1. If a firm uses cash to purchase inventory, its current ratio will decrease.

True

False

2.As long as the interest rate is greater than zero, the present value of a single sum will always:

Select one:

a. Equal the future value if the time period is one year.

b. Increase as the interest rate increases.

c. Be more than the future value.

d. Increase as the number of periods decreases.

e. Decrease as the number of periods increases.

3.

A project costs $525 and has cash flows of $100 for the first three years and $75 in each of the project's last five years. What is the payback period of the project?

Select one:

a. 5.67 years

b. 6.00 years

c. The project never pays back

d. 5.33 years

e. 5.00 years

3.

Your portfolio consists of two stocks. You have $2000 in stock A and $8000 in stock B. The returns for stock A have a standard deviation of 20% and the returns for stock B have a standard deviation of 10%. The correlation coefficient between A and B is 0.6. What is your portfolio standard deviation?

Select one:

a. 10.2%

b. 9.8%

c. 6.8%

d. 10.9%

e. 11.2%

4.

A project which has a discounted payback period equal to its life also has a positive NPV.

Select one:

True

False

5.

A firm's stock has a required return of 10%. The stock's dividend yield is 2.5%. What is the dividend the firm is expected to pay over a one year period if the current stock price is $80?

Select one:

a. $2.40

b. $2.80

c. $3.60

d. $2.00

e. $3.20

6.

The party to a leasing arrangement that is entitled to a business expense based upon its use of an asset is called the:

Select one:

a. Lessor.

b. Transferor.

c. Financee.

d. Lessee.

e. Manufacturer.

7.

ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 8%. The firm's tax rate is 34%. The CCA rate is 20% (Class 8).What is the present value of the depreciation tax shield?

Select one:

a. $277,177

b. $186,000

c. $236,959

d. $26,876

e. $243,885

8.

Which of the following is correct regarding agency costs?

Select one:

a. Company paid club memberships for executives are an example of indirect agency costs.

b. Marginal costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take

c. Indirect costs occur when shareholders must incur costs to monitor the manager's actions.

d. Direct costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take.

e. Direct costs occur when managers buy assets considered unnecessary by the firm's owners.

9.

Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have similar operations. Bob's Toys:

Select one:

a. is generating $1.20 in net income for every $1 in net fixed assets.

b. has $.84 in total assets for every $.96 Gerold's has in total assets.

c. is generating $1 in sales for every $1.20 in net fixed assets.

d. is using its total assets less efficiently than Gerold's Toys.

e. is using its fixed assets less efficiently than Gerold's Toys.

10.

Bond ratings issued by Moodys specifically account for default risk.

Select one:

True

11.

Suppose a project costs $375 and produces cash flows of $100 over each of the following seven years. What is the IRR of the project?

Select one:

a. There is not enough information; a discount rate is required

b. 18.6%

c. 10.0%

d. 13.0%

e. 15.3%

12.

An investment earned the following returns for the years 2013 through 2016:20%, -50%, 30%, and 10%. What is the variance of returns for this investment?

Select one:

a. 0.0892

b. 0.1747

c. 0.0292

d. 0.1292

e. 0.2987