QUESTION 1

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

	1.	average tax rate.
	2.	variable tax rate.
	3.	marginal tax rate.
	4.	fixed tax rate.
	5.	ordinary tax rate.

1.5 points

QUESTION 2

Given the following income statement data, calculate operating cash flow; net sales = $46,000, cost of goods sold = $21,650, operating expenses = $6,800, depreciation = $4,910, interest expense = $2,050, tax rate = 38%.

	1.	$15,540.20
	2.	$13,607.40
	3.	$19,708.60
	4.	$13,525.80
	5.	$21,574.20

1.5 points

QUESTION 3

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.

1.5 points

QUESTION 4

The quick 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.	Current assets minus inventory, divided by current liabilities.
	5.	Current liabilities divided by current assets.

1.5 points

QUESTION 5

Sweet Treats pays a constant annual dividend of $2.38 a share and currently sells for $52.60 a share. What is the rate of return?

	1.	4.56%
	2.	5.39%
	3.	4.52%
	4.	4.83%
	5.	5.91%

1.5 points

QUESTION 6

The financial statement measuring performance over some period of time:

	1.	Income statement
	2.	Balance sheet
	3.	Statement of cash flows
	4.	Tax reconciliation statement
	5.	Bank statement

1.5 points

QUESTION 7

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.

1.5 points

QUESTION 8

You are supposed to receive $3,000 four years fom now. At an interest rate of 9%, what is that $3,000 worth today?

	1.	$1,659.97
	2.	$2,125.28
	3.	$2,205.09
	4.	$2,697.91
	5.	$2,599.01

1.5 points

QUESTION 9

When your child enters college at 18 years of age, assume that the total cost of his/her college education will be $210,000. You currently have $50,410 to invest today to fund their education in 18 years. What annual interest rate will you need to earn in order to cover the total cost of your child's college education?

	1.	3.45%
	2.	4.15%
	3.	5.95%
	4.	6.75%
	5.	8.25%

1.5 points

QUESTION 10

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 five years if the discount rate is 7%? Hint: Use a time line if you need to.

	1.	$1,080.00
	2.	$1,047.15
	3.	$1,205.44
	4.	$1,254.44
	5.	$1,299.15

1.5 points

QUESTION 11

What is the effective annual rate of 8.9% compounded monthly?

	1.	9.27%
	2.	10.00%
	3.	10.25%
	4.	10.38%
	5.	10.47%

1.5 points

QUESTION 12

In order to help you through college, your parents just deposited $23,000 into a bank account paying 5.7% 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.	$6,236.58
	4.	$6,391.88
	5.	$6,895.57

1.5 points

QUESTION 13

A "Name That Tune" contest has a grand prize of $700,000. However, the contest stipulates that the winner will receive just $300,000 immediately, and $40,000 at the end of each of the next 10 years. Assuming that one can earn 7% on their money, how much has the contest winner actually won?

	1.	$309,225.11
	2.	$401,302.44
	3.	$526,789.23
	4.	$580,943.26
	5.	$650,000.00

1.5 points

QUESTION 14

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.

1.5 points

QUESTION 15

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.

1.5 points

QUESTION 16

D&G Enterprises issues bonds with a $1,000 face value that make coupon payments of $15 every 4 months. What is the coupon rate?

	1.	3.00%
	2.	4.50%
	3.	6.00%
	4.	9.00%
	5.	12.00%

1.5 points

QUESTION 17

What is the yield to maturity on an 19-year, zero coupon bond selling for 31% of par value?

	1.	4.86%
	2.	5.86%
	3.	6.36%
	4.	6.94%
	5.	25.00%

1.5 points

QUESTION 18

ABC Company's preferred stock is selling for $35 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

1.5 points

QUESTION 19

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

1.5 points

QUESTION 20

Suppose Pale Hose, Inc. has just paid a dividend of $1.60 per share. Sales and profits for Pale Hose are expected to grow at a rate of 7% 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.	$24.46
	2.	$25.62
	3.	$27.83
	4.	$31.60
	5.	$32.40

1.5 points

QUESTION 21

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.

1.5 points

QUESTION 22

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

1.5 points

QUESTION 23

You are considering an investment which has the following cash flows. If you require a 4 year payback, should you take the investment?

Year 0 1 2 3 4 5 6

Cash flow -35000 10000 5000 5000 7500 30000 20000

	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 4.25 years.
	5.	No, the payback is 5.25 years.

1.5 points

QUESTION 24

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

Year 0 1 2 3

Cash Flow -200 105 80 100

	1.	0.94
	2.	1.09
	3.	1.18
	4.	1.27
	5.	1.45

1.5 points

QUESTION 25

The Benjamin Button Co. just issued a dividend of $2.60 per share on its common stock. The company is expected to maintain a constant 6% growth rate in its dividends indefinitely. If the stock sells for $60 a share, what is the company's cost of equity? ?

	1.	10.59%
	2.	10.65%
	3.	11.63%
	4.	11.78%
	5.	12.2%

1.5 points

QUESTION 26

What is the IRR of an investment that costs $17,000 and pays $6,347 a year for 5 years?

	1.	12.92%
	2.	15.16%
	3.	18.99%
	4.	25.20%
	5.	27.95%

1.5 points

QUESTION 27

Given the following information and assuming straight-line depreciation to zero, what is the NPV of this project? Initial investement = $120,000; cost savings = $45,000 per year; life =4years; salvage value = $8,000 in year 4; tax rate = 35%; discount rate = 11%.

	1.	$7,265.68
	2.	$6,747.62
	3.	-$6,747.62
	4.	$126,747.62
	5.	-$7,200.15

1.5 points

QUESTION 28

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
	5.	I, II and III

1.5 points

QUESTION 29

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

1.5 points

QUESTION 30

A common stock issue is currently selling for $31 per share. You expect the next dividend to be $1.42 per share. If the firm has a dividend growth rate of 9% that is expectd to remain constant indefinitely, what is the firm's cost of equity?

	1.	9.5%
	2.	11.36%
	3.	13.58%
	4.	14.2%
	5.	15.13%

1.5 points

QUESTION 31

The market value of debt is $256 million and the total market value of the firm is $950 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%

1.5 points

QUESTION 32

A bond issue sells for $650. The coupon rate is 8.5%, the bonds mature in 14 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%

1.5 points

QUESTION 33

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

1.5 points

QUESTION 34

Evaluate the project given the following information:

Assuming straight-line depreciation to zero, what is the IRR of this project? Initial investment = $160,000; requires an initial investment in NWC = $20,000 cost savings = $65,000 per year; life = 5 years; salvage value = $12,000 in year 5; tax rate = 40%; discount rate = 12%.

	1.	15.33%
	2.	16.57%
	3.	16.62%
	4.	16.83%
	5.	17.73%

1.5 points

QUESTION 35

In the previous question (#34), assume that you're able to reduce the working capital at the beginning of the project, and that the NWC will revert back to normal at the end of the project. If all other given information stays the same, what is the NPV of this project?

(Initial investment = $160,000; NWC = $20,000 cost savings = $65,000 per year; life = 5 years; salvage value = $12,000 in year 5; tax rate = 40%; discount rate = 12%.)

	1.	$39,178.62
	2.	$179,178.62
	3.	$39,268.35
	4.	$179,464.34
	5.	$39,464.34

1.5 points

QUESTION 36

Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets?

	1.	$21,600
	2.	$18,000
	3.	$28,900
	4.	$29,400
	5.	$6,800

1.5 points

QUESTION 37

The City Street Corporation's common stock has a beta of 1.2. If the risk-free rate is 4.5 percent and the expected return on the market is 13 percent, what is the company's cost of equity capital? Hint: The Market Risk Premium = Expected return on the market minus the Risk-free rate.

	1.	10.58%
	2.	12.36%
	3.	14.70%
	4.	16.19%
	5.	16%

1.5 points

QUESTION 38

A firm has net income of $76,500, depreciation of $22,500 and taxes of $20,300. What is the firm's operating cash flow?

	1.	$83,400
	2.	$99,000
	3.	$101,260
	4.	$105,784
	5.	$109,570

1.5 points

QUESTION 39

You just won the lottery. You and your heirs will receive $65,000 per year forever, beginning one year from now. What is the present value of your winnings at 10% discount rate?

		$6,500
		$300,000
		$400,000
		$600,000
		$650,000

1.5 points

QUESTION 40

The dividend yield is defined as:

		the last annual dividend divided by the current market price per share.
		the last annual dividend divided by the current book value per share.
		next year's expected dividend divided by the current market price per share.
		next year's expected dividend divided by the current book value per share.
		next year's expected dividend divided by the par value per share.

1.5 points

QUESTION 41

Kolby's Korndogs is looking at a new sausage system with an installed cost of $735,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $105,000. The sausage system will save the firm $204,000 per year in pretax operating costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. If the tax rate is 34 percent and the discount rate is 8%, what is the IRR of this project?

Please type in the answer only (no work needs to be shown, just the answer to the hundreths or thousandths place). Please submit answer as a percentage rate (i.e. 0.00% or 0.000%).

2.5 points (Extra Credit)

QUESTION 42

The market value of equity is $375 million and the total market value of the firm is $865 million. The cost of equity is 15% the pretax cost of debt is 11% and the tax rate is 34%. What is the WACC?