Which one of the following statements is correct?
A. The net present value is a measure of profits expressed in today’s dollars.
B. The net present value is positive when the required return exceeds the internal rate of
return.
C. If the initial cost of a project is increased, the net present value of that project will
also increase.
D. If the internal rate of return equals the required return, the net present value will
equal zero.
E. Net present value is equal to an investment’s cash inflows discounted to today’s
dollars.
Answer:
True Blue Transport has a current stock price of $27. For the past year, the company
had net income of $2,187,400, total equity of $13,892,300, sales of $26,511,000, and
2.5 million shares outstanding. What is the market-to-book ratio?
A. 3.54
B. 3.81
C. 3.99
D. 4.27
E. 4.86
Answer:
You were recently hired by a firm as a project analyst. The owner of the firm is
unfamiliar with financial analysis and wants to know only what the expected dollar
return is per dollar spent on a given project. Which financial method of analysis will
provide the information that the owner requests?
A. Internal rate of return
B. Modified internal rate of return
C. Net present value
D. Profitability index
E. Payback
Answer:
Taylor, Inc. has sales of $11,898, total assets of $9,315, and a debt-equity ratio of 0.55.
If its return on equity is 14 percent, what is its net income?
A. $841.35
B. $887.16
C. $904.10
D. $911.16
E. $927.46
Answer:
Kelly’s uses the firm’s WACC as the required return for some of its projects. For other
projects, the firms uses a rate equal to WACC plus 1 percent, while another set of
projects is assigned rates equal to WACC minus some amount. Which one of the
following factors should be the key factor the firm uses to determine the amount of the
adjustment it will make when assigning the project a discount rate?
A. Firm beta
B. Date for project commencement
C. Risk level of project
D. Division within the firm that will be assigned to manage the project
E. Current debt-equity ratio
Answer:
Kristina started setting aside funds three years ago to save for a down payment on a
house. She has saved $900 each quarter and earned an average rate of return of 4.8
percent. How much money does she currently have saved for her down payment?
A. $11,542.10
B. $12,388.19
C. $15,209.80
D. $15,366.67
E. $16,023.13
Answer:
The common stock of White’s Hardware closed at $36.80 a share today. Tomorrow
morning, the stock goes ex-dividend. The dividend that is being paid this quarter is
$1.40 a share. The tax rate on dividends is 25 percent. All else equal, what should the
opening stock price be tomorrow morning?
A. $35.19
B. $35.40
C. $35.52
D. $35.75
E. $36.80
Answer:
A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and
3 percent, respectively. The stock has an average return of ______ percent and a
standard deviation of _____ percent.
A. 7.80; 13.54
B. 7.80; 14.63
C. 7.80; 16.36
D. 14.60; 14.63
E. 14.60; 16.36
Answer:
You and your sister are planning a large anniversary party 3 years from today for your
parents’ 50th wedding anniversary. You have estimated that you will need $4,500 for
this party. You can earn 2.5 percent compounded annually on your savings. How much
would you and your sister have to deposit today in one lump sum to pay for the entire
party?
A. $4,076.55
B. $4,178.70
C. $4,308.16
D. $4,334.90
E. $4,368.81
Answer:
Currently, you can exchange $1 for SF 1.14. Assume that the average inflation rate in
the U.S. over the next two years will be 2.5 percent annually as compared to 3 percent
in Switzerland. Based on this information and relative purchasing power parity, which
one of the following assumptions can you make regarding the next two years?
A. The Swiss franc will appreciate against all currencies.
B. The Swiss franc will appreciate against the U.S. dollar.
C. The U.S. dollar will appreciate against all currencies.
D. The U.S. dollar will appreciate against the Swiss franc.
E. Both the U.S. dollar and the Swiss franc will appreciate against all other currencies.
Answer:
Which of the following will increase the future value of a lump sum investment?
I. Decreasing the interest rate
II. Increasing the interest rate
III. Increasing the time period
IV. Decreasing the amount of the lump sum investment
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. II, III, and IV only
Answer:
Miller’s Hardware has 370,000 shares of stock outstanding with a current market value
of $37 a share. You own 48,000 of those shares. Next month, the election will be held to
select four new members to the board of directors. The firm uses a cumulative voting
system. How much additional money do you need to spend to guarantee that you will
be elected to the board assuming that everyone else votes for one of the other
candidates?
A. $0
B. $28,512
C. $34,047
D. $222,777
E. $299,001
Answer:
Janis just won a scholarship that will pay her $500 a month, starting today, and
continuing for the next 48 months. Which one of the following terms best describes
these scholarship payments?
A. Ordinary annuity
B. Annuity due
C. Consol
D. Ordinary perpetuity
E. Perpetuity due
Answer:
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.
A. annual
B. semiannual
C. quarterly
D. monthly
E. daily
Answer:
Southern Air would like to sell 750 shares of stock using the Dutch auction method. The
bids received are as follows:
Bidder B will receive _____ shares and pay a price per share of ____.
A. 0; $0
B. 69; $42.25
C. 69; $42.00
D. 225; $42.00
E. 300; $40.00
Answer:
Which one of the following relates to a negative change in net working capital?
A. Increase in the inventory level
B. Sale of net fixed assets
C. Purchase of net fixed assets
D. Increase in current assets and decrease in current liabilities for the period
E. Increase in current liabilities with no change in current assets for the period
Answer:
The Inside Door has total debt of $78,600, total equity of $214,000, and a return on
equity of 14.5 percent. What is the return on assets?
A. 9.14 percent
B. 10.61 percent
C. 21.45 percent
D. 34.61 percent
E. 39.48 percent
Answer:
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
Answer:
Consider the following information on a portfolio of three stocks:
The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in
Stock C. If the expected T-bill rate is 3.90 percent, what is the expected risk premium
on the portfolio?
A. 6.19 percent
B. 6.90 percent
C. 7.38 percent
D. 7.72 percent
E. 8.68 percent
Answer:
For the past six years, the price of Slippery Rock stock has been increasing at a rate of
9.6 percent a year. Currently, the stock is priced at $67 a share and has a required return
of 14 percent. What is the dividend yield?
A. 1.20 percent
B. 2.75 percent
C. 3.49 percent
D. 4.28 percent
E. 4.40 percent
Answer:
Which one of the following is the best example of an announcement that is most apt to
result in an unexpected return?
A. A news bulletin that the anticipated layoffs by a firm will occur as expected on
December 1
B. Announcement that the CFO of the firm is retiring June 1 as previously announced
C. Announcement that a firm will continue its practice of paying a $3 a share annual
dividend
D. Statement by a firm that it has just discovered a manufacturing defect and is
recalling its product
E. The verification by senior management that the firm is being acquired as had been
rumored
Answer:
This morning, you purchased a stock that will pay an annual dividend of $1.90 per
share next year. You require a 12 percent rate of return and the annual dividend
increases at 3.5 percent annually. What will your capital gain be on this stock if you sell
it three years from now?
A. $2.43
B. $2.51
C. $2.63
D. $2.87
E. $2.92
Answer:
Which one of the following reports will tell me the percentage of accounts receivable
that are delinquent by 90 days or more?
A. Cash budget
B. 5Cs of credit
C. Credit analysis
D. Aging schedule
E. Credit scoring report
Answer:
The Pier Import Store has cash of $34,600 and accounts receivable of $54,200. The
inventory cost $92,300 and can be sold today for $146,900. The fixed assets were
purchased at a cost of $234,500 of which $107,900 has been depreciated. The fixed
assets can be sold today for $199,000. What is the total book value of the firm’s assets?
A. $127,800
B. $307,700
C. $346,800
D. $382,300
E. $415,600
Answer:
Terry invested $2,000 today in an investment that pays 6.5 percent annual interest.
Which one of the following statements is correct, assuming all interest is reinvested?
A. Terry will earn the same amount of interest each year.
B. Terry could have the same future value and invest less than $2,000 initially if he
could earn more than 6.5 percent interest.
C. Terry will earn an increasing amount of interest each and every year even if he
should decide to withdraw the interest annually rather than reinvesting the interest.
D. Terry’s interest for year two will be equal to $2,000 0.065 2.
E. Terry will be earning simple interest.
Answer: