Archives: Quiz

A firm has a cost of debt of 7.8 percent and a cost of equity of 15.6 percent. The debt-equity ratio is .52. There are no taxes. What is the firm’s weighted average cost of capital? A. 11.76 percent B. […]

Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $628,000. The current cost of equity is 17.6 percent and the tax rate is 35percent. The company is in the process of issuing $4.3 […]

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 […]

Which one of the following will decrease the aftertax cost of debt for a firm? A. Decrease in the firm’s beta B. Increase in tax rates C. Increase in the risk-free rate of return D. Decrease in the market price […]

Assume you own a portfolio of diverse securities which are each correctly priced. Given this, the reward-to-risk ratio: A. for the portfolio must equal 1.0. B. for the portfolio must be less than the market risk premium. C. for each […]

A firm has a weighted average cost of capital of 11.28 percent and a cost of equity of 14.7 percent. The debt-equity ratio is .72. There are no taxes. What is the firm’s cost of debt? A. 6.53 percent B. […]

Gino’s Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners’ equity? A. $36,900 B. $66,700 C. $71,600 D. $89,400 E. $106,300 […]

Cindy is taking out a loan today. The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan […]

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? A. Increased stock market volatility B. Corporate accounting and financial fraud C. Increased executive compensation D. Increased foreign investment in U.S. stock markets […]

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 […]

Orchard Farms has a pretax cost of debt of 7.29 percent and a cost of equity of 16.3 percent. The firm uses the subjective approach to determine project discount rates. Currently, the firm is considering a project to which it […]

You currently own a portfolio valued at $52,000 that has a beta of 1.16. You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.15. What does the […]

The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin? A. 15.06 percent B. 13.57 percent C. 15.84 percent D. 16.92 percent […]

Which one of the following is the rate that most international banks charge when they loan Eurodollars to other banks? A. ADR B. LIBOR C. Cross-rate D. Gilt rate E. Swap rate Consider an asset that costs $311,000 and is […]

Rooster’s currently has $5,200 in cash. The company owes $31,700 to suppliers for merchandise and $41,500 to the bank for a long-term loan. Customers owe the company $26,400 for their purchases. The inventory has a book value of $53,300 and […]

Which one of the following features distinguishes an ordinary annuity from an annuity due? A. Number of equal payments B. Amount of each payment C. Frequency of the payments D. Annuity interest rate E. Timing of the annuity payments Which […]

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering? A. Syndicate B. Underwriting cartel C. Firm commitment group D. Dutch auction group E. Venture capitalists The cost of preferred […]

Which one of the following players on the floor of the NYSE is obligated to maintain a two-sided, orderly market for a limited number of securities? A. Designated market maker B. Floor sweeper C. Investment firms D. Supplemental liquidity provider […]

A U.S. firm has total assets valued at £318,000 located in London. This valuation did not change from last year. Last year, the exchange rate was £.61 = $1. Today, the exchange rate is £.63 = $1. By what amount […]

On June 22, Roy’s Welding Shop purchased $2,618 worth of goods. The terms of the sale were 2/15, net 45. What is the effective annual rate of interest for the credit period for this sale? A. 27.86 percent B. 31.38 […]

Which one of the following combinations will always result in an increased dividend yield? A. Increase in the stock price combined with a lower dividend amount B. Increase in the stock price combined with a higher dividend amount C. Decrease […]

Paying interest reduces the taxes owed by a firm. Which one of the following terms applies to this relationship? A. Static theory of interest rates B. M&M Proposition I C. Financial risk D. Interest tax shield E. Homemade leverage Your […]

Show Place Decor has estimated quarterly sales for next year, starting with Quarter 1, of $38,600, $53,400, $48,900, and $69,800. Purchases are equal to 62 percent of the following quarter’s sales and the accounts payable period is 30 days. Assume […]

Which one of the following statements is true regarding the period 1926-2014? A. The returns on small-company stocks were less volatile than the returns on large-company stocks. B. The risk-free rate of return remained constant over the time period. C. […]

Western Steer purchased some three-year MACRS property three years ago. What is the current book value of this equipment if the original cost was $94,250? The MACRS allowance percentages are as follows, commencing with Year 1: 33.33, 44.45, 14.81, and […]

Which one of the following statements matches M&M Proposition I without taxes? A. The cost of equity capital has a positive linear relationship with a firm’s capital structure. B. The dividends paid by a firm determine the firm’s value. C. […]

Farmer’s Supply is considering opening a clothing store, which would be a new line of business for the firm. Management has decided to use the cost of capital of a similar clothing store as the discount rate to evaluate this […]

The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent […]

The common stock of Mill Stones has a beta that is 8 percent greater than the overall market beta. Currently, the market risk premium is 7.65 percent while the U.S. Treasury bill is yielding 4.3 percent. What is the cost […]

Which statement is true concerning a controlled disbursement account? A. The number of checks that can be disbursed on any one day is limited. B. The bank will inform the firm of the amount that needs to be transferred on […]

A firm has a return on equity of 17.8 percent, a return on assets of 11.3 percent, and a 65 percent dividend payout ratio. What is the sustainable growth rate? A. 5.72 percent B. 6.84 percent C. 7.12 percent D. […]

Rock Bottom Carpets sells 3,100 carpets a year at an average price per carpet of $1,640. The carrying cost per unit is $218.40. The company orders 500 carpets at a time and has a fixed order cost of $78 per […]

What is the net present value of the following cash flows if the relevant discount rate is 7 percent? A. $2,861.62 B. $2,311.92 C. $2,900.15 D. $3,248.87 E. $3,545.60 Which one of these will increase the operating cycle? A. Decreasing […]

Phil’s Carvings sells its inventory in 93 days, on average. Costs of goods sold for the year are $187,200. What is the average value of the firm’s inventory? Assume a 365-day year. A. $20,129 B. $47,698 C. $57,132 D. $61,096 […]

The current yield on a bond is equal to the annual interest divided by the: A. issue price. B. maturity value. C. face amount. D. current market price. E. current par value. Lockboxes should be located: A. in every town […]

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent, paid semiannually, and a face value of $1,000. Today, the market yield on these bonds is 7.2 percent. What is the […]

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? A. Positive operating cash flow B. Negative cash flow to creditors C. Positive cash flow to stockholders […]

Which of these would be the most common evidence of indebtedness when a sale is made on open account? A. Sight draft B. Commercial draft C. Banker’s acceptance D. Promissory note E. Invoice A stock is priced at $38.24 a […]

Which one of the following can occur if the operating cycle decreases while both the accounts receivable and the accounts payable periods remain constant? A. Inventory period remains constant B. Cash cycle increases C. Inventory turnover rate increases D. Accounts […]

Which one of the following is an underwriting of securities where the offer price is determined by investor bids? A. Private placement B. Best efforts underwriting C. Initial public offering D. Green Shoe option E. Dutch auction Ben invested $7,500 […]

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 […]

What is the net present value of a project that has an initial cost of $42,700 and produces cash inflows of $9,250 a year for 9 years if the discount rate is 14.65 percent? A. $798.48 B. $1,240.23 C. $1,992.43 […]

For the period 1926-2014, which one of the following had the smallest risk premium? A. Large-company stocks B. Small-company stocks C. Long-term corporate bonds D. U.S. Treasury bills E. Long-term government bonds D. Assume you earned 17.1 percent on your […]

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? A. Interest rate risk premium B. Inflation premium C. Liquidity premium […]

Tim’s Tools just issued a dividend of $2.22 per share on its common stock. The company is expected to maintain a constant 2.8 percent growth rate in its dividends indefinitely. If the stock sells for $19 a share, what is […]

If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is . 94, what is the return on assets? A. 4.42 percent B. 6.08 percent C. 6.39 percent D. 6.92 percent E. 6.70 percent Anne […]

Services United is considering a new project that requires an initial cash investment of $26,000. The project will generate cash inflows of $2,500, $11,700, $13,500, and $10,000 over each of the next four years, respectively. How long will it take […]

Closing entries are made A. to clear revenue and expense accounts of their balances. B. to clear withdrawals of its balance. C. to summarize a period’s revenues and expenses. D. All of these choices. Assume a company uses the periodic […]

A corporation issues bond certificates to A. owners. B. principals. C. creditors. D. debtors. The following facts pertain to Alameda Corporation for 20×5: Based on the above facts, net income for 20×5 for Alameda Corporation amounted to A. $207,500. B. […]

In trend analysis, each item is expressed as a percentage of the A. net income amount. B. total assets amount. C. base year amount. D. retained earnings amount. An unrealistic picture of the inventory’s current value on the balance sheet […]