Which one of the following will decrease the liquidity level of a firm?
A. Cash purchase of inventory
B. Credit sale of inventory
C. Cash sale of inventory
D. Collection of an account receivable
E. Proceeds from a long-term loan
Answer:
Six years ago, China Exporters paid cash for a new packaging machine that cost
$287,000. Three years ago, the firm spent $3,900 on repairs and modifications to the
machine. The machine is now fully depreciated and has just sat idly in a back corner of
the shop for the past seven months. The estimated value of the machine today is
$125,500. The firm is considering using this machine in a new project. If it does so,
what value should be assigned to this machine and included in the initial costs of the
new project?
A. $0
B. $3,900
C. $125,500
D. $127,400
E. $143,500
Answer:
Which one of the following is most commonly used in international trades?
A. Sight draft
B. Time draft
C. Commercial paper
D. Banker’s acceptance
E. Open account
Answer:
Mercier United has net income of $128,470. There are currently 32.67 days’ sales in
receivables. Total assets are $1,419,415, total receivables are $122,306, and the
debt-equity ratio is 0.40. What is the return on equity?
A. 11.42 percent
B. 12.67 percent
C. 13.09 percent
D. 13.48 percent
E. 15.03 percent
Answer:
The more actively traded large companies that are listed on NASDAQ are traded in
which one of the NASDAQ markets?
A. National
B. Capital
C. Regional
D. Global Select
E. Global
Answer:
Which one of the following best defines cash concentration?
A. Combining all of a firm’s receipts into one bank deposit
B. Combining a week’s worth of cash receipts into one bank deposit
C. Combining cash from multiple banks into a firm’s main bank accounts
D. Using multiple lockboxes for collecting cash payments
E. Combining a firm’s bills so that disbursement checks are mailed only monthly
Answer:
Which of the following practices will reduce a firm’s collection float?
I. Installing a lockbox system
II. Utilizing zero-balance accounts
III. Depositing checks daily rather than weekly
IV. Reducing the processing delay by one day
A. I and III only
B. II and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
On which one of the following dates are dividend checks mailed?
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date
Answer:
Haywood and More have a market value balance sheet as shown below. The firm
currently has 5,000 shares of stock outstanding at a market price per share of $35.40.
Net income is $9,500.
The firm has decided to spend $8,000 and pay an extra cash dividend. What will the
firm’s PE ratio be after this dividend is paid, all else held constant? Ignore taxes.
A. 14.20
B. 16.67
C. 18.63
D. 21.22
E. 24.50
Answer:
Which one of the following categories has the widest frequency distribution of returns
for the period 1926-2011?
A. Small-company stocks
B. U.S. Treasury bills
C. Long-term government bonds
D. Inflation
E. Large-company stock
Answer:
Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The
company has determined that it will owe $56,211 in tax if its taxable income rises to
$565,000. What is the marginal tax rate at this level of income?
A. 9.95 percent
B. 30.00 percent
C. 30.67 percent
D. 51.03 percent
E. 51.18 percent
Answer:
Which one of the following formulas illustrates the mechanics of covered interest
arbitrage? Assume the $1 is borrowed and S0 = spot rate; F1 = one-year forward rate; RF
= foreign country risk-free rate; and RUS = U.S. risk-free rate.
A. $1 F1 (1 + RF)/S0 – $1 (1 + RUS)
B. $1 S0 (1 + RF)/F1 – $1 (1 + RUS)
C. $1 F1 (1 + RF)/S0 + $1 (1 + RUS)
D. $1 S0 (1 + RF) – $1 (1 + RUS)/F1
E. $1 S0 (1 + RF)/F1 + $1 (1 + RUS)
Answer:
Ernst Electrical has 9,000 shares of stock outstanding and no debt. The new CFO is
considering issuing $80,000 of debt and using the proceeds to retire 1,500 shares of
stock. The coupon rate on the debt is 7.5 percent. What is the break-even level of
earnings before interest and taxes between these two capital structure options?
A. $18,500
B. $21,000
C. $24,000
D. $32,500
E. $36,000
Answer:
Burke’s Corner currently sells blue jeans and T-shirts. Management is considering
adding fleece tops to its inventory to provide a cooler weather option. The tops would
sell for $49 each with expected sales of 3,600 tops annually. By adding the fleece tops,
management feels the firm will sell an additional 220 pairs of jeans at $59 a pair and
350 fewer T-shirts at $18 each. The variable cost per unit is $36 on the jeans, $9 on the
T-shirts, and $21 on the fleece tops. With the new item, the depreciation expense is
$27,000 a year and the fixed costs are $62,000 annually. The tax rate is 34 percent.
What is the project’s operating cash flow?
A. $27,789
B. $34,708
C. $36,049
D. $38,419
E. $40,201
Answer:
Today, you are purchasing a 20-year, 6 percent annuity at a cost of $120,000. The
annuity will pay annual payments starting 1 year from today. What is the amount of
each payment?
A. $9,511.08
B. $10,462.15
C. $10,754.40
D. $11,013.20
E. $12,208.19
Answer:
Which one of the following statements concerning money market securities is correct?
A. Commercial paper is highly marketable.
B. All T-bills are issued with 90-day maturities.
C. A certificate of deposit is a short-term loan to the government.
D. Any CD with a face amount of $10,000 or more is classified as a jumbo CD.
E. Money market preferred is less volatile than ordinary preferred.
Answer:
Which one of the following had the lowest standard deviation of returns for the period
of 1926-2011?
A. U.S. Treasury bill
B. Inflation
C. Long-term corporate bonds
D. Large-company stocks
E. Long-term government bonds
Answer:
Textile Mills has sales of $923,000, cost of goods sold of $748,000, and accounts
receivable of $106,700. How long on average does it take the firm’s customers to pay
for their purchases?
A. 8.65 days
B. 11.28 days
C. 25.01 days
D. 42.19 days
E. 45.33 days
Answer:
A bond yielded a real rate of return of 3.87 percent for a time period when the inflation
rate was 3.75 percent. What was the actual nominal rate of return?
A. 87.58 percent
B. 7.62 percent
C. 7.77 percent
D. 8.28 percent
E. .36 percent
Answer:
You place an order for 680 units of widgets at a unit price of $46. The supplier offers
terms of 2/5, net 20. If you don’t take the discount, how much interest are you paying
implicitly?
A. $46
B. $625.60
C. $792.00
D. $1,460
E. $1,564
Answer:
What is the name given to a subsidiary of a firm that exists solely to handle the credit
functions of the parent company?
A. Internal credit organization
B. Bank
C. Credit association
D. Captive finance company
E. Credit union
Answer:
Tom’s Hardware has inventory of $318,000, equity of $421,800, total assets of
$647,700, and sales of $687,400. What is the common-size percentage for the inventory
account?
A. 26.81 percent
B. 33.66 percent
C. 46.26 percent
D. 49.10 percent
E. 51.68 percent
Answer:
Scenario analysis:
A. determines the impact a $1 change in sales has on the internal rate of return.
B. determines which variable has the greatest impact on a project’s net present value.
C. helps determine the reasonable range of expectations for a project’s anticipated
outcome.
D. evaluates a project’s net present value while sensitivity analysis evaluates a project’s
internal rate of return.
E. determines the absolute worst and absolute best outcome that could ever occur.
Answer:
Which one of the following specifies the length of time that must pass after an initial
public offering (IPO) before insiders are permitted to sell their shares?
A. Lockup period
B. Quiet period
C. Comment period
D. Green Shoe period
E. Rights offer period
Answer:
John’s has common stock outstanding at a price of $27 a share. The total market value
of the equity is $435,000. How many shares of stock will be outstanding if the firm
does a 2-for-5 reverse stock split?
A. 40,278 shares
B. 36,000 shares
C. 6,444 shares
D. 7,500 shares
E. 16,500 shares
Answer: