Services United is considering a new project that requires an initial cash investment of
$26,000. The project will generate cash inflows of $2,500, $11,700, $13,500, and
$10,000 over each of the next four years, respectively. How long will it take to recover
the initial investment?
A. 2.74 years
B. 2.87 years
C. 2.99 years
D. 3.27 years
E. 3.68 years
On any given day, Althea’s receives and deposits numerous checks worth an average
combined total of $4,328. The funds from these checks are generally available in 1.2
days. Every day the firm mails out checks totaling $3,010 that generally take 2.5 days
to clear the bank. What is the amount of the disbursement float if the opening bank
balance was $828 with no outstanding items?
A. $6,828
B. $5,169
C. $5,194
D. $7,525
E. $7,778
Charles Henri is considering investing $37,800 in a project that is expected to provide
him with cash inflows of $11,600 at the end of each of the first two years and $20,000
at the end of the third year. What is the project’s NPV at a discount rate of 0 percent? At
5 percent? At 10 percent?
A. $0; $1,045.91; -$2,641.47
B. $4,468.39; $38.29; -$2,784.08
C. $5,400; $1,045.91; -$2,641.47
D. $5,400; $417.92; -$3,406.10
E. $4,468.39; $38.29; -$2,641.47
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 firm’s accounts receivable at full value.
C. provides greater assurance than a non committed 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.
The terms of sale are best defined as the:
A. total invoice amount including all shipping costs and taxes.
B. period of time during which a sale price applies.
C. legal documents related to the credit sale of either goods or services.
D. conditions under which a firm sells its goods or services for either cash or credit.
E. process used to determine which customers will be granted credit and which will not.
Fresh Foods has sales of $213,600, total assets of $198,700, a debt-equity ratio of 1.43,
and a profit margin of 4.8 percent. What is the equity multiplier?
A. .30
B. .43
C. 1.93
D. 2.43
E. 2.30
A $1,000 face value bond currently has a yield to maturity of 8.22 percent. The bond
matures in five years and pays interest semiannually. The coupon rate is7.5 percent.
What is the current price of this bond?
A. $948.01
B. $989.60
C. $1,005.26
D. $970.96
E. $1,010.13
The stock of Southern United is priced at $52 a share and has a dividend yield of 3.6
percent. The firm pays constant annual dividends. What is the amount of the next
dividend per share?
A. $1.826
B. $1.729
C. $1.872
D. $1.878
E. $1.724
The issuer of a security must be involved in all _____ transactions involving that
security.
A. exchange-listed
B. secondary market
C. over-the-counter
D. dealer market
E. primary market
The common stock of Sweet Treats has a total return of 11.62 percent, a stock price of
$48.20, and recently paid an annual dividend of $2.38. What is the capital gains rate if
the company maintains a constant dividend?
A. 8.34 percent
B. 16.56 percent
C. 11.17 percent
D. 6.68 percent
E. 4.59 percent
Juno’s has projected its Q1 sales at $46,000 and its Q2 sales at $48,000. Purchases equal
71 percent of the next quarter’s sales. The accounts receivable period is 30 days and the
accounts payable period is 45 days. At the beginning of Q1, the accounts receivable
balance is $12,200 and the accounts payable balance is $14,800. The firm pays $1,500 a
month in cash expenses and $400 a month in taxes. At the beginning Q1, the cash
balance is $280 and the short-term loan balance is zero. The firm maintains a minimum
cash balance of $250. Assume each month has 30 days. What is the cumulative cash
surplus (deficit) at the end of the Q1, prior to any short-term borrowing?
A. $9,210
B. $9,684
C. $8,633
D. $8,880
E. $9,157
The risk premium for an individual security is based on which one of the following
types of risk?
A. Total
B. Surprise
C. Diversifiable
D. Systematic
E. Unsystematic
A prepack:
A. guarantees full payment to all creditors but lengthens the time span of the debt.
B. is the joint filing of both a bankruptcy filing and a creditor-approved reorganization
plan.
C. protects the interests of both the current creditors and the existing shareholders.
D. applies only if a firm files under Chapter 7 of the bankruptcy code.
E. extends the time that a firm is protected by the bankruptcy process.
Assume that satisfied clienteles exist. Given this assumption, which one of these
statements is correct?
A. A firm can increase its share price by increasing its dividend payout.
B. Dividend policy is irrelevant as long as each clientele group remains satisfied.
C. All firms will adopt a high-dividend-payout policy.
D. All dividends become irrelevant.
E. All firms should adopt a low-dividend-payout policy.
Which of the following create cash inflows from net working capital?
A. Decrease in accounts payable and increase in accounts receivable
B. Decrease in both accounts receivable and accounts payable
C. Increase in accounts payable and decrease in inventory
D. Increase in both accounts receivable and inventory
E. Increase in inventory and decrease in cash
An unexpected decrease in market interest rates will cause a:
A. coupon bond’s current yield to increase.
B. zero coupon bond’s price to decrease.
C. fixed-rate bond’s coupon rate to decrease.
D. zero coupon bond’s current yield to decrease.
E. coupon bond’s yield to maturity to decrease.
Which one of the following is included in the market value of a firm but not in the book
value?
A. Raw materials
B. Partially built inventory
C. Long-term debt
D. Reputation of the firm
E. Value of a partially depreciated machine
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act
of 2002?
A. Decrease the number of corporations that can be publicly traded
B. Increase the protections against corporate fraud
C. Limit secondary issues of corporate securities
D. Increase the dividends paid to shareholders
E. Increase the number of firms that “go dark”
Best’s Fried Chicken just took out an interest-only loan of $50,000 for three years with
an interest rate of 8.15 percent. Payments are to be made at the end of each year. What
is the amount of the payment that will be due at the end of Year 3?
A. $19,454.21
B. $20,166.67
C. $50,000.00
D. $54,075.00
E. $52,824.60
Your coin collection contains ten 1949 silver dollars. If your grandparents purchased the
coins for their face value when they were new, how much will your collection be worth
when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?
A. $3,440.63
B. $2,329.29
C. $3,348.98
D. $3,205.64
E. $2,644.29
Cash concentration accounts:
A. are no longer needed since the Check Clearing Act for the 21 st Century has been
passed.
B. eliminate the need for lockboxes.
C. decrease a firm’s disbursement float by reducing mail and processing delays.
D. allow firms to more efficiently handle cash.
E. tend to decrease a firm’s investment income.
Your local athletic center is planning a $1.08 million expansion to its current facility.
This cost will be depreciated on a straight-line basis over a 20-year period. The
expanded area is expected to generate $489,000 in additional annual sales. Variable
costs are 46 percent of sales, the annual fixed costs are $129,400, and the tax rate is 34
percent. What is the operating cash flow for the first year of this project?
A. $118,336.82
B. $92,509.15
C. $107,235.60
D. $106,666.67
E. $119,323.33
Assume the one-year forward rate between the U.S. and Japan is ¥120.38 = $1. A
one-year risk-free security in Japan is yielding 4.3 percent while it is 3.8 percent in the
U.S. Assume interest rate parity exists. What is the spot rate between the U.S. and
Japan?
A. ¥120.41
B. ¥121.08
C. ¥119.80
D. ¥120.94
E. ¥119.03
The Book Store is considering a new four-year expansion project that requires an initial
fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line
to zero over its four-year life, after which time it will be worthless. The project is
estimated to generate $.98 million in annual sales, with costs of $.79 million. If the tax
rate is 34 percent, what is the OCF for this project?
A. $303,900
B. $650,400
C. $284,280
D. $325,400
E. $291,640
Which one of the following indicators offers the best assurance that a project will
produce value for its owners?
A. PI equal to zero
B. Negative rate of return
C. Positive AAR
D. Positive IRR
E. Positive NPV
Corporate shareholders:
A. are proportionately liable for the firm’s debts.
B. are protected from all financial losses.
C. have the ability to change the corporation’s bylaws.
D. receive tax-free distributions since all profits are taxed at the corporate level.
E. have basically no control over the actual corporation.
The analysis of a new project should exclude:
A. tax effects.
B. erosion effects.
C. side effects.
D. sunk costs.
E. opportunity costs.
Given an interest rate of 14.6 percent per year, what is the value at t = 8 of a perpetual
stream of $1,250 annual payments that begin t =25?
A. $2,412.02
B. $967.39
C. $3,335.96
D. $2,235.06
E. $1,711.41
Triangle Enterprises has no debt but can borrow at 8 percent. The firm’s WACC is
currently 13.2 percent, and there is no corporate tax. If the firm converts to 30 percent
debt, what will its cost of equity be?
A. 16.67 percent
B. 12.95 percent
C. 14.47 percent
D. 16.39 percent
E. 15.43 percent
Which statement is correct?
A. Disbursement float is the period of time between a firm making a bank deposit and
the funds from that deposit being available to the firm.
B. Disbursement float decreases when a check is delayed in the mail due to an extended
holiday weekend.
C. Disbursement float causes the available balance to exceed the ledger balance.
D. Disbursement float is being totally eliminated by the Check Clearing Act for the
21<sup>st</sup> Century.
E. Disbursement float exists when the available balance is less than the book balance.
What is the future value of $5,700 invested for 18 years at 9 percent compounded
annually?
A. $26,397.74
B. $26,887.59
C. $28,511.15
D. $27,513.06
E. $27,520.22
Lee’s currently sells 13,800 motor homes per year at $87,900 each, and 1,100 luxury
motor coaches per year at $139,900 each. The company wants to introduce a low-range
camper to fill out its product line; it hopes to sell 7,200 of these campers per year at
$17,500 each. An independent consultant has determined that if the company introduces
the new campers, it should boost the sales of its existing motor homes by 1,100 units
per year, and reduce the sales of its luxury motor coaches by 610 units per year. What
amount should be used as the annual sales figure when evaluating this project?
A. $128,309,000
B. $97,480,000
C. $137,351,000
D. $106,542,000
E. $128,787,000