Chestnut Tree Farms has identified the following two mutually exclusive projects:
Over what range of discount rates would you choose Project A?
A. 7.13 percent or less
B. 7.13 percent or more
C. 6.38 percent or more
D. 6.38 percent or less
E. 6.57 percent or more
Of the following, which two are the best reasons for doing a reverse stock split?
I. Return a stock to its normal trading range
II. Eliminate small shareholders
III. Reduce shareholder costs
IV. Avoid delisting
A. I and II
B. I and III
C. II and III
D. II and IV
E. III and IV
The purpose of a bond sinking fund is to:
A. accumulate funds needed to pay the tax liability on the bond proceeds.
B. accumulate funds to pay the regular interest payments.
C. hold the bond proceeds until the funds need disbursed.
D. repay bonds early either through purchases or calls.
E. repay bondholders from a trust fund if the issuer defaults.
Jake owes $3,990 on a credit card with an APR of 13.9 percent. How much more will it
cost him to pay off this balance if he makes monthly payments of $50 rather than $60?
Assume he does not charge any further purchases.
A. $2,409
B. $2,811
C. $1,648
D. $1,018
E. $3,545
Cash concentration is best defined as:
A. combining an entire firm’s daily receipts into one bank deposit.
B. combining a week’s worth of cash receipts into one bank deposit.
C. combining cash from multiple bank accounts into a firm’s main bank accounts.
D. using multiple lockboxes for collecting cash payments.
E. combining a firm’s bills so that disbursement checks are mailed only monthly.
One example of a primary market transaction would be the:
A. sale of 100 shares of stock by Maria to her best friend.
B. purchase by Theo of 5,000 shares of stock from his father.
C. sale of 1,000 shares of newly issued stock by Alt Company to Miquel.
D. sale by Terry of 50,000 shares of stock to his brother.
E. sale of 5,000 shares of stock owned by a corporate CEO to his son.
Which one of the following functions is generally a responsibility assigned to the
corporate treasurer?
A. Cost accounting
B. Data processing
C. Corporate taxes
D. Financial accounting
E. Capital expenditures
Cross Town Cookies is an all-equity firm with a total market value of $4,187,100. The
firm has 127,500 shares of stock outstanding. Management is considering issuing
$300,000 of debt at an interest rate of 6 percent and using the proceeds to repurchase
shares. The projected earnings before interest and taxes are $215,600. What are the
anticipated earnings per share if the debt is issued? Ignore taxes. (Round the number of
shares repurchased down to the nearest whole share.)
A. $1.59
B. $1.76
C. $1.38
D. $1.67
E. $1.47
Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a
dividend. The cash flow statement for last year must have which one of the following
assuming that no new shares were issued?
A. Positive operating cash flow
B. Negative cash flow from assets
C. Positive net income
D. Negative operating cash flow
E. Positive cash flow to stockholders
A fire has destroyed a large percentage of the financial records of the Strongwell Co.
You have the task of piecing together information in order to release a financial report.
You have found the return on equity to be 13.8 percent. Sales were $979,000, the total
debt ratio was .42, and total debt was $548,000. What is the return on assets?
A. 6.92 percent
B. 8.00 percent
C. 8.45 percent
D. 9.03 percent
E. 9.29 percent
Gabella’s is an all-equity firm that has 36,000 shares of stock outstanding at a market
price of $27 a share. The firm has earnings before interest and taxes of $57,600 and has
a 100 percent dividend payout ratio. Ignore taxes. Gabella’s has decided to issue
$125,000 of debt at a rate of 9 percent and use the proceeds to repurchase shares. Terry
owns 800 shares of Gabella’s stock and has decided to continue holding those shares.
How will Gabella’s debt issue affect Terry’s annual dividend income?
A. Decrease from $640 to $567
B. Increase from $2,160 to $1,890
C. Decrease from $640 to $591
D. Increase from $1,890 to $2,160
E. No change
Which statement is correct?
A. Stock dividends tend to reduce agency costs related to shareholders but stock
repurchases do not.
B. It is relatively easy to determine whether or not a firm has completed a planned stock
repurchase.
C. Fixed stock repurchases allow managers to repurchase shares only when they feel
those shares are undervalued.
D. Stock dividends may come at the expense of forgoing positive net present value
projects.
E. Stock repurchases send the exact same signals to investors as cash dividends send.
Consider the following information:
What is the variance of a portfolio invested 25 percent each in Stocks A and B and 50
percent in Stock C?
A. .001427
B. .000863
C. .001289
D. .001128
E. .000740
Westover’s has an average collection period of 31 days. Its average daily investment in
accounts receivables is $51,068. What are its annual credit sales? Assume a 365-day
year.
A. $527,272
B. $601,285
C. $614,414
D. $450,200
E. $419,737
Donegal’s Industrial Products wishes to maintain a growth rate of 6 percent a year, a
debt-equity ratio of .45, and a dividend payout ratio of 30 percent. The ratio of total
assets to sales is constant at 1.25. What profit margin must the firm achieve?
A. 4.68 percent
B. 5.29 percent
C. 6.33 percent
D. 6.97 percent
E. 8.19 percent
Your grandparents just gave you a gift of $6,500. You are investing this money for 6
years at 4 percent simple interest. How much money will you have at the end of the 6
years?
A. $6,760
B. $7,280
C. $7,800
D. $8,060
E. $6,938
Dress Boutique has 8,350 shares of stock outstanding at a price per share of $19. What
will be the price per share if the firm pays a $.75 per share dividend and the applicable
tax rate is 25 percent? Ignore market imperfections.
A. $18.44
B. $18.68
C. $18.25
D. $18.36
E. $18.49
Which one of the 5 C’s refers to the general economic climate in a customer’s line of
business?
A. Capital
B. Conditions
C. Capacity
D. Character
E. Collateral
Which one of the following statements is correct?
A. The net present value is a measure of profits expressed in today’s dollars.
B. The net present value is positive when the required return exceeds the internal rate of
return.
C. If the initial cost of a project is increased, the net present value of that project will
also increase.
D. If the internal rate of return equals the required return, the net present value will
equal zero.
E. Net present value is equal to an investment’s cash inflows discounted to today’s
dollars.
The spot exchange rate is the exchange rate that applies to a(n):
A. LIBOR transaction.
B. ADR transaction.
C. spot trade.
D. forward trade.
E. future transaction.
You are considering the following two mutually exclusive projects. The required return
on each project is 12 percent. Which project should you accept and what is the best
reason for that decision?
A. Project A, because it pays back faster
B. Project A, because it has the higher internal rate of return
C. Project B, because it has the higher internal rate of return
D. Project A, because it has the higher net present value
E. Project B, because it has the higher net present value
Stinkey sells 2,250 units of its perfume collection each year at a price per unit of $199.
All sales are on credit with terms of 2/7, net 30. The discount is taken by 91 percent of
the customers. What is the average amount of the company’s accounts receivable?
A. $11,126
B. $11,246
C. $11,003
D. $14,815
E. $14,778
You want to buy a new sports coupe for $84,600and the finance office at the dealership
has quoted you an APR of 7.1 percent, compounded monthly, for 72 months. How
much interest will you pay over the life of the loan assuming you make all payments on
a timely basis?
A. $17,204
B. $16,048
C. $23,911
D. $20,686
E. $19,542
Roscoe’s fixed assets were purchased three years ago for $1.8 million. These assets can
be sold to Stewart’s today for $1.2 million. Roscoe’s current balance sheet shows net
fixed assets of $960,000, current liabilities of $348,000, and net working capital of
$121,000. If all the current assets were liquidated today, the company would receive
$518,000 cash. The book value of the firm’s assets today is _____ and the market value
is ____.
A. $1,081,000; $1,308,000
B. $1,081,000; $1,718,000
C. $1,307,000; $1,429,000
D. $1,429,000; $1,308,000
E. $1,429,000; $1,718,000
An investment has conventional cash flows and a profitability index of 1.0. Given this,
which one of the following must be true?
A. The internal rate of return exceeds the required rate of return.
B. The investment never pays back.
C. The net present value is equal to zero.
D. The average accounting return is 1.0.
E. The net present value is greater than 1.0.
A stock has a beta of 1.10, an expected return of 12.11 percent, and lies on the security
market line. A risk-free asset is yielding 3.2 percent. You want to create a portfolio
valued at $12,000 consisting of Stock A and the risk-free security such that the portfolio
beta is .80. What rate of return should you expect to earn on your portfolio?
A. 9.68 percent
B. 9.16 percent
C. 9.33 percent
D. 9.41 percent
E. 9.56 percent
You want to use the pure play approach to assign a cost of capital to a proposed
investment. Which one of the following characteristics should you most concentrate on
as you search for an appropriate pure play firm?
A. Firm size
B. Firm location
C. Firm experience
D. Firm operations
E. Firm management
Which one of these favors a high-dividend payout?
A. Low transaction costs on stock trades
B. Lower taxes on capital gains than on dividends
C. Tax deferment on capital gains, but not on dividend income
D. Flotation costs
E. Corporate shareholders
The cash cycle equals the:
A. inventory period plus the accounts receivable period.
B. inventory period plus the accounts payable period.
C. operating cycle minus the inventory period.
D. operating cycle minus the accounts payable period.
E. operating cycle minus the accounts receivable period.
The U.S. dollar equivalent is .3897 for the Brazilian real and 1.5649 for the UK pound.
Which one of the following statements is correct given this information?
A. One U.S. dollar will buy .3897 Brazilian reals.
B. If you have .3897 Brazilian reals, they are worth 1.5649 UK pounds.
C. One UK pound will buy 1.5649 U.S. dollars.
D. One Brazilian real will buy 1.5649 UK pounds.
E. One U.S. dollar will buy 1.5649 UK pounds.
Holly Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100,
and interest paid of $12,400. The tax rate is 28 percent. How much net income did the
firm earn for the period?
A. $7,778
B. $9,324
C. $10,380
D. $8,671
E. $5,886
The common stock of The DownTowne should return 23 percent in a boom, 16 percent
in a normal economy, and lose 32 percent in a recession. The probabilities of a boom,
normal economy, and recession are 5 percent, 90 percent, and 5 percent, respectively.
What is the variance of the returns on this stock?
A. .012453
B. .011663
C. .012691
D. .011345
E. .012914