The market rate of return is 14.8 percent and the risk-free rate is 4.45 percent. Galaxy
Co. has 54 percent more systematic risk than the overall market and has a dividend
growth rate of 5.5 percent. The firms stock is currently selling for $39 a share and has a
dividend yield of 3.6 percent. What is the firms cost of equity?
A. 14.84 percent
B. 15.31 percent
C. 15.82 percent
D. 16.28 percent
E. 20.39 percent
Petes Warehouse has net working capital of $2,400, total assets of $19,300, and net
fixed assets of $10,200. What is the value of the current liabilities?
A. -$6,700
B. -$2,900
C. $2,900
D. $6,700
E. $11,500
Which one of the following methods of analysis is most similar to computing the return
on assets (ROA)?
A. Internal rate of return
B. Profitability index
C. Average accounting return
D. Net present value
E. Payback
What is the net present value of a project with the following cash flows if the discount
rate is 15 percent?
A. -$8,406.11
B. -$5,433.67
C. -$3,089.16
D. $1,407.92
E. $5,433.67
A credit card has an annual percentage rate of 12.9 percent and charges interest
monthly. The effective annual rate on this account:
A. will be less than 12.9 percent.
B. can either be less than or equal to 12.9 percent.
C. is 12.9 percent.
D. can either be greater than or equal to 12.9 percent.
E. will be greater than 12.9 percent.
Lesters is a globally diverse company with multiple divisions and a cost of capital of
15.8 percent. Med, Inc. is a specialty firm in the medical equipment field with a cost of
capital of 13.7 percent. With the aging of America, both firms recognize the
opportunities that exist in the medical field and are considering expansion in this area.
At present, there is an opportunity for multiple firms to be involved in a new medical
devices project. Each project will require an initial investment of $8.4 million with
annual returns of $2.2 million per year for seven years. Which firm or firms, if either,
should become involved in the new projects?
A. Lesters only
B. Med, Inc. only
C. Both Lesters and Med, Inc.
D. Neither Lesters nor Med, Inc.
E. The answer cannot be determined based on the information provided.
Which one of the following can be defined as a benefit-cost ratio?
A. Net present value
B. Internal rate of return
C. Profitability index
D. Accounting rate of return
E. Modified internal rate of return
To minimize collection float, a firm should do which of the following?I. Deposit its
collections at least dailyII. Make sure all checks it receives at the sales counter are
properly dated and signedIII. Pay its bills in a more timely mannerIV. Eliminate its
regional lockboxes and have only one central lockbox located near the firms home
office
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Platos Foods has ending net fixed assets of $84,400 and beginning net fixed assets of
$79,900. During the year, the firm sold assets with a total book value of $13,600 and
also recorded $14,800 in depreciation expense. How much did the company spend to
buy new fixed assets?
A. -$23,900
B. $3,300
C. $32,900
D. $36,800
E. $37,400
Which one of the following projects is most apt to be financed with venture capital?
A. Additional warehouse space for a profitable trucking firm
B. New product for an international plastics manufacturing company
C. Prototype for a newly patented hand tool by an individual inventor
D. Seasonal merchandise for a major retailer
E. Domestic outlet for a large global exporter
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. Kates 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. Kurts 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.
E. Hi Tek had an extraordinarily profitable year and has decided to do a one-time only
$10 per share cash dividend.
High Tower Pharmacy pays out a fixed percentage of its net income to its shareholders
in the form of annual dividends. Given this, the percentage shown on a common-size
income statement for the dividend account will:
A. remain constant over time.
B. be equal to the dividend amount divided by the net income.
C. vary in direct relation to the net profit percentage.
D. vary in direct relation to changes in the sales level.
E. vary but not in direct relation to any other variable.
Cash concentration accounts:
A. are no longer needed since the Check Clearing Act for the 21st Century has been
passed.
B. eliminate the need for lockboxes.
C. decrease a firms disbursement float by reducing mail and processing delays.
D. allow firms to more efficiently handle cash.
E. tend to decrease a firms investment income.