fin. man. final
Which of the following ratios are measures of a firm's short-term liquidity?
Interval measure.,Quick ratio.
Which one of the following should earn the highest risk premium based on CAPM?
Stock with a beta of 1.38
The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?
50 percent plus one vote
Do-Well bonds have a face value of $1,000 and are currently quoted at 86.725. The bonds have coupon rate of 6.5 percent. What is the current yield on these bonds?
7.49 percent
B & C Associates are expanding into the marriage consulting business. B & C are primarily concerned how this expansion will impact their return on assets. They are most likely to evaluate the project's:
Average accounting return.
A sinking fund is managed by a trustee for which one of the following purposes?
Early bond redemption
You'll graduate from college in three years. Your grandmother has promised to give you $5,000 at graduation. What happens to the present value of this gift if you speed up your graduation and graduate in two years?
Increases.
Which one of the following will decrease the net present value of a project?
Increasing the project's initial cost at time zero
Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?
Interest rate risk
Which one of the following terms is defined as a loan where the regular payments include both interest and principal, but are insufficient to retire the entire loan amount at maturity, requiring a lump sum payment at maturity to fully retire the loan?
Interest-only loan.
The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:
spread.
The flotation cost for a company is computed as:
the weighted average of the flotation costs associated with each form of financing.
The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent. What is the expected rate of return on a stock with a beta of 1.08?
10.15 percent
Five years ago Two Towers Inc. issued bonds that pay a 7 percent coupon. At issue these bonds were rated BBB, but today they are rated AAA. Which of the following is most likely based on this information?
The bonds carry a smaller default premium than when issued.
If the cash flow to stockholders is positive then we know that:
The dividends paid exceeded the net new equity raised.
The cost of capital for a new project:
depends upon how the funds raised for that project are going to be spent.
When a firm has flotation costs equal to 8.3 percent of the funding need, project analysts should:
increase the initial project cost by dividing that cost by (1 − .083).
Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:
increase.
The internal rate of return:
is easy to understand.
If a stock portfolio is well diversified, then the portfolio variance:
may be less than the variance of the least risky stock in the portfolio.
Interest rates that include an inflation premium are referred to as:
nominal rates.
The weighted average cost of capital for a company is least dependent upon the:
standard deviation of the company's common stock.
Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent and the required return for both projects is 9 percent. Given this you know that:
the project that is acceptable at a discount rate of 11 percent should be rejected at a discount rate of 12 percent.
The discount rate assigned to an individual project should be based on:
the risks associated with the use of the funds required by the project.
The expected return on a stock given various states of the economy is equal to the:
weighted average of the returns for each economic state.
Pablo is primarily concerned about his company's liquidity. Which two investment criteria place the most focus on liquidity?
Payback and discounted payback.
Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions?
Payback.
Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?
Pillar system
Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?
$3,381.39 less
What is the present value of $1,400 a year at a discount rate of 8 percent if the first payment is received 7 years from now and you receive a total of 25 annual payments?
$9,417.69
What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent?
$959.46
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
.5
Today, June 15, you want to buy a bond with a quoted bid price of 98.64 and a quoted ask price of 98.66. The bond pays interest on January 1 and July 1. Which one of the following is true?
98.66 is the clean price at which you could purchase this bond.
Which of the following are current assets?
Cash,Accounts receivable
Which one of the following types of stock receives no preferential treatment in bankruptcy proceedings?
Common.
On the statement of cash flows, which one of the following is considered an operating activity?
Decrease in accounts payable
Which one of the following is a use of cash?
Decrease in accounts payable
Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?
He earned a lower interest rate than he expected.
Saul invested $900 ten years ago into a savings account at his bank. Saul expected to have $1,800 in the account after ten years. As it turns out, he only has $1,680 in his account today. Which one of the following must be true? Assume that he has not added or withdrawn any money from this account since his initial investment.
He earned less interest than he expected to earn.
The higher the degree of financial leverage employed by a firm is, the:
Higher is the probability that the firm will encounter financial distress or bankruptcy.
You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You will earn 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I. Invest in a different account paying a higher rate of interest.II. Invest in a different account paying a lower rate of interest.III. Retire later.IV. Retire sooner.
Invest in a different account paying a higher rate of interest.,Retire later.
You observe that the yield on one-year U.S. Treasury debt is higher than the yield on five-year U.S. Treasury debt. This could be the case because:
Investors expect inflation will be decreasing.
Which one of the following ratios is a measure of a firm's liquidity?
Quick ratio
Rio Tinto has analyzed opening a new mine in Huelva. The company has determined that the IRR is 10%. Which one of the following changes to the project would most likely increase the project's IRR?
Reducing the discounted payback period of the cash flows.
When calculating a common-size income statement we expresses all the firm's expenses as a percentage of:
Sales.
Emst & Frank stock is listed on NASDAQ. The firm is planning to repurchase some common shares from the general public. This repurchase will occur in which one of the following markets?
Secondary.
Which one of the following will decrease the value of a firm's net working capital?
Selling inventory at a loss
Which one of the following must be true if a firm had a negative cash flow from assets?
The firm utilized outside funding.
Garcia and Sons is considering two mutually exclusive projects, Projects Aracena and Project Bilbao. The company's CFO has determined that the crossover rate for these projects is 14 percent. Given this you know that:
The preferred project at a discount rate of 11 percent will not be preferred at a discount rate of 15 percent.
Tracie owns only one stock. When she evaluates the risk in her portfolio she should focus on:
Total risk
The capital structure weights used in computing a company's weighted average cost of capital:
are based on the market values of the outstanding securities. Correct
Preston Industries has two separate divisions. Each division is in a separate line of business. Division A is the largest division and represents 65 percent of the company's overall sales. Division A is also the riskier of the two divisions. When management is deciding which of the various divisional projects should be accepted, the managers should:
assign appropriate, but differing, discount rates to each project and then select the projects with the highest net present values.
An agent who arranges a transaction between a buyer and a seller of equity securities is called a:
broker.
The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:
cash flow from assets.
The interest earned on both the initial principal and the interest reinvested from prior periods is called:
compound interest.
Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:
could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest.
Theo wants to have $40,000 for a down payment on a house five years from now. He can either deposit one lump sum today or he can wait one year and deposit a lump sum. Assume an annual interest rate of 3.5 percent. How much additional money must he deposit if he waits for one year rather than making the deposit today?
$1,178.76
The Miller Crossing credit card company charges you 1.10 percent per month. What is the annual percentage rate on your account?
1.10*12=13.20
Bleakly Enterprises has a capital structure of 56 percent common stock, 4 percent preferred stock, and 40 percent debt. The flotation costs are 3.7 percent for debt, 4.8 percent for preferred stock, and 5.2 percent for common stock. The corporate tax rate is 21 percent. What is the weighted average flotation cost?
4.58 percent
You own shares in four different companies. You own: Preferred shares in Company A, a 10 year old company and the smallest in its industry. Common shares in Company B, a start-up firm with negative cash flow from assets. Common shares in Company C, a 60 year old company which increases dividends to keep pace with inflation. Common shares in Company D, a 20 year old company which increases dividends by $0.20 each quarter. Common shares in Company E, a 45 year old company which will pay a liquidating dividend of $20 in 9 more quarters. Which is the stock most likely to be valued as a constant perpetuity?
? C is correct but says it not?
Bob is a pessimist and he expects the required rate of return to increase across the board on all equity securities. From this we can infer that Bob expects:
A decrease in all stock values.
Which one of the following is a current liability?
Account payable to a supplier that is due next week
Sally will invest $500 today in a savings account at BancorpSouth that pays a guaranteed 5% in interest annually. Which one of the following will increase the value of this investment at Sally's retirement?
An increase in the age at which Sally will retire.
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio.
Rosie has $13,000, She earns 5 percent interest, compounded annually. Andy also has $13,000 and earns 5 percent interest, compounded annually. Rosie will withdraw her interest earnings and spend it as soon as possible. Andy will reinvest his interest earnings into his account. Which one of the following statements is true?
Andy will earn more interest the second year than Rosie.
The _____ tax rate is equal to total taxes divided by total taxable income.
Average.
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
Balance sheet
Janice is an art history major whose uncle has left her a record store. You explain to Janice that the book value of the store is:
Based on historical cost of the store's assets.
Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?
Ben's is increasing its earnings at a faster rate than Al's
Balance sheet.
Billy Bob wants to know the accounting value of a firm's equity. He should look at the:
Garcia and Sons has a required payback period of five years for all of its projects. The company is comparing two independent projects. Project Aracena has an expected payback period of 3.6 years and a net present value of $465,800. Project Bilbao has an expected payback period of 4.1 years with a net present value of -$400. Which projects should be accepted based on the payback decision rule?
Both Aracena and Bilbao.
You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows?
Comparable real rate
You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?
Construction of a new restricted access highway located between the store and the surrounding residential areas
Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment?
Coupon.
A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called?
Cumulative
Which one of the following is a use of cash?
Decrease in accounts payable.
Which one of the following will increase the cash flow from assets, all else equal?
Decrease in the change in net working capital
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?
Decrease in the day's sales in inventory.
Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?
Default risk
Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today?
Dirty price
Rosita paid a total of $1,189 to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the:
Dirty price.
Coolio wants to calculate the present value of a $100,000 bonus he will receive in the two years. The interest rate used in such a calculation is often called the:
Discount rate.
Which one of these identifies the relationship between the return on assets and the return on equity?
DuPont identity.
Sandra works for Cemex, and the company is considering purchasing a cement company in Greece. Which one of the following might explain why Sandra would use the average accounting return to analyze this investment?
Easy availability of information needed for the computation.
Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?
In today's dollars, Luis's money is worth more than Soo Lee's.
Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee discount at 7 percent annually?
In today's dollars, Luis's money is worth more than Soo Lee's.
Due to monetary policy uncertainty, inflation expectations have begun to increase. This is most likely to:
Increase nominal rates.
John doesn't understand where each cash flow goes on the statement of cash flows. You explain that an increase in long-term debt, for instance, will _____ the cash flow from _____ activities.
Increase; financing.
Which one of the following is an example of systematic risk?
Investors panic causing security prices around the globe to fall precipitously
Net capital spending:
Is equal to zero if no fixed assets are purchased or sold.
Which of the following are advantages of the payback method of project analysis?
Liquidity bias, ease of use
Pravda Inc. has a quarterly dividend policy that pays $0.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:
Must still declare each dividend before it becomes an actual company liability.
Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?
Nan will have more money than Neal at any age.
Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted?
Net present value
Widgets-R-Us Inc.'s expansion into the Starkville widget market has an initial cost of $928,400. The market value of expanding is $1,339,060. The difference between these two values is called:
Net present value.
Which one of the following statements concerning net working capital is correct?
Net working capital may be a negative value.
Which one of the following is a source of cash?
New long-term loans
Which one of these is most apt to be a fixed cost?
Office salaries
You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.)
Option B has a higher present value at Time 0.
Your accountant offers you two investment options that each pay 5% interest, compounded annually. Both investments will return a total of $15,000. Investment A pays $3,000 the first year followed by two annual payments of $6,000 each. Investment B pays three annual payments of $5,000 each. Given a positive discount rate, which statement is correct?
Option B has a higher present value at time zero.
Tom and Sally are the only two dealers in Widget Inc. stock. They buy and sell the stock for their own inventories, and you may phone them if you need to buy or sell the stock. This is an example of a(n) ______ market.
Over-the-counter.
Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?
Primary
Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.9 years and a net present value of $4,200. Project B has an expected payback period of 3.1 years with a net present value of $26,400. Which project(s) should be accepted based on the payback decision rule?
Project A only
Marianne is confused as to why you spend so much time worrying about net working capital. You explain to her that her net working capital will decrease if she starts:
Selling inventory at a loss.
Renee invested $2,000 six years ago at 4.5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?
Simple interest.
The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:
Spread.
Tyler is concerned about his portfiolio so he asks his best friend Tippie for some advice. Since Tippie is a certified financial advisor, he is most likely to counsel Tyler that:
Spreading an investment across many diverse assets will eliminate some of the total risk.
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
Standard Industrial Classification codes.
Fox News just released a report about the expected impact of the Federal Reserve's decision to increase interest rates. What type of risk does this news report best represent?
Systematic
Which one of the following statements related to the internal rate of return (IRR) is correct?
The IRR is equal to the required return when the net present value is equal to zero.
Which one of the following statements related to WACC is correct for a company that uses debt in its capital structure?
The WACC would most likely decrease if the firm replaced its preferred stock with debt.
Five years ago Two Towers Inc. issued bonds that pay a 5 percent coupon. At issue these bonds were AAA rated, but today they were downgraded to BBB. Which of the following is most likely based on this information?
The bonds carry a larger default premium than when issued.
Which one of these statements related to growing annuities and perpetuities is correct?
The present value of a growing perpetuity will decrease if the discount rate is increased. Correct
Starting today, your wealthy younger sister will deposit $500 each month into a savings account for your retirement. The account will compound interest at 12 percent annually with monthly compounding, and you can't withdraw any money from the account until you retire in 40 years. Which of the following statements is correct?
The present value of the account is equal to $500(1 − 11.01480/)0.01⎛⎝⎜⎜⎜1.01⎞⎠⎟⎟⎟
Which one of the following events would be included in the expected return on Sussex stock?
This morning, Sussex confirmed that its CEO is retiring at the end of the year as was anticipated.
Which one of the following statements correctly defines a time value of money relationship?
Time and present value are inversely related, all else held constant.
A six-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will be the difference, if any, between this bond's clean and dirty prices today?
Two months' interest
While not true of common stock, preferred shares (check all that apply):
Typically don't get voting rights.,Get to vote to elect the Board of Directors.
While note true of common stock, preferred shares (check all that apply):
Typically don't get voting rights.,Get to vote to elect the Board of Directors.,
Which one of the following accurately defines a perpetuity?
Unending equal payments paid at equal time intervals.
RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?
Utilizing its total assets more efficiently than Sam's
You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?
Voting by proxy
Rosita paid a total of $1,189, including accrued interest, to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the:
dirty price.
An increase in the interest expense for a firm with a taxable income of $123,000 will:
increase the cash flow from assets.
Net capital spending:
is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.
If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:
mutually exclusive.
The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the:
protective covenants.
The cost of preferred stock is computed the same as the:
rate of return on a perpetuity.
