Eight years from now, you will be inheriting $100,000. What is this inheritance worth
to you today if you can earn 7.25 percent interest, compounded annually?
A. $57,124.39
B. $63,215.46
C. $58,419.05
D. $61,798.47
E. $53,003.15
Which one of the following is a special post office mailbox that is used to speed up the
collection of accounts receivable payments?
A. Separation box
B. Cash box
C. Concentration account
D. Lockbox
E. Float box
AZ stock closed today at $18.24, down .23. The dividend yield is 2.4 percent. What was
yesterday’s closing price if the firm pays a constant $.40 per share quarterly dividend?
A. $16.67
B. $18.01
C. $16.90
D. $18.47
E. $17.40
Joe and Rich are both considering investing in a project that costs $25,500 and is
expected to produce cash inflows of $15,800 in Year 1 and $15,300 in Year 2. Joe has a
required return of 8.5 percent but Rich demands a return of 12.5 percent. Who, if either,
should accept this project?
A. Joe, but not Rich
B. Rich, but not Joe
C. Neither Joe nor Rich
D. Both Joe and Rich
E. Joe, and possibly Rich, who will be neutral on this decision as his net present value
will equal zero
Assume that large-company stocks had an average rate of return of 12.1 percent over
the past 88 years while T-bills returned an average of 3.5 percent and inflation averaged
3.0 percent. Given this, the real return on large-company stocks was:
A. 6.67 percent
B. 5.60 percent
C. 8.83 percent
D. 7.94 percent
E. 9.10 percent
Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum
at the end of the loan term. Which one of the following interest rates is best for Jenny?
A. 6.5 percent simple interest
B. 6.5 percent interest, compounded annually
C. 6.6 percent simple interest
D. 6.75 percent interest, compounded annually
E. 6.80 percent interest, compounded annually
Your German friend has decided to come and visit you in the U.S. You estimate the cost
of her trip at $2,200. What is the cost to her in euros if the U.S. dollar equivalent of the
euro is 1.2452?
A. €1,566.67
B. €1,766.78
C. €1,908.50
D. €2,739.44
E. €2,806.16
Which one of the following statements is accurate for a levered firm?
A. WACC should be used as the required return for all proposed investments.
B. A firm’s WACC will decrease whenever the firm’s tax rate decreases.
C. An increase in the market risk premium will decrease a firm’s WACC.
D. The subjective approach totally ignores a firm’s own WACC.
E. A reduction in the risk level of a firm will tend to decrease the firm’s WACC.
Which one of the following is a measure of long-term solvency?
A. Price-earnings ratio
B. Profit margin
C. Cash coverage ratio
D. Receivables turnover
E. Quick ratio
A stock has produced returns of 19 percent, 6 percent, -21 percent, -2 percent, and 14
percent for the past five years, respectively. What is the standard deviation of these
returns?
A. 14.65 percent
B. 8.87 percent
C. 9.23 percent
D. 15.71 percent
E. 16.64 percent
AC Sales has estimated quarterly sales for next year, starting with Quarter 1, of
$16,200, $17,300, $18,700, and $20,400. If purchases are equal to 72 percent of the
following quarter’s sales, what is the estimated amount of purchases for Quarter 2?
A. $12,960
B. $14,688
C. $12,456
D. $13,464
E. $13,720
Collection policy refers to the:
A. process of determining which customers will be granted credit.
B. process of determining the probability that customers will not pay.
C. set of guidelines used by a firm to determine the cost of offering credit to its
customers.
D. daily process of handling cash inflows and outflows of cash.
E. set of procedures a firm follows in collecting accounts receivable.
Assume a Big Mac sells for $4.39 in the United States and Ps62.5 in Mexico, what is
the Ps/$ exchange rate according to the purchasing power parity theory?
A. Ps.0702/$1
B. Ps.0752/$1
C. Ps13.29/$1
D. Ps14.24/$1
E. Ps14.32/$1
Western Bank pays 5 percent simple interest on its savings account balances, whereas
Eastern Bank pays 5 percent compounded annually. If you deposited $6,000in each
bank, how much more money would you earn from the Eastern Bank account at the end
of 3 years?
A. $55.84
B. $45.75
C. $60.47
D. $40.09
E. $50.14
Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales
for the year just ended were $5,338,411. How long did it take on average for credit
customers to pay off their accounts during the past year? Assume a 365-day year.
A. 24.78 days
B. 26.78 days
C. 29.09 days
D. 31.15 days
E. 33.33 days
When are funds generally transferred into zero-balance accounts?
A. Monthly
B. Weekly
C. Daily
D. As needed
E. Never
Woodcrafters requires an average accounting return (AAR) of at least 17.5 percent on
all fixed asset purchases. Currently, it is considering some new equipment costing
$169,700. This equipment will have a four-year life over which time it will be
depreciated on a straight-line basis to a zero book value. The annual net income from
this equipment is estimated at $7,100, $13,300, $18,600, and $19,200 for the four years.
Should this purchase occur based on the accounting rate of return? Why or why not?
A. Yes; because the AAR is less than 17.5 percent
B. Yes; because the AAR is equal to 17.5 percent
C. Yes; because the AAR is greater than 17.5 percent
D. No; because the AAR is less than 17.5 percent
E. No; because the AAR is greater than 17.5 percent
The optimal credit policy of any firm will:
A. maximize sales.
B. minimize bad debts.
C. maximize units sold.
D. minimize the total costs of granting credit.
E. minimize carrying costs.
Outdoor Gear reduced its general and administrative costs this year. This cost
improvement will increase which of the following ratios?
I. Profit margin
II. Return on assets
III. Total asset turnover
IV. Return on equity
A. I and II only
B. I and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Assume you can purchase either 114 Canadian dollars or 11,865 Japanese yen for $100.
What is the ¥/C$ cross-rate?
A. ¥104.08/C$1
B. ¥99.94/C$1
C. ¥101.23/C$1
D. ¥106.27/C$1
E. ¥107.08/C$1
Relative purchasing power parity is based on the principle that the expected percentage
change in the exchange rate between two countries is equal to which one of the
following?
A. Difference in the risk-free interest rates in the two countries
B. Average interest rate in the two countries
C. Average inflation rate of the two countries
D. Difference in the inflation rates of the two countries
E. Difference between the two countries’ average inflation and interest rates
Which one of the following functions should be assigned to the corporate treasurer
rather than to the controller?
A. Data processing
B. Cost accounting
C. Tax management
D. Cash management
E. Financial accounting
Dragon Trucking just paid its annual regular cash dividend of $1.08 a share, along with
a special dividend of $.12 a share. The company follows a policy of increasing its
dividend by 1 percent annually. Which one of the following is the best estimate of the
firm’s next annual dividend payment?
A. $1.1925
B. $1.0908
C. $1.2120
D. $1.0912
E. $1.1032
The weighted average cost of capital is defined as the weighted average of a firm’s:
A. return on all of its investments.
B. cost of equity, cost of preferred, and its aftertax cost of debt.
C. pretax cost of debt and its preferred and common equity securities.
D. bond coupon rates.
E. common and preferred stock.
Sheet Metals has an outstanding loan that calls for equal annual payments of
$12,600.47 over the life of the loan. The original loan amount was $72,000 at an APR
of 8.15 percent. How much of the third loan payment is interest?
A. $5,868.00
B. $4,725.89
C. $4,896.48
D. $5,009.16
E. $4,687.53
Jericho Snacks is an all-equity firm with estimated earnings before interest and taxes of
$624,000 annually forever. Currently, the firm has no debt but is considering borrowing
$725,000 at 6.75 percent interest. The tax rate is 35 percent and the current cost of
equity is 15.2 percent. What is the value of the levered firm?
A. $3,187,271
B. $2,769,535
C. $3,307,271
D. $2,922,171
E. $3,506,418
The maximum amount of securities a company can issue in a 12-month period through
crowdfunding is:
A. $50,000.
B. $50,000 the first year and up to $100,000 per year after that.
C. $100,000 per year during the first two years and up to $500,000 any year thereafter.
D. $1 million.
E. $100,000 per year up to a cumulative total of $1 million in all years.
The basic factors that are reviewed when evaluating the creditworthiness of a potential
customer are called the:
A. terms of sale.
B. receivables factors.
C. five Cs of credit.
D. collection policy determinants.
E. credit scores.
This morning, you purchased a stock that will pay an annual dividend of $1.90 per
share next year. You require a 12 percent rate of return and the dividend increases at 3.5
percent annually. What will your capital gain be in dollars on this stock if you sell it
three years from now?
A. $2.43
B. $2.51
C. $2.63
D. $2.87
E. $2.92
Which one of the following actions will increase the current ratio, all else constant?
Assume the current ratio is greater than 1.0.
A. Cash purchase of inventory
B. Cash payment on an account receivable
C. Cash payment of an account payable
D. Credit sale of inventory at cost
E. Cash sale of inventory at a loss