1) Which of the following ratios are measures of a firm’s liquidity?
I. fixed asset turnover ratio
II. current ratio
III. debt-equity ratio
IV. acid test
A.I and III only
B.II and IV only
C.III and IV only
D.I, II, and III only
E.I, III, and IV only
2) The Blue Lagoon is considering a project with a five-year life. The project requires
$110,000 of fixed assets that are classified as five-year property for MACRS. Variable
costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent.
What is the operating cash flow for year 4 given the following sales estimates and
MACRS depreciation allowance percentages?
A.-$1,806
B.$640
C.$1,809
D.$2,342
E.$2,811
3) What is the future value of $4,900 invested for 8 years at 7 percent compounded
annually?
A.$8,397.74
B.$8,419.11
C.$8,511.15
D.$8,513.06
E.$8,520.22
4) Which one of the following is an advantage of being a limited partner?
A.Non-taxable share of any profits
B.Control over the daily operations of the firm
C.Losses limited to capital invested
D.Unlimited profits without risk of incurring a loss
E.Active market for ownership interest
5) General Importers announced today that its next annual dividend will be $2.60 per
share. After that dividend is paid, the company expects to encounter some financial
difficulties and is going to suspend dividends for 5 years. Following the suspension
period, the company expects to pay a constant annual dividend of $1.30 per share. What
is the current value of this stock if the required return is 18 percent?
A.$3.01
B.$3.55
C.$3.89
D.$4.27
E.$4.88
6) Common-size financial statements present all balance sheet account values as a
percentage of:
A.the forecasted budget
B.sales
C.total equity
D.total assets
E.last year’s account value
7) Which one of the following is an example of the political risks associated with
foreign operations?
A.Technological changes
B.Exchange rate fluctuations
C.Translation exposure to exchange rate risk
D.Changes in foreign tax laws
E.Changes in relative wage rates between the home country and the foreign country
8) Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of
debt and equity is referred to as the firm’s:
A.capital structure
B.capital budget
C.asset allocation
D.working capital
E.risk structure
9) Which one of the following is a payment of either cash or shares of stock that is paid
out of earnings to a firm’s shareholders?
A.Interest
B.Distribution
C.Retained earnings
D.Dividend
E.Stock repurchase
10) Which one of the following is a correct statement, all else held constant?
A.The present value is inversely related to the future value
B.The future value is inversely related to the period of time
C.The period of time is directly related to the interest rate
D.The present value is directly related to the interest rate
E.The future value is directly related to the interest rate
11) Which one of the following is included in the market value of a firm but not in the
book value?
A.Raw materials
B.Partially-built inventory
C.Tax liability
D.Reputation of the firm
E.Value of a partially-depreciated machine
12) The spot rate between the U.K. and the U.S. is 0.6789 = $1, while the 1-year
forward rate is 0.6782 = $1. The risk-free rate in the U.K. is 3.1 percent. The risk-free
rate in the U.S. is 2.9 percent. How much profit can you earn on a loan of $2,000 by
utilizing covered interest arbitrage?
A.-$4.09
B.-$2.78
C.$3.15
D.$6.13
E.$8.55
13) This morning, Lambert Materials bought 10,000 of its outstanding shares in the
open market. What type of transaction was this?
A.Stock payout
B.Stock distribution
C.Stock dividend
D.Stock repurchase
E.Stock reversal
14) Which one of the following qualifies as an annuity?
A.Weekly grocery bill
B.Clothing purchases
C.Car repairs
D.Auto loan payment
E.Medical bills
15) You are analyzing a project and have developed the following estimates. The
depreciation is $52,000 a year and the tax rate is 34 percent. What is the worst case
operating cash flow?
A.-$32,509
B.-$19,288
C.-$4,225
D.$27,556
E.$48,106
16) Sly’s just arranged a 3-year direct business loan. Which one of the following terms
matches this loan arrangement?
A.Term loan
B.Private placement
C.Rights offer
D.Seasoned offer
E.Shelf offer
17) Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of
$1,013. The bonds pay interest annually, mature in 11 years, and have a yield to
maturity of 5.34 percent. What is the current yield?
A.5.39 percent
B.5.43 percent
C.5.50 percent
D.5.61 percent
E.5.77 percent
18) T.L.C., Inc. is considering an investment with an initial cost of $175,000 that would
be depreciated straight line to a zero book value over the life of the project. The cash
inflows generated by the project are estimated at $76,000 for the first two years and
$30,000 for the following two years. What is the internal rate of return?
A.9.27 percent
B.9.98 percent
C.10.62 percent
D.10.79 percent
E.11.58 percent
19) Which one of the following types of securities has no priority in a bankruptcy
proceeding?
A.Convertible bond
B.Senior debt
C.Common stock
D.Preferred stock
E.Straight bond
20) A firm has $42,900 in receivables and $211,800 in total assets. The total asset
turnover rate is 1.45 and the profit margin is 4.2 percent. How long on average does it
take the firm to collect its receivables?
A.7.16 days
B.9.45 days
C.11.68 days
D.31.25 days
E.50.99 days
21) Which one of the following is most apt to delay the collection of cash?
A.Having customers mail checks to a local lockbox rather than the home office
B.Depositing checks throughout the day
C.Posting payments to accounts receivable prior to making deposits
D.Collecting mail twice daily
E.Supplying customers with bar coded payment slips
22) An individual who executes buy and sell orders on the floor of an exchange for a
fee is called a:
A.floor broker
B.specialist
C.floor trader
D.proxy
E.flow specialist
23) An agreement to exchange currencies some time in the future is referred to as which
one of the following?
A.Forward trade
B.Hedge
C.Gilt
D.Forward exchange rate
E.Spot trade
24) What is the future value of $20 a week for 10 years at 6 percent interest? Assume
the first payment occurs at the end of this week.
A.$14,239.14
B.$14,361.08
C.$14,727.15
D.$15,003.14
E.$15,221.80
25) Which one of the following statements related to securities dealers is correct?
A.Dealers match buyers with sellers
B.Dealers buy and sell from their own inventory
C.Dealers operate on a physical trading floor
D.Dealers operate exclusively in auction markets
E.Dealers are limited to trading non-listed stocks
26) Which of the following will increase the value of a levered firm according to M&M
Proposition I, with taxes?
I. decrease in the amount of the debt
II. increase in the value of the unlevered firm
III. decrease in the tax rate
IV. increase in the interest rate on the debt
A.II only
B.I and IV only
C.II and III only
D.II and IV only
E.II, III, and IV only
27) Keyser Materials paid $7,500 in dividends and $28,311 in interest over the past year
while net working capital increased from $13,506 to $18,219. The company purchased
$42,000 in net new fixed assets and had depreciation expenses of $16,805. During the
year, the firm issued $25,000 in net new equity and paid off $11,000 in long-term debt.
What is the amount of the cash flow from assets?
A.$21,811
B.$30,811
C.$36,189
D.$49,811
E.$71,811
28) A firm has total assets of $523,100, current assets of $186,500, current liabilities of
$141,000, and total debt of $215,000. What is the debt-equity ratio?
A.0.48
B.0.70
C.1.10
D.1.43
E.2.13
29) Which of the following statements concerning risk are correct?
I. Systematic risk is measured by beta.
II. The risk premium increases as unsystematic risk increases.
III. Systematic risk is the only part of total risk that should affect asset prices and
returns.
IV. Diversifiable risks are market risks you cannot avoid.
A.I and III only
B.II and IV only
C.I and II only
D.III and IV only
E.I, II, and III only
30) Which one of the following best describes an arithmetic average return?
A.Total return divided by N – 1, where N equals the number of individual returns
B.Average compound return earned per year over a multiyear period
C.Total compound return divided by the number of individual returns
D.Return earned in an average year over a multiyear period
E.Positive square root of the average compound return
31) Assume the SEC approved the registration statement for a new securities issue this
morning. Which one of the following statements must be true about this issue?
A.The red herrings can now be distributed as the distribution was awaiting the SEC
approval
B.The waiting period started when the approval was received this morning
C.The SEC believes the issue will be a profitable investment for all purchases made at
the offer price
D.The issuer is following all the required rules and regulations in regards to this issue
E.The final prospectuses were all delivered or the SEC would not have approved the
issue
32) You purchased a zero-coupon bond one year ago for $291.22. The market interest
rate is now 8.75 percent. If the bond had 16 years to maturity when you originally
purchased it, what was your total return for the past year if the face value of the bond is
$1,000?
A.-4.97 percent
B.-2.18 percent
C.1.34 percent
D.2.65 percent
E.2.90 percent
33) Which one of the following will increase cash flow from assets but not affect the
operating cash flow?
A.Increase in depreciation
B.Increase in accounts receivable
C.Sale of a fixed asset
D.Decrease in cost of goods sold
E.Increase in sales
34) LKM, Inc. wants to issue new 20-year bonds for some much-needed expansion
projects. The company currently has 6.5 percent coupon bonds on the market that sell
for $972.78, make semiannual payments, and mature in 20 years. What coupon rate
should the company set on its new bonds if it wants them to sell at par?
A.6.25 percent
B.6.37 percent
C.6.50 percent
D.6.67 percent
E.6.75 percent
35) The 7 percent annual coupon bonds of TPO, Inc. are selling for $1,021. The bonds
have a face value of $1,000 and mature in 6.5 years. What is the yield to maturity?
A.6.42 percent
B.6.59 percent
C.6.63 percent
D.6.68 percent
E.6.70 percent