Gino’s Winery has net working capital of $29,800, net fixed assets of $64,800, current
liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners’
equity?
A. $36,900
B. $66,700
C. $71,600
D. $89,400
E. $106,300
The VIC Co. has preferred stock outstanding that pays a $4.50 dividend annually and
sells for $48.20 per share. What is the rate of return?
A. 9.34 percent
B. 6.89 percent
C. 7.70 percent
D. 8.23 percent
E. 8.98 percent
Over the period of 1926-2014:
A. the risk premium on large-company stocks was greater than the risk premium on
small- company stocks.
B. U.S. Treasury bills had a risk premium that was just slightly over 2 percent.
C. the risk premium on long-term government bonds was zero percent.
D. the risk premium on stocks exceeded the risk premium on bonds.
E. U. S. Treasury bills had a negative risk premium.
Taylor’s Market received five checks today and went to the bank to deposit all of them.
Unfortunately, the bank was closed for the day due to a robbery. How does the bank
closure affect the firm’s float assuming these five checks are the only outstanding bank
items?
A. Collection float increased
B. Collection float decreased
C. Disbursement float increased
D. Disbursement float decreased
E. Net float remained unchanged
JL & Co. is contemplating the purchase of a new $428,000 computer-based order entry
system. The system will be depreciated straight-line to zero over the project’s six-year
life. The pretax resale value is $215,000. The system will save $148,000 before taxes
per year in order processing costs and will reduce working capital by $46,000 at the
beginning of the project. Working capital will revert back to normal at the end of the
project. If the tax rate is 34 percent, what is the IRR for this project?
A. 15.51 percent
B. 22.79 percent
C. 25.32 percent
D. 31.08 percent
E. 14.20 percent
Which statement related to a cash budget is correct?
A. Capital expenditures are treated as a cash inflow on a cash budget.
B. The cumulative surplus is computed prior to adjusting for the minimum cash
balance.
C. A positive net cash inflow for a period indicates the cash disbursements exceed the
cash collections for the period.
D. Financially healthy firms can have a negative quarterly net cash inflow.
E. Firms generally set the minimum cash balance at zero for planning purposes.
Fresh Baked Goods has 36,800 shares of stock outstanding at a market price of
$24.91per share. What will be the price per share after a stock dividend of 6 percent?
Ignore taxes and market imperfections.
A. $24.90
B. $23.50
C. $25.00
D. $25.31
E. $25.40
Red’s Tractors owes $52,311 in taxes on a taxable income of $608,606. The company
has determined that it will owe $56,211 in tax if its taxable income rises to $620,424.
What is the marginal tax rate at this level of income?
A. 39 percent
B. 38 percent
C. 35 percent
D. 34 percent
E. 33 percent
Dover Wholesalers sells products exclusively to Benn Retailer. Benn Retailer buys
exclusively from Dover Wholesalers. Dover Wholesalers has a receivables period of 44
days, an inventory period of 8 days, and a payables period of 63 days. Benn Retailer has
an inventory period of 15 days, a receivables period of 22 days, and a payables period
of 44 days. Which statement is correct given this information?
A. Dover Wholesalers has a shorter operating cycle than does Benn Retailer.
B. Benn Retailer has an operating cycle of 81 days.
C. It takes Benn Retailer less time to collect payment on a sale than it does for the firm
to sell its inventory.
D. Dover Wholesalers is financing 100 percent of Benn Retailer’s operating cycle.
E. Dover Wholesalers has a cash cycle of 11 days.
A company originally issued bonds that were rated investment grade. These bonds have
now been downgraded to junk status. These bonds are referred to as:
A. called bonds.
B. converted bonds.
C. unprotected bonds.
D. fallen angels.
E. floaters.
NuParts, Inc., has estimated quarterly sales for next year, starting with Quarter 1, of
$15,900, $16,800, $17,500, and $16,400. Purchases are equal to 67 percent of the
following quarter’s sales and the accounts payable period is 60 days. Assume 30 days in
each month. How much will the firm owe its suppliers at the end of Quarter 3?
A. $7,066.67
B. $7,816.67
C. $7,506.67
D. $7,325.33
E. $6,933.33
Later this week, you are traveling from the U.S. to Canada for a week’s vacation. This
morning, you exchanged some U.S. dollars for Canadian dollars in preparation for that
trip. Which one of the following best describes this exchange?
A. Forward trade
B. Spot trade
C. Arbitrage transaction
D. Cross-rate exchange
E. Eurocurrency transaction
You are using a net present value profile to compare Projects A and B, which are
mutually exclusive. Which one of the following statements correctly applies to the
crossover point between these two?
A. The internal rate of return for Project A equals that of Project B, but generally does
not equal zero.
B. The internal rate of return of each project is equal to zero.
C. The net present value of each project is equal to zero.
D. The net present value of Project A equals that of Project B, but generally does not
equal zero.
E. The net present value of each project is equal to the respective project’s initial cost.
Overnight Trucking recently purchased a new truck costing $219,800. The firm
financed this purchase at 6.6 percent interest with monthly payments of $2,435. How
many years will it take the firm to pay off this debt?
A. 11.04 years
B. 9.22 years
C. 11.60 years
D. 10.23 years
E. 10.42 years
Laura owns 6,700 shares of GP Global stock worth $92,460. The firm has 15,000 shares
outstanding. Each share is entitled to one vote under the straight voting policy of the
firm. The next election is in four months at which time four directors are up for
election. How much more must Laura invest in this firm to guarantee her election to the
board?
A. $0
B. $6,554.00
C. $11,053.80
D. $8,406.15
E. $14,478.80
The Green Carpet has current liabilities of $72,100 and accounts receivable of
$107,800. The firm has total assets of $443,500 and net fixed assets of $323,700. The
owners’ equity has a book value of $191,400. What is the amount of the net working
capital?
A. $50,100
B. $47,700
C. $6,500
D. -$18,800
E. -$29,700
A share repurchase will:
A. increase both earnings per share and the PE ratio.
B. increase the earnings per share but not affect the PE ratio.
C. increase the earnings per share and decrease the PE ratio.
D. not affect either the earnings per share nor the PE ratio.
E. not affect the earnings per share but will decrease the PE ratio.
Three years ago, the Morgan Co. issued 15-year, 6.5 percent semiannual coupon bonds
at par. Today, the bonds are quoted at 100.6. What is this firm’s pretax cost of debt?
A. 6.27 percent
B. 6.08 percent
C. 6.43 percent
D. 6.83 percent
E. 6.29 percent
Which industry is most apt to have the shortest operating cycle?
A. Toy store
B. Car manufacturer
C. Local restaurant
D. Furniture store
E. Plastics manufacturer
AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales,
and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are
$89,500. What is the total asset turnover rate?
A. 1.08
B. 1.38
C. 1.30
D. 1.24
E. 1.28
Isaac only has $1,090 today but needs $1,979 to buy a new computer. How long will he
have to wait to buy the computer if he earns 5.4 percent compounded annually on his
savings? Assume the price of the computer remains constant.
A. 11.83 years
B. 11.48 years
C. 12.51 years
D. 12.77 years
E. 11.34 years
Stock prices tend to _____ following the announcement of a new equity issue and tend
to _____ following the announcement of a new debt issue.
A. increase; increase
B. increase; decrease
C. increase; remain relatively constant
D. decrease; increase
E. decrease; remain relatively constant
The standard deviation measures the _____ of a security’s returns over time.
A. average value
B. frequency
C. volatility
D. mean
E. arithmetic average
Assume you can exchange $1 for ¥119.39 or €.7989 in New York. In Tokyo, the
exchange rate is ¥1 = €.0068. If you have $1,200, how much profit can you earn using
triangle arbitrage?
A. $18.08
B. $18.27
C. $19.45
D. $20.11
E. $23.14
Southern Foods has a $13 million bond issue outstanding with a coupon rate of 7.15
percent and a yield to maturity of 7.39 percent. What is the present value of the tax
shield if the tax rate is 34 percent?
A. $283,140
B. $316,030
C. $4,053,400
D. $3,960,000
E. $4,420,000
You plan to save $200 a month for the next 24 years and hope to earn an average rate of
return of 10.6 percent. How much more will you have at the end of the 24 years if you
invest your money at the beginning rather than the end of each month?
A. $1,911.29
B. $1,807.70
C. $2,238.87
D. $2,317.82
E. $2,707.27
Assume a project will produce cash flows of $22,400, $28,700, $30,300, $10,900 at the
end of Years 1 to 4, respectively. If the discount rate is 14.7 percent, what is the current
value of these cash flows?
A. $69,407.19
B. $64,221.80
C. $67,721.24
D. $70,407.16
E. $71,121.03
You own two bonds, each of which currently pays semiannual interest, has a coupon
rate of 6 percent, a $1,000 face value, and 6 percent yields to maturity. Bond A has 12
years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises
unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease
of _____ percent.
A. A; 5.73
B. A; 3.44
C. A; 8.03
D. B; 7.97
E. B; 4.51
South Central Bank pays 2.5 percent interest, compounded annually, on its savings
accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You
want to deposit sufficient funds today so that you will have $1,500 in your account 2
years from today. The amount you must deposit today:
A. is the same regardless of which bank you choose because they both pay the same
rate of interest.
B. is the same regardless of which bank you choose because they both pay simple
interest.
C. is the same regardless of which bank you choose because the time period is the same
for both banks.
D. will be greater if you invest with South Central Bank.
E. will be greater if you invest with Northern Bank.
Which one of the following terms is used to identify the concept that exchange rates
vary to keep purchasing power constant among currencies?
A. Exchange rate equilibrium
B. Exchange rate parity
C. Universal parity
D. Market equilibrium
E. Purchasing power parity
The market-required rate of return on a bond that is held for its entire life is called the:
A. coupon rate.
B. yield to maturity.
C. dirty yield.
D. call premium.
E. current yield.
S&S Furniture is offering a bedroom suite for $3,200. The credit terms are 60 months at
$55 per month. What is the interest rate on this offer?
A. 1.22 percent
B. 1.50 percent
C. 1.65 percent
D. 1.15 percent
E. 1.30 percent
You place an order for 1,200 units of widgets at a unit price of $19.99. The supplier
offers terms of 2/5, net 20. If you don’t take the discount, how much interest on your
order are you paying implicitly?
A. $468.33
B. $479.76
C. $492.00
D. $460.04
E. $564.80
Net working capital increases when:
A. fixed assets are purchased for cash.
B. inventory is purchased on credit.
C. inventory is sold at cost.
D. a credit customer pays for his or her purchase.
E. inventory is sold at a profit.
Which one of the following has nearly the same meaning as free cash flow?
A. Net income
B. Cash flow from assets
C. Operating cash flow
D. Cash flow to shareholders
E. Addition to retained earnings