. 0.5822

C. 0.6105

D. 0.6623

E. 0.6644

Which of the following are characteristics of a premium bond?

I. coupon rate < yield-to-maturity

II. coupon rate > yield-to-maturity

III. coupon rate < current yield

IV. coupon rate > current yield

A. I only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

Bleakly Enterprises has a capital structure of 55 percent common stock, 10 percent

preferred stock, and 35 percent debt. The flotation costs are 4.5 percent for debt, 7

percent for preferred stock, and 9.5 percent for common stock. The corporate tax rate is

34 percent. What is the weighted average flotation cost?

A. 5.8 percent

B. 6.2 percent

C. 6.7 percent

D. 7.0 percent

E. 7.5 percent

Martin Aerospace is currently operating at full capacity based on its current level of

assets. Sales are expected to increase by 4.5 percent next year, which is the firm's

internal rate of growth. Net working capital and operating costs are expected to increase

directly with sales. The interest expense will remain constant at its current level. The

tax rate and the dividend payout ratio will be held constant. Current and projected net

income is positive. Which one of the following statements is correct regarding the pro

forma statement for next year?

A. The pro forma profit margin is equal to the current profit margin.

B. Retained earnings will increase at the same rate as sales.

C. Total assets will increase at the same rate as sales.

D. Long-term debt will increase in direct relation to sales.

E. Owners' equity will remain constant.

Which one of the following accurately describes the three parts of the Du Pont identity?

A. operating efficiency, equity multiplier, and profitability ratio

B. financial leverage, operating efficiency, and profitability ratio

C. equity multiplier, profit margin, and total asset turnover

D. debt-equity ratio, capital intensity ratio, and profit margin

E. return on assets, profit margin, and equity multiplier

Last month, Keyser Design acquired all of the assets and liabilities of Tenor Machine

Works. The combined firm is known as Keyser Design. Tenor Machine Works no

longer exists as a separate entity. This acquisition is best described as a:

A. merger.

B. consolidation.

C. tender offer.

D. spinoff.

E. divestiture.

Suppose you bought a 15 percent coupon bond one year ago for $950. The face value of

the bond is $1,000. The bond sells for $985 today. If the inflation rate last year was 9

percent, what was your total real rate of return on this investment?

A. -4.88 percent

B. -5.32 percent

C. 9.61 percent

D. 9.78 percent

E. 10.47 percent