Which one of the following is a drawback of cash dividends?
A. Firms may have to forgo positive net present value projects.
B. Stock prices tend to increase as annual dividend amounts increase.
C. Cash dividends support stock prices.
D. Dividends are felt to be directly related to agency costs.
E. Dividend-paying firms tend to attract a wider field of investors than do
non-dividend-paying firms.
A committed line of credit:
A. guarantees that a set amount of funds will be available to a firm for a stated period of
time regardless of events that might occur during that time period.
B. is a guarantee that a bank will purchase a firms accounts receivable at full value.
C. provides greater assurance than a noncommitted credit line that funds will be
available when needed by a firm.
D. guarantees that any funds borrowed during a stated period of time will be charged
the lowest rate of interest the lending bank offers to any of its customers.
E. is a loan arrangement for a stated period of time which is free of all costs and fees
other than the actual interest paid on the funds borrowed.
M&M Proposition II, without taxes, states that the:
A. capital structure of a firm is highly relevant.
B. weighted average cost of capital decreases as the debt-equity ratio decreases.
C. cost of equity increases as a firm increases its debt-equity ratio.
D. return on equity is equal to the return on assets multiplied by the debt-equity ratio.
E. return on equity remains constant as the debt-equity ratio increases.
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending
net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the
interest expense is $11,460. What is the amount of the net capital spending?
A. -$22,360
B. -$4,780
C. $23,720
D. $58,340
E. $69,800
The spot rate is SF 1.0654 = $1. A hotel room in a resort area of Switzerland costs SF
385. Based on absolute purchasing power parity, what should an identical room in the
U.S. cost?
A. $354.24
B. $361.37
C. $387.05
D. $410.18
E. $439.90
Currently, the risk-free rate is 4.0 percent. Stock A has an expected return of 9.6 percent
and a beta of 1.08. Stock B has an expected return of 13.5 percent. The stocks have
equal reward-to-risk ratios. What is the beta of Stock B?
A. 1.21
B. 1.33
C. 1.52
D. 1.78
E. 1.83
Delta Mu Delta is considering purchasing some new equipment costing $400,000. The
equipment will be depreciated on a straight-line basis to a zero book value over the
four-year life of the project. Projected net income for the four years is $18,900,
$21,300, $26,700, and $25,000. What is the average accounting rate of return?
A. 11.49 percent
B. 11.63 percent
C. 12.01 percent
D. 12.49 percent
E. 13.20 percent
Which one of the following is the set of procedures used to determine the inventory
levels for demand-dependent inventory?
A. Inventory flow log
B. Materials requirements planning
C. Just-in-time inventory system
D. Kanban
E. Keiretsu
At 10 percent interest, how long does it take to quadruple your money?
A. 14.33 years
B. 14.55 years
C. 15.11 years
D. 15.36 years
E. 15.56 years
Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2
percent. The firm uses the subjective approach to determine project discount rates.
Currently, the firm is considering a project to which it has assigned an adjustment factor
of -0.5 percent. The firms tax rate is 34 percent and its debt-equity ratio is 0.45. The
project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a
year for 5 years. What is the net present value of the project?
A. $121,619
B. $328,895
C. $514,370
D. $561,027
E. $628,721
Assume you are comparing two firms that are identical in every aspect, except one is
levered and one is unlevered. Which one of the following statements is correct
regarding these two firms?
A. The levered firm has higher EPS (earnings per share) than the unlevered firm at the
break-even point.
B. The levered firm will have higher EPS than the unlevered firm at all levels of EBIT.
C. The unlevered firm will have higher EPS than the levered firm at relatively high
levels of EBIT.
D. The EPS for the unlevered firm will always exceed those of the levered firm.
E. The unlevered firm will have higher EPS at relatively low levels of EBIT.
Beasley Enterprises stock has an expected return of 11.5 percent. Given the information
below, what is the expected return if the economy is in a recession?
A. -5.72 percent
B. -11.71 percent
C. -11.28 percent
D. -10.76 percent
E. 5.72 percent
Which one of the following methods of analysis ignores the time value of money?
A. Net present value
B. Internal rate of return
C. Discounted cash flow analysis
D. Payback
E. Profitability index
Twelve days ago, DOG, Inc. declared a dividend of $1.34 a share. The ex-dividend date
is tomorrow. All else constant, which one of the following is the best estimate of DOG,
Inc.s opening stock price tomorrow?
A. $1.34 lower than todays closing price
B. Todays closing price minus an amount approximately equal to the aftertax value of
the dividend
C. The same as todays closing price since the dividend is expected
D. $1.34 higher than todays closing price
E. Todays closing price plus an amount approximately equal to the aftertax value of the
dividend
Rockingham Motors issued a 20-year, 8 percent semiannual bond 3 years ago. The bond
currently sells for 98.6 percent of its face value. The companys tax rate is 35 percent.
What is the aftertax cost of debt?
A. 2.72 percent
B. 5.43 percent
C. 5.69 percent
D. 5.72 percent
E. 5.99 percent
Which one of the following is the bill given to a customer for goods he or she
purchased?
A. Account aging
B. Invoice
C. Docket
D. Remittance advice
E. Shipping receipt