QUESTION 1

1. Which of the following is a source of cash?

1. The purchase of new fixed assets.

2. Dividends paid.

3. The repurchase of outstanding common stock.

4. A decrease in long-term debt.

5. A decrease in inventory.

QUESTION 2

1. Given the following income statement data, calculate operating cash flow; net sales = $4,200, cost of goods sold = $2,650, operating expenses = $580, depreciation = $610, interest expense = $200, tax rate = 35%.

1. $554

2. $360

3. $970

4. $304

5. $914

QUESTION 3

1. Conceptually, what does the days' sales in receivables ratio measure for a firm?

1. The number of days it takes to generate dollar sales equal to the outstanding accounts receivable balance.

2. The number of days it would take to collect outstanding receivables if no new ones are created.

3. The number of days it takes for a firm to pay its bills assuming not new payables are created.

4. The number of times during the year a firm collects and reloans its receivables.

5. The number of days it takes before the firms working capital becomes negative.

QUESTION 4

1. The current ratio is measured as:

1. Current assets minus current liabilities

2. Current assets divided by current liabilities.

3. Current assets minus inventory, divided by current assets.

4. Cash on hand divided by current liabilities.

5. Current liabilities divided by current assets.

QUESTION 5

1. Which of the following is FALSE regarding the difference between debt and common stock?

1. Equity is ownership in a firm but debt is not.

2. Stockholders have voting power while creditors do not.

3. Periodic payments made to either class of security are tax deductible for the issuer.

4. Interest payments are legally binding while dividend payments generally are not.

5. A publicly-traded company can issue public stock and private debt, but not vice versa.

QUESTION 6

1. The financial statement showing a firm's accounting value on a particular date is the:

1. Income statement

2. Balance sheet

3. Statement of cash flows

4. Tax reconciliation statement

5. Bank statement

QUESTION 7

1. If you are hired as the new CEO of a corporation after graduation, which of the following would you consider to be your most important criterion for success from the owners perspective?

1. Pursue activities that reduce the overall riskiness of the firm.

2. Pursue activities that result in the largest profits for the year.

3. Pursue activities that maximize your personal wealth.

4. Pursue activities that maximize the current stock price.

5. Pursue activities that lead to the most stable stock price for the year.

QUESTION 8

1. You are supposed to receive $3,000 four years fom now.At an interest rate of 8%, what is that $3,000 worth today?

1. $1,59.97

2. $1,892.43

3. $2,205.09

4. $2,497.91

5. $2,699.01

QUESTION 9

1. In a growing mid-western town, the number of eating establishments at the endof each of the last five years are as follows:

Year 1 = 273; Year 2 = 279; Year 3 = 302; Year 4 = 320; Year 5 = 344

From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of _________ compounded annually.

1. 3.45%

2. 4.15%

3. 5.95%

4. 6.75%

5. 8.25%

QUESTION 10

1. What is the total future value six years from now of $80 received in one year, $300 received in two years and $700 received in six years if the discount rate is 7%?Hint: Use a time line.

1. $1,080.00

2. $1,047.15

3. $1,205.44

4. $1,254.44

5. $1,299.15

QUESTION 11

1. What is the effective annual rate of 10% compounded monthly?

1. 9.27%

2. 10.00%

3. 10.25%

4. 10.38%

5. 10.47%

QUESTION 12

1. In order to help you through college, your parents just deposited $20,000 into a bank account paying 6% interest.Starting tomorrow you plan to withdraw equal amounts from the account at the beginning of each of the next four years.What is the MOST you can withdraw annually?

1. $5,136.91

2. $5,445.12

3. $5,771.83

4. $6,101.88

5. $6,395.88

QUESTION 13

1. What is the present value of $600 payments received at the beginning of each year for the next 10 years?Assume an interest rate of 8% compounded monthly.

1. $3,069.13

2. $3,972.13

3. $4,026.05

4. $4,301.82

5. $4,348.13

QUESTION 14

1. Suppose you were planning to borrow money for a new house.What would you look for?

1. The bank with the highest EAR.

2. The bank with lowest APR.

3. The bank with the highest APR.

4. The bank with the lowest EAR.

5. The bank with the lowest nominal rate.

QUESTION 15

1. The written, legal binding agreement between the corporate borrower and the lender detailng the terms of a bond issue is called the:

1. indenture.

2. covenant.

3. terms of trade.

4. form 5140.

5. call provision.

QUESTION 16

1. D&G Enterprises issues bonds with a $1,000 face value that make coupon payments of $30 every 3 months.What is the coupon rate?

1. 0.30%

2. 3.00%

3. 9.00%

4. 12.00%

5. 30.00%

QUESTION 17

1. What is the yield to maturity on an 18-year, zero coupon bond selling for 30% of par value?

1. 4.86%

2. 5.86%

3. 6.37%

4. 6.92%

5. 30.00%

QUESTION 18

1. ABC Company's preferred stock is selling for $30 a share.If the required return is 8%, what will the dividend be two years from now?

1. $2.00

2. $2.20

3. $2.40

4. $2.80

5. $3.25

QUESTION 19

1. Which of the following income statement accounts is a non-cash item?

1. Wages and salaries

2. Interest expense

3. Cost of goods sold

4. Depreciation

5. Income taxes

QUESTION 20

1. Suppose Pale Hose, Inc. has just paid a dividend of $1.80 per share.Sales and profits for Pale Hose are expected to grow at a rate of 8% per year.Its dividend is expected to grow by the same amount.If the required return is 14%, what is the value of a share of Pale Hose?

1. $18.00

2. $25.20

3. $27.80

4. $30.60

5. $32.40

QUESTION 21

1. The present value of an investment's future cash flows divided by its initial cost is the:

1. Net present value.

2. Internal rate of return.

3. Average accounting return.

4. Profitability index.

5. Payback period.

QUESTION 22

1. Which of the following decision rules is best for evaluating projects for which cash flows beyond a specified point in time, and the time value of money, can both be ignored.

1. Payback

2. Net Present Value

3. Average Accounting Return

4. Profitability index

5. Internal rate of return

QUESTION 23

1. You are considering an investment which has the following cash flows.If you require a 5 year payback, should you take the investment?

Year0123456

Cash flow-30000100005000500075001000020000

1. Yes, the payback is 3.00 years.

2. Yes, the payback is 3.75 years.

3. Yes, the payback is 4.25 years.

4. No, the payback is 5.25 years.

5. No, the payback is 5.75 years.

QUESTION 24

1. What is the profitability index of the following investment if the required return = 10.

Year0123

Cash Flow-150507575

1. 0.94

2. 1.09

3. 1.18

4. 1.27

5. 1.45

QUESTION 25

1. Your company purchased a piece of land five years ago for $150,000 and subsequently added $175,000 in improvements. The current book value of the property is $225,000.There are two options for future use of the land: 1) the land can be sold today for $375,000 on an aftertax basis; 2) your company can destroy he past improvements and build a factory on the land.In consideration of the factory project, what amount (if any) should the land be valued at?

1. The present book value of $225,000.

2. The aftertax salvage value of $375,000.

3. The sales price of $375,000 less the book value of the improvements.

4. The original $150,000 purchase of the land itself.

5. The property should be valued at zero since it is a sunk cost.

QUESTION 26

1. What is the IRR of an investment that costs $18,500 and pays $5,250 a year for 5 years?

1. 12.92%

2. 15.16%

3. 18.99%

4. 25.20%

5. 27.95%

QUESTION 27

1. Given the following information and assuming straight-line depreciation to zero, what is the NPV of this project?Initial investement = $80,000; cost savings = $30,000 per year; life =4years; salvage value = $10,000 in year 4; tax rate = 35%; discount rate = 12%.

1. -$3,249

2. -$1,887

3. $645

4. $2,119

5. $4,621

QUESTION 28

1. The interest rate that should be used when evaluating a capital investment project is sometimes called the ______________.

I.internal rate of return

II.risk-free rate

III.cost of capital

1. I only

2. II only

3. III ony

4. II and III only

QUESTION 29

1. One way to estimate a firm's cost of debt is by observing the _______________.

1. coupon rate on the outstanding debt of other firms in higher risk classes

2. yield-to-maturity on the firm's outstanding bonds

3. yield-to-maturity on the newly-issued debt of other firms without regard to risk

4. risk-free rate and subtracting a risk premium to the yield on existing debt

5. firm's bank borrowing rate on short-term loans

QUESTION 30

1. A common stock issue is currently selling for $31 per share.You expect the next dividend to be $1.40 per share.If the firm has a dividend growth rate of 5% that is expectd to remain constant indefinitely, what is the firm's cost of equity?

1. 9.5%

2. 11.3%

3. 13.8

4. 14.2%

5. 15.1%

QUESTION 31

1. The market value of debt is $425 million and the total market value of the firm is $925 million.The cost of equity is 17% the pretax cost of debt is 10% and the tax rate is 35%.What is the WACC?

1. 11.01%

2. 12.18%

3. 13.78%

4. 14.17%

5. 15.64%

QUESTION 32

1. A bond issue sells for $875.The coupon rate is 7%, the bonds mature in 20 years, and interest is paid semi-annually.The tax rate is 35%.What is the aftertax cost of debt?

1. 3.18%

2. 4.55%

3. 8.29%

4. 9.34%

5. 5.39%

QUESTION 33

1. The unlevered cost of capital is _______________________.

1. the cost of capital for a firm with no equity in its capital structure

2. the cost of capital for a firm with no debt in its capital structure

3. the interest tax shield times pretax net income

4. the cost of preferred stock for a firm with equal parts debt and common stock in its capital structure

5. equal to the profit margin for a firm with some debt in its capital structure

QUESTION 34

1. A company has $100,000 in assets, 1000 shares outstanding and no debt.If EBIT is $20,000, the interest rate on debt is 10% and its tax rate is 40%, what is its EPS?

1. $12 per share

2. $6 per share

3. $18 per share

4. $20 per share

5. $30 per share

QUESTION 35

1. If the firm in question 34 decided to refinance with 50% debt and 50% equity, what would its EPS be?

1. $12 per share

2. $18 per share

3. $20 per share

4. $30 per share

5. $40 per share

QUESTION 36

1. A spot trade is defined as an agreement to exchange currencies based on the exchange rate _______ for settlement within _________business day(s).

1. one year from today; 3

2. one year from today; 2

3. today; 3

4. today; 2

5. today; 1

QUESTION 37

1. Lucas currently owns 350 shares of Tidewater Bay, Inc.Each share is worth $42.If the company declares a 5-for-3 split, Marcus will own _______ shares at a value of ________ per share after the split.

1. 210; $25.20

2. 210; $70.00

3. 583.33; $25.20

4. 583.33; $42

5. 583.33; $70.00

QUESTION 38

1. A firm has net income of $58,600, depreciation of $24,800 and taxes of $21,300.What is the firm's operating cash flow?

1. $47,600

2. $54,800

3. $62,100

4. $77,600

5. $83,400

QUESTION 39

1. XYZ has target capital structure of 60% common stock, 30% debt and 10% preferred stock. The company wishes to issue new 30 years bond with 10% coupon rate. The flotation cost will be $20 and the bond has to be sold at 5% discount. To issue new preferred stock the company has to pay $2 as flotation cost. The market value of preferred stock is $8 and the stock will pay $1 dollar dividend. New common stock will cost the company $2. The expected dividend is $3 and the market value is $19. Tax rate is 40%. What is the companys weighted average cost of capital

18.5%

16.7%

17.2%

17.85%

14.32%

QUESTION 40

1. Recently, Ohio Hospitals filed for bankruptcy. The firm was reorganized as American Hospitals, Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to maturity and coupon rate of 10 percent (I = $100) paid annually. The new agreement allows the firm to pay no interest for the first 5 years, then to resume interest payments for the next five years, and at maturity in 10 years, to repay the principal plus the interest that was not paid for the first five years, but without paying interest on the deferred interest. If the required rate of return is 20 percent, what should the bonds sell for in market today?

$540

$730

$654

$362

$952

Please answer question