Which one of the following is the equity risk arising from the daily operations of a
firm?
A. Strategic risk
B. Financial risk
C. Liquidity risk
D. Industry risk
E. Business risk
Which one of the following will increase the operating cycle?
A. Decreasing the accounts payable period
B. Increasing the accounts payable turnover rate
C. Increasing the cash cycle
D. Decreasing the accounts receivable turnover rate
E. Decreasing the inventory period
An agent who buys and sells securities from inventory is called a:
A. floor trader.
B. dealer.
C. commission broker.
D. broker.
E. floor broker.
On December 31, 2015, The Play House had net fixed assets of $812,650 while the
December 31, 2016 balance sheet showed net fixed assets of $784,900. Depreciation for
2016 was $84,900. What was the firm’s net capital spending for 2016?
A. $51,600
B. $42,410
C. $57,150
D. $54,400
E. $46,620
Suppose Healey Corp. has the following characteristics:
Shares outstanding: 68,500
Current share price: $13.50
Total debt: $438,500
Total cash: $63,100
Based on the formula above, what is the enterprise value of this company?
A. $948,850
B. $1,300,150
C. $1,500,400
D. $880,900
E. $1,125,600
SRC, Inc., sells its inventory in an average of 43 days and collects its receivables in 3.6
days, on average. What is the inventory turnover rate? Assume a 365-day year.
A. 8.49
B. 7.29
C. 8.68
D. 10.18
E. 7.13
Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15
years. Yesterday, the firm announced the dividend will increase next year by 10 percent
and will stay at that level through Year 3, after which time the dividends will increase
by 2 percent annually. The required return on this stock is 12 percent. What is the
current value per share?
A. $25.51
B. $26.08
C. $24.57
D. $26.02
E. $26.84
KL Electronics has paid a quarterly dividend of $.42 per share for the past two years.
This quarter, the firm plans to pay $.42 plus an additional $.05 per share. The firm has
stated that it is uncertain whether it will pay $.42 or $.47 per share next quarter. Which
one of the following is the best description of the additional $.05 that is being paid this
quarter?
A. Liquidating dividend
B. Special dividend
C. Extra dividend
D. Stock dividend
E. Normal dividend
You expect to receive $5,000 at graduation one year from now. Your plan is to invest
this money at 6.5 percent, compounded annually, until you have $50,000. At that time,
you plan to travel around the world. How long from now will it be until you can begin
your travels?
A. 36.57 years
B. 31.08 years
C. 34.55 years
D. 32.08 years
E. 37.57 years
Which one of the following best describes an arithmetic average return?
A. Total return divided by N – 1, where N equals the number of individual returns
B. Average compound return earned per year over a multiyear period
C. Total compound return divided by the number of individual returns
D. Return earned in an average year over a multiyear period
E. Positive square root of the average compound return
Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that
stock. Which one of the following best describes the 16.5 percent rate?
A. Expected return
B. Real return
C. Market rate
D. Systematic return
E. Risk premium
A proposed project requires an initial cash outlay of $49,000 for equipment and an
additional cash outlay of $18,700 in Year 1 to cover operating costs. During Years 2
through 4, the project will generate cash inflows of $42,500 a year. What is the net
present value of this project at a discount rate of 11.6 percent?
A. $26,343.72
B. $26,391.08
C. $25,810.33
D. $24,399.99
E. $23,602.18
Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .
87, and an equity multiplier of 1.53. What is the return on equity?
A. 6.77 percent
B. 5.93 percent
C. 8.95 percent
D. 12.21 percent
E. 14.09 percent
Bond ratings classify bonds based on:
A. liquidity, market, and default risk.
B. liquidity, interest rate, and default risk.
C. default risk only.
D. interest rate, inflation rate, and default risk.
E. default and liquidity risks.
The quiet period is designed to:
A. prevent the original investors in a firm from selling their shares and destabilizing a
security’s price during the first six months of public trading.
B. ensure that all potential investors have fair access to identical information.
C. ensure that all bidders are heard in a Dutch auction.
D. stabilize the aftermarket.
E. silence the market so the SEC can fairly set the offer price on an IPO.
The Shoe Tree currently has an operating cycle of 199 days and a cash cycle of 54 days.
The company is implementing some changes that will reduce the inventory period by 11
days, decrease the receivables period by 6 days, and decrease the accounts payable
period by 4 days. How many days will be in the new cash cycle once all of these
changes become effective?
A. 35 days
B. 45 days
C. 41 days
D. 33 days
E. 38 days
Bird Houses is an all-equity firm with a total market value of $388,980 and18,000
shares of stock outstanding. Management is considering issuing $68,000 of debt at an
interest rate of 6.5 percent and using the proceeds on a stock repurchase. Ignore taxes.
How many shares will the firm repurchase if it issues the debt securities? (Round the
number of shares repurchased down to the nearest whole share.)
A. 3,167 shares
B. 3,116 shares
C. 3,021 shares
D. 3,207 shares
E. 3,146 shares
Which one of the following best describes a private placement?
A. Interim financing for a new, high-risk entity
B. Long-term loan by a limited number of investors
C. Two-year direct business loan
D. Three-year loan to a firm by its original founder
E. New equity issue offered to current shareholders
In an efficient market, the cost of equity for a highly risky firm:
A. will be less than the market rate but higher than the risk-free rate.
B. must equal the market rate of return.
C. changes by 1 percent for every 1 percent change in the risk-free rate.
D. decreases as the beta of the firm’s stock increases.
E. increases in direct relation to the stock’s systematic risk.
According to the capital asset pricing model, the expected return on a security will be
affected by all of the following except the:
A. market risk premium.
B. risk-free rate.
C. market rate of return.
D. security’s standard deviation.
E. security’s beta.
All else held constant, which one of the following will decrease if a firm increases its
net income?
A. Return on assets
B. Profit margin
C. Return on equity
D. Price-sales ratio
E. Price-earnings ratio
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information,
you know that this debt can be described as a:
A. note.
B. bearer form bond.
C. debenture.
D. registered form bond.
E. call protected bond.
Which one of the following statements is correct?
A. All secondary markets are dealer markets.
B. All secondary markets are broker markets.
C. All stock trades between existing shareholders are primary market transactions.
D. All stock transactions are secondary market transactions.
E. All over-the-counter sales occur in dealer markets.
Travis recently purchased a callable bond. However, that bond cannot be currently
redeemed by the issuer. Thus, the bond must currently be:
A. subject to a sinking fund provision.
B. a debenture.
C. a “fallen angel.”
D. call protected.
E. unrated.
The primary goal of financial management is to maximize:
A. current profits.
B. market share.
C. current dividends.
D. the market value of existing stock.
E. revenue growth.
Who determines the offer price in a Dutch auction?
A. Lead underwriter
B. Chief financial officer of the issuing firm
C. SEC
D. Bidders
E. Board of directors of the issuing firm
Assume you can currently exchange $100 for €80.25. The inflation rate in Europe is
expected to be 1.8 percent as compared to 2.4 percent in the U.S. Based on relative
purchasing power parity, what should the exchange rate be four years from now?
A. €.8219/$1
B. €.8014/$1
C. €.7970/$1
D. €.8073/$1
E. €.7834/$1
Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that
are being released soon. Each IPO has an offer price of $14 a share. The number of
shares allocated to her along with the closing stock price at the end of the first day of
trading for each stock, are as follows:
What is her total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$42
B. -$200
C. -$50
D. $175
E. $250
Assume the spot rate is SF.9652 = $1. A hotel room in a resort area of Switzerland costs
SF375. Based on absolute purchasing power parity, what should an identical room in
the U.S. cost?
A. $374.24
B. $388.52
C. $387.05
D. $361.95
E. $339.90
Jefferson International is trying to choose between the following two mutually
exclusive design projects:
The required return is 13 percent. If the company applies the profitability index (PI)
decision rule, which project should the firm accept? If the company applies the NPV
decision rule, which project should it take? Given your first two answers, which project
should the firm actually accept?
A. Project A; Project B; Project A
B. Project A; Project B; Project B
C. Project B; Project A; Project A
D. Project B; Project A; Project B
E. Project B; Project B, Project B
A person who executes customer orders to buy and sell securities on the floor of the
NYSE is called a:
A. supplemental liquidity provider (SLP).
B. designated market maker (DMM).
C. runner.
D. Floor broker.
E. market maker.