QUESTION 1

The valuation model that computes the current value of a stock by dividing next year's dividend by the net of the discount rate minus the dividend's growth rate is called the __________model.

A.

stock price

B.

equity capital

C.

capital gain

D.

dividend growth

E.

current value

QUESTION 2

The security that represents the residual ownership of a firm and has no priority in bankruptcy is called:

A.

a convertible bond

B.

senior debt

C.

common stock

D.

preferred stock

E.

retained earnings

QUESTION 3

If I grant another individual the right to vote on my behalf for the directors of a corporation, I am voting by:

1.

the straight method

2.

the cumulative method

3.

consent

4.

proxy

5.

preference

QUESTION 4

Boots Roofing just paid its annual dividend of $.90 a share.The firm recently announced that all future dividends will be increased by 3.5% annually.What is one share of this stock worth to you if you require a 12% rate of return?

A.

$10.30

B.

$10.35

C.

$10.59

D.

$10.78

E.

$10.96

QUESTION 5

The difference between the sum of the present value and its cost is called the:

1.

present value

2.

net present value

3.

capital value

4.

cash flow

5.

net income

QUESTION 6

The payback period is the period of time it takes an investment to generate sufficient cash flows to:

1.

earn the required rate of return.

2.

produce the required net income.

3.

produce a yield equal to or greater than the market rate on similar investments.

4.

have a cash inflow, rather than an outflow, for the year.

5.

recover the investment's initial cost.

QUESTION 7

What is the net present value of a project with the following cash flows if the discount rate is 10%?

Year01234

Cash Flow-$32,000$9,000$10,000$15,200$7,800

A.

$1,085.25

B.

$1,193.77

C.

$3,498.28

D.

$4,102.86

E.

$4,513.15

QUESTION 8

The most valuable alternative that is forfeited if a particular investment is undertaken is called:

1.

a side effect.

2.

erosion.

3.

a sunk cost.

4.

an opportunity cost.

5.

a marginal cost.

QUESTION 9

The managers of Downtown Reality are considering remodeling plans for an old building the firm owns and wants to restore.The building was purchased last year for $890,000.The plan is to create an executive resort and conference center at an estimated cost of $3.6 million.The estimated present value of the future income from this centre is $5.9 million.Of course, the firm could take the cash offer of $1.1 million it just received for the building as is.Which one of the following represents the opportunity cost fo the remodeled project?

A.

$0

B.

$890.000

C.

$1,100,000

D.

$3,600,000

E.

$5,900,000

QUESTION 10

A 5-year project is expected to generate revenues of $92,000, variable costs of $67,000 and fixed costs of $11,000.The annual depreciation is $4,000 and the tax rate is 35%.What is the annual operating cash flow?

A.

$8,700

B.

$9,100

C.

$9,900

D.

$10,500

E.

$11,100

QUESTION 11

Which one of the following is the best example of a sunk cost?

1.

Angelo's decided to accept project A rather than project B.

2.

Burt's spent $18,000 last year patching potholes in its parking lot caused by a severe winter frost.

3.

Lester's added desserts to its menu which caused its sandwich sales to increase.

4.

A new fish sandwich was added to a menu and as a result hamburger sales declined.

QUESTION 12

Richard's Market has projected net income of $38,000 and taxes of $4,100 for the year. Which one of the following will increase this firm's operating cash flow?

1.

increase in tax rates.

2.

increase in the depreciation expense.

3.

sales decrease.

4.

decrease in interest expense.

QUESTION 13

The Grist Mill estimates it can sell 600 pairs of shoes a year, plus or minus 2 percent. It also estimates the variable cost at $31 per pair, plus or minus 3 percent. What is the expected total annual variable costs under the worst case scenario?

A.

$17,681.16

B.

$18,774.84

C.

$19,204.14

D.

$19,541.16

QUESTION 14

Adding which of the following to the analysis of a proposed project will increase the NPV of that project?

1.

option to expand

2.

option to wait

3.

option to abandon

4.

options to expand, wait, and abandon

QUESTION 15

Frank's is analyzing a 6-year project that requires $578,000 in equipment to start the project. This cost will be depreciated on a straight-line basis to a zero book value over the life of the project. At the end of the project, this equipment is expected to have an after tax salvage value of $123,000. The projected annual sales are $729,000 and the combined annual fixed and variable costs are $598,000. The tax rate is 35 percent. The project will reduce the firm's inventory by $34,000 over the life of the project. What is the project's initial cash flow?

A.

-$544,000

B.

-$563,000

C.

-$578,000

D.

-$612,000

QUESTION 16

Brent's Kar Kare is analyzing a new product. The estimated sales for the first year are 215 units at a price of $79 a unit. The fixed costs for the year are $3,920 and the variable cost per unit is $51. The depreciation expense is $1,200 and the tax rate is 34 percent. What is the value of the depreciation tax shield?

A.

$408

B.

$521

C.

$1,337

D.

$1,794

QUESTION 17

A 5-year project requires the initial purchase of a $345,000 machine. This machine has a 6-year life and will be depreciated straight-line to zero. At the end of the project, the equipment can be sold for $79,000. The tax rate is 35 percent. What is the after tax salvage value?

A.

$68,500

B.

$71,475

C.

$78,875

D.

$86,525

QUESTION 18

A firm has accounts receivable of $26,000, inventory of $38,000, and accounts payable of $21,000. If a new project is accepted, the estimated values are projected to be accounts receivable of $31,000, inventory of $29,000, and accounts payable of $24,000. What is the project's initial net working capital cash flow?

1.

outflow of $4,000

2.

outflow of $1,000

3.

inflow of $3,000

4.

inflow of $7,000

QUESTION 19

Morning Coffee, Inc. has 90,000 shares of stock outstanding and 4 open positions on its board of directors. Each share of stock is entitled to one vote and the firm uses cumulative voting. How many shares of stock do you need to own to guarantee your election to the board assuming no one else votes for you?

A.

37,501 shares

B.

23,001 shares

C.

18,001 shares

D.

22,501 shares

QUESTION 20

Pop's just paid an annual dividend of $0.60 a share. The stock is currently selling for $22 a share and has a growth rate of 3.1 percent. What is the dividend yield?

A.

2.81 percent

B.

2.90 percent

C.

3.37 percent

D.

3.42 percent