You are analyzing a project and have developed the following estimates: unit sales =
3,100, price per unit = $215, variable cost per unit = $115, fixed costs = $164,000. The
depreciation is $59,000 a year and the tax rate is 35 percent. What effect would the sale
of one more unit have on the operating cash flow?
A. $60.90
B. $61.40
C. $61.80
D. $65.00
E. $65.70
Answer:
The managers of H.R Construction are considering remodeling plans for an old building
the firm currently owns. The building was purchased eight years ago for $689,000.
Over the past eight years, the firm rented out the building and used the rent to pay off
the mortgage. The building is now owned free and clear and has a current market value
of $898,000. The firm is considering remodeling the building into a conference centre
and sandwich bar at an estimated cost of $1.7 million. The estimated present value of
the future income from this centre is $2.9 million. Which one of the following defines
the opportunity cost of the remodeling project?
A. Initial cost of the building
B. Cost of the remodeling
C. Current market value of the building
D. Initial cost of the building plus the remodeling costs
E. Current market value of the building plus the remodeling costs
Answer:
Jamie earned $180 in interest on her savings account last year. She has decided to leave
the $180 in her account so that she can earn interest on the $180 this year. The interest
Jamie earns this year on this $180 is referred to as:
A. simple interest.
B. complex interest.
C. accrued interest.
D. interest on interest.
E. discounted interest.
Answer:
Which one of the following is specifically designed to compute the rate of return on a
project that has unconventional cash flows?
A. Average accounting return
B. Profitability index
C. Internal rate of return
D. Indexed rate of return
E. Modified internal rate of return
Answer:
The potential conflict of interest between a firm’s owners and its managers is referred to
as which type of conflict?
A. Organizational
B. Structural
C. Formation
D. Agency
E. Territorial
Answer:
International Exchange has three divisions: A, B, and C. Division A has the least risk
and Division C has the most risk. The firm has an aftertax cost of debt of 6.1 percent
and a cost of equity of 14.3 percent. The firm is financed with 35 percent debt and 65
percent equity. Division A’s projects are assigned a discount rate that is 3 percent less
than the firm’s weighted average cost of capital. What is the discount rate applicable to
Division A?
A. 7.98 percent
B. 8.27 percent
C. 8.44 percent
D. 9.48 percent
E. 13.43 percent
Answer:
Judy’s Boutique just paid an annual dividend of $1.65 on its common stock. The firm
increases its dividend by 2.5 percent annually. What is the rate of return on this stock if
the current stock price is $38.20 a share?
A. 6.93 percent
B. 7.37 percent
C. 7.54 percent
D. 8.19 percent
E. 8.33 percent
Answer:
You have an outstanding loan with an EAR of 14.6 percent. What is the APR if interest
is compounded monthly?
A. 13.48 percent
B. 13.71 percent
C. 14.60 percent
D. 15.41 percent
E. 15.62 percent
Answer:
Peterboro recently defaulted on a bank loan. To avoid a bankruptcy proceeding, the
bank agreed to a composition. This composition would do which one of the following?
A. Forgive the loan payment in its entirety
B. Extend the due date on the missed loan payment
C. Reduce the amount of the loan payments so Peterboro can pay on time
D. Transfer some of Peterboro’s assets to the bank in lieu of the loan payment
E. Transfer all the equity shares in Peterboro to the lending bank
Answer:
Compass Bank is offering 0.8 percent compounded daily on its savings accounts. If you
deposit $2,500 today, how much will you have in the account in 15 years?
A. $2,567.15
B. $2,675.10
C. $2,761.32
D. $2,818.74
E. $2,890.62
Answer:
World United stock currently plots on the security market line and has a beta of 1.04.
Which one of the following will increase that stock’s rate of return without affecting the
risk level of the stock, all else constant?
A. An increase in the risk-free rate
B. Decrease in the security’s beta
C. Overpricing of the stock in the marketplace
D. Increase in the market risk-to-reward ratio
E. Decrease in the market rate of return
Answer:
Hughes Motors will sell you a $15,000 car for $380 a month for 48 months. What is the
interest rate?
A. 9.28 percent
B. 9.35 percent
C. 9.53 percent
D. 9.86 percent
E. 9.94 percent
Answer:
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for
a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly
payment on this loan will be $10,800. What is the APR? The EAR?
A. 7.67 percent; 7.94 percent
B. 7.67 percent; 8.03 percent
C. 7.72 percent; 7.94 percent
D. 7.72 percent; 8.03 percent
E. 7.75 percent; 8.03 percent
Answer:
Jamie is employed as a commercial loan officer for a regional bank centered in the
midwestern section of the U.S. Her job falls into which one of the following areas of
finance?
A. International finance
B. Financial institutions
C. Corporate finance
D. Capital management
E. Investments
Answer:
Which one of the following is the quoted price of a bond?
A. Par value
B. Discount price
C. Face value
D. Dirty price
E. Clean price
Answer:
Which one of the following increases the number of shares outstanding but does not
increase the value of owners’ equity?
A. Stock repurchase
B. Reverse stock split
C. Stock split
D. Cash distribution
E. Liquidating dividend
Answer: