1) Annuity Interest Rate What annual interest rate would you need to earn if you wanted
a $200 per month contribution to grow to $14,700 in 5 years?
A.6.47%
B.7.76%
C.8.00%
D.14.70%
2) A golf club costs $100 in the U.S. The same club costs AU$129 in Australia. Assume
that purchasing power parity holds. What is the exchange rate between the U.S. and
Australian dollars?
A.$1 U.S. = AU$1.25
B.$1 U.S. = AU$0.7752
C.AU$1 = $0.7752 U.S.
D.AU$1 = $1.50 U.S.
3) Portfolio Return At the beginning of the month, you owned $6,000 of Company G,
$8,000 of Company S, and $1,000 of Company N. The monthly returns for Company
G, Company S, and Company N were 7.25 percent, -1.50 percent, and -0.23 percent.
What is your portfolio return?
A.1.84%
B.2.09%
C.3.71%
D.5.52%
4) A firm has been losing sales due to technological obsolescence. It projects growth for
the future to be -2%. Its recent divided was $2.00. What is the value of this stock when
the required return is 9%?
A.$28.00
B.$29.14
C.$17.82
D.$15.52
5) Selling Stock with Commissions At your full-service brokerage firm, it costs $110
per stock trade. How much money do you receive after selling 100 shares of Time
Warner, Inc. (TMX), which trades at $22.62?
A.$2,152.00
B.$2,262.00
C.$2,372.00
D.$2,388.20
6) Which of the following is the practice of one firm selling to another on credit terms?
A.accounts payable
B.accounts receivable
C.barter transactions
D.trade credit
7) Which of the following can be a benefit of the clientele effect?
A.New investors who were previously uninterested in the stock may be attracted to it
because of a policy change
B.If firms change their dividend policy, the investors who desire the previous policy
will sell their shares
C.If the firms change their dividend policy, the investors will be unaffected by the
change due to the dividend irrelevance theorem
D.If the firms change their dividend policy, it will maximize shareholder wealth
8) What is the theoretical minimum for the weighted average cost of capital?
A.The after-tax cost of debt
B.The cost of preferred stock
C.CAPM
D.The cost of equity
9) Which of these is an entity who will buy accounts receivable before they are due on a
discounted basis, with the spread between the discounted price and the receivable’s face
value providing them with the expected compensation for both the time value of money
and for the expected level of defaults amongst the accounts receivable?
A.commercial bank
B.factor
C.receiver
D.blanket loaner
10) Suppose your firm is considering investing in a project with the cash flows shown
below, that the required rate of return on projects of this risk class is 10 percent, and
that the maximum allowable payback and discounted payback statistics for the project
are 3 and 3.5 years, respectively. Use the payback decision to evaluate this project;
should it be accepted or rejected?
A.Payback = 4.90 years; reject
B.Payback = 4.40 years; reject
C.Payback = 5.80 years; reject
D.Payback > 6.00 years; reject
11) A 6.75% coupon bond with 13 years left to maturity can be called in 2 years. The
call premium is one year of coupon payments. It is offered for sale at $919.75. What is
the yield to call of the bond? Assume interest payments are paid semi-annually and par
value is $1,000.
A.12.14%
B.7.27%
C.14.54%
D.8.29%
12) A syndicate is ___________________________.
A.A small group of institutional investors
B.Several investment banks working together to sell and distribute a new security issue
C.Several banks working together to lend a company money for a project or expansion
D.A group of equity investors that infuse distressed firms with major amounts of capital
13) Which of the following defines the term deseasonalize?
A.to use pro forma statements to determine future years’ forecasts
B.to remove the effects of seasonality from historic data
C.to remove fixed asset growth that does not tie into sales growth
D.to fix asset growth to smooth out the seasonality of sales growth
14) All of the following are examples of the costs of financial distress except
__________________.
A.Excellent employees find employment elsewhere
B.Suppliers are reluctant to sell on credit to the firm
C.Other firms will be less likely to offer the firm partnering opportunities
D.All of these are examples of the costs of financial distress
15) Debt Management Ratios Zoe’s Dog Toys, Inc. reported a debt to equity ratio of .5
times at the end of 2011 . If the firm’s total assets at year-end are $50 million, how
much of their assets is financed with equity?
A.$16.67m
B.$25 m
C.$33.33 m
D.$50 m
16) Sipe’s Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant
expansion. In discussions with its investment bank, Sipe’s learns that the bankers
recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge
an underwriter’s spread of 8.25 percent of the gross proceeds. How many bonds will
Sipe’s Paint and Wallpaper need to sell in order to receive the $1.25 million they need?
A.1,417
B.1,363
C.1,162
D.1,298
17) Choc Hut, Inc. normally pays a quarterly dividend. The last such dividend paid was
$1.50, all future quarterly dividends are expected to grow at 6 percent, and the firm
faces a required rate of return on equity of 18 percent. If the firm just announced that
the next dividend will be an extraordinary dividend of $5.00 per share that is not
expected to affect any other future dividends, what should the stock price be?
A.$8.83
B.$12.50
C.$13.25
D.$14.60
18) A 5% coupon bond has 10 years to maturity and could be called in 2 years. If the
bond is called, investors will earn 6.2%. The call premium is one year of coupon
payments. If coupon payments are made semi-annually and par value is $1,000, what is
the bond’s yield to maturity?
A.2.36%
B.4.72%
C.5.18%
D.6.49%
19) Which of the following will increase the additional funds needed from external
sources?
A.The firm’s profit margin increases
B.The firm’s sales forecast is decreased
C.The firm reduces its usage of trade credit
D.None of these
20) If a firm has already paid an expense or is obligated to pay one in the future,
regardless of whether a particular project is undertaken, that expense is a(n)
________________.
A.Incremental cash outflow
B.Opportunity cost
C.Sunk cost
D.Expensible item
21) Economies of Scope A survey of a local market has provided the following average
cost data: Johnson Construction Corp. (JCC) has assets of $4 million and an average
cost of 10 percent. Anderson Architects (AA) has assets of $5 million and an average
cost of 20 percent. Cole Home Builders (CHB) has assets of $5 million and an average
cost of 15 percent. For each firm, average costs are measured as a proportion of assets.
JCC is planning to acquire AA and CHB with the expectation of reducing overall
average costs by eliminating the duplication of services.
What should be the average cost after the acquisition for JCC to justify this merger?
A.15.357% or lower
B.15.357% or higher
C.15.000% or lower
D.10.000% or lower
22) Solving for Time How many years will it take $100 to grow to $1,000 with an
annual interest rate of 8 percent?
A.9.00 years
B.10.00 years
C.29.92 years
D.33.35 years
23) This is the date the firm sends dividends out to the shareholders.
A.declaration date
B.ex-dividend date
C.record date
D.payment date
24) You are considering the purchase of one of two machines used in your
manufacturing plant. Machine A has a life of two years, costs $20,000 initially, and then
$4,000 per year in maintenance costs. Machine B costs $25,000 initially, has a life of
three years, and requires $3500 in annual maintenance costs. Either machine must be
replaced at the end of its life with an equivalent machine. Which is the better machine
for the firm? The discount rate is 14% and the tax rate is zero.
A.Machine A
B.Machine B
C.Both Machines A and B
D.Neither Machine A nor B
25) Suppose that Hanna Nails, Inc.’s capital structure features 45 percent equity, 55
percent debt, and that its before-tax cost of debt is 5 percent, while its cost of equity is 9
percent. If the appropriate weighted average tax rate is 40 percent, what will be Hanna
Nails’ WACC?
A.5.18%
B.5.70%
C.6.80%
D.7.00%
26) Value of Dividends and Future Price A firm is expected to pay a dividend of $3.00
next year and $3.21 the following year. Financial analysts believe the stock will be at
their target price of $80.00 in two years. Compute the value of this stock with a required
return of 13 percent.
A.$50.00
B.$67.52
C.$67.82
D.$86.21