QUESTION 1

Barnes' Brothers has the following data for the year ending 12/31/2015: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes' weighted average cost of capital is 10%. What is its economic value added (EVA)?

	a.	$490.00
	b.	$420.11
	c.	$465.50
	d.	$399.11
	e.	$442.23

QUESTION 2

Money markets are markets for

	a.	Long-term bonds.
	b.	U.S. stocks.
	c.	Consumer automobile loans.
	d.	Short-term debt securities.
	e.	Foreign stocks.

QUESTION 3

Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher price. Which of the following statements is CORRECT?

	a.	Company A must pay a lower dividend.
	b.	Company A probably has fewer growth opportunities.
	c.	Company A trades at a higher P/E ratio.
	d.	Company A must have a higher market-to-book ratio.
	e.	Company A is probably judged by investors to be riskier.

QUESTION 4

$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, r _s, is 9.00%. What is the stock's expected price 3 years from today?

	a.	$38.83
	b.	$41.69
	c.	$37.86
	d.	$39.83
	e.	$40.85

QUESTION 5

A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

	a.	The periodic interest rate is greater than 3%.
	b.	The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.
	c.	The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.
	d.	The present value would be greater if the lump sum were discounted back for more periods.
	e.	The periodic rate is less than 3%.

QUESTION 6

Which of the following statements is CORRECT?

	a.	Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
	b.	The main method of transferring ownership interest in a corporation is by means of a hostile takeover.
	c.	Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.
	d.	Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life.
	e.	A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers.

QUESTION 7

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

	a.	Corporations step up their expansion plans and thus increase their demand for capital.
	b.	The Federal Reserve uses monetary policy in an attempt to stimulate the economy.
	c.	The level of inflation begins to decline.
	d.	The economy moves from a boom to a recession.
	e.	Households start saving a larger percentage of their income.

QUESTION 8

Hunter Manufacturing Inc.'s December 31, 2019 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2020, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/2020, assuming that Hunter neither issued nor retired any common stock during 2020?

	a.	$22.00
	b.	$23.10
	c.	$24.26
	d.	$20.90
	e.	$25.47

QUESTION 9

Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%. How much was Lindley's operating income, or EBIT?

	a.	$3,644
	b.	$4,038
	c.	$3,462
	d.	$4,250
	e.	$3,836

QUESTION 10

Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 25%. How much was its net operating profit after taxes (NOPAT) ?

	a.	$2,748.96
	b.	$3,206.25
	c.	$3,375.00
	d.	$3,045.94
	e.	$2,893.64