The forward rate is most apt to equal the spot rate when:
A. the real rate of interest is declining.
B. the inflation rates in the two countries are equal.
C. purchasing power parity exists.
D. the real rates of interest in the two countries are equal.
E. inflation rates are historically high.
Answer:
Robinson’s has 15,000 shares of stock outstanding with a market price of $6 a share.
What will the market price per share be if the firm does a 1-for-3 reverse stock split?
A. $18
B. $24
C. $42
D. $48
E. $54
Answer:
A proposed acquisition may create synergy by doing all of the following except:
A. increasing the market power of the combined firm.
B. improving the distribution network of the acquiring firm.
C. reducing the acquiring firm’s distribution costs.
D. reducing the utilization of the acquiring firm’s assets.
E. providing the combined firm with a strategic advantage.
Answer:
Nelson’s Metallurgy needs $1.36 million to fund an expansion project. The firm has
decided to raise the funds through a negotiated offering. The terms of the offer include
an offer price of $22.50 a share and an underwriting spread of 8.1 percent. How many
shares must the firm sell in order to raise the funds it needs?
A. 65,772
B. 81,414
C. 65,340
D. 81,200
E. 55,915
Answer:
Which one of the following is most likely a variable cost?
A. office rent
B. property taxes
C. property insurance
D. machinist wages E. management salaries
Answer:
Discount Mart has $876,400 in sales. The profit margin is 3.8 percent. There are 32,500
shares of stock outstanding. The market price per share is $21.60. What is the
price-earnings ratio?
A. 23.40
B. 22.60
C. 19.21
D. 21.08
E. 18.47
Answer:
An investor discovers that stock prices change drastically as a result of certain events.
This finding is a violation of:
A. the moderate form of the efficient market hypothesis.
B. the semistrong form of the efficient market hypothesis.
C. the strong form of the efficient market hypothesis.
D. the weak form of the efficient market hypothesis.
E. no form of market efficiency but rather an indication of an efficient market.
Answer:
A firm is reviewing a project with a labor cost of $18.90 per unit, raw materials cost of
$21.63 a unit, and fixed costs of $8,000 a month. Sales are projected at 7,200 units total
for the 3-year life of the project. What are the total variable costs per year?
A. $106,300
B. $99,300
C. $97,272
D. $103,300
E. $109,300
Answer:
The operating cycle will decrease if you decrease the:
A. days sales in inventory.
B. days in accounts payable.
C. cash cycle by increasing the accounts payable period.
D. accounts receivable turnover rate.
E. speed at which inventory is sold.
Answer:
A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend
yield of this stock is 9 percent, what is the dividend amount?
A. $1.40
B. $1.80
C. $2.20
D. $2.40
E. $2.80
Answer:
UpTown Beverages has a checkbook balance of $132,462. However, when the financial
manager looks up the firm’s account on the bank’s website, the balance that appears is
$147,918. What is the net float? Is the net float a collection float or a disbursement
float?
A. -$15,456; collection float
B. -$15,456; disbursement float
C. $15,456; collection float
D. $15,456; disbursement float
E. $0; neither collection nor disbursement float
Answer:
Which one of the following will tend to increase the benefit of the interest tax shield
given a progressive tax rate structure?
A. a reduction in tax rates
B. a large tax loss carryforward
C. a large depreciation tax deduction
D. a sizeable increase in taxable income
E. a catastrophic loss
Answer:
If a project’s debt level is known over the life of the project, one should use
A. WACC.
B. APV.
C. FTE.
D. either APV or FTE.
E. either FTE or WACC.
Answer:
The cash cycle is defined as the time between:
A. the arrival of inventory and cash collected from receivables.
B. selling a product and paying the supplier of that product.
C. selling a product and collecting the accounts receivable.
D. cash disbursements and cash collection for an item.
E. the sale of inventory and cash collection.
Answer:
Engine Builders stock sells for $24.20 a share. The firm just paid an annual dividend of
$2 per share and has a long-established record of increasing its dividend by a constant
2.5 percent annually. What is the market rate of return on this stock?
A. 10.97%
B. 14.41%
C. 10.70%
D. 12.34%
E. 11.46%
Answer:
The changes in a firm’s future cash flows that are a direct consequence of accepting a
project are called _____ cash flows.
A. incremental
B. stand-alone
C. opportunity
D. net present value
E. erosion
Answer:
The symbol “RFC” represents the foreign country:
A. forward nominal market interest rate.
B. real risk-free interest rate.
C. real market interest rate.
D. forward real market interest rate.
E. nominal risk-free interest rate.
Answer:
The book value of an asset is primarily used to compute the:
A. annual depreciation tax shield.
B. amount of cash received from the sale of an asset.
C. amount of tax saved annually due to the depreciation expense.
D. amount of tax due on the sale of an asset.
E. change in depreciation needed to reflect the market value of the asset.
Answer:
The home currency approach:
A. discounts all of a project’s foreign cash flows using the current spot rate.
B. employs uncovered interest parity to project future exchange rates.
C. computes the net present value (NPV) of a project in the foreign currency and then
converts that NPV into U.S. dollars.
D. utilizes the international Fisher effect to compute the NPV of foreign cash flows in
the foreign currency.
E. utilizes the international Fisher effect to compute the relevant exchange rates needed
to compute the NPV of foreign cash flows in U.S. dollars.
Answer:
The distribution of shares in a subsidiary to existing parent company stockholders is
called a(n):
A. lockup transaction.
B. bear hug.
C. equity carve-out.
D. spin-off.
E. split-up.
Answer:
Exactly three years ago, you purchased a $1,000 face value bond for $1,211.16. The
coupon rate was 6.5 percent with interest paid semiannually. Today, you sold that bond
for $1,089.54. What was your rate of return for the 3-year period, or holding period
yield, on this investment?
A. 6.06%
B. 7.19%
C. 6.24%
D. 6.38%
E. 6.74%
Answer:
Accounting profits and cash flows are generally:
A. the same since they reflect current laws and accounting standards.
B. the same since accounting profits reflect when cash flows occur.
C. different because of GAAP rules regarding the recognition of income.
D. different because cash inflows must occur before revenue recognition.
E. the same due to the requirements of GAAP.
Answer:
Which one of these is an example of financially irrational behavior?
A. an investor selling stock to realize a profit
B. increasing the amount you are willing to pay for a stock following a positive
announcement
C. buying a mutual fund to benefit from diversification
D. casino gambling
E. a firm issuing new shares when their managers feel the stock is overpriced
Answer:
The lower bound of a call option:
A. can be a negative value regardless of the stock or exercise prices.
B. can be a negative value but only when the exercise price exceeds the stock price.
C. can be a negative value but only when the stock price exceeds the exercise price.
D. must be greater than zero.
E. can be equal to zero.
Answer:
Which one of these money market securities generally has the shortest life?
A. repurchase agreements
B. jumbo certificates of deposit
C. money market preferred stock
D. commercial paper
E. U.S. Treasury bills
Answer:
The difference between available cash and book cash is called:
A. net float.
B. disbursement float.
C. surplus.
D. collection float.
E. net surplus.
Answer:
Aivree is buying a $1,000 face value bond at a quoted price of 99.486. The bond carries
a coupon rate of 5.6 percent, with interest paid semiannually. The next interest payment
is four months from today. What is the clean price of this bond?
A. $994.86
B. $1,004.19
C. $1,013.53
D. $987.21
E. $1,005.73
Answer:
Financial Accounting Standards Board Statement No. 52 requires that most assets and
liabilities be translated at the current exchange rate. Translation gains and losses are
recorded:
A. in the shareholder’s equity section of the balance sheet.
B. as a normal income item on the income statement.
C. as an extraordinary item on the income statement.
D. as a footnote to the financial statements.
E. only on income tax returns.
Answer:
What amount of a firm’s cash should be included in the enterprise value?
A. only the amount needed to run the business
B. none of the cash should be included
C. somewhere between 25 and 50 percent at the user’s discretion
D. only the amount necessary to maintain a constant EV/EBITDA ratio
E. the average cash balance over the past three years
Answer:
Assume you use all available methods to evaluate projects. If there is a conflict in the
indicated decision between two mutually exclusive projects due to the IRR-based
indicator, you should:
A. accept both projects since both are acceptable based on some method.
B. combine both projects into one larger project.
C. ignore the IRR and rely on the decision indicated by the NPV method.
D. base the final decision on the payback method.
E. reject both projects due to ambiguity in the decision making process.
Answer: