Which one of the following provides compensation to a bondholder when a bond is not
readily marketable at its full value?
A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
Which one of the following is a primary benefit of implementing zero-balance accounts
into a cash management system?
A. Increased disbursements float
B. Total elimination of all safety stocks
C. Additional cash availability
D. Decreased collection float
E. Elimination of all float
LL Cross has annual sales of $2.12 million. The cost of goods sold is equal to 76
percent of sales. The average accounts receivable balance is$172,700 and the average
accounts payable balance is $178,900. How many days on average does it take the firm
to pay its suppliers?
A. 37.14 days
B. 47.72 days
C. 43.81 days
D. 40.53 days
E. 36.67 days
Firms that compile financial statements according to GAAP:
A. record income and expenses at the time they affect the firm’s cash flows.
B. have no discretion over the timing of recording either revenue or expense items.
C. must record all expenses when incurred.
D. can still manipulate their earnings to some degree.
E. record both income and expenses as soon as the amount for each can be ascertained.
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a
total asset turnover of .87. What is the return on assets?
A. 5.56 percent
B. 8.06 percent
C. 13.67 percent
D. 15.24 percent
E. 17.41 percent
You own a portfolio of two stocks, A and B. Stock A is valued at $84,650 and has an
expected return of 10.6 percent. Stock B has an expected return of 6.4 percent. What is
the expected return on the portfolio if the portfolio value is $97,500?
A. 9.99 percent
B. 9.62 percent
C. 9.74 percent
D. 10.09 percent
E. 10.05 percent
Katie’s Dinor spent $113,800 to refurbish its current facility. The firm borrowed 65
percent of the refurbishment cost at 6.82 percent interest for six years. What is the
amount of each monthly payment?
A. $1,108.91
B. $1,282.16
C. $1,333.33
D. $1,254.73
E. $1,087.06
A bill given to a customer for goods he or she purchased is called a(n):
A. account reconciliation.
B. invoice.
C. docket.
D. remittance advice.
E. shipping receipt.
Which one of the following types of bonds should an investor purchase if he or she is
primarily concerned about ensuring that bond ownership will increase his or her
purchasing power?
A. OTC
B. Death
C. CAT
D. PETS
E. TIPS
Flo is considering three mutually exclusive options for the additional space she plans to
add to her specialty women’s store. The cost of the expansion will be $148,000. She can
use this additional space to add children’s clothing, an exclusive gifts department, or a
home décor section. She estimates the present value of the cash inflows from
these projects are $121,000 for children’s clothing, $178,000 for exclusive gifts, and
$145,000 for decorator items. Which option(s), if any, should she accept?
A. None of these options
B. Children’s clothing only
C. Exclusive gifts only
D. Exclusive gifts and decorator items only
E. All three options
An initial public offering refers to:
A. the shares held by a firm’s founder.
B. the most recently issued shares that were offered to the firm’s existing shareholders.
C. any shares issued to the public on a cash basis.
D. the first sale of equity shares to the general public.
E. all shares issued prior to the firm going public.
By definition, an inventory loan is which one of the following types of loan?
A. Secured short-term loan
B. Unsecured short-term loan
C. Secured long-term loan
D. Unsecured long-term loan
E. Trust receipt loan
Davidson International has 13,700 shares of stock outstanding at a price per share of
$28. The firm has decided to repurchase 500 of those shares in the open market. What
will the price per share be after the share repurchase is completed? Ignore taxes and
market imperfections.
A. $29.14
B. $28.84
C. $28.89
D. $28.00
E. $29.06
Which statement is correct?
A. Cash dividends and stock repurchases are treated equally for tax purposes.
B. In total dollars, cash dividends outweighed stock repurchases for the period
2003-2013.
C. Many firms either ceased paying or decreased their dividends per share in response
to the 2003 change in dividend taxation.
D. Firms tend to prefer cash dividends over share repurchases for their flexibility and
tax benefits.
E. A non-dividend-paying firm is more apt to do a stock repurchase than to commence
paying dividends.
The Brown Squirrel has estimated sales for January through May of $14,700, $16,900,
$23,500, $36,700, and $42,300, respectively. Assume there are 30 days in each month
and the accounts receivable period is 45 days. How much should the firm expect to
collect in May?
A. $36,700
B. $20,200
C. $30,100
D. $28,450
E. $39,500
The Three Amigos just paid an annual dividend of $.60 per share but plans to double
that amount each year for three years. After that, the firm expects to maintain a constant
dividend. What is the value of this stock today if the required return is 15 percent?
A. $27.64
B. $29.61
C. $26.67
D. $23.05
E. $27.05
Used Furniture sells 1,330 sofas a year at an average price per sofa of $549. The
carrying cost per unit is $31.60. The company orders 75 sofas at a time and has a fixed
order cost of $69 per order. The sofas are sold out before they are restocked. What is the
economic order quantity?
A. 76 sofas
B. 72 sofas
C. 81 sofas
D. 98 sofas
E. 101 sofas
Assume the spot rate between the UK and the U.S. is £.6789 = $1, while the one-year
forward rate is £.6782 = $1. The risk-free rate in the UK is 3.1 percent. The risk-free
rate in the U.S. is 2.9 percent. How much profit can you earn for the year on a loan of
$1,500 by utilizing covered interest arbitrage?
A. $4.09
B. $2.78
C. $3.15
D. $4.60
E. $3.55
ANC Plastics has net working capital of $15,400, current assets of $39,200, equity of
$46,600, and long-term debt of $22,100. What is the amount of the net fixed assets?
A. $50,800
B. $56,900
C. $45,500
D. $48,100
E. $53,300
Standard deviation measures _____ risk while beta measures _____ risk.
A. systematic; unsystematic
B. unsystematic; systematic
C. total; unsystematic
D. total; systematic
E. asset-specific; market
Which one of the following statements is correct concerning both the dollar return and
the percentage return on a stock investment?
A. Without the size of an investment, the dollar return has less value than the
percentage return.
B. The dollar return is more accurate than the percentage return because the dollar
return includes dividend income while the percentage return does not.
C. The dollar return considers the time value of money while the percentage return does
not.
D. Dollar returns are based on capital gains while percentage returns are based on the
total rate of return.
E. Dollar returns must either be zero or a positive value while percentage returns can be
negative, zero, or positive.
Diamond Enterprises is considering a project that will produce cash inflows of $41,650
a year for three years followed by $49,000 in Year 4. What is the internal rate of return
if the initial cost of the project is $219,000?
A. 9.43 percent
B. 8.29 percent
C. 7.81 percent
D. 8.42 percent
E. 7.55 percent
Which statement is correct regarding US companies?
A. The personal taxes of investors is the key factor managers consider when
establishing a dividend policy.
B. Firms tend to increase their regular dividend as soon as they expect increased
earnings in the future.
C. Firms tend to react quickly to lower dividends any time the economy begins to slow.
D. Firms tend to quickly adjust their dividends to changes in the firm’s P/E ratio.
E. Procter & Gamble is one example of a firm with a long history of increasing
dividends.