Which one of the following is the rate that most international banks charge when they
loan Eurodollars to other banks?
A. ADR
B. LIBOR
C. Cross-rate
D. Gilt rate
E. Swap rate
Consider an asset that costs $311,000 and is depreciated straight-line to zero over its
six-year tax life. The asset is to be used in a four-year project; at the end of the project,
the asset can be sold for $58,000. If the relevant tax rate is 34 percent, what is the
aftertax cash flow from the sale of this asset?
A. $73,526.67
B. $68,411.19
C. $70,103.33
D. $40,466.67
E. $42,473.33
Assume your favorite running shoes cost $119 in the U.S. while the identical shoes cost
C$139.50 in Canada. According to purchasing power parity, what is the C$/$ exchange
rate?
A. C$.8530/$1
B. C$.8426/$1
C. C$1.0918/$1
D. C$1.1723/$1
E. C$1.2305/$1
Which one of the following projects is most apt to be financed with venture capital?
A. Additional warehouse space for a profitable trucking firm
B. New product for an international plastics manufacturing company
C. Prototype for a newly patented hand tool by an individual inventor
D. Seasonal merchandise for a major retailer
E. Domestic outlet for a large global exporter
Kelso’s is considering spending $80,000 on either a stock repurchase or an extra cash
dividend. Which one of the following values will be the same whether the firm pays a
dividend or repurchases stock? Assume there are no taxes or market imperfections.
A. Number of shares outstanding
B. Price per share
C. Earnings per share
D. Price-earnings (PE) ratio
E. Market value of equity per share
The primary purpose of a cash discount is to:
A. compensate customers for an out-of-stock item.
B. compensate customers for faulty goods or services.
C. offset the interest charges on an account receivable.
D. induce customers to pay promptly.
E. induce customers to purchase specialty items.
Triad common stock is selling for $27.80 a share and has a dividend yield of 2.8
percent. What is the dividend amount?
A. $.31
B. $.78
C. $3.49
D. $4.25
E. $7.80
Which one of the following is most commonly used in international trades?
A. Sight draft
B. Time draft
C. Commercial paper
D. Banker’s acceptance
E. Open account
A firm can increase its sustainable rate of growth by decreasing its:
A. profit margin.
B. dividends.
C. total asset turnover.
D. target debt-equity ratio.
E. equity multiplier.
A firm has adopted a policy whereby it will not seek any additional external financing.
Given this, what is the maximum growth rate for the firm if it has net income of
$32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend
payout ratio?
A. 5.11 percent
B. 4.88 percent
C. 6.62 percent
D. 7.67 percent
E. 8.37 percent
GW Underwriters retains the difference between its buying price and its offering price
on new securities. What is this amount called?
A. Markup
B. Commission
C. Rights price
D. Spread
E. Offer
You own a $58,600 portfolio comprised of four stocks. The values of Stocks A, B, and
C are $11,200, $17,400, and $20,400, respectively. What is the portfolio weight of
Stock D?
A. 16.38 percent
B. 15.39 percent
C. 10.33 percent
D. 12.10 percent
E. 12.58 percent
Which one of the following is a system for managing demand-dependent inventories
that minimizes the amount of inventory on hand?
A. Inventory flow log
B. Materials requirements planning
C. Just-in-time inventory system
D. Kanban
E. Keiretsu
Six months ago, Benders Gym repurchased $140,000 of its common stock. The
company pays regular dividends totaling $18,500 per quarter. What is the amount of the
cash flow to stockholders for the past year if 1,200 new shares were issued and sold for
$38 a share?
A. -$10,000
B. -$20,400
C. $28,500
D. $74,000
E. $168,400
A project has the following cash flows. What is the internal rate of return?
A. 9.08 percent
B. 9.16 percent
C. 9.58 percent
D. 9.23 percent
E. 9.19 percent
Lamey Gardens has a dividend growth rate of 5.6 percent, a market price of $13.16 a
share, and a required return of 14 percent. What is the amount of the last dividend this
company paid?
A. $1.05
B. $1.55
C. $1.60
D. $1.15
E. $1.30
Taylor’s stock has plummeted in value and is currently priced at $5 a share. The firm
prefers the price exceed $10 a share and thus has decided to do a reverse stock split.
However, when it does this, the firm wants the stock price increased to at least twice its
preferred minimum as it is concerned the price will fall further. Which one of the
following stock split ratios is most appropriate for this situation?
A. 1-for-3
B. 1-for-4
C. 2-for-7
D. 4-for-1
E. 7-for-2
Semistrong form market efficiency states that the value of a security is based on:
A. all public and private information.
B. historical information only.
C. all publicly available information.
D. all publicly available information plus any data that can be gathered from insider
trading.
E. random information with no clear distinction as to the source of that information.
A firm uses its weighted average cost of capital to evaluate the proposed projects for all
of its varying divisions. By doing so, the firm:
A. automatically gives preferential treatment in the allocation of funds to its riskiest
division.
B. encourages the division managers to recommend only their most conservative
projects.
C. maintains the current risk level and capital structure of the firm.
D. automatically maximizes the total value created for its shareholders.
E. allocates capital funds evenly among its divisions.
If your nominal rate of return is 14.38 percent and your real rate of return is 4.97
percent, what is the inflation rate?
A. 8.47 percent
B. 8.96 percent
C. 9.44 percent
D. 19.35 percent
E. 19.92 percent
Normal cash dividends that are increased regularly tend to send which message?
A. The firm is attempting to reduce its tax bill.
B. The dividends are expected to increase the firm’s agency costs.
C. The firm is planning on downsizing.
D. The firm is discontinuing all stock repurchases.
E. The firm expects to be profitable.
Pier Imports has cash of $41,100 and accounts receivable of $54,200, all of which is
expected to be collected. The inventory cost $82,300 and can be sold today for
$116,500. The fixed assets were purchased at a total cost of $234,500 of which
$118,900 has been depreciated. The fixed assets can be sold today for $138,000. What
is the total book value of the firm’s assets?
A. $327,800
B. $293,200
C. $346,800
D. $412,100
E. $415,600
McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each
year for Years 1 to 4, respectively. If it earns 3.3 percent on its savings, how much will
the firm have saved at the end of Year 4?
A. $107,525.40
B. $108,392.69
C. $111,860.57
D. $107,130.78
E. $110,426.41
Which one of the following is most apt to cause a wise manager to increase a project’s
cost of capital? Assume the firm is levered.
A. Management decides to issue new stock to finance the project.
B. The initial cash outlay requirement is reduced.
C. She learns the project is riskier than previously believed.
D. The aftertax cost of debt just decreased.
E. The project’s life is shortened.
Which one of the following statements is correct?
A. The risk-free rate of return has a risk premium of 1.0.
B. The reward for bearing risk is called the standard deviation.
C. Risks and expected return are inversely related.
D. The higher the expected rate of return, the wider the distribution of returns.
E. Risk premiums are inversely related to the standard deviation of returns.
The payback period is the length of time it takes an investment to generate sufficient
cash flows to enable the project to:
A. produce a positive annual cash flow.
B. produce a positive cash flow from assets.
C. offset its fixed expenses.
D. offset its total expenses.
E. recoup its initial cost.
A six-year, semiannual coupon bond is selling for $991.38. The bond has a face value
of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?
A. 4.50 percent
B. 4.60 percent
C. 6.00 percent
D. 9.00 percent
E. 9.20 percent
Sugar Cookies will pay an annual dividend of $1.23 a share next year. The firm expects
to increase this dividend by 8 percent per year the following four years and then
decrease the dividend growth to 2 percent annually thereafter. Which one of the
following is the correct computation of the dividend for Year 7?
A. ($1.23) x(1.08 x4) x(1.02 x3)
B. ($1.23) x(1.08 x4) x(1.02 x2)
C. ($1.23) x(1.08)4x(1.02)2
D. ($1.23) x(1.08)4x(1.02)3
E. ($1.23)x (1.08)4x(1.02)4
Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently
announced that all future dividends will be increased by 2.1 percent annually. What is
one share of this stock worth to you if you require a rate of return of 15.7 percent?
A. $11.91
B. $12.95
C. $12.16
D. $10.54
E. $13.07
Jim’s Hardware is adding a new product to its sales lineup. Initially, the firm will stock
$36,000 of the new inventory, which will be purchased on 30 days’ credit from a
supplier. The firm will also invest $13,000 in accounts receivable and $11,000 in
equipment. What amount should be included in the initial project costs for net working
capital?
A. -$49,000
B. -$47,000
C. -$3,000
D. -$13,000
E. -$24,000
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the
stocks has a beta of 1.86 and the total portfolio is equally as risky as the market, what
must the beta be for the other stock in your portfolio?
A. 1.07
B. .54
C. 1.14
D. .14
E. .97
The Press has total assets of $848,000 and total debt of $402,000 on a market value
basis. There are 25,000 shares of stock outstanding. The company has announced it is
going to repurchase $40,000 worth of stock in the open market. What will be the price
per share after the repurchase?
A. $36.29
B. $17.84
C. $38.67
D. $39.42
E. $39.89
You would like to borrow money three years from now to build a new building. In
preparation for applying for that loan, you are in the process of developing target ratios
for your firm. Which set of ratios represents the best target mix considering that you
want to obtain outside financing in the relatively near future?
A. Times interest earned = 1.7; debt-equity ratio = 1.6
B. Times interest earned = 1.5; debt-equity ratio = 1.2
C. Cash coverage ratio = .8; debt-equity ratio = .8
D. Cash coverage ratio = 2.6; debt-equity ratio = .3
E. Cash coverage ratio = .5; total debt ratio = .2
New Markets has $1,000 face value bonds outstanding that pay interest semiannually,
mature in 14.5 years, and have a 4.5 percent coupon. The current price is quoted at 97.6.
What is the yield to maturity?
A. 5.32 percent
B. 4.73 percent
C. 4.92 percent
D. 5.13 percent
E. 5.27 percent