Farmer Mac owns a large orange grove in Florida. The value of his business is directly
related to the price of oranges. Which one of the following is a graphical representation
of this price-value relationship?
A. exchange line
B. net present value profile
C. risk profile
D. market line
E. return grid
Answer:
Which one of the following statements is correct in regards to credit periods?
A. Perishable items tend to have longer credit periods.
B. Items with low markups tend to have longer credit periods.
C. Smaller accounts tend to have longer credit periods.
D. Different customers may be offered different credit periods by the same firm.
E. Newer products tend to have shorter credit periods.
Answer:
Which one of the following represents the most liquid asset?
A. $100 account receivable that is discounted and collected for $96 today
B. $100 of inventory which is sold today on credit for $103
C. $100 of inventory which is discounted and sold for $97 cash today
D. $100 of inventory that is sold today for $100 cash
E. $100 accounts receivable that will be collected in full next week
Answer:
The president of Global Wholesalers would like to offer special sale prices to the firm’s
best customers under the following terms:
1. The prices will apply only to units purchased in excess of the quantity normally
purchased by a customer.
2. The units purchased must be paid for in cash at the time of sale.
3. The total quantity sold under these terms cannot exceed the excess capacity of the
firm.
4. The net profit of the firm should not be affected.
5. The prices will be in effect for one week only.
Given these conditions, the special sale price should be set equal to the:
A. average variable cost of materials only.
B. average cost of all variable inputs.
C. sensitivity value of the variable costs.
D. marginal cost of materials only.
E. marginal cost of all variable inputs.
Answer:
The Securities and Exchange Commission:
A. verifies the accuracy of the information contained in the prospectus.
B. verifies the accuracy of the information contained in the red herring.
C. examines the registration statement during the Green Shoe period.
D. is concerned only that an issue complies with all rules and regulations.
E. determines the final offer price once they have approved the registration statement.
Answer:
Which one of the following statements is correct?
A. The capital gains yield is the annual rate of change in a stock’s price.
B. Preferred stocks have constant growth dividends.
C. A constant dividend stock cannot be valued using the dividend growth model.
D. The dividend growth model can be used to compute the current value of any stock.
E. An increase in the required return will decrease the capital gains yield.
Answer:
The implied standard deviation used in the Black-Scholes option pricing model is:
A. based on historical performance.
B. a prediction of the volatility of the return on the underlying asset over the life of the
option.
C. a measure of the time decay of an option.
D. an estimate of the future value of an option given a strike price (E).
E. a measure of the historical intrinsic value of an option.
Answer:
On average, Furniture & More is able to sell its inventory in 27 days. The firm takes 87
days on average to pay for its purchases. On the other hand, its average customer pays
with a credit card which allows the firm to collect its receivables in 4 days. Given this
information, what is the length of operating cycle?
A. 31 days
B. 38 days
C. 45 days
D. 56 days
E. 62 days
Answer:
The current president and vice-presidents of Mountain Top Consulting have decided to
form a private investment group with the sole purpose of purchasing Mountain Top
Consulting. These individuals have found a lender who will lend them 85 percent of the
purchase cost if they pledge their personal assets as collateral for the loan. The current
officers agree to this arrangement, borrow the funds, and purchase Mountain Top
Consulting. The purchase of this firm is referred to as a:
A. conglomeration.
B. proxy contest.
C. merger.
D. leveraged buyout.
E. consolidation.
Answer:
National Home Rentals has a beta of 1.24, a stock price of $22, and recently paid an
annual dividend of $0.94 a share. The dividend growth rate is 4.5 percent. The market
has a 10.6 percent rate of return and a risk premium of 7.5 percent. What is the firm’s
cost of equity?
A. 7.05 percent
B. 8.67 percent
C. 9.13 percent
D. 10.30 percent
E. 10.68 percent
Answer:
Which one of the following has the greatest tendency to increase the percentage of debt
included in the optimal capital structure of a firm?
A. exceptionally high depreciation expenses
B. very low marginal tax rate
C. substantial tax shields from other sources
D. low probabilities of financial distress
E. minimal taxable income
Answer:
Which of the following statements are correct?
I. The usage of forward rates increases the short-run exposure to exchange rate risk.
II. Accounting translation gains and losses are recorded in the equity section of the
balance sheet.
III. The long-run exchange rate risk faced by an international firm can be reduced if a
firm borrows money in the foreign country where the firm has operations.
IV. Unexpected changes in economic conditions are classified as short-run exposure to
exchange rate risk.
A. I and III only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
Answer:
Shelf registration allows a firm to register multiple issues at one time with the SEC and
then sell those registered shares anytime during the subsequent:
A. 3 months.
B. 6 months.
C. 180 days.
D. 2 years.
E. 5 years.
Answer:
Based on the information below, what is the cross-rate for Australian dollars in terms of
Swiss francs?
A. 0.5607
B. 0.7219
C. 0.8897
D. 1.1437
E. 1.2834
Answer:
Which one of the following compounding periods will yield the smallest present value
given a stated future value and annual percentage rate?
A. annual
B. semi-annual
C. monthly
D. daily
E. continuous
Answer:
Which of the following characteristics relate to the cash break-even point for a given
project?
I. The project never pays back.
II. The IRR equals the required rate of return.
III. The NPV is negative and equal to the initial cash outlay.
IV. The operating cash flow is equal to the depreciation expense.
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
Answer:
Southern Chicken is considering two projects. Project A consists of creating an outdoor
eating area on the unused portion of the restaurant’s property. Project B would use that
outdoor space for creating a drive-thru service window. When trying to decide which
project to accept, the firm should rely most heavily on which one of the following
analytical methods?
A. profitability index
B. internal rate of return
C. payback
D. net present value
E. accounting rate of return
Answer:
At the accounting break-even point, the:
A. payback period must equal the required payback period.
B. NPV is zero.
C. IRR is zero.
D. contribution margin per unit equals the fixed costs per unit.
E. contribution margin per unit is zero.
Answer:
Steve is fairly cautious when analyzing a new project and thus he projects the most
optimistic, the most realistic, and the most pessimistic outcome that can reasonably be
expected. Which type of analysis is Steve using?
A. simulation testing
B. sensitivity analysis
C. break-even analysis
D. rationing analysis
E. scenario analysis
Answer:
Your parents have made you two offers. The first offer includes annual gifts of $10,000,
$11,000, and $12,000 at the end of each of the next three years, respectively. The other
offer is the payment of one lump sum amount today. You are trying to decide which
offer to accept given the fact that your discount rate is 8 percent. What is the minimum
amount that you will accept today if you are to select the lump sum offer?
A. $28,216
B. $29,407
C. $29,367
D. $30,439
E. $30,691
Answer:
Marshall Arts Studios just paid an annual dividend of $1.36 a share. The firm plans to
pay annual dividends of $1.50, $1.55, and $1.58 over the next 3 years, respectively.
After that time, the dividends will be held constant at $1.70 per share. What is this stock
worth today at a 9 percent discount rate?
A. $14.08
B. $14.30
C. $16.67
D. $16.79
E. $18.49
Answer:
The value of a target firm to the acquiring firm is equal to:
A. the value of the target firm as a separate entity plus the incremental value derived
from the acquisition.
B. the purchase cost of the target firm.
C. the value of the merged firm minus the value of the target firm as a separate entity.
D. the purchase cost plus the incremental value derived from the acquisition.
E. the incremental value derived from the acquisition.
Answer:
The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share
and a market value of $11 a share. The company just announced a 3-for-4 reverse stock
split. Currently, you own 500 shares of this stock. What will the total value of your
shares be after the reverse stock split?
A. $3,300
B. $4,400
C. $5,500
D. $5,867
E. $6,333
Answer:
Which one of the following statements is correct concerning the cash cycle?
A. The longer the cash cycle, the more likely a firm will need external financing.
B. Increasing the accounts payable period increases the cash cycle.
C. A positive cash cycle is preferable to a negative cash cycle.
D. The cash cycle can exceed the operating cycle if the payables period is equal to zero.
E. Offering early payment discounts to customers will tend to increase the cash cycle.
Answer:
The Town Crier and The News Express are all-equity firms. The Town Crier has 11,500
shares outstanding at a market price of $26 a share. The News Express has 15,000
shares outstanding at a price of $31 a share. The News Express is acquiring The Town
Crier. The incremental value of the acquisition is $4,500. What is the value of The
Town Crier to The News Express?
A. $57,500
B. $75,000
C. $87,000
D. $299,000
E. $303,500
Answer:
Miller & Chase is offering $4 million of new securities to the general public. Which
SEC regulation governs this offering?
A. Regulation A
B. Regulation C
C. Regulation G
D. Regulation Q
E. Regulation R
Answer:
A lockbox system:
A. entails the use of a bank which is centrally located to collect payments on a
nationwide basis.
B. is designed to deposit a customer’s check into the firm’s bank account prior to
recording the receipt of that check to a customer’s account.
C. is used to reduce the disbursement float of a firm.
D. is efficient regardless of the locations selected for lockbox destinations.
E. automatically records payments to a customer’s account when the customer’s check is
received at the lockbox location.
Answer:
Which one of the following is the correct formula for approximating the change in an
option’s value given a small change in the value of the underlying stock?
A. Change in option value ≈ Change in stock value/Delta
B. Change in option value ≈ Change in stock value/(1 – Delta)
C. Change in option value ≈ Change in stock value/(1 + Delta)
D. Change in option value ≈ Change in stock value × (1 – Delta)
E. Change in option value ≈ Change in stock value × Delta
Answer:
A U.S. Treasury bond that is quoted at 100:11 is selling:
A. for 11 percent more than par value.
B. at an 11 percent discount.
C. for 100.11 percent of face value.
D. at par and pays an 11 percent coupon.
E. for 100 and 11/32nds percent of face value.
Answer:
Samuelson Engines wants to save $750,000 to buy some new equipment four years
from now. The plan is to set aside an equal amount of money on the first day of each
quarter starting today. The firm can earn 4.75 percent on its savings. How much does
the firm have to save each quarter to achieve its goal?
A. $42,337.00
B. $42,969.70
C. $43,192.05
D. $43,419.29
E. $43,911.08
Answer:
A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow
of $5,700 in year 5. The project’s initial cost is $9,500. What is the net present value of
this project if the required rate of return is 16 percent?
A. -$311.02
B. $1,048.75
C. $4,650.11
D. $9,188.98
E. $11,168.02
Answer:
A money market preferred stock:
A. has a floating dividend.
B. is sold only under a repurchase agreement.
C. is a special form of commercial paper.
D. has more price volatility than an ordinary preferred.
E. has its interest rate reset daily.
Answer:
Which one of the following describes the intrinsic value of a put option?
A. lesser of the strike price or the stock price
B. lesser of the stock price minus the exercise price or zero
C. lesser of the stock price or zero
D. greater of the strike price minus the stock price or zero
E. greater of the stock price minus the exercise price or zero
Answer:
The Walthers Company has a semi-annual coupon bond outstanding. An increase in the
market rate of interest will have which one of the following effects on this bond?
A. increase the coupon rate
B. decrease the coupon rate
C. increase the market price
D. decrease the market price
E. increase the time period
Answer:
Greenbrier Industrial Products’ bonds have a 7.60 percent coupon and pay interest
annually. The face value is $1,000 and the current market price is $1,062.50 per bond.
The bonds mature in 16 years. What is the yield to maturity?
A. 6.94 percent
B. 7.22 percent
C. 7.46 percent
D. 7.71 percent
E. 7.80 percent
Answer: