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1) You are analyzing a project and have developed the following estimates. The
depreciation is $14,800 a year and the tax rate is 35 percent. What is the base case
operating cash flow?
A.$18,770
B.$18,972
C.$21,433
D.$21,690
E.$22,410
2) The payback method of analysis ignores which one of the following?
A.Initial cost of an investment
B.Arbitrary cutoff point
C.Cash flow direction
D.Time value of money
E.Timing of each cash inflow
3) Healthy Foods has a target capital structure of 55 percent common stock, 5 percent
preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of
preferred stock is 8.9 percent, and the pre-tax cost of debt is 8.1 percent. What is the
company's WACC if the applicable tax rate is 34 percent?
A.9.29 percent
B.9.61 percent
C.10.02 percent
D.10.45 percent
E.10.83 percent
4) How much money does Suzie need to have in her retirement savings account today if
she wishes to withdraw $25,000 a year for 30 years? She expects to earn an average rate
of return of 6 percent.
A.$324,642.24
B.$331,288.67
C.$333,333.33
D.$340,025.00
E.$344,120.78
5) Which one of the following is a graphical representation of the operating and cash
cycles?
A.Operations line
B.Production period
C.Cash flow time line
D.Inventory flow chart
E.Customer service line
6) The interest rate used to compute the present value of a future cash flow is called the:
A.prime rate
B.current rate
C.discount rate
D.compound rate
E.simple rate
7) A bond has a make-whole call provision. Given this, you know that the:
A.bond will always sell at par
B.call premium must equal the annual coupon payment
C.call price is directly related to the market rate of interest
D.call price is inversely related to the market rate of interest
E.bond must be a zero-coupon bond
8) Plato United has 17,000 shares of stock outstanding at a price per share of $33. How
many shares will be outstanding if the firm does a 5-for-4 stock split?
A.13,600 shares
B.15,800 shares
C.17,000 shares
D.19,600 shares
E.21,250 shares
9) Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal
payment at maturity. The $1,000 principal payment is called the:
A.coupon.
B.par value
C.discount
D.yield
E.call premium
10) Wax Music expects sales of $437,500 next year. The profit margin is 4.8 percent
and the firm has a 30 percent dividend payout ratio. What is the projected increase in
retained earnings?
A.$14,700
B.$17,500
C.$18,300
D.$20,600
E.$21,000
11) Which one of the following is an intangible fixed asset?
A.Inventory
B.Machinery
C.Copyright
D.Account receivable
E.Building
12) Sol's Sporting Goods is expanding, and as a result expects additional operating cash
flows of $26,000 a year for 4 years. This expansion requires $39,000 in new fixed
assets. These assets will be worthless at the end of the project. In addition, the project
requires an additional $3,000 of net working capital throughout the life of the project;
Sol expects to recover this amount at the end of the project. What is the net present
value of this expansion project at a 16 percent required rate of return?
A.$18,477.29
B.$21,033.33
C.$28,288.70
D.$29,408
E.$32,409.57
13) Which one of the following is an ordinary annuity, but not a perpetuity?
A.$75 paid at the beginning of each month period for 50 years
B.$15 paid at the end of each monthly period for an infinite period of time
C.$40 paid quarterly for five years, starting today
D.$50 paid every year for ten years, starting today
E.$25 paid weekly for one year, starting one week from today
14) You earned 26.3 percent on your investments for a time period when the risk-free
rate was 3.8 percent and the inflation rate was 3.1 percent. What was your real rate of
return for the period?
A.19.92 percent
B.20.06 percent
C.22.50 percent
D.21.67 percent
E.21.08 percent
15) Lester's 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 7 years. Which firm or firms, if either, should
become involved in the new projects?
A.Lester's only
B.Med, Inc. only
C.Both Lester's and Med, Inc
D.Neither Lester's nor Med, Inc
E.The answer cannot be determined based on the information provided
16) What is the primary purpose of a lockup agreement?
A.Ensures the lead underwriter maintains an economic interest in the IPO it is
managing
B.Ensures the issuer of new securities receives a minimally agreed upon amount from
the issue
C.Ensures no research reports are issued during the waiting period
D.Ensures company insiders maintain an economic interest in the issuer of an IPO for a
minimum period of time
E.Ensures an IPO is not underpriced by more than 5 percent
17) Which one of the following methods of analysis has the greatest bias towards
short-term projects?
A.Net present value
B.Internal rate of return
C.Average accounting return
D.Profitability index
E.Payback
18) Which one of the following is true concerning a controlled disbursement account?
A.The number of checks that can be disbursed on any one day is limited
B.The bank will inform the firm of the amount that needs to be transferred on a daily
basis
C.The amount that can be disbursed on any given day is limited to the balance in the
account when the bank opens in the morning
D.The total number of checks that can be written in any one month is limited
E.The amount of the disbursements is limited to the amount the firm has available on its
bank line of credit
19) You are estimating your company's external financing needs for the next year. At
the end of the year you expect that owners' equity will be $80 million, total assets will
amount to $170 million, and total liabilities will be $70 million. How much will your
firm need to borrow, or otherwise acquire, from outside sources during the year?
A.$20 million
B.$70 million
C.$150 million
D.$160 million
E.$180 million
20) If a firm has a 100 percent dividend payout ratio, then the internal growth rate of
the firm is:
A.zero percent
B.100 percent
C.equal to the ROA
D.negative
E.infinite
21) Which one of the following features distinguishes an ordinary annuity from an
annuity due?
A.Number of equal payments
B.Amount of each payment
C.Frequency of the payments
D.Annuity interest rate
E.Timing of the annuity payments
22) Last year, you earned a rate of return of 11.29 percent on your bond investments.
During that time, the inflation rate was 4.6 percent. What was your real rate of return?
A.5.30 percent
B.5.60 percent
C.5.75 percent
D.6.40 percent
E.6.70 percent
23) 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
24) You are using a net present value profile to compare investments A and B, which
are mutually exclusive. Which one of the following statements correctly applies to the
crossover point between these two?
A.The internal rate of return for project A equals that of project B, but generally does
not equal zero
B.The internal rate of return of each project is equal to zero
C.The net present value of each project is equal to zero
D.The net present value of project A equals that of project B, but generally does not
equal zero
E.The net present value of each project is equal to the respective project's initial cost
25) A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The
bond matures in 3 years and pays interest annually. The coupon rate is 7 percent. What
is the current price of this bond?
A.$948.01
B.$949.60
C.$1,005.26
D.$1,008.18
E.$1,010.13
26) Ruby Red has an average collection period of 31 days. Its average daily investment
in receivables is $74,800. What are annual credit sales?
A.$727,272
B.$880,710
C.$914,414
D.$1,604,200
E.$1,707,500
27) The security market line is defined as a positively sloped straight line that displays
the relationship between which two of the following variables?
A.Beta and standard deviation
B.Systematic and unsystematic risk
C.Nominal and real returns
D.Expected return and beta
E.Risk premium and beta
28) Hunter's Paradise purchased $568,000 of equipment 4 years ago. The equipment is
7-year MACRS property. The firm is selling this equipment today for $199,500. What
is the aftertax cash flow from this sale if the tax rate is 35 percent? The MACRS
allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49,
12.49, 8.93, 8.92, 8.93, and 4.46 percent.
A.$186,630
B.$191,780
C.$198,410
D.$209,740
E.$216,610
29) The net present value profile illustrates how the net present value of an investment
is affected by which one of the following?
A.Project's initial cost
B.Discount rate
C.Timing of the project's cash inflows
D.Inflation rate
E.Real rate of return
30) Friendly Credit Corp. wants to earn an effective annual return on its consumer loans
of 13 percent per year. The bank uses daily compounding on its loans. What interest
rate is the bank required by law to report to potential borrowers?
A.11.98 percent
B.12.22 percent
C.13.00 percent
D.13.57 percent
E.13.88 percent
31) There are four open positions on the board of directors of Double Tree Restaurants.
The company has 180,000 shares of stock outstanding. Each share is entitled to one
vote. How many shares of stock must you own to guarantee your personal election to
the board of directors if the firm uses cumulative voting?
A.36,001 shares
B.37,501 shares
C.38,501 shares
D.40,001 shares
E.42,001 shares
32) Quick Foods has sales of $238,900, total assets of $217,000, total equity of
$121,300, net income of $18,700, and dividends paid of $6,000. What is the internal
growth rate?
A.5.48 percent
B.6.22 percent
C.6.67 percent
D.7.34 percent
E.7.92 percent
33) Jericho Snacks is an all-equity firm with estimated earnings before interest and
taxes of $826,000 annually forever. Currently, the firm has no debt but is considering
borrowing $650,000 at 6.75 percent interest. The tax rate is 34 percent and the current
cost of equity is 17.2 percent. What is the value of the levered firm?
A.$3,187,271
B.$3,169,535
C.$3,307,271
D.$3,390,535
E.$3,506,418
34) Your parents spent $6,200 to buy 500 shares of stock in a new company 13 years
ago. The stock has appreciated 9 percent per year on average. What is the current value
of those 500 shares?
A.$18,824.17
B.$19,007.99
C.$19,580.92
D.$20,515.08
E.$22,449.92
35) Currently, you can purchase either 124 Canadian dollars or 10,037 Japanese yen for
$100. What is the /C$ cross rate?
A.78.87/C$1
B.80.94/C$1
C.81.23/C$1
D.86.27/C$1
E.87.08/C$1
36) Manning, Inc. originally issued bonds that were rated investment grade. These
bonds have now been downgraded to junk status. Which one of the following terms
applies to this situation?
A.Called bond
B.Converted bond
C.Protected covenant
D.Fallen angel
E.Floating bond
37) Northern Importers wants to raise $58 million to expand its operations into South
America. The company will sell new shares of common stock using a general cash
offering. The underwriters charge a 7.8 percent spread, the administrative costs are
$411,000, and the offer price is $36 per share. How many shares of stock must be sold
if the firm is to raise the funds it desires?
A.1,648,315 shares
B.1,759,792 shares
C.1,811,502 shares
D.1,989,415 shares
E.2,051,515 shares
38) Mary has just been asked to analyze an investment to determine if it is acceptable.
Unfortunately, she is not being given sufficient time to analyze the project using various
methods. She must select one method of analysis and provide an answer based solely on
that method. Which method do you suggest she use in this situation?
A.Internal rate of return
B.Payback
C.Average accounting rate of return
D.Net present value
E.Profitability index
