Which of the following should help reduce the total collection time for a firm?
I. opening a post office box so mail can be received earlier in the morning
II. assigning additional staff in the morning to process incoming payments
III. providing a discount for customers who pay electronically
IV. establishing preauthorized payments from customers
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
The Blue Star generally receives only 3 checks a month. The check amounts and the
collection delay for each check are shown below. Given this information, what is the
amount of the average daily float? Assume every month has 30 days.
A. $971.43
B. $1,456.67
C. $3,351.33
D. $5,666.67
E. $6,800.00
A wealthy benefactor just donated some money to the local college. This gift was
established to provide scholarships for worthy students. The first scholarships will be
granted one year from now for a total of $35,000. Annually thereafter, the scholarship
amount will be increased by 5.5 percent to help offset the effects of inflation. The
scholarship fund will last indefinitely. What is the value of this gift today at a discount
rate of 8 percent?
A. $437,500
B. $750,000
C. $1,200,000
D. $1,400,000
E. $1,450,750
Assume that Fake Stone, Inc. is operating at full capacity. Also assume that assets,
costs, and current liabilities vary directly with sales. The dividend payout ratio is
constant. What is the external financing need if sales increase by 12 percent?
A. -$318.09
B. -$268.49
C. $103.13
D. $350.40
E. $460.56
Which one of the following is a use of cash?
A. increase in notes payable
B. decrease in inventory
C. increase in long-term debt
D. decrease in accounts receivables
E. decrease in common stock
What is the expected return on a portfolio which is invested 25 percent in stock A, 55
percent in stock B, and the remainder in stock C?
A. -1.06 percent
B. 2.38 percent
C. 2.99 percent
D. 5.93 percent
E. 6.10 percent
The Cycle Stop has 1,500 shares outstanding at a market price per share of $8.48.
Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share. Neither
firm has any debt. Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash. What
is the merger premium per share?
A. $1.27
B. $1.46
C. $1.52
D. $4.43
E. $4.52
Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in
one year. The value of Buckeye's assets is currently $1,200. Jim Tressell, the CEO,
believes that the assets in the firm will be worth either $600 or $1,700 in a year. The
going rate on one-year T-bills is 6 percent. What is the current value of the firm's debt?
A. $601.18
B. $796.57
C. $844.24
D. $878.78
E. $911.03
Which one of the following statements concerning scenario analysis is correct?
A. The pessimistic case scenario determines the maximum loss, in current dollars, that a
firm could possibly incur from a given project.
B. Scenario analysis defines the entire range of results that could be realized from a
proposed investment project.
C. Scenario analysis determines which variable has the greatest impact on a project's
final outcome.
D. Scenario analysis helps managers analyze various outcomes that are possible given
reasonable ranges for each of the assumptions.
E. Management is guaranteed a positive outcome for a project when the worst case
scenario produces a positive NPV.
Your father invested a lump sum 26 years ago at 4.25 percent interest. Today, he gave
you the proceeds of that investment which totaled $51,480.79. How much did your
father originally invest?
A. $15,929.47
B. $16,500.00
C. $17,444.86
D. $17,500.00
E. $17,999.45
Which one of the following terms is defined as the mixture of a firm's debt and equity
financing?
A. working capital management
B. cash management
C. cost analysis
D. capital budgeting
E. capital structure
Which one of the following is a capital structure decision?
A. determining which one of two projects to accept
B. determining how to allocate investment funds to multiple projects
C. determining the amount of funds needed to finance customer purchases of a new
product
D. determining how much debt should be assumed to fund a project
E. determining how much inventory will be needed to support a project
Which one of the following obligates you only on the expiration date to sell an asset at
the strike price if the option is exercised?
A. American call
B. American put
C. European call
D. European put
E. European swap
What is debt-equity ratio? (Use 2009 values)
A. 0.52
B. 0.87
C. 0.94
D. 1.01
E. 1.06
Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This
debt pays an annual interest payment of $55 and matures 6 years from now. The face
value is $1,000 and the market price is $1,020. Which one of these terms correctly
describes a feature of this debt?
A. semi-annual coupon
B. discount bond
C. note
D. trust deed
E. collateralized
Which one of the following is the best example of a diversifiable risk?
A. interest rates increase
B. energy costs increase
C. core inflation increases
D. a firm's sales decrease
E. taxes decrease
Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased
another 200 shares and then on May 22 he purchased a final 400 shares of Alpha Beta
stock. The company declared a dividend of $1.60 a share on April 30 to holders of
record on Friday, May 23. The dividend is payable on June 2. How much dividend
income will Steve receive on June 2 from Alpha Beta?
A. $0
B. $480
C. $800
D. $1,200
E. $1,440
You are the buyer for a cereal company and you must buy 80,000 bushels of corn next
month. The futures contracts on corn are based on 5,000 bushels and are currently
quoted at 415′0 cents per bushel for delivery next month. If you want to hedge your
cost, you should _____ contracts at a cost of _____ per contract.
A. buy 12; $2,075
B. buy 16; $20,750
C. buy 16; $2,075,000
D. sell 12; $2,075
E. sell 16; $2,075,000
Southern Fried Chicken has 8,000 shares of stock outstanding with a par value of $1 per
share and a market value of $34 per share. The balance sheet shows $39,000 in the
capital in excess of par account, $8,000 in the common stock account, and $152,000 in
the retained earnings account. The firm just announced a 5 percent stock dividend.
What will total owners' equity be after the dividend?
A. $185,800
B. $196,000
C. $199,000
D. $206,800
E. $212,200
Travel Inn Express spends $109,000 a week to pay bills and maintains a lower cash
balance limit of $125,000. The standard deviation of the disbursements is $14,400. The
applicable weekly interest rate is 0.039 percent and the fixed cost of transferring funds
is $58. What is the inn's cash balance target based on the Miller-Orr model?
A. $28,492
B. $31,359
C. $153,492
D. $156,359
E. $225,417
Which of the following is a form of a takeover?
I. tender offer
II. merger
III. proxy contest
IV. going private transaction
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
A project produces annual net income of $46,200, $51,800, and $62,900 over its 3-year
life, respectively. The initial cost of the project is $675,000. This cost is depreciated
straight-line to a zero book value over three years. What is the average accounting rate
of return if the required discount rate is 14.5 percent?
A. 15.89 percent
B. 16.67 percent
C. 18.98 percent
D. 20.25 percent
E. 23.84 percent
Which one of the following is the primary determinant of a firm's cost of capital?
A. debt-equity ratio
B. applicable tax rate
C. cost of equity
D. cost of debt
E. use of the funds
Which one of the following actions by a financial manager is most apt to create an
agency problem?
A. refusing to borrow money when doing so will create losses for the firm
B. refusing to lower selling prices if doing so will reduce the net profits
C. refusing to expand the company if doing so will lower the value of the equity
D. agreeing to pay bonuses based on the market value of the company stock rather than
on the firm's level of sales
E. increasing current profits when doing so lowers the value of the firm's equity
The Home Supply Co. has a current accounts receivable balance of $300,000. Credit
sales for the year just ended were $1,830,000. How many days on average did it take
for credit customers to pay off their accounts during this past year?
A. 54.29 days
B. 56.01 days
C. 57.50 days
D. 59.84 days
E. 61.00 days
Which of the following create limits to arbitrage?
I. risks related to an individual firm
II. implementation costs
III. rational traders
IV. noise traders
A. I and III only
B. II and IV only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV
Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $11.20 a
share. You have received dividend payments equal to $0.25 a share. Today, you sold all
of your shares for $8.60 a share. What is your total dollar return on this investment?
A. -$3,900
B. -$3,525
C. -$3,150
D. -$2,950
E. -$2,875
Which one of the following statements related to annuities and perpetuities is correct?
A. An ordinary annuity is worth more than an annuity due given equal annual cash
flows for ten years at 7 percent interest, compounded annually.
B. A perpetuity comprised of $100 monthly payments is worth more than an annuity
comprised of $100 monthly payments, given an interest rate of 12 percent, compounded
monthly.
C. Most loans are a form of a perpetuity.
D. The present value of a perpetuity cannot be computed, but the future value can.
E. Perpetuities are finite but annuities are not.
Assigning discount rates to individual projects based on the risk level of each project:
A. may cause the firm's overall weighted average cost of capital to either increase or
decrease over time.
B. will prevent the firm's overall cost of capital from changing over time.
C. will cause the firm's overall cost of capital to decrease over time.
D. decreases the value of the firm over time.
D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire
offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares
to the public at an offer price of $22 a share. What type of underwriting was this?
A. best efforts
B. shelf
C. over subscribed
D. private placement
E. firm commitment
Atlas Corp. wants to raise $4 million via a rights offering. The company currently has
450,000 shares of common stock outstanding that sell for $40 per share. Its underwriter
has set a subscription price of $26 per share and will charge the company a 7 percent
spread. Assume that you currently own 7,200 shares of stock in the company and decide
not to participate in the rights offering. How much can you get for selling all of your
rights?
A. $24,911.21
B. $25,362.84
C. $25,792.19
D. $26,414.14
E. $27,094.95
