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1) The common stock of The Garden of Eden is selling for $42 a share. The company
pays a constant annual dividend and has a total return of 5.8 percent. What is the
amount of the dividend?
A.$1.02
B.$2.04
C.$2.44
D.$3.70
E.$6.81
2) Which one of the following statements is correct?
A.Oral offers can be made for new securities during the waiting period
B.A Green Shoe letter must be provided to all investors who purchase shares of a new
equity offering
C.Corporate directors have the authority to authorize additional shares of stock for a
new issue
D.The underwriters must approve any increase in the authorized number of shares for a
firm
E.When issuing new securities, the first step is the distribution of the prospectus
3) A loan that compounds interest monthly has an EAR of 14.40 percent. What is the
APR?
A.13.53 percent
B.13.59 percent
C.13.96 percent
D.14.07 percent
E.14.10 percent
4) Which one of the following must equal zero if a firm pays a constant annual
dividend?
A.Dividend yield
B.Capital gains yield
C.Total return
D.Market value per share
E.Book value per share
5) The U.S. dollar equivalent is 0.4502 for the Brazilian real and 1.4729 for the UK
pound. Which one of the following statements is correct given this information?
A.One U.S. dollar will buy 0.4502 Brazilian real
B.If you have 0.4502 Brazilian real, it is worth 1.4729 UK pounds
C.One UK pound will buy 1.4729 U.S. dollars
D.One Brazilian real will buy 1.4729 UK pounds
E.One U.S. dollar will buy 1.4729 UK pounds
6) The financial statement that summarizes a firm's accounting value as of a particular
date is called the:
A.income statement
B.cash flow statement
C.liquidity position
D.balance sheet
E.periodic operating statement
7) A person who executes customer orders to buy and sell securities on the floor of the
NYSE is called a:
A.floor trader
B.DMM
C.runner
D.commission broker
E.market maker
8) The written agreement that contains the specific details related to a bond issue is
called the bond:
A.indenture
B.debenture
C.document
D.registration statement
E.issue paper
9) A firm has sales of $311,000 and net income of $31,600. Currently, there are 28,000
shares outstanding at a market price of $36 per share. What is the price-sales ratio?
A.2.08
B.3.24
C.4.26
D.5.15
E.11.11
10) Which of the following will decrease the future value of a lump sum investment
made today assuming that all interest is reinvested? Assume the interest rate is a
positive value.
I. Increase in the interest rate
II. Decrease in the lump sum amount
III. Increase in the investment time period
IV. Decrease in the investment time period
A.I and III only
B.I and IV only
C.I, II, and III only
D.II and III only
E.II and IV only
11) The common stock of Wiley and Sons has a beta that is 25 percent larger than the
overall market beta. Currently, the market risk premium is 9.5 percent while the U.S.
Treasury bill is yielding 4.7 percent. What is the cost of equity for this firm?
A.13.76 percent
B.14.96 percent
C.15.80 percent
D.16.58 percent
E.16.85 percent
12) Any changes to a firm's projected future cash flows that are caused by adding a new
project are referred to as which one of the following?
A.Eroded cash flows
B.Deviated projections
C.Incremental cash flows
D.Directly impacted flows
E.Assumed flows
13) Florence Mills is an all-equity firm with a total market value of $250,000. The firm
has 8,000 shares of stock outstanding. Management is considering issuing $50,000 of
debt at an interest rate of 7 percent and using the proceeds on a stock repurchase. Ignore
taxes. How many shares can the firm repurchase if it issues the debt securities?
A.1,600 shares
B.1,618 shares
C.1,647 shares
D.1,656 shares
E.1,699 shares
14) A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend
payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no
external financing sources. What must the total asset turnover be?
A.0.98
B.1.06
C.1.21
D.1.44
E.1.59
15) You are planning a trip to the UK and plan on spending 3,800 pounds. How many
dollars will this trip cost you if the currency per U.S. dollar is 0.6789 pound?
A.$2,579.82
B.$3,892.16
C.$5,597.29
D.$5,890.01
E.$6,044.04
16) The T-shirt Hut successfully managed to reduce its general and administrative costs
this year. This cost improvement will increase which of the following ratios?
I. Profit margin
II. Return on assets
III. Total asset turnover
IV. Return on equity
A.I and II only
B.I and III only
C.II, III, and IV only
D.I, II, and IV only
E.I, II, III, and IV
17) Which one of the following is an argument that dividend policy is irrelevant?
A.Flotation costs as they apply to equities
B.Tax laws as they currently exist
C.An unsatisfied demand for high-dividend-paying stocks
D.Current equilibrium in the clientele dividend market
E.The current tax exclusion available to corporate investors
18) Which one of the following supports the theory that the value of a firm increases as
the firm's level of debt increases?
A.M&M Proposition I, without taxes
B.M&M Proposition II, without taxes
C.M&M Proposition I, with taxes
D.Static theory of capital structure
E.No theory suggests this
19) The Candy Cane Store has the following estimated sales.
Purchases are equal to 64 percent of the following quarter's sales. Assume each month
has 30 days, the accounts receivable period is 30 days and the accounts payable period
is 45 days. How much will the firm pay its suppliers in the third quarter?
A.$16,379
B.$16,811
C.$18,514
D.$20,947
E.$21,920
20) As of 2003, the maximum tax rate on long-term capital gains for high-income
individuals was which one of the following rates?
A.10 percent
B.15 percent
C.20 percent
D.35 percent
E.39 percent
21) What is the advertisement, commonly found in financial newspapers, that
announces a public offering of securities and provides the name of the underwriters
called?
A.Prospectus
B.Red herring
C.Tombstone
D.Green Shoe
E.Underwriter's ad
22) A callable bond:
A.is generally call protected during the entire term of the bond issue
B.generally will have a call protection period during the final three years prior to
maturity
C.may be structured to pay bondholders the current value of the bond on the date of call
D.is prohibited from having a sinking fund also
E.is frequently called at a price that is less than par value
23) Which one of the following will occur when the internal rate of return equals the
required return?
A.The average accounting return will equal 1.0
B.The profitability index will equal 1.0
C.The profitability index will equal 0
D.The net present value will equal the initial cash outflow
E.The profitability index will equal the average accounting return
24) Delmont Movers has a profit margin of 6.2 percent and net income of $48,900.
What is the common-size percentage for the cost of goods sold if that expense
amounted to $379,000 for the year?
A.12.90 percent
B.23.50 percent
C.33.25 percent
D.41.06 percent
E.48.05 percent
25) Which one of the following best describes an initial public offering?
A.Shares held by a firm's founder
B.Any newly issued shares offered to the general public
C.Shares issued to the public on a cash basis
D.The first sale of equity shares to the general public
E.Any shares initially offered to a firm's existing shareholders
26) Which one of the following statements concerning sinking funds is correct?
A.Bond issuers must fund a sinking fund at the time the bonds are issued
B.Sinking funds must include at least one "balloon payment"
C.Sinking funds must be funded annually, starting on the issue date
D.Sinking funds may be used to purchase bonds in the open market
E.Sinking funds can be used only to call bonds
27) A preferred stock sells for $48.20 a share and has a market return of 15.65 percent.
What is the dividend amount?
A.$6.93
B.$6.80
C.$7.25
D.$7.42
E.$7.54
28) Which one of the following statements is the core principle of M&M Proposition I,
without taxes?
A.A firm's cost of equity is directly related to the firm's debt-equity ratio
B.A firm's WACC is directly related to the firm's debt-equity ratio
C.The interest tax shield increases the value of a firm
D.The capital structure of a firm is totally irrelevant
E.Levered firms have greater value than unlevered firms
29) Lawler's BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends
of $4,500. What is the plowback ratio?
A.46.32 percent
B.49.78 percent
C.50.23 percent
D.58.09 percent
E.62.99 percent
30) Newborn Nursery has 8,000 bonds outstanding with a face value of $1,000 each.
The coupon rate is 6.5 percent and the tax rate is 40 percent. What is the present value
of the interest tax shield?
A.$2.82 million
B.$2.83 million
C.$3.09 million
D.$3.13 million
E.$3.20 million
31) Suppose the spot exchange rate for the Canadian dollar is Can$1.19 and the
six-month forward rate is Can$1.16. Assuming absolute PPP holds, what is the current
cost in the United States of a beer if the price in Canada is Can$3.75?
A.$2.48
B.$2.54
C.$3.15
D.$3.42
E.$3.51
32) Which one of the following inventory management approaches determines the
finished goods inventory level and then works backward until the raw material needs
are determined?
A.Extended EOQ
B.Just-in-time
C.ABC approach
D.Materials requirements planning
E.Economic order quantity
33) You would like to create a portfolio that is equally invested in a risk-free asset and
two stocks. One stock has a beta of 1.15 . What does the beta of the second stock have
to be if you want the portfolio to be equally as risky as the overall market?
A.0.78
B.0.97
C.1.23
D.1.55
E.1.85
34) 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
35) If inflation is expected to steadily decrease in the future, the term structure of
interest rates will most likely be:
A.upward sloping
B.flat
C.humped
D.downward sloping
E.double-humped
36) An individual who executes buy and sell orders on the floor of an exchange for a
fee is called a:
A.floor broker
B.DMM
C.floor trader
D.proxy
E.flow specialist
37) Lester's Dry Goods paid $1.10 per share in dividends last year. The company
currently has excess cash and would like to distribute $0.40 a share to its shareholders.
However, the company is concerned about increasing the dividend by that amount as it
will not be able to afford any increase in the future and doesn't want to lower the
dividend once it has been raised. Which one of the following is probably the best
suggestion for distributing the $0.40 per share?
A.Pay a special dividend of $0.40 per share
B.Pay an extra cash dividend of $0.40 per share
C.Pay a liquidating dividend of $0.40 per share
D.Increase the regular dividend by $0.11 and pay a special dividend of $0.29
E.Increase the regular dividend by $0.11 and pay an extra cash dividend of $0.29
38) 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
