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A communications company pays annual dividends of $8.50 with no possibility of it changing in the next several years. If the firm's stock is currently selling at $60.71, what is the required rate of return? (Round to nearest whole number.) a. 14% b. 16% c. 13% d. 15%

a

A company is growing at a constant rate of 8 percent. Last week it paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of the stock three years from now? a. $58.31 b. $46.29 c. $51.02 d. $42.83

a

Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company's opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.) A) $429,560 B) $414,322 C) $480,906 D) $477,235

a

Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio? A) 1.83 B) 0.73 C) 1.67 D) None of the above

a

Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project? A) 2.12 years B) 1.88 years C) 4.00 years D) 3.00 years.

a

Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond? (Round to the nearest dollar.) A) $872 B) $1,066 C) $990 D) $945

a

In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round off to the nearest 0.1%) A) 13.1% B) 14.6% C) 22.5% D) 18.7%

a

Bright Light Auto Lamps has found that it is indifferent between purchasing a high-capacity vacuum sealing machine or a lower capacity machine as long as sales are 200 units per month. The price of each sealed beam light is $50. The high-capacity machine has cash expenses of $10,000 per month, while the alternative has cash expenses of $5,000 per month and depreciation and amortization expenses of $2,000 per month. Under high capacity, the variable costs per unit are $10; and they are $40 for the other alternative. If the firm bases its decisions on the Accounting Operating Profit Break-even, then what are the depreciation expenses under the high-capacity alternative? A) $3,000 B) $4,000 C) $9,000 D) none of the above

a

Burt's Pizzas is considering whether to purchase an oven. Burt's calculates that its current oven generates $4,000 of cash flow per year. A new oven would cost $15,000 and would provide cash flow of $6,000 per year for six years. What is the equivalent annual cash flow for the new oven (round to the nearest dollar), and should Burt's purchase the new oven? Assume the cost of capital for Burt's is 12 percent. A) $2,352, do not purchase the oven B) $6,000, purchase the oven C) $9,668, purchase the oven D) $24,668, purchase the new oven

a

Carlos Lopes is looking to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years? (Round to the nearest dollar.) A) $8,870 B) $8,000 C) $8,681 D) None of the above

a

Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the payback period for this project? If their acceptance period is five years, will this project be accepted? A) 4.17 years; yes B) 4.17 years; no C) 3.83 years; yes D) 3.83 years; no

a

Cleargen, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.) A) $1,381,071 B) $1,266,128 C) $1,233,099 D) $1,072,260

a

Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent? a. $10.76 b. $9.80 c. $11.88 d. $11.50

a

Craymore Tech is expecting cash flows of $67,000 at the end of each year for the next five years. If the firm's discount rate is 17 percent, what is the present value of this annuity? (Round to the nearest dollar.) A) $214,356 B) $241,653 C) $278,900 D) $197,776

a

Derek's friend, Jackson, is asking to borrow today with a promise to repay $7,418.87 in four years. If Derek could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Jackson today? (Round to nearest dollar.) A) $6,000 B) $7,035 C) $6,500 D) $7,150

a

Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio?(Round to nearest whole percent) A) 2.31; 1.31 B) 1.75; 0.75 C) 0.75; 1.75 D) 1.31; 2.31

a

Durango Water Works has an outstanding issue of preferred stock that has a par (maturity value) of $75.00. The stock, which pays a quarterly dividend of $1.10, will be retired by the firm in 20 years. If the preferred stock is currently selling for $68.00, what is the preferred stock's yield-to-maturity? (Round off to the nearest 0.01%) A) 6.72% B) 5.64% C) 4.28% D) 7.73%

a

Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold? A) $2,074,557 B) $2,745,640 C) $274,560 D) None of the above

a

Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days' sales in inventory? A) 65.2 days B) 64.3 days C) 61.7 days D) 57.9 days

a

George Wilson purchased Bright Light Industries common stock for $47.50 on January 31, 2010. The firm paid dividends of $1.10 during the last 12 months. George sold the stock today (January 30, 2011) for $54.00. What is George's holding period return? Round off the nearest 0.01%. A) 16.00% B) 14.35% C) 11.28% D) 19.60%

a

Given the returns for two stocks with the following information, calculate the correlation coefficient of the returns for the two stocks. Assume the expected return for Stock 1 is 10.8 percent and 9.7 percent for Stock 2. Prob Stock 1 Stock 2 0.4 0.09 0.11 0.5 0.11 0.08 0.1 0.17 0.13 A) 0.230967 B) -0.00002548 C) 0.00032100 D) 0.17671455

a

Given the returns for two stocks with the following information, calculate the covariance of the returns for the two stocks. Assume the expected return is 10.8 percent for Stock 1 and 9.7 percent for Stock 2. Prob Stock 1 Stock 2 0.4 0.09 0.11 0.5 0.11 0.08 0.1 0.17 0.13 A) 0.000094 B) 0.00051600 C) 0.00032100 D) 0.71750786

a

Gwen purchased a stock one year ago for $25, and it is now worth $31. The stock paid a dividend of $1.50 during the year. What was the stock's rate of return income during the year? (Round your answer to the nearest percent.) A) 6% B) 15% C) 24% D) 26%

a

Hill Enterprises is expecting tremendous growth from its newest boutique store. Next year the store is expected to bring in net cash flows of $675,000. The company expects its earnings to grow annually at a rate of 13 percent for the next 15 years. What is the present value of this growing annuity if the firm uses a discount rate of 18 percent on its investments? (Round to the nearest dollar.) A) $6,448,519 B) $6,750,000 C) $7,115,449 D) $5,478,320

a

Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042. What is the covariance of the returns? A) 0.028025 B) 0.217327 C) 0.359100 D) 0.993094

a

If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables? A) $881,234 B) $13,403,567 C) $1,340,357 D) $81,234

a

In a game of chance, the probability of winning a $50 is 40 percent and the probability of losing a $50 prize is 60 percent. What is the expected value of a prize in the game? A) -$10 B) $0 C) $10 D) $25

a

Jacobs Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent? a. $4.85 b. $5.37 c. $5.50 d. $6.14

a

Johnson Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $1,750,000. Expected cash flows over the next four years are $725,000, $850,000, $1,200,000, and $1,500,000. Given the company's required rate of return of 15 percent, what is the NPV of this project? A) $1,169,806 B) $2,919,806 C) $4,669,806 D) $3,122, 607

a

Kevin Rogers is interested in buying a five-year bond that pays a coupon of 10 percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent. What should be the current price of this bond? (Round to the nearest dollar.) A) $1,048 B) $965 C) $1,099 D) $982

a

Lincoln, Inc. expects to pay no dividends for the next four years. It has projected a growth rate of 35 percent for the next four years. After four years, the firm will grow at a constant rate of 6 percent. Its first dividend to be paid in year 5 will be worth $4.25. If your required rate of return is 20 percent, what is the stock worth today? a. $14.64 b. $32.18 c. $36.43 d. $21.82

a

Marcie Witter is saving for her daughter's college education. She wants to have $50,000 available when her daughter graduates from high school in four years. If the investment she is considering will pay 8.25 percent compounded monthly, how much will she have to invest today to reach her target? (Round to the nearest dollar.) A) $35,987 B) $49,659 C) $41,275 D) $36,450

a

Mega Line, Inc. had the following financial results for the fiscal year ending September 30, 2010. Sales $1,550,250; depreciation and amortization $80,785; fixed costs $125,000; net profit $237,500; operating income $620,100. What was the firm's degree of pre-tax cash flow operating leverage during fiscal 2010? A) 1.18 B) 1.64 C) 1.27 D) 1.45

a

Packard Electronics Corp. is evaluating the two mutually exclusive projects shown below. Boundless Corp. Project A Project B Period Cash Flows Cash Flows 0 $ (100,000) $ (150,000) 1 50,000 15,000 2 40,000 30,000 3 30,000 50,000 4 20,000 70,000 5 10,000 80,000 What is the "crossover rate" of the two projects? (Round off to the nearest (0.01%) A) 10.82% B) 8.24% C) 13.76% D) 16.38%

a

Pam Gregg is expecting cash flows of $50,000, $75,000, $125,000, and $250,000 from an inheritance over the next four years. If she can earn 11 percent on any investment that she makes, what is the present value of her inheritance? (Round to the nearest dollar.) A) $361,998 B) $309,432 C) $412,372 D) $434,599

a

Perez Electronics Corp. has reported that its net income for 2006 is $1,276,351. The firm has 420,000 shares outstanding and a P-E ratio of 11.2 times. What is the firm's share price? A) $34.05 B) $3.68 C) $11.20 D) $36.80

a

Poisson Calculators has found that it is indifferent between purchasing a high-capacity vacuum component assembly machine or a lower capacity machine as long as sales are 1,900 units per month. The price of each calculator is $70. The high-capacity machine has cash expenses of $100,000 per month and depreciation and amortization expenses of $30,000 per month, while the alternative has cash expenses of $30,000 per month and depreciation and amortization expenses of $5,000 per month. Under the low-capacity alternative, variable costs per unit are $60. If the firm bases its decisions on the Accounting Operating Profit Break-even, then what is the variable cost per unit under the high-capacity alternative? A) $10 B) $47 C) $60 D) $70

a

Premier Steel, Inc. is considering the purchase of a new machine for $100,000 that has a useful life of 3 years. The firm's cost of capital is 11.0% and the tax rate is 40%. This machine will be sold for its salvage value of $20,000 at the end of 3-years. The machine will require an investment of $2,500 in spare parts inventory upon installation. The machine will cost $8,000 to ship and $4,000 to install and modify it. Sales are as follows: year 1 = $90,000; year 2 = $97,500; year 3 = $105,000. Operating expenses are year 1 = $25,000; year 2 = $27,000; year 3 = $29,000. The investment in working capital will be liquidated at termination of the project at the end of year 3. MACRS Rates 33% 45% 15% 7% Using MACRS, what is the operating cash flow in year 1? A) $53,784 B) $35,238 C) $86,999 D) $42,512

a

Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company's cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.) A) 22% B) 20% C) 24% D) 28%

a

Rachel McGovern bought a 10-year bond for $921.77 seven years ago. The bond pays a coupon of 15 percent semiannually. Today, the bond is priced at $961.92. If she sold the bond today, what would be her realized yield? (Round to the nearest percent.) A) 17% B) 18% C) 9% D) 10%

a

Robertsons, Inc., is planning to expand ita specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds? (Round to the nearest dollar.) A) $308 B) $383 C) $803 D) $866

a

Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company's discount rate for such projects is 14 percent. What is the project's discounted payback period? A) 4.2 years B) 4.4 years C) 4.8 years D) 5.0 years

a

Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income? A) $75,281.80 B) $514,250.00 C) $51,425.00 D) $7,528.10

a

Sayers purchased a stock with a coefficient of variation equal to 0.125. The expected return on the stock is 20 percent. What is the variance of the stock? A) 0.000625 B) 0.025000 C) 0.625000 D) 0.790500

a

Small Appliances, Inc., is considering starting a new line of business with the excess capacity it currently has on its rivet machine. The current machine is expected to last four years at the current rate of production. However, if a new line of business is taken on, then the machine will have to be replaced in three years instead of four. A new machine that will last four years would cost $50,000. What is the cost of taking on the new line of business? Round to the nearest dollar and assume a 9 percent cost of capital. A) $11,917 B) $12,500 C) $15,433 D) $50,000

a

Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South Carolina. At the end of the current fiscal year, the company had net working capital of $157,903. The company showed accounts payables of $94,233, accounts receivables of $83,112, inventory of $171,284, and cash and marketable securities of $12,311. What amount of notes payables does the firm have? A) $14,571 B) $26,882 C) $15,471 D) none of the above

a

Stag Corp. will pay dividends of $4.75, $5.25, $5.75, and $7 for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 7 percent. If the required rate of return is 15 percent, what is the current market price of the stock? a. $69.41 b. $93.63 c. $57.54 d. $80.29

a

Starskeep, Inc., is a fast growing technology company. The firm projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years. After that, the firm expects a constant-growth rate of 8 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock? a. $15.63 b. $4.70 c. $30.30 d. $22.68

a

Stiglitz, Inc., is expecting the following cash flows starting at the end of the year—$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the nearest dollar.) A) $644,406.10 B) $732,114 C) $685,312 D) $900,810

a

Swan's Bicycle Boats had a degree of accounting operating leverage equal to 1.50 during the most recent period. If the firm's EBITDA was $5,000 and its fixed costs were equal to $1,750, then what was Swan's depreciation and amortization expense during the same period? A) $500 B) $1,000 C) $1,500 D) $2,833 Ans: A

a

Tariq Aziz will receive from his investment cash flows of $3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to the nearest dollar.) A) $11,120 B) $10,944 C) $10,812 D) $12,770

a

Terri Garner will invest $3,000 in an IRA for the next 30 years starting at the end of this year. The investment will earn 13 percent annually. How much will she have at the end of 30 years? (Round to the nearest dollar.) A) $897,598 B) $912,334 C) $748,212 D) $1,233,450

a

The covariance of the returns between Einstein Stock and Bohr Stock is 0.0087. The standard deviation of Einstein is 0.26, and the standard deviation of Bohr is 0.37. What is the correlation coefficient between the returns of the two stocks? A) 0.090437 B) 0.096200 C) 0.90437 D) 0.96200

a

The expected return for the asset below is 18.75 percent. If the return distribution for the asset is described as in the following table, what is the variance for the asset's returns? Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 0.002969 B) 0.000613 C) 0.015195 D) 0.054486

a

The profitability index for a project is 1.18. If the project will produce cash inflows of $60,000 for the next 12 years, what is the initial outlay for the project if the appropriate discount rate is 5 percent? (Round to the nearest $10.) A) $450,670 B) $627,520 C) $1,016,950 D) none of the above

a

Tigger Corp. has reported the financial results for year-end 2006. Based on the information given, calculate the firm's gross profit margin and operating profit margin. Net sales = $4,156,700 Net income = $778,321 Cost of goods sold = $2,715,334 EBIT = $1,356,098 A) 34.7%; 32.6% B) 32.6%; 18.72% C) 34.7%; 18.72% D) None of the above

a

TimeKeepers is about to introduce a new LED clock and has determined that it will charge $30 per clock. The firm must decide whether or not to purchase a high-capacity clock-making machine. If the high-capacity machine is selected, then the fixed costs for the firm will be $5,000 per year, with variable costs of $5 per clock. Otherwise the fixed costs will be $1,000, with variable costs of $15 per clock. Above what level of expected sales should TimeKeepers choose the high fixed cost alternative to maximize pretax operating cash flow? A) 400 units B) 500 units C) 4,000 units D) 5,000 units

a

Trayne Rice has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.) A) 19% B) 21% C) 13% D) 16%

a

Trevor Smith wants to have a million dollars at retirement, which is 15 years away. He already has $200,000 in an IRA earning 8 percent annually. How much does he need to save each year, beginning at the end of this year to reach his target? Assume he could earn 8 percent on any investment he makes. (Round to the nearest dollar.) A) $13,464 B) $14,273 C) $10,900 D) $16,110

a

Trident Manufacturing Company's treasurer identified the following cash flows during this year as significant. It had repaid existing debt to the tune of $425,110, while raising additional debt capital of $750,000. It also repurchased stock in the open markets for a total of $63,250. It paid $233,144 in dividends to its shareholders. What is the net cash provided (used) by financing activities? A) $28,496 B) $91,746 C) -$28,496 D) -$91,746

a

Trimeton Corporation announced that in the year ended June 30, 2008, its earnings before taxes amounted to $2,367,045. Calculate its taxes using the following table. Tax Rate Taxable Income 15% $0 to $50,000 25 50,001 - 75,000 34 75,001 - 100,000 39 100,001 - 335,000 34 335,001 - 10,000,000 35 10,000,001 - 15,000,000 38 15,000,001 - 18,333,333 35 More than $18,333,333 A) $804,795 B) $690,895 C) $713,145 D) none of the above

a

Trish Harris has deposited $2,500 today in an account paying 6 percent interest annually. What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest-on-interest in five years? A) $750; $95.56 B) $150; $845.56 C) $150; $95.56 D) $95.56; $845.56

a

Triumph Trading Company provided the following information to its auditors. For the year ended March 31, 2008, the company had revenues of $1,122,878, operating expenses (excluding depreciation and leasing expenses) of $612,663, depreciation expenses of $231,415, leasing expenses of $126,193, and interest expenses equal to $87,125. If the company's tax rate was average 34 percent, what is its net income after taxes? A) $43,218 B) $65,482 C) $152,607 D) none of the above

a

Trojan Traps manufactures an innovative mouse trap. Sales this year are $325,000. The company expects its sales to go up to $500,000 in five years. What is the expected growth rate in sales for this firm? (Round to the nearest percent.) A) 9% B) 11% C) 6% D) 12%

a

Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountants. The company had current assets of $145,332, net fixed assets of $356,190, and other assets of $4,176. The firm has long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current liabilities does this firm have? A) $94,792 B) $505,678 C) $171,217 D) none of the above

a

United Brands Corp. just completed their latest fiscal year. The firm had sales of $16,650,000. Depreciation and amortization was $832,500, interest expense for the year was $825,000, and selling general and administrative expenses totaled $1,665,000 for the year, and cost of goods sold was $9,990,000 for the year. Assuming a federal income tax rate of 34%, what was the United Brands net income after-tax? A) $2,202,750 B) $1,745,325 C) $3,505,100 D) $2,813,000

a

Wes Ottey would like to buy a condo in Florida in six years. He is looking to invest $75,000 today in a stock that is expected to earn a return of 18.3 percent annually. How much will he have at the end of six years? (Round to the nearest dollar.) A) $205,575 B) $157,350 C) $184,681 D) None of the above

a

What is Provo's NOPAT for 2008? A) $2,400,000 B) $2,600,000 C) $3,400,000 D) $4,000,000

a

What is the MIRR on this project? (Round to the nearest percent.) A) 36% B) 37% C) 38% D) 39%

a

What is the net present value of this project? A) $890,197 B) $1,213,909 C) $905,888 D) $777,713

a

What is the payback period for this project? A) 1.7 years B) 2.2 years C) 1.2 years D) 2.7 years

a

What will be a firm's equity multiplier given a debt ratio of 0.45? A) 1.82 B) 1.28 C) 2.22 D) None of the above

a

Your father is 60 years old and wants to set up a cash flow stream that would be forever. He would like to receive $20,000 every year, beginning at the end of this year. If he could invest in account earning 9 percent, how much would he have to invest today to receive his perpetual cash flow? (Round to the nearest dollar.) A) $222,222 B) $200,000 C) $189,000 D) $235,200

a

Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which one will have the highest future value if she plans to invest for three years? A) 3.5% compounded daily B) 3.25% compounded monthly C) 3.4% compounded quarterly D) 3.75% compounded annually

a

Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to the nearest percent. A) 5% B) 6% C) 7% D) 8%

a

Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it be before he can double his investment? Use the Rule of 72 and round to the nearest year. A) 5 years B) 14 years C) 10 years D) None of the above

a

A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the firm is in the 40 percent marginal tax rate? A) $2.4 million B) $3.4 million C) $4.6 million D) $5.0 million

b

A lottery winner was given a perpetual payment of $11, 444. She could invest the cash flows at 7 percent. What is the present value of this perpetuity? (Round to the nearest dollar.) A) $112,344 B) $163,486 C) $191,708 D) $201,356

b

Ajax Company has issued perpetual preferred stock with a par of $100 and a dividend of 5.5 percent. If the required rate of return is 7.75 percent, what is the stock's current market price? a. $12.90 b. $70.97 c. $53.27 d. $62.14

b

Andrade Corp has debt of $2,834,950, total assets of $5,178,235, sales of $8,234,121, and net income of $812,355. What is the firm's return on equity? A) 7.1%t B) 34.7% C) 28.1% D) 43.2%

b

Arco Steel, Inc. generated total sales of $45,565,200 during fiscal 2010. Depreciation and amortization for the year totaled $2,278,260, and cost of goods sold was $27,339,120. Interest expense for the year was $9,641,300 and selling, general, and administrative expenses totaled $4,556,520 for the year. What is Arco's EBIT for 2010? A) $9,641,300 B) $11,391,300 C) $13,275,030 D) $18,490,000

b

Babs purchased a piece of real estate last year for $85,000. The real estate is now worth $102,000. If Babs needs to have a total return of 25 percent during the year, then what is the dollar amount of income that she needed to have to reach her objective? A) $3,750 B) $4,250 C) $4,750 D) $5,250

b

Batman Stock has exhibited a standard deviation in stock returns of 0.5, whereas Superman Stock has exhibited a standard deviation of 0.6. The correlation coefficient between the stock returns is 0.5. What is the variance of a portfolio composed of 70 percent Batman and 30 percent Superman? A) 0.1549 B) 0.2179 C) 0.4668 D) 0.5500

b

IronVerks Ribshack has total fixed costs of $8,500 per month. It sells rib plates for $15 each, and the variable cost of providing each plate is $10. What is the pretax operating cash flow break-even point for IronVerks? A) 567 plates B) 1,700 plates C) 8,500 plates D) None of the above

b

Binders-For-School, Inc., is in the process of determining whether to purchase a high-capacity machine to make textbooks for the upcoming school year. The high-capacity machine will generate fixed costs of $10,000 per year versus the $2,000 fixed costs of using a low-capacity machine. The variable costs per unit when using the high-capacity machine will be $30. The firm will charge $60 for each textbook and has determined that the high-capacity machine will maximize pretax operating cash flow if sales are greater than 800 books. What is the contribution margin under the low-capacity machine scenario? A) $10 B) $20 C) $30 D) $40

b

Binders-For-School, Inc., is in the process of determining whether to purchase a high-capacity machine to make textbooks for the upcoming school year. The high-capacity machine will generate fixed costs of $10,000 per year versus the $2,000 fixed costs of using a low-capacity machine. The variable costs per unit when using the high-capacity machine will be $30. The firm will charge $60 for each textbook and has determined that the high-capacity machine will maximize pretax operating cash flow if sales are greater than 800 books. What is the variable cost per unit under the low-capacity machine scenario? A) $20 B) $40 C) $60 D) $80

b

BioSci, Inc., a biotech firm has forecast the following growth rates for the next three years: 30 percent, 25 percent, and 20 percent. The company then expects to grow at a constant rate of 7 percent for the next several years. The company paid a dividend of $2.00 last week. If the required rate of return is 16 percent, what is the market value of this stock? a. $51.03 b. $36.86 c. $56.12 d. $46.37

b

Braniff Ground Services stock has an expected return of 9 percent and a variance of 0.25 percent. What is the coefficient of variation for Braniff? A) 0.0278 B) 0.5556 C) 1.800 D) 36.00

b

Carlos Menendez is planning to invest $3,500 every year for the next six years in an investment paying 12 percent annually. What will be the amount he will have at the end of the six years? (Round to the nearest dollar.) A) $21,000 B) $28,403 C) $24,670 D) $26,124

b

Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm's cost of capital is 12 percent. What is the discounted payback period for this project? If the firm's acceptance period is five years, will this project be accepted? A) 5.4 years; no B) 6.1 years; no C) 4.6 years; yes D) 4.2 years; yes

b

Casa Del Sol Property Development Company is refurbishing a 200-unit condominium complex at a cost of $1,875,000. It expects that this will lead to expected annual cash flows of $415,350 for the next seven years. What internal rate of return can the firm earn from this project? (Round to the nearest percent.) A) 10% B) 12% C) 14% D) 16%

b

Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows: 1 2 3 4 5 $643,547 $678,214 $775,908 $778,326 $735,444 If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.) A) $3,889,256 B) $4,227,118 C) $5,214,690 D) $4, 809,112

b

Chung Lee wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years? A) $695.98 B) $65.98 C) $630.00 D) None of the above

b

Coach K Sneakers, Inc., had EBIT of $1,850 last year with fixed costs equal to $500 (depreciation and amortization not included) and depreciation and amortization equal to $150. What was Coach K's degree of accounting operating leverage? A) 1.25 B) 1.35 C) 1.38 D) 1.40

b

Deutsche Bearings has total sales of $9,745,923, inventories of $2,237,435, cash and equivalents of $755,071, and days' sales outstanding of 49 days. If the firm's management wanted its DSO to be 35 days, by how much will the accounts receivable have to change? A) $373,816.23 B) -$373,816.23 C) -$379,008.12 D) $379,008.12

b

Elmer Sporting Goods is getting ready to produce a new line of golf clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $812,500, and 1,200,000 over the next three years. What is the payback period for this project? A) 3 years B) 2.43 years C) 1.57 years D) More than 3 years

b

Francis purchased a stock one year ago for $20, and it is now worth $24. The stock paid a dividend of $3 during the year. What was the stock's rate of return from capital appreciation during the year? (Round your answer to the nearest percent.) A) 17% B) 20% C) 29% D) 35%

b

Franklin Foods announced that its sales were $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.) A) 7 years B) 6 years C) 8 years D) 10 years

b

Genaro needs to capture a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property? A) $112,500 B) $125,000 C) $137,500 D) $150,000

b

Giant Electronics is issuing 20-year bonds that will pay coupons semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such bonds is 7 percent, what will the bonds sell for today? (Round to the nearest dollar.) A) $1,037 B) $1,085 C) $861 D) $923

b

Hassan Ali has made an investment that will pay him $11,455, $16,376, and $19,812 at the end of the next three years. His investment was to fetch him a return of 14 percent. What is the present value of these cash flows? (Round to the nearest dollar.) A) $33,124 B) $36,022 C) $41,675 D) $39,208

b

Hector Cervantes started on his first job last year and plans to save for a down payment on a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 6.25 percent on a monthly basis. How much will he have at the end of 10 years? A) $12,640 B) $22,383 C) $24,839 D) None of the above

b

International Shippers, Inc., have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.) A) $4,214,360 B) $4,551,446 C) $3,900,865 D) $4,875,212

b

Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.) A) 7% B) 7.5% C) 8% D) 8.5%

b

Jarmine Corp. is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual coupons to be the norm, what will be the price of these bonds if the appropriate discount rate is 14 percent? (Round to the closest answer.) A) $852 B) $258 C) $419 D) $841

b

Jason Traders has sales of $833,587, a gross profit margin of 32.4 percent, and inventory of $178,435. What is the company's inventory turnover ratio? A) 4.67 times B) 3.16 times C) 4.1 times D) None of the above

b

Jayadev Athreya has started on his first job. He plans to start saving for retirement early. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years? (Round to the nearest dollar.) A) $2,667,904 B) $3,594,524 C) $1,745,600 D) $5,233,442

b

Jenny Abel is investing $2,500 today and will do so at the beginning of each of the next six years for a total of seven payments. If her investment can earn 12 percent, how much will she have at the end of seven years? (Round to the nearest dollar.) A) $25,223 B) $28,249 C) $31,127 D) $29,460

b

Jenny LePlaz is looking to invest in some five-year bonds that pay annual coupons of 6.25 percent and are currently selling at $912.34. What is the current market yield on such bonds? (Round to the closest answer.) A) 9.5% B) 8.5% C) 6.5% D) 7.5%

b

Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm's accounts receivables turnover and days' sales outstanding? A) 0.24 times; 78.5 days B) 4.26 times; 85.7 days C) 5.2 times; 61.3 days D) None of the above

b

Joan Alexander wants to go on a cruise in three years. She could earn 8.2 percent compounded monthly in an account if she were to deposit the money today. She needs to have $10,000 in three years. How much will she have to deposit today? (Round to the nearest dollar.) A) $6,432 B) $7,826 C) $8,148 D) $7,763

b

Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends that he received for owning the stock during the year? A) $4 B) $5 C) $6 D) $7

b

Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the current market will yield 12 percent. What will be the price that he will get for his bond? (Round to the nearest dollar.) A) $1,044 B) $938 C) $970 D) $1,102

b

LaGrange Corp. has forecasted that over the next four years the average annual after-tax income will be $45,731. The average book value of the manufacturing equipment that is used is $167,095. What is the accounting rate of return? A) 33.3% B) 27.4% C) 29.8% D) 22.3%

b

Largent Supplies Corp. has borrowed to invest in a project. The loan calls for a payment of $17,384 every month for three years. The lender quoted Largent a rate of 8.40 percent with monthly compounding. At what rate would you discount the payments to find amount borrowed by Largent? (Round to two decimal places.) A) 8.40% B) 8.73% C) 8.95% D) None of the above.

b

Link Net, Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2010. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Link Net, Inc.'s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent) A) 15.7% B) 18.5% C) 21.3% D) 13.4%

b

Maricela Sanchez needs to have $25,000 in five years. If she can earn 8 percent on any investment, what is the amount that she will have to invest every year at the end of each year for the next five years? (Round to the nearest dollar.) A) $5,000 B) $4,261 C) $4,640 D) $4,445

b

Markovian Caviar Sales has discovered that the extent of the demand for its caviar harvest is 20,000 tins per year. If the fixed costs for the new product are $2,300,000 and the variable harvest cost per tin is $35, then what price can Markovian charge per tin if the firm needs to break even on a pretax operating cash flow basis? A) $135.00 B) $150.00 C) $185.00 D) None of the above

b

Miles Cyprus Corp. purchased a truck that currently has a book value of $1,000. If the firm sells the truck for $5,000 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 30 percent marginal tax rate? A) $1,200 B) $3,800 C) $4,000 D) $5,000 Ans: B

b

Nemo Haulers is considering whether to purchase a new mini tractor for moving furniture within its warehouse. Nemo calculates that its current mini tractor generates $3,100 of cash flow per year. A new mini tractor would cost $3,000 and would provide cash flow of $4,000 per year for five years. What is the equivalent annual cash flow for the new mini tractor (round to the nearest dollar), and should Nemo purchase the new tractor? Assume the cost of capital for Nemo is 10 percent. A) $3,000, do not purchase the new tractor B) $3,209, purchase the new tractor C) $4,000, purchase the new tractor D) $12,163, purchase the new tractor

b

Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value of their dividends over the next four years? a. $13.50 b. $9.72 c. $12.50 d. $11.63

b

Niles is making an investment with an expected return of 12 percent. If the standard deviation of the return is 4.5 percent, and if Niles is investing $100,000, then what dollar amount is Niles 95 percent sure that he will have at the end of the year? A) $100,000.00 B) $104,597.50 C) $116,500.00 D) $119,402.50

b

Pedro Martinez wants to invest $25,000 in a spa that his sister is starting. He will triple his investment in six years. What is the rate of return that Pedro is being promised? (Rounded to the nearest percent.) A) 18% B) 20% C) 12% D) 25%

b

Petry Corp. is a growing company with sales of $1.25 million this year. The firm expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Petry's sales at the end of five years? (Round to the nearest percent.) A) $2,160,000 B) $3,515,625 C) $1,875,000 D) $2,929,688

b

Prior, Inc., is expected to grow at a constant rate of 9 percent. If the company's next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this stock? (Round to the nearest percent.) a. 13% b. 16% c. 20% d. 21%

b

Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company's bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.) A) $972 B) $1,066 C) $1,014 D) $923

b

Rick Rodriquez plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today? A) $5,276 B) $6,722 C) $6,897 D) $7,140

b

Ronaldinho Trading Co. is required by its bank to maintain a current ratio of at least 1.75, and its current ratio now is 2.1. The firm plans to acquire additional inventory to meet an unexpected surge in the demand for its products and will pay for the inventory with short-term debt. How much inventory can the firm purchase without violating its debt agreement if their total current assets equal $3.5 million? A) $0 B) $777,777 C) $1 million D) None of the above

b

Sally Wilson is planning her retirement. She is presently investing in a 401(k) but needs an additional $500,000 to reach her retirement goal. As luck would have it, Sally just won a brand new car that is worth $36,000 in a raffle. If Sally were to sell the car and invest the $36,000 proceeds at a rate of 6.50%, compounded annually, how long will it be before Sally could retire? (Round off to the nearest 1/10 of a year) A) 36.6 years B) 41.8 years C) 52.2 years D) 24.0 years

b

Security Analysts that have evaluated Concordia Corporation have determined that there is a 15% chance that the firm will generate earnings per share of $2.40; a 60% probability that the firm will generate earnings per share of $3.10; and a 25% probability that the firm will generate earnings per share of $3.80. What are the expected earnings per share for Concordia Corporation? (Round off to the nearest $0.01) A) $3.10 B) $3.17 C) $2.75 D) $2.91

b

Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.) A) 12% B) 16% C) 32% D) 40%

b

Shana Norris wants to buy five-year zero coupon bonds with a face value if $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round to the nearest dollar.) A) $1,023 B) $665 C) $890 D) $1,113

b

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation? A) $8,199,429 B) $9,032,853 C) $9,321,805 D) none of the above

b

Ski & Surf manufactures snow boards. The firm has fixed costs of $1,090,275. The snow boards sell for $335 each and have a variable cost of $165 each. What is the pretax operating cash flow break-even point for Ski & Surf? (Round off to the nearest unit) A) 9,000 B) 6,413 C) 8,511 D) 5,876 Ans: B

b

Stanley Hart invested in a municipal bond that promised an annual yield of 6.7 percent. The bond pays coupons twice a year. What is the effective annual yield (EAY) on this investment? A) 13.4% B) 6.81% C) 6.70% D) None of the above

b

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today. A) Harvest immediately. B) Harvest in year 1. C) Harvest in year 2. D) Harvest in year 3.

b

Super Grocers, Inc., provided the following financial information for the quarter ending September 30, 2006: Depreciation and amortization - $133,414 Net income - $341,463 Increase in receivables - $ 112,709 Increase in inventory - $81,336 Increase in accounts payables - $62,411 Decrease in marketable securities - $31,225 What is the cash flow from operating activities generated during this quarter by the firm? A) $308,458 B) $374,468 C) -$374,468 D) -$308,458

b

The Cyclone Golf Resorts is redoing its golf course at a cost of $2,744,320. It expects to generate cash flows of $1, 223,445, $2,007,812, and $3,147,890 over the next three years. If the appropriate discount rate for the firm is 13 percent, what is the NPV of this project? A) $7,581,072 B) $2,092,432 C) $4,836,752 D) $3,112,459

b

The National Bank of Columbia has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on this stock. What is the current price of this preferred stock given a required rate of return of 8.5 percent? a. $23.06 b. $65.88 c. $37.57 d. $43.25

b

The beta of Elsenore, Inc., stock is 1.6, whereas the risk-free rate of return is 8 percent. If the expected return on the market is 15 percent, then what is the expected return on Elsenore? A) 11.20% B) 19.20% C) 24.00% D) 32.00%

b

The beta of RicciCo.'s stock is 3.2, whereas the risk-free rate of return is 9 percent. If the expected return on the market is 18 percent, then what is the expected return on RicciCo.? A) 28.80% B) 37.80% C) 48.60% D) 57.60%

b

The expected return for Stock V is 24.5 percent. If we know the following information about Stock Z, then what is the probability of the Dynamite state of the world occurring? Return Probability Poor 0.15 0.2 Lukewarm 0.28 0.7 Dynamite! 0.19 ? A) 5% B) 10% C) 15% D) 20%

b

The expected return for Stock Z is 30 percent. If we know the following information about Stock Z, then what return will it produce in the Lukewarm state of the world? Return Probability Poor 0.2 0.25 Lukewarm ? 0.5 Dynamite! 0.4 0.25 A) 20% B) 30% C) 40% D) It is impossible to determine.

b

The expected return on KarolCo. stock is 16.5 percent. If the risk-free rate is 5 percent and the beta of KarolCo is 2.3, then what is the risk premium on the market? A) 2.5% B) 5.0% C) 7.5% D) 10.0%

b

The expected return on Kiwi Computers stock is 16.6 percent. If the risk-free rate is 4 percent and the expected return on the market is 10 percent, then what is Kiwi's beta? A) 1.26 B) 2.10 C) 2.80 D) 3.15

b

Tommie has made an investment that will generate returns that are subject to the state of the economy during the year. Use the following information to calculate the standard deviation of the return distribution for Tommie's investment. State Return Probability Weak 0.13 0.3 OK 0.2 0.4 Great 0.25 0.3 A) 0.0453 B) 0.0467 C) 0.0481 D) 0.0495

b

Transit Insurance Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.) A) $101,766 B) $124,868 C) $251,154 D) $186,250

b

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145. The net working capital of the firm is A) $68,931 B) $63,510 C) $69,655 D) none of the above

b

Trident Corp. has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times interest earned? A) 13 times B) 12 times C) 11 times D) None of the above

b

TurkeyJerkey Dried Meats, Inc., had a degree of accounting operating leverage equal to 1.714 during the most recent period. If the firm's EBITDA was $4,000 and depreciation and amortization was equal to $500, then what was TurkeyJerkey's fixed cash expenses during the same period? A) $1,499 B) $1,999 C) $5,499 D) $5,999

b

What is Provo's free cash flow for 2008? A) $2,400,000 B) $2,600,000 C) $3,400,000 D) $4,000,000

b

What is the MIRR on this project? (Round to the nearest percent.) A) 18% B) 19% C) 20% D) 21%

b

What is the firm's cash flow from operating activities? A) $304,322 B) $299,176 C) $192,602 D) none of the above

b

What is the payback period for this project? A) 2.8 years B) 2.9 years C) 3.1 years D) 3.4 years

b

What is the payback period for this project? A) 2.8 years B) 3.0 years C) 3.2 years D) 3.4 years

b

Wilbon Corp. is evaluating whether it should take over the lease of an ethnic restaurant in Manhattan. The current owner had originally signed a 25-year lease, of which 16 years still remain. The restaurant has been growing steadily at a 7 percent growth for the last several years. Wilbon Corp. expects the restaurant to continue to grow at the same rate for the remaining lease term. Last year, the restaurant brought in net cash flows of $310,000. If the firm evaluates similar investments at 15 percent, what is the present value of this investment? (Round to the nearest dollar.) A) $2,966.350 B) $2,838,182 C) $3,109,460 D) $2,709,124

b

You are considering a project that has an initial cost of $1,200,000. If you take the project, it will produce net cash flows of $300,000 per year for the next six years. If the appropriate discount rate for the project is 10 percent, what is the profitability index of the project? A) 0.09 B) 1.09 C) 2.09 D) 2.18

b

You are interested in investing $10,000, a gift from your grandparents, for the next four years in a mutual fund that will earn an annual return of 8 percent. What will your investment be worth at the end of four years? (Round to the nearest dollar.) A) $10,800 B) $13,605 C) $13,200 D) None of the above

b

You are interested in investing in a company that expects to grow steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year. If your required rate of return is 10 percent, what is the most you would be willing to pay for this stock? (Round to the nearest dollar.) a. $58 b. $61 c. $23 d. $24

b

You have invested 20 percent of your portfolio in Homer, Inc., 40 percent in Marge Co., and 20 percent in Bart Resources. What is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2 percent, 18 percent, and 3 percent, respectfully? A) 7.7% B) 8.2% C) 8.7% D) 9.2% Ans: B Feedback:

b

You invested $3,000 in a portfolio with an expected return of 10 percent and $2,000 in a portfolio with an expected return of 16 percent. What is the expected return of the combined portfolio? A) 6.2% B) 12.4% C) 13.0% D) 13.6% Ans: B Feedback:

b

You need to have $15,000 in five years to payoff a home equity loan. You can invest in an account that pays 5.75 percent compounded quarterly. How much will you have to invest today to attain your target in five years? (Round to the nearest dollar.) A) $4,903 B) $11,275 C) $14,184 D) $12,250

b

Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years? A) $5,434 B) $5,441 C) $5,107 D) $5,216

b

Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio? A) 0.60 B) 1.47 C) 1.74 D) 0

b

Zephyr Electricals is a company with no growth potential. Its last dividend was $4.50, and it expects no change in future dividends. What is the current price of the company's stock given a discount rate of 9 percent? a. $40.50 b. $50.00 c. $45.00 d. $500.00

b

Zidane Enterprises has a current ratio of 1.92, current liabilities of $272,934, and inventory of 197,333. What is the firm's quick ratio? A) 0.72 B) 1.20 C) 1.92 D) None of the above

b

A cement contractor has determined that he will maximize pretax operating cash flow buying a large cement truck if he is able to sell more than 500 yards of cement per month. The price of a yard of cement is $60, and the variable costs for a large truck are $20 per yard. The variable costs for a small truck are $40 per yard, and the fixed costs for the small truck are $10,000. What are the fixed costs associated with the large truck? A) $0 B) $10,000 C) $20,000 D) $30,000

c

Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually. Given the current price of $878.21, what is the yield to maturity on these bonds? A) 11% B) 12% C) 13% D) 14% Ans: C

c

Aquaman Stock has exhibited a standard deviation in stock returns of 0.7, whereas Green Lantern Stock has exhibited a standard deviation of 0.8. The correlation coefficient between the stock returns is 0.1. What is the standard deviation of a portfolio composed of 70 percent Aquaman and 30 percent Green Lantern? A) 0.32122 B) 0.54562 C) 0.56676 D) 0.75000

c

Babaloo Nightclubs. purchased a disco mirror that currently has a book value of $10,000. If Babaloo sells the disco mirror for $500 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 39 percent marginal tax rate? A) $500 B) $3,705 C) $4,205 D) $9,500

c

Becky Sayers wants to buy a house in six years. She hopes to be able to put down $25,000 at that time. If the bank CD she wants to invest in will pay 7.5 percent annually, how much will she have to invest today? (Round to the nearest dollar.) A) $18,472 B) $13,987 C) $16,199 D) $23,256

c

Carlyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Carlyn have at the end of seven years? (Round to the nearest dollar.) A) $5,091 B) $3,548 C) $5,130 D) $5,075

c

Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after taxes? A) $120,140 B) $248,475 C) $79,292 D) $40,848

c

Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This year the company had cash and marketable securities worth $335,485, accounts payables worth $1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes payable worth $313,663, and other current assets of $121,427. What is the company's net working capital? A) $3,596,632 B) $1,801,784 C) $2,123,612 D) $1,673,421

c

Chartworth Associates' financial statements indicated that the company had EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5 percent. Calculate the amount of taxes the company is likely to owe. Tax Rate Taxable Income 15% $0 to $50,000 25 50,001 - 75,000 34 75,001 - 100,000 39 100,001 - 335,000 34 335,001 - 10,000,000 35 10,000,001 - 15,000,000 38 15,000,001 - 18,333,333 35 More than $18,333,333 A) $1,069,607 B) $1,037,732 C) $822,512 D) none of the above

c

Chartworth Associates' financial statements indicated that the company has EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5%. The company is likely to owe $822,512 in taxes. What are the marginal and average tax rates for this company? Tax Rate Taxable Income 15% $0 to $50,000 25 50,001 - 75,000 34 75,001 - 100,000 39 100,001 - 335,000 34 335,001 - 10,000,000 35 10,000,001 - 15,000,000 38 15,000,001 - 18,333,333 35 More than $18,333,333 A) 34%, 35% B) 35%, 34% C) 34%, 34% D) none of the above

c

Chris Collinge has funded a retirement investment with $250,000 earning a return of 5.75 percent. What is the value of the payment that he can receive in perpetuity? (Round to the nearest dollar.) A) $12,150 B) $15,250 C) $14,375 D) $14,900

c

Cleveland Millicrum is considering when to harvest its moldy bread supply for antibiotics. It has calculated that the current NPV dollars for harvesting the bread are increasing according to the following schedule. When should the firm harvest the bread? The cost of capital for the firm is 14 percent. NPV increase if harvested next year over that of harvesting now 25% NPV increase if harvested year 2 over that of harvesting year 1 20% NPV increase if harvested year 3 over that of harvesting year 2 17% NPV increase if harvested year 4 over that of harvesting year 3 13% NPV increase if harvested year 5 over that of harvesting year 4 10% A) Harvest now B) Harvest year 2 C) Harvest year 3 D) Harvest year 4

c

Creighton, Inc., has invested $2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of $424,386, $512,178, $561,755, $764,997, $816,500, and $825,375 over the next six years. What is the payback period, and does this investment meet the firm's payback criteria? A) 4.13 years; no B) 4.13 years; yes C) 3.87 years; yes D) 3.87 years; no

c

Darius Miller is seeking to accumulate $50,000 in six years to invest in a real estate venture. He can earn 6.35 percent annual interest with monthly compounding in a private investment. How much will he have invest today to reach his goal? (Round to the nearest dollar.) A) $37,527 B) $47,015 C) $34,193 D) $31,648

c

Dat Nguyen is depositing $17,500 in an account paying an annual interest rate of 8.25 percent compounded monthly. What is the interest-on-interest after six years? A) $8,662.50 B) $10,925 C) $2,497.63 D) $1,092.48

c

Desire Cosmetics borrowed $152,300 from a bank for three years. If the quoted rate (APR) is 11.75 percent, and the compounding is daily, what is the effective annual rate (EAR)? (Round to one decimal place.) A) 11.75% B) 14.3% C) 12.5% D) 11.6%

c

During 2008, Towson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisition by $109,455, and had marketable securities to the tune of $14,215 mature. What is the net cash provided (used) in investing activities? A) $132,085 B) $145,940 C) -$132,085 D) none of the above

c

Each quarter, Transam, Inc., pays a dividend on its perpetual preferred stock. Today, the stock is selling at $83.45. If the required rate of return for such stocks is 10.5 percent, what is the quarterly dividend paid by this firm? a. $8.76 b. $10.50 c. $2.19 d. $2.63

c

Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.) A) 8 years B) 7 years C) 10 years D) 9 years

c

Fahr Company had depreciation expenses of $630,715, interest expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006. What are the times interest earned and cash coverage ratios for this company? A) 19.4 times; 12.7 times B) 17.3 time; 11.4 times C) 13.8 times; 19.4 times D) None of the above

c

Gao Enterprises plans to build a new plant at a cost of $3,250,000. The plant is expected to generate annual cash flows of $1,225,000 for the next five years. If the firm's required rate of return is 18 percent, what is the NPV of this project? A) $2,875,000 B) $3,830,785 C) $580,785 D) $2,1225,875

c

Given the returns for two stocks with the following information, calculate the covariance of the returns for the two stocks. Assume the expected return is 14.4 percent for Stock 1 and 15.9 percent for Stock 2. Prob Stock 1 Stock 2 0.5 0.11 0.18 0.3 0.17 0.15 0.2 0.19 0.12 A) 0.001204001 B) 0.000549003 C) -0.00079 D) -0.3372012

c

Grant, Inc., is a fast growth stock and expects to grow at a rate of 25 percent for the next four years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 3 and will be equal to $5.00. If the required rate of return is 18 percent, what is the current price of the stock? a. $85.94 b. $97.19 c. $50.59 d. $65.68

c

Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock? A) $7.00 B) $7.50 C) $8.00 D) $8.50

c

Herm Mueller has invested in a fund that will provide him a cash flow of $11,700 for the next 20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow stream? (Round to the nearest dollar.) A) $234,000 B) $132,455 C) $110,721 D) $167,884

c

Huan Zhang bought a 10-year bond that pays 8.25 percent semiannually for $911.10. What is the yield to maturity on this bond? A) 7.6% B) 8.6% C) 9.6% D) 10.6%

c

If Randolph Corp. has accounts receivables of $654,803 and net sales of $1,932,349, what is its accounts receivable turnover? A) 0.34 times B) 1.78 times C) 2.95 times D) None of the above

c

If inflation is anticipated to be 10 percent during the next year while a nominal rate of 20 percent will be earned on U.S. Treasury bills, then what is the accurate real rate of return on these securities? A) 20.00% B) 10.00% C) 9.09% D) None of the above

c

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal rate of return be? A) 14.00% B) 33.00% C) 23.12% D) all of the above

c

In a game of chance, the probability of winning a $50 prize is 40 percent, and the probability of winning a $100 prize is 60 percent. What is the expected value of a prize in the game? A) $50 B) $75 C) $80 D) $100

c

Jack Benny is planning to invest in an insurance company product. The product will pay $10,000 at the end of this year. Thereafter, the payments will grow annually at a 3 percent rate forever. Jack will be able to invest his cash flows at a rate of 6.5 percent. What is the present value of this investment cash flow stream? (Round to the nearest dollar.) A) $326,908 B) $312,766 C) $285,714 D) $258,133

c

Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.) A) $22,680 B) $26,454 C) $16,670 D) $19,444

c

Jack Stuart has loaned money to his brother at an interest rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest. How much did he loan out to his brother? (Round to the nearest dollar.) A) $2,713 B) $2,250 C) $2,404 D) $2,545

c

Jackson Electricals has borrowed $27,850 from its bank at an annual rate of 8.5 percent. It plans to repay the loan in eight equal installments, beginning in a year. What is its annual loan payment? (Round to the nearest dollar.) A) $4,708 B) $5,134 C) $4,939 D) $4,748

c

Jane Ogden wants to save for a trip to Australia. She will need $12,000 at the end of four years. She can invest a certain amount at the beginning of each of the next four years in a bank account that will pay her 6.8 percent annually. How much will she have to invest annually to reach her target? (Round to the nearest dollar.) A) $3,000 B) $2,980 C) $2,538 D) $2,711

c

Jane Thorpe has been offered a seven-year bond issued by Barone, Inc., at a price of 943.22. The bond has a coupon rate of 9 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. Should she buy the bonds at the offered price? (Round to the nearest dollar.) A) Yes, the bond is worth more at $1,015. B) No, the bond is only worth $921. C) Yes, the bond is worth more at $951. D) No, the bond is only worth $912.

c

Jenkins Corporation is investing in a new piece of equipment at a cost of $6 million. The project is expected to generate annual cash flows of $1,850,000 over the next six years. The firm's cost of capital is 20 percent. What is the project's NPV? A) $722,604 B) $351,097 C) $152,194 D) $261,008

c

Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a growth rate of 8 percent for the next several years. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.) a. $74 b. $32 c. $80 d. $60

c

Jorge Cabrera paid $980 for a 15-year bond 10 years ago. The bond pays a coupon of 10 percent semiannually. Today, the bond is priced at $1,054.36. If he sold the bond today, what would be his realized yield? (Round to the nearest percent.) A) 12% B) 8% C) 11% D) 9%

c

Juan and Carla Herman plan to buy a time-share in six years in the amount of $16,860. In order to have adequate funds to do so, the Herman's want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Carla need to deposit today to achieve their goal? (Round off to the nearest dollar.) A) $19,138 B) $ 8,885 C) $12,055 D) $14,243

c

Juventus Corp has total assets of $4,744,288, total debt of $2,912,000, and net sales of $7,212,465. Their net profit margin for the year is 18 percent. What is Juventus's ROA? A) 25.6% B) 18% C) 27.4% D) None of the above

c

Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of rat of return is 15 percent? a. $13.24 b. $12.00 c. $6.57 d. $10.24

c

Lionel, Inc., has current assets of $623,122, including inventory of $241,990, and current liabilities of 378,454. What is the quick ratio? A) 1.65 B) 0.64 C) 1.01 D) None of the above

c

Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $ 412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. How much retained earnings does the firm have? A) $ 405,648 B) $243,648 C) $167,918 D) $573,566

c

Marvelous Corporation has a degree of cash flow operating leverage equal to 1.25. If the firm's EBITDA was $1,000 last year while its depreciation and amortization expense was $50 in the same year, then what was the firm's degree of accounting operating leverage? A) 1.26 B) 1.30 C) 1.32 D) 1.35

c

Mick's Pub's is considering expanding the number of restaurants it owns. If it decides on the expansion, it will invest $2,300,000, and the NPV of the project is $900,000. What is the profitability index of the project? A) 0.39 B) 1.00 C) 1.39 D) 2.39

c

Monochrome Sun Glasses has found that its pretax operating cash flow basis break-even number of glasses sold is 770,000 pairs. If each pair is sold for $25 and the variable cost per unit is $15, then what is the amount of Monochrome's fixed costs? A) $77,000 B) $1,155,000 C) $7,700,000 D) $11,550,000

c

Myers, Inc., will be making lease payments of $3,895.50 for a 10-year period, starting at the end of this year. If the firm uses a 9 percent discount rate, what is the present value of this annuity? (Round to the nearest dollar.) A) $23,250 B) $29,000 C) $25,000 D) $20,000

c

Nathan Akpan is planning to invest in a seven-year bond that pays annual coupons at a rate of 7 percent. It is currently selling at $927.23. What is the current market yield on such bonds? (Round to the closest answer.) A) 10.4% B) 9.5% C) 8.4% D) 7.5%

c

Natural Lite, Inc. reported the following items during fiscal 2010. The firm purchased marketable securities of $87,500, paid down a long-term loan in the amount of $650,000, purchased $4,250,000 of new equipment. The firm also sold $6,250,000 of common stock, paid $350,225 in dividends to its common shareholders, and repurchased $1,250,000 of common stock in the open market. What is the net cash provided by financing activities? (Round off to the nearest) A) $4,575,210 B) $1,733,285 C) $3,999,775 D) $2,467,915

c

Ning Gao is planning to buy a house in five years. She is looking to invest $25,000 today in an index mutual fund that will provide her a return of 12 percent annually. How much will she have at the end of five years? (Round to the nearest dollar.) A) $45,000 B) $28,000 C) $44,059 D) None of the above

c

Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.) A) $319,157 B) $241,329 C) $911,546 D) $689,259

c

Potter Corporation has a degree of cash flow operating leverage equal to 1.266. If the firm's EBITDA was $1,500 last year while its depreciation and amortization expense was $100 in the same year, then what was the firm's degree of accounting operating leverage? A) 1.29 B) 1.33 C) 1.36 D) 1.39

c

RTR Corp. has reported a net income of $812,425 for the year. The company's share price is $13.45, and the company has 312,490 shares outstanding. Compute the firm's price-earnings ratio. A) 4.87 times B) 8.12 times C) 5.17 times D) None of the above

c

Rachael Steele wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Rachael go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.) A) Bank: 9% B) Firm: 7% C) Bank: 8% D) Firm: 6%

c

Roger Barkley wants to set up a scholarship at his alma mater. He is willing to invest $500,000 in an account earning 10 percent. What will be the annual scholarship that can be given from this investment? (Round to the nearest dollar.) A) $5,000 B) $500,000 C) $50,000 D) None of the above

c

Ryan Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.) A) 8 years B) 11 years C) 10 years D) 12 years

c

Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the year is $1,434,500. What is its cash coverage ratio? A) 15.42 times B) 18.34 times C) 14.15 times D) None of the above

c

Signet Pipeline Co. is looking to install new equipment that will cost $2,750,000. The cash flows expected from the project are $612,335, $891,005, $1,132,000, and $1,412,500 for the next four years. What is Signet's internal rate of return? (Round to the nearest percent.) A) 11% B) 13% C) 15% D) 17%

c

Solutions Bank Textbooks had sales and operating expenses of $1 million last year. If the firm had fixed costs of $300,000 on sales of 35,000 books, then what is the firm's per-unit contribution? A) $28.57 B) $20.00 C) $8.57 D) None of the above

c

Sorenstam Corp has an equity multiplier of 2.34 times, total assets of $4,512,895, a ROE of 17.5 percent, and a total assets turnover of 3.1 times. Calculate the firm's ROA. A) 6.23% B) 4.53% C) 7.48% D) 5.79%

c

Stump Storage Co. is expecting to generate after-tax income of $155,708, $159,312, and $161,112 for each of the next three years. The equipment used will have an average book value of $251,575 over that period. What is the ARR? A) 65.7% B) 69.4% C) 63.1% D) 66.8%

c

Suppose Franklin Corporation had pre-tax income of $300,000 in 2010 and that the firm would have paid $100,250.00 in federal income taxes. What is Franklin's average income tax rate? (Round off to the nearest 0.1%) A) 39.0% B) 34.7% C) 33.4% D) 38.6%

c

Suppose a firm's expected dividends for the next three years are as follows: D1 = $1.10, D2 = $1.20, and D3 = $1.30. After three years, the firm's dividends are expected to grow at 5.00 percent per year. What is should the current price of the firm's stock (P0) be today if investors require a rate of return of 12.00 percent on the stock? (Round off to the nearest $0.01) A) $61.30 B) $10.10 C) $16.74 D) $24.12

c

Suppose an investor earned a semiannual yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? A) 12.80% B) 6.40% C) 6.50% D) None of the above

c

The U.S. Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be the current market price of these bonds if the opportunity cost for similar investments in the market is 6.75 percent? (Round to the nearest dollar.) A) $684 B) $860 C) $515 D) $604

c

The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock? a. $9.75 b. $11.32 c. $10.76 d. $8.53 Ans: c

c

The return distribution for an asset is as shown in the following table. What are the missing values if the expected return is 10 percent? Return Probability 0.1 0.25 x 0.5 x 0.25 A) 0.20 B) 0.15 C) 0.10 D) None of the above

c

The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz? A) 8.40% B) 10.80% C) 13.80% D) 19.20%

c

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? Round to the nearest dollar. A) $1,023 B) $1,137 C) $916 D) $897

c

TuleTime Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project? A) 0.11 B) 0.90 C) 1.11 D) 1.90

c

Use the following table to calculate the expected return for the asset. Return Probability 0.05 0.1 0.1 0.15 0.15 0.5 0.25 0.25 A) 12.50% B) 13.75% C) 15.75% D) 16.75%

c

Use the following table to calculate the expected return for the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 15.00% B) 17.50% C) 18.75% D) 20.00%

c

Use the tax rate taken from Exhibit 11.6 to calculate the average tax rate for Lansing, Inc., this year. Lansing's pretax income was $275,000. Exhibit 11.6 U.S. Corporate Tax Rate Schedule in 2007 Taxable Income More Than But Not More Than Tax Owed $0 $50,000 15% of amount beyond $0 $50,000 $75,000 $7,500 + 25% of amount beyond $50,000 $75,000 $100,000 $13,750 + 34% of amount beyond $75,000 $100,000 $335,000 $22,250 + 39% of amount beyond $100,000 $335,000 $10,000,000 $113,900 + 34% of amount beyond $335,000 $10,000,000 $15,000,000 $3,400,000 + 35% of amount beyond $10,000,000 $15,000,000 $18,333,333 $5,150,000 + 38% of amount beyond $15,000,000 $18,333,333 ------- 35% on all income A) 8.2% B) 24.8% C) 33.0% D) 39.0%

c

Use the tax rate taken from Exhibit 11.6 to calculate the total taxes paid for Lansing, Inc., this year. Lansing's pretax income was $275,000. Exhibit 11.6 U.S. Corporate Tax Rate Schedule in 2007 Taxable Income More Than But Not More Than Tax Owed $0 $50,000 15% of amount beyond $0 $50,000 $75,000 $7,500 + 25% of amount beyond $50,000 $75,000 $100,000 $13,750 + 34% of amount beyond $75,000 $100,000 $335,000 $22,250 + 39% of amount beyond $100,000 $335,000 $10,000,000 $113,900 + 34% of amount beyond $335,000 $10,000,000 $15,000,000 $3,400,000 + 35% of amount beyond $10,000,000 $15,000,000 $18,333,333 $5,150,000 + 38% of amount beyond $15,000,000 $18,333,333 ------- 35% on all income A) $22,500 B) $68,250 C) $90,750 D) $107,250

c

What is Champagne's cash flow from operations for 2008? A) $2,050,000 B) $2,500,000 C) $3,250,000 D) $4,000,000

c

What is Provo's cash flow from operations for 2008? A) $2,400,000 B) $2,600,000 C) $3,400,000 D) $4,000,000

c

What is Provo's cash flows associated with investments for 2008? A) $300,000 B) $500,000 C) $800,000 D) None of the above.

c

What is the discounted payback period for this project? A) 3.9 years B) 4.3 years C) 4.7 years D) 5.1 years

c

What is the firm's cash flow from investing activities? A) $0 B) $46,124 C) -$46,124 D) none of the above

c

What is the internal rate of return that Jamaica can earn on this project? (Round to the nearest percent.) A) 18% B) 19% C) 20% D) 21%

c

What is the net present value of this project? (Round to the nearest million dollars.) A) $10 million B) $12 million C) $14 million D) $16 million

c

Elrond has made an investment that will generate returns that are subject to the state of the economy. Use the following information to calculate the variance of the return distribution for Elrond's investment. State Return Probability Weak 0.10 0.8 OK 0.17 0.1 Great 0.28 0.1 A) 0.0536 B) 0.0543 C) 0.0550 D) 0.0557

d

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project would increase over an immediate harvest by 25 percent. A year 2 harvest would create an NPV increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7 percent over that of year 2. If the cost of capital is 12 percent for Windy, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today. A) Harvest immediately. B) Harvest in year 1. C) Harvest in year 2. D) Harvest in year 3.

c

Xinhua Manufacturing Company has been generating stable revenues but sees no growth in it for the foreseeable future. The company's last dividend was $3.25, and it is unlikely to change the amount paid out. If the required rate of return is 12 percent, what is the stock worth today? a. $39.00 b. $3.69 c. $27.08 d. $21.23

c

You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio? A) 15.2% B) 16.0% C) 16.8% D) 17.6%

c

You have observed that the average size of a particular goldfish is 1.5 inches long. The standard deviation of the size of the goldfish is 0.25 inches. What is the size of a goldfish such that 95 percent of the goldfish are smaller? Assume a normal distribution for the size of goldfish. A) 1.01 inches B) 1.09 inches C) 1.91 inches D) 1.99 inches

c

You know that the average college student eats 0.75 pounds of food at lunch. If the standard deviation of that eating is 0.2 pounds of food, then what is the total amount of food that a cafeteria should have on hand to be 95percent confident that it will not run out of food when feeding 50 college students. A) 17.90 pounds B) 21.05 pounds C) 53.95 pounds D) 57.10 pounds

c

You plan to save $1,250 at the end of each of the next three years to pay for a vacation. If you can invest it at 7 percent, how much will you have at the end of three years? (Round to the nearest dollar.) A) $3,750 B) $3,918 C) $4,019 D) $4,589

c

Your firm is deciding whether to purchase a durable delivery vehicle or a short-term vehicle. The durable vehicle costs $25,000 and should last five years. The short-term vehicle costs $10,000 and should last two years. If the cost of capital for the firm is 15 percent, then what is the equivalent annual cost for the best choice for the firm? (Round to the nearest dollar.) A) $5,000, either vehicle B) $5,000, short-term vehicle C) $6,151, short-term vehicle D) $7,458, long-term vehicle

c

Your firm is deciding whether to purchase a high-quality printer for your office or one of lesser quality. The high-quality printer costs $40,000 and should last four years. The lesser quality printer costs $30,000 and should last three years. If the cost of capital for the firm is 13 percent, then what is the equivalent annual cost for the best choice for the firm? Round to the nearest dollar. A) $10,000, either printer B) $10,000, lesser quality printer C) $12,706, lesser quality printer D) $13,448, high-quality printer

c

Your inheritance will pay you $100,000 a year for five years beginning now. You can invest it in a CD that will pay 7.75 percent annually. What is the present value of your inheritance? (Round to the nearest dollar.) A) $399,356 B) $401,916 C) $433,064 D) $467,812

c

Ahmet purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to Ahmet from owning the stock? (Round your answer to the nearest whole percent.) A) 5% B) 44% C) 35% D) 50%

d

Ambassador Corp. sells household cleaners producing a revenue stream that has remained unchanged in the last few years. The firm does not expect any change in its sales or earnings in the next several years. The stock is currently selling at $46.88. If the required rate of return is 16 percent, what is the dividend paid by this company? a. $2.93 b. $4.65 c. $6.89 d. $7.50

d

Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $85.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round off to the nearest $0.01) A) $89.50 B) $65.37 C) $94.10 D) $77.82

d

Books Brothers stock was priced at $15 per share two years ago. The stock sold for $13 last year and now it sells for $18. What was the total return for owning Books Brothers stock during the most recent year? Assume that no dividends were paid and round to the nearest percent. A) 17% B) 20% C) 23% D) 38%

d

Brittany Willis is looking to invest for retirement, which she hopes will be in 20 years. She is looking to invest $22,500 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.) A) $68,870 B) $50,625 C) $75,642 D) None of the above

d

Cheryl Merriweather wants to invest in a bank CD that will pay her 7.8 percent annually. If she is investing $11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.) A) 5 years B) 7 years C) 2 years D) 4 years

d

ClockWatchers is about to introduce a new employee monitoring tool and has determined that it will charge $100 per unit. The firm must decide whether or not to purchase a high-capacity manufacturing machine. If the high-capacity machine is selected, then the cash fixed costs will be $5,000 per year, with variable costs of $50 per unit and depreciation and amortization expenses of $2,000. Otherwise the fixed costs will be $2,000, with variable costs of $75 per unit and depreciation and amortization expenses of $500. If EBIT Break-even is how the firm evaluates its projects, then above what level of expected sales should ClockWatchers choose the high fixed cost alternative? A) 60 units B) 90 units C) 120 units D) 180 units

d

Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project? A) $1,802,554 B) $197,446 C) -$1,802,554 D) -$197,446

d

Farmer Ag owns a special species of cotton-producing plant that, if left unharvested, grows a bigger bowl of cotton through time. The NPV, at the beginning of the year that harvesting takes place, is as follows. When should Farmer Ag harvest its cotton? Assume a discount rate of 14 percent. NPV1 = $50,000 NPV2 = $60,000 NPV3 = $69,000 NPV4 = $77,280 NPV5 = $85,008 A) Harvest now B) Harvest in year 1 C) Harvest in year 2 D) Harvest in year 3

d

Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round to the nearest dollar.) A) $2,735,200 B) $2,615,432 C) $2431,224 D) $2,815,885

d

FireRock Wheel Corp is evaluating a project in which there is a 40 percent probability of revenues totaling $3 million and a 60 percent probability of revenues totaling $1 million per year. If cash expenses will be $1.0 million while depreciation expense will be $200,000, then what is the expected free cash flow from taking the project if the marginal tax rate for the firm is 30 percent? A) $200,000 B) $420,000 C) $600,000 D) $620,000

d

Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.) A) 7% B) 8% C) 9% D) 10%

d

Galan Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts receivables of $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of $22,000, and retained earnings of $14,008. How much long-term debt does the firm have? A) $54,342 B) $76,342 C) $12,314 D) $18,334

d

GenTech Pharma has reported the following information: Sales/Total assets = 2.89; ROA = 10.74%; ROE = 20.36% What are the firm's profit margin and equity multiplier? A) 7.1%; 0.53 B) 7.1%; 1.90 C) 3.7%; 0.53 D) 3.7%; 1.90

d

Given the returns for two stocks with the following information, calculate the correlation coefficient of the returns for the two stocks. Assume the expected return is 14.4 percent for Stock 1 and 15.9 percent for Stock 2. Prob Stock 1 Stock 2 0.5 0.11 0.18 0.3 0.17 0.15 0.2 0.19 0.12 A) 0.001204001 B) 0.000549003 C) -0.00271370 D) -0.971689

d

Givens, Inc., is a fast growing technology company that paid a $1.25 dividend last week. The company's expected growth rates over the next four years are as follows: 25 percent, 30 percent 35 percent, and 30 percent. The company then expects to settle down to a constant-growth rate of 8 percent annually. If the required rate of return is 12 percent, what is the present value of the dividends over the fast growth phase? a. $1.25 b. $6.46 c. $8.37 d. $7.23

d

Herbert Hall just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Herbert can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.) A) $237,416 B) $ 71,550 C) $184,622 D) $162,113

d

If a random variable is drawn from a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations larger than the mean? A) 1.25% B) 2.50% C) 3.75% D) 5.00%

d

Jeff Conway wants to receive $25,000 in perpetuity and will invest his money in an investment that will earn a return of 13.5 percent annually. What is the value of the investment that he needs to make today to receive his perpetual cash flow stream? (Round to the nearest dollar.) A) $640,225 B) $252,325 C) $144,350 D) $185,185

d

Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Round to the nearest dollar.) A) $951 B) $882 C) $1,033 D) $1,195

d

Joachim Noah is investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest-on-interest if interest is compounded? A) $1,012.50 B) $1,082.38 C) $82.38 D) $69.88

d

John Harper has borrowed $17,400 to pay for his new truck. The annual interest rate on the loan is 9.4 percent, and the loan needs to be repaid in four payments. What will be his annual payment if he begins his payment beginning now? (Round to the nearest dollar.) A) $5,229 B) $5,450 C) $4,850 D) $4,953

d

John Hsu wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.) A) $54,233 B) $63,837 C) $91,324 D) $40,351

d

John Wong purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent semiannually. What will be his yield to maturity? A) 6.7% B) 6.2% C) 5.9% D) 5.7%

d

Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. The firm's cost of capital is 10 percent. What is the discounted payback period for this project? If their acceptance period is three years, will this project be accepted? A) 2.7 years; yes B) 4.7 years; no C) 2.3 years; yes D) 4.3 years; no

d

Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted? A) 2.67 years; yes B) 2.67 years; no C) 3.33 years; yes D) 3.33 years; no

d

Lorraine Jackson won a lottery. She will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. If she can earn a return of 10 percent on any investment she makes, what is the minimum amount she should be willing to accept today as a lump-sum payment? (Round to the nearest hundred dollars.) A) $750,000 B) $334,600 C) $212,400 D) $235,700

d

Lowell Communications, Inc., has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.7 million over the next 10 years. What is this project's internal rate of return? (Round to the nearest percent.) A) 10% B) 12% C) 14% D) 16%

d

Mark Holcomb has a five-year loan on which he will make annual payments of $2,235, beginning now. If the interest rate on the loan is 8.3 percent, what is the present value of this annuity? (Round to the nearest dollar.) A) $9,588 B) $8,854 C) $8,612 D) $9,122

d

Max's Brakes is introducing a new revolutionary brake-pad for vehicles that will never wear out. Max's will sell the pads for $100 a pair, and they will cost $80 in variable costs to produce. If cash fixed expenses are $1,500 per year and the depreciation and amortization expenses are $600 per year, then what is the Accounting Operating Profit Break-Even point for Max's? A) 8 pairs B) 21 pairs C) 75 pairs D) 105 pairs

d

Metasteel Limited Co. has a stable sales track record but does not expect to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price? a. $103.50 b. $13.50 c. $39.30 d. $31.94

d

Modern Federal Bank is setting up a brand new branch. The cost of the project will be $1.2 million. The branch will create additional cash flows of $235,000, $412,300, $665,000 and $875,000 over the next four years. The firm's cost of capital is 12 percent. What is the internal rate of return on this branch expansion? (Round to the nearest percent.) A) 20% B) 23% C) 25% D) 27%

d

Myers Limited is considering the purchase of automated equipment that is expected to generate an NPV of $632,500. The cost of the equipment is $2,375,500. What is the profitability index of the project? (Round off to the nearest 0.01) A) 1.54 B) 1.12 C) 1.44 D) 1.27

d

Normandy Textiles had a cash inflow of $1 million, which it needs for a long-term investment at the end of one year. It plans to deposit this money in a bank CD that pays daily interest at 3.75 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.) A) $1,211,375 B) $1,000,103 C) $1,037,500 D) $1,038,210

d

Norwood Investments is putting out a new product. The product will pay out $25,000 in the first year, and after that the payouts will grow by an annual rate of 2.5 percent forever. If you can invest the cash flows at 7.5 percent, how much will you be willing to pay for this perpetuity? (Round to the nearest dollar.) A) $312,000 B) $233,000 C) $250,000 D) $500,000

d

Parrino Corporation has announced that its net income for the year ended June 30, 2008, is $1,824,214. The company had an EBITDA of $ 5,174,366, and its depreciation and amortization expense was equal to $1,241,790. The company's average tax rate is 34 percent. What is the amount of interest expense for the firm? A) $2,763,961 B) $939,747 C) $1,187,720 D) $1,168,615

d

Ray Seo has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment? A) 9.3% B) 8.7% C) 11.1% D) 10.4%

d

Richard Delgado invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest-on-interest be after two years? A) $1,218.63 B) $1,150.00 C) $33.06 D) $68.63

d

Ryder Supplies has its stock currently selling at $63.25. The company is expected to grow at a constant rate of 7 percent. If the appropriate discount rate is 17 percent, what is the expected dividend, a year from now? a. $4.43 b. $3.25 c. $10.75 d. $6.33

d

Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.) A) $27,150 B) $29,900 C) $30,455 D) $31,504

d

Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.) A) 11.5% B) 11.8% C) 12.5% D) 12.2%

d

SunBucks Tea Supplies had EBITDA of $3,000 and EBIT of $2,750, with fixed cash expenses of $600 last year. What was SunBucks degree of accounting operating leverage? A) 1.20 B) 1.25 C) 1.28 D) 1.31

d

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have? A) $1,844,022 B) $2,303,010 C) $2,123,612 D) $803,010

d

The Columbia Consumer Products Co. has issued perpetual preferred stock with a $100 par value. The firm pays a quarterly dividend of $2.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent? a. $47.25 b. $80.00 c. $20.80 d. $83.20

d

The covariance of the returns between Wildcat Stock and Sun Devil Stock is 0.09875. The variance of Wildcat is 0.2116, and the variance of Sun Devil is 0.1369. What is the correlation coefficient between the returns of the two stocks? A) 0.170200 B) 0.293347 C) 0.340823 D) 0.578731

d

The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns? Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 0.002969 B) 0.000613 C) 0.015195 D) 0.054486

d

The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate? A) 4.5% B) 5.0% C) 5.5% D) 6.0%

d

Tommie Harris is considering an investment that pays 6.5 percent annually. How much must he invest today such that he will have $25,000 in seven years? (Round to the nearest dollar.) A) $23,474 B) $38,850 C) $26,625 D) $16,088

d

Vidmar Agencies is a fast-growing advertising agency. Currently, their sales are at $700,000. They expect their sales to grow at an annual rate of 35 percent in the next two years, followed by an annual rate of 25 percent in years 3 through 7. Finally, their growth rate would slow down to 10 percent in years 8-10. What will be their sales as of year 10? (Round to the nearest dollar.) A) $1,698,023 B) $2,843,323 C) $3,893,280 D) $5,181,956

d

View Point Industries has forecast a rate of return of 20.00% if the economy booms (25.00% probability); a rate of return of 15.00% if the economy in in a growth phase (45.00% probability); a rate of return of 2.50% if the economy in in decline (20.00% probability); and a rate of return of -15.00% if the economy in a depression (10.00% probability). What is View Point's standard deviation of returns? A) 17.31% B) 9.25% C) 15.00% D) 10.46%

d

What is the firm's cash flow from financing activities? A) -$66,405 B) $61,656 C) -$61,656 D) -$182,057

d

What is the internal rate of return on this project? (Round to the nearest percent.) A) 17% B) 18% C) 19% D) 20%

d

What is the internal rate of return that Turnbull can earn on this project? (Round to the nearest percent.) A) 41% B) 42% C) 43% D) 44%

d

What is the net present value of this project? A) $645,366 B) $1,213,909 C) $905,888 D) $777,713

d

Yoo Computers is introducing a new game system that promises to never become outdated. Yoo will sell the systems for $200, and it will accrue $130 in variable costs to produce. If cash fixed expenses are $35 million per year and the depreciation and amortization expenses are $7 million per year, then what is the Accounting Operating Profit Break-Even point for Yoo? A) 210,000 units B) 323,077 units C) 500,000 units D) 600,000 units

d

You have been asked to analyze an investment project. The project's cost is $180,000. Cash inflows are projected to be: year 1 = $55,000, year 2 = $65,000; year 3 = $75,000; year 4 = $85,500; year 5 = $95,000. What is the investment project's payback? (Round off to the nearest (0.1 years) A) 4.1 years B) 1.6 years C) 3.5 years D) 2.8 years

d

You plan to save $1,400 for the next four years, beginning now, to pay for a vacation. If you can invest it at 6 percent, how much will you have at the end of four years? Round to the nearest dollar. A) $6,124 B) $5,618 C) $4,019 D) $6,492

d

Your firm is considering an investment that will cost $750,000 today. The investment will produce cash flows of $250,000 in year 1, $400,000 in year 2, and $600,000 in year 3. The discount rate that your firm uses for projects of this type is 11.75%. What is the investment's equivalent annual cost? (Round off to the nearest) A) $163,613 B) $225,008 C) $ 68,888 D) $ 92,845

d

Your friend recommends that you invest in a three-year bond issued by Trimer, Inc., that will pay annual coupons of 10 percent. Similar investments today will yield 6 percent. How much should you pay for the bond? (Round to the nearest dollar.) A) $1,024 B) $979 C) $886 D) $1,107

d

Zhijie Jiang is saving to buy a new car in four years. She will save $5,500 at the end of each of the next four years. If she invests her savings at 6.75 percent, how much will she have after four years? (Round to the nearest dollar.) A) $22,000 B) $23,345 C) $27,556 D) $24,329

d