Consider a bond with a coupon rate of 8 percent that pays semiannual interest and
matures in eight years. The market rate of return on bonds of this risk is currently 11
percent. What is the current value of a $1,000 face value bond?
A. $830.58
B. $843.07
C. $893.30
D. $929.17
E. $854.08
Answer:
One characteristic of a conditional sales contract is that the:
A. seller retains legal ownership of the goods until they are completely paid for.
B. buyer is compensated for its opportunity costs.
C. seller receives a prepayment in full.
D. invoice is paid over time interest free.
E. ownership of the goods changes to the buyer immediately upon delivery.
Answer:
The value of an option if it were to immediately expire, that is, its lower pricing bound,
is called an option’s _____ value.
A. strike
B. market
C. volatility
D. time
E. intrinsic
Answer:
Assume a firm’s latest balance sheet shows $15,000 in the common stock account,
$315,000 in the capital in excess of par account, and $189,000 in the retained earnings
account. What will be the capital in excess of par account value if the firm does a
5-for-3 stock split?
A. $126,000
B. $210,000
C. $283,500
D. $315,000
E. $472,500
Answer:
The Retail Outlet has 8,000 shares of stock outstanding with a par value of $1 per share.
The current market value of the firm is $620,000. The balance sheet shows a capital in
excess of par account value of $66,000 and retained earnings of $234,000. The
company just announced a 3-for-1 stock split. What will be the retained earnings
account balance after the split?
A. $117,000
B. $234,000
C. $351,000
D. $410,000
E. $468,000
Answer:
Convertible bonds: A. are secured by shares of common stock.
A. require conversion on or before the bond’s maturity date.
B. grant the owner the option of receiving either cash or shares of stock on conversion.
C. ANSD. are generally issued by firms that have lower bond ratings than the average
firm. E. are generally granted seniority over all other bonds.
Answer:
Which one of these is most related to a positive covenant?
A. limiting the amount of the firm’s dividends
B. avoiding a merger while a debt remains unpaid
C. furnishing financial statements to the firm’s lenders
D. not issuing any additional long-term debt
E. ot selling any major assets without lender approval
Answer:
There are 3 directors’ seats up for election. If you own 1,000 shares of stock and have
been granted a total of 3,000 votes, then the firm uses the voting procedure referred to
as:
A. cumulative voting.
B. absolute priority voting.
C. sequential voting.
D. straight voting.
E. market share voting.
Answer:
Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000.
The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52
percent, and 5.76 percent for Years 1 to 6, respectively. You sold the equipment today
for $82,500. Which of these statements is correct if your tax rate is 34 percent?
A. The tax due on the sale is $14,830.80.
B. The book value today is $40,478.
C. The book value today is $37,320.
D. The taxable amount on the sale is $47,380.
E. The tax refund from the sale is $13,219.20.
Answer:
Most large firms hold a larger cash balance than most models imply because:
A. it is too difficult to estimate the costs of security transactions.
B. banks are compensated by account balances for payment of services.
C. corporations have few bank accounts and it is difficult to manage their cash.
D. cash is costless and need not be managed closely.
E. the costs of holding cash for these firms is negligible.
Answer:
It is easier to evaluate a firm using its financial statements when the firm:
A. is a conglomerate.
B. is global in nature.
C. uses the same accounting procedures as other firms in its industry.
D. has a different fiscal year than other firms in its industry.
E. tends to have one-time events such as asset sales and property acquisitions.
Answer:
Which one of these statements related to debt financing is correct?
A. Debt issues of any type, unlike equity issues, do not require SEC registration.
B. Commercial banks specialize more in private placements than in term loans.
C. Private placements generally have longer maturities than term loans.
D. The majority of debt issues are public issues.
E. Public debt issues generally have more restrictive covenants than private issues.
Answer:
A firm is valued at $5.8 million and has riskless debt of $2.3 million outstanding. The
firm has an equity beta of 1.81. What is the asset beta if there are no taxes?
A. 1.11
B. 1.86
C. 1.15
D. 1.09
E. 1.71
Answer:
Today, you sold 300 shares of SLG stock and realized a total return of 12.5 percent. You
purchased the shares one year ago at a price of $27.43 a share. You have received a total
of $192 in dividends. What is your capital gains yield on this investment?
A. 14.80%
B. 9.39%
C. 6.67%
D. 10.17%
E. 11.67%
Answer:
A firm offers a 10-year, zero coupon bond with a face value of $1,000. What is the
current market price if the yield to maturity is 7.6 percent, given semiannual
compounding?
A. $474.30
B. $473.26
C. $835.56
D. $919.12
E. $1,088.00
Answer:
Which one of the following statements is correct?
A. If an acquisition is made with cash, then the cost of that acquisition is dependent
upon the acquisition gains.
B. Acquisitions made by exchanging shares of stock are normally taxable transactions.
C. Shareholders of the acquired firm must realize capital gains/losses in a cash
acquisition.
D. The stockholders of the acquiring firm will be better off when an acquisition results
in losses if the acquisition was made with cash rather than with stock.
E. Acquisitions based on legitimate business purposes are not taxable transactions
regardless of the means of financing used.
Answer:
TTC is planning to raise $3.25 million for three years at an interest rate of 7.35 percent
to finance their expansion. The Alban County Board of Commissioners has just offered
the firm the $3.25 million they need at 5.25 percent if the firm builds in Alban County,
pays the interest annually, and repays the principal at the end of three years. What is the
net present value of the loan to TTC if the firm’s tax rate is 34 percent and it accepts the
county’s offer?
A. $293,651.12
B. $212,100.00
C. $329,245.19
D. $186,415.92
E. $346,089.97
Answer:
If 34 percent of customers pay on day 10 and the remainder day in an average of 28
days, what is the average collection period?
A. 19.72 days
B. 20.08 days
C. 21.88 days
D. 18.47 days
E. 22.09 days
Answer:
The idea that a specific hamburger should cost the same regardless of where purchased
or the currency used to pay for the purchase is referred to as:
A. the unbiased forward rates condition.
B. uncovered interest rate parity.
C. the international Fisher effect.
D. absolute purchasing power parity.
E. interest rate parity.
Answer:
Assume you graduate with $31,300 in student loans at an interest rate of 5.25 percent,
compounded monthly. If you want to have this debt paid in full within three years, how
much must you pay each month?
A. $871.30
B. $873.65
C. $876.79
D. $941.61
E. $980.40
Answer:
A firm has sales of $22,400, net income of $3,600, net fixed assets of $18,700,
inventory of $2,800, and total current assets of $6,300. What is the common-size
statement value of inventory?
A. 10.07%
B. 13.67%
C. 11.20%
D. 12.50%
E. 9.84%
Answer:
Issuing convertible bonds or bonds with warrants is useful for a company of unknown
risk because:
A. the effects of risk are opposite on the two value components and tend to cancel each
other out.
B. if the firm is high risk, the option premium will be higher while the straight bond
value is fixed.
C. generally only well-established, high-grade companies issue these instruments.
D. the equity value is dependent on current risks only, not the future risk at conversion.
E. these securities generally carry more restrictive covenants that straight debt.
Answer:
A firm has a return on equity of 16.2 percent, a debt-equity ratio of 44 percent, a capital
intensity ratio of 1.08, a current ratio of 1.25, and current assets of $138,000. What is
the profit margin?
A. 12.15%
B. 9.72%
C. 7.48%
D. 15.19%
E. 13.69%
Answer:
Which one of these statements correctly identifies a condition which must be met for
creditors to force a firm into involuntary bankruptcy?
A. The creditors that comprise 30 percent or more of the firm’s debt must agree on a
plan prior to filing the involuntary petition.
B. The firm must be at least 120 days delinquent in its debt payments.
C. At least one-third of a firm’s known creditors must participate in the filing.
D. If there are more than a dozen creditors, then at least 3 with claims totaling $13,475
or more must participate in the filing.
E. Any individual creditor that is owed $500,000 or more and has either a principal or
interest payment that is more than 30 days delinquent can file an involuntary petition.
Answer:
Bulldog bonds are associated with which country?
A. Spain
B. Great Britain
C. France
D. Germany
E. Morocco
Answer:
The Quick-Start Company has the following pattern of potential cash flows for a new
project.
If the company has a discount rate of 17%, should it test the product? Why or why not?
A. yes; NPV = $48,632,106
B. yes; NPV = $21,565,903
C. no; NPV = −$2,308,410
D. yes; NPV = $36,515,028
E. no; NPV = −$3,462,911
Answer:
Which one of these statements is correct?
A. Borrowing money in the country in which operations are located reduces long-run
exchange rate risk.
B. Accounting translation gains are recorded on the income statement as other income.
C. In multidivisional firms, exchange rate risk should be managed at the division level.
D. The usage of forward rates can help reduce the long-run exposure to exchange rate
risk.
E. Unexpected changes in economic conditions are classified as short-run exposure to
exchange rate risk.
Answer:
All else constant, the net present value of a typical investment project increases when:
A. the discount rate increases.
B. each cash inflow is delayed by one year.
C. the initial cost of a project increases.
D. the rate of return decreases.
E. all cash inflows occur during the last year instead of periodically throughout a
project’s life.
Answer:
In working on a bid project you have determined that $318,000 of fixed assets will be
required and that they will be depreciated straight-line to zero over the 6-year life of the
project. You have also determined that the discount rate should be 18 percent and the
tax rate will be 35 percent. In addition, the annual cash costs will be $198,200. After
considering all of the project’s cash flows you have determined that the required
operating cash flow is $92,400. What is the amount of annual sales revenue that is
required?
A. $299,811.17
B. $302,006.64
C. $284,849,92
D. $311,815.38
E. $279,407.72
Answer:
The variance of Stock A is .0036, the variance of the market is .0059, and the
covariance between the two is .0026. What is the correlation coefficient?
A. .8776
B. .1224
C. .5010
D. .5642
E. .4918
Answer:
Which one of the following statements is true?
A. A well-diversified portfolio has negligible systematic risk.
B. A well-diversified portfolio has negligible unsystematic risk.
C. An individual security has negligible systematic risk.
D. An individual security has negligible unsystematic risk.
E. Both a well-diversified portfolio and an individual security have negligible
unsystematic risk.
Answer:
An overconfident investor will tend to:
A. trade primarily in securities from their local area.
B. trade less frequently than an average investor.
C. underperform due to excess trading.
D. suffer from the disposition effect.
E. underestimate their ability to pick a winning stock.
Answer:
Of the following factors, which one is considered to be the primary factor affecting a
firm’s dividend decision?
A. considering the personal taxes of company stockholders
B. maintaining a consistent dividend policy
C. attracting retail investors
D. attracting institutional investors
E. avoiding flotation costs
Answer: