Finance Final, Fk Pirim (Exams1-3)

Which one of the following refers to the relationship between nominal returns, real returns, and inflation? A. Fisher effect B. Clean-dirty spread C. Bid-ask spread D. Conversion ratio E. Call premium

A. Fisher effect

If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent, what is the approximate real rate of interest? The exact real rate? A. 0.40 percent; 3.89 percent B. 6.00 percent; 5.87 percent C. 6.00 percent; 5.92 percent D. 6.00 percent; 5.67 percent E. 0.40 percent; 3.98 percent

A. 0.40 percent; 3.89 percent

Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013. The bonds pay interest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the current yield? A. 5.43 percent B. 5.77 percent C. 5.50 percent D. 5.39 percent E. 5.61 percent

A. 5.43 percent

Last year, when the stock of Alpha Minerals was selling for $55 a share, the dividend yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.5 percent? A. 6.90 percent B. 7.40 percent C. 7.47 percent D. 6.58 percent E. 6.13 percent

A. 6.90 percent

Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account?

B. $132,827.88

Spiral Staircase is offering preferred stock which is commonly referred to as 10-10 stock. This stock will pay an annual dividend of $10 a share starting 10 years from now. What is this stock worth to you today if you desire a 15 percent rate of return? A. $19.63 B. $18.95 C. $20.52 D. $20.94 E. $16.70

B. $18.95

Precision Engineering invested $110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn over this period of time? A. $2,481.25 B. $2,911.30 C. $3,014.14 D. $3,250.00 E. $3,333.33

B. $2,911.30

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at the level through year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share? A. $24.57 B. $25.51 C. $26.84 D. $26.08 E. $26.02

B. $25.51

Horseshoe Stables is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $0.90 a share but all future dividends will be decreased by 10 percent annually. What is a share of this stock worth today at a required return of 15 percent? A. $3.95 B. $3.24 C. $3.59 D. $3.06 E. $3.41

B. $3.24

The Three Amigos Restaurant just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share the next two years, respectively. After that, the firm expects to maintain a constant dividend growth rate of 2 percent per year. What is the value of this stock today if the required return is 15 percent? A. $29.61 B. $33.93 C. $30.66 D. $27.64 E. $33.05

B. $33.93

At the end of this month, Les will start saving $150 a month for retirement through his company's retirement plan. His employer will contribute an additional $0.50 for every $1.00 that he saves. If he is employed by this firm for 30 more years and earns an average of 10.5 percent on his retirement savings, how much will Les have in his retirement account 30 years from now? A. $389,406.19 B. $566,190.22 C. $401,005.25 D. $540,311.67 E. $603,289.01

B. $566,190.22

The Food Store is planning a major expansion for four years from today. In preparation for this, the company is setting aside $35,000 each quarter, starting today, for the next four years. How much money will the firm have when it is ready to expand if it can earn an average of 6.25 percent on its savings? A. $610,411.20 B. $640,516.63 C. $528,409.29 D. $662,009.14 E. $540,288.16

B. $640,516.63

Business Solutions, Inc. is expected to pay its first annual dividend of $1.00 per share three years from now. Starting in year 6, the company is expected to start increasing the dividend by 2 percent per year. What is the value of this stock today at a required return of 12 percent? A. $9.03 B. $7.70 C. $8.29 D. $9.34 E. $8.09

B. $7.70

Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a 6 percent coupon and pays interest semiannually. There are two months until the next coupon date. What is the clean price of this bond? A. $987 B. $967 C. $947 D. $957 E. $977

B. $967

Which one of the following statements is correct? A. Interest payments to bondholders as well as dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm. B. Both preferred stock and corporate bonds can be callable. C. Bondholders generally receive a fixed payment while preferred shareholders receive a variable payment. D. Both preferred stock and corporate bonds have a stated liquidation value of $1,000 each. E. Preferred shareholders receive preferential treatment over bondholders in a liquidation

B. Both preferred stock and corporate bonds can be callable.

Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A. Decrease in the total asset turnover B. Decrease in the capital intensity ratio C. Increase in days' sales in receivables D. Decrease in the profit margin E. Decrease in the inventory turnover rate

B. Decrease in the capital intensity ratio

Which one of the following is a capital structure decision? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when suppliers should be paid

B. Establishing the preferred debt-equity level

Which one of the following is a capital budgeting decision? A. determining how much debt should be borrowed from a particular lender B. deciding whether or not to open a new store C. deciding when to repay a long-term debt D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account

B. deciding whether or not to open a new store

Book value: A. is equivalent to market value for firms with fixed assets. B. is based on historical cost. C. generally tends to exceed market value when fixed assets are included. D. is more of a financial than an accounting valuation. E. is adjusted to market value whenever the market value exceeds the stated book value.

B. is based on historical cost.

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities. A. coupon rate B. maturity C. face value D. issue date E. market price

B. maturity

The daily financial operations of a firm are primarily controlled by managing the: A. total debt level. B. working capital. C. capital structure. D. capital budget. E. long-term liabilities.

B. working capital.

You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment is one month from now. What is the dirty price of this bond? A. $1,180.00 B. $1,000.00 C. $1,173.33 D. $1,146.67 E. $1,176.67

C. $1,173.33

. What is the change in the net working capital from 2005 to 2006? A. $1,235 B. $1,035 C. $1,335 D. $3,405 E. $4,740

C. $1,335

This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the annual dividend increases at 3.5 percent annually. What will your capital gain be on this stock if you sell it three years from now? A. $2.51 B. $2.87 C. $2.43 D. $2.92 E. $2.63

C. $2.43

What is the net present value of the following cash flows if the relevant discount rate is 9.0 percent? A. $5,006.19 B. $13,058.39 C. $3,374.11 D. $18,519.71 E. $8,215.46

C. $3,374.11

Laura Lynn owns 20,700 shares of Global Exporters. Her shares have a total market value of $787,270. In total, the firm has 65,000 shares outstanding. Each share is entitled to one vote under the straight voting policy of the firm. The next election is in four months at which time two directors are up for election. How much more must Laura Lynn invest in this firm to guarantee that she is elected to the board? A. $498,406 B. $0 C. $448,820 D. $547,478 E. $396,554

C. $448,820

Last year, The Pizza Joint added $4,100 to retained earnings from sales of $93,600. The company had costs of $74,400, dividends of $2,500, and interest paid of $1,400. The tax rate was 34 percent. What was the amount of the depreciation expense? A. $7,300 B. $7,500 C. $7,800 D. $8,100 E. $8,400

C. $7,800

A loan that compounds interest monthly has an EAR of 14.40 percent. What is the APR? A. 13.96 percent B. 14.10 percent C. 13.53 percent D. 14.07 percent E. 13.59 percent

C. 13.53 percent

Baugh & Essary has net income of $149,200, sales of $936,800, a capital intensity ratio of 0.74, and an equity multiplier of 1.5. What is the return on equity? A. 6.67 percent B. 15.93 percent C. 32.25 percent D. 42.21 percent E. 44.09 percent

C. 32.25 percent

Today is your 21st birthday and you just decided to start saving money so you can retire early. Thus, you are going to save $500 a month starting one month from now. You plan to retire as soon as you can accumulate $1 million. If you can earn an average of 8 percent on your savings, how old will you be when you retire? A. 33.39 years old B. 42.87 years old C. 54.39 years old D. 64.71 years old E. 63.87 years old

C. 54.39 years old

Midterm 2 Start: The Dairy Delight wants to raise $1.0 million by selling some coupon bonds at par. Comparable bonds in the market have a 6.5 percent annual coupon, 15 years to maturity, and are selling at 98 percent of par. What coupon rate should The Dairy Delight set on its bonds? A. 6.48 percent B. 6.25 percent C. 6.72 percent D. 6.67 percent E. 6.50 percent

C. 6.72 percent

Neal's Nails has an 11% return on assets and a 30% dividend payout ratio. What is the internal growth rate? A. 7.11% B. 7.70% C. 8.34% D. 8.46% E. 11.99%

C. 8.34%

Whitts BBQ would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds? A. 9.00 percent B. 9.68 percent C. 9.50 percent D. 9.16 percent E. 10.00 percent

C. 9.50 percent

Which one of the following statements is correct, all else held constant? A. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. B. WACC is applicable only to firms that issue both common and preferred stock. C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred. E. The aftertax cost of debt increases when the market price of a bond increases.

C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options.

The current yield on a bond is equal to the annual interest divided by which one of the following? A. Current par value B. Issue price C. Current market price D. Face amount E. Maturity value

C. Current market price

Which one of the following is the price that an investor pays to purchase an outstanding bond? A. Face value B. Clean price C. Dirty price D. Bid price E. Call price

C. Dirty price

Scott borrowed $2,500 today. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type of loan is referred to as a(n): A. interest-only loan. B. quoted rate loan. C. pure discount loan. D. compound interest loan. E. amortized loan.

C. pure discount loan

Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis. A. daily B. annual C. semiannual D. quarterly E. monthly

C. semiannual

Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios. A. asset management B. long-term solvency C. short-term solvency D. profitability E. market value

C. short-term solvency

One key reason a long-term financial plan is developed is because: A. the plan determines your financial policy. B. the plan determines your investment policy. C. there are direct connections between achievable corporate growth and the financial policy. D. there is unlimited growth possible in a well-developed financial plan. E. None of the above.

C. there are direct connections between achievable corporate growth and the financial policy.

What is the primary purpose of bond covenants? A. Meet regulatory requirements B. Describe repayment terms C. Increase a bond's seniority position D. Protect the lender E. Define a bond's rating

D. Protect the lender

Which one of the following situations is most apt to create an agency conflict? A. Compensating a manager based on his or her division's net income B. Giving all employees a bonus if a certain level of efficiency is maintained C. Hiring an independent consultant to study the operating efficiency of the firm D. Rejecting a profitable project to protect employee jobs E. Selling an underproducing segment of the firm

D. Rejecting a profitable project to protect employee jobs

Free cash flow is: A. without cost to the firm. B. net income plus taxes. C. an increase in net working capital. D. cash that the firm is free to distribute to creditors and stockholders. E. None of the above.

D. cash that the firm is free to distribute to creditors and stockholders.

The written agreement that contains the specific details related to a bond issue is called the bond: A. document. B. debenture. C. issue paper. D. indenture. E. registration statement.

D. indenture.

A note is a(n): A. formal type of loan that is secured by real estate. B. written agreement that details the information relative to a bond issue. C. long-term debt secured by part, or all, of the assets of the borrower. D. unsecured debt that is generally payable within the next 10 years. E. debt that is secured by a borrower's accounts receivable.

D. unsecured debt that is generally payable within the next 10 years.

You purchase a bond with a coupon rate of 7 percent, semiannual coupons, and a clean price of $1,011. If the next coupon payment is due in four months, what is the invoice price? A. $1,031.00 B. $1,044.33 C. $1,037.67 D. $1,029.36 E. $1,022.67

E. $1,022.67

You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment is one month from now. What is the dirty price of this bond? A. $1,176.67 B. $1,000.00 C. $1,180.00 D. $1,146.67 E. $1,173.33

E. $1,173.33

What is the amount of net new borrowing for 2006? A. -$225 B. -$25 C. $0 D. $25 E. $225

E. $225

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at the level through year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share? A. $26.84 B. $26.02 C. $24.57 D. $26.08 E. $25.51

E. $25.51

Today, you are borrowing $13,800 to purchase a car. What will be your monthly payment amount if the loan is for four years at 7.5 percent interest? A. $298.40 B. $400.10 C. $380.24 D. $321.150 E. $333.67

E. $333.67

General Importers announced today that its next annual dividend will be $2.60 per share. After that dividend is paid, the company expects to encounter some financial difficulties and is going to suspend dividends for five years. Following the suspension period, the company expects to pay a constant annual dividend of $1.30 per share. What is the current value of this stock if the required return is 18 percent? A. $3.89 B. $3.01 C. $3.55 D. $4.27 E. $4.88

E. $4.88

Laura Lynn owns 20,700 shares of Global Exporters. Her shares have a total market value of $787,270. In total, the firm has 65,000 shares outstanding. Each share is entitled to one vote under the straight voting policy of the firm. The next election is in four months at which time two directors are up for election. How much more must Laura Lynn invest in this firm to guarantee that she is elected to the board? A. $0 B. $396,554 C. $498,406 D. $547,478 E. $448,820

E. $448,820

At the end of this month, Les will start saving $150 a month for retirement through his company's retirement plan. His employer will contribute an additional $0.50 for every $1.00 that he saves. If he is employed by this firm for 30 more years and earns an average of 10.5 percent on his retirement savings, how much will Les have in his retirement account 30 years from now? A. $540,311.67 B. $603,289.01 C. $389,406.19 D. $401,005.25 E. $566,190.22

E. $566,190.22

New Gadgets is growing at a very fast pace. As a result, the company expects to pay annual dividends of $0.55, 0.80, and $1.10 per share over the next three years, respectively. After that, the dividend is projected to increase by 5 percent annually. The last annual dividend the firm paid was $0.40 a share. What is the current value of this stock if the required return is 16 percent? A. $12.23 B. $9.67 C. $12.49 D. $10.46 E. $8.50

E. $8.50

New Gadgets is growing at a very fast pace. As a result, the company expects to pay annual dividends of $0.55, 0.80, and $1.10 per share over the next three years, respectively. After that, the dividend is projected to increase by 5 percent annually. The last annual dividend the firm paid was $0.40 a share. What is the current value of this stock if the required return is 16 percent? A. $12.49 B. $10.46 C. $9.67 D. $12.23 E. $8.50

E. $8.50

A firm has $42,900 in receivables and $211,800 in total assets. The total asset turnover rate is 1.40 and the profit margin is 5.2 percent. How long on average does it take the firm to collect its receivables? A. 6.91 days B. 9.45 days C. 11.68 days D. 31.25 days E. 52.81 days

E. 52.81 days

The Chip Dip Co. has 15,500 shares of stock outstanding, grants one vote per share, and uses straight voting. How many shares must you control to guarantee that you will be elected to the firm's board of directors if there are three open seats? A. 7,134 shares B. 3,876 shares C. 5,134 shares D. 5,167 shares E. 7,751 shares

E. 7,751 shares

To calculate sustainable growth rate without using return on equity, the analyst needs the: A. profit margin. B. payout ratio. C. debt-to-equity ratio. D. asset requirement ratio. E. All of the above.

E. All of the above.

When you refer to a bond's coupon, you are referring to which one of the following? A. Difference between the bid and ask price B. Principal amount of the bond C. Annual interest divided by the current bond price D. Difference between the purchase price and the face value E. Annual interest payment

E. Annual interest payment

Which one of the following statements concerning liquidity is correct? A. If you sold an asset today, it is a liquid asset. B. If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. C. Trademarks and patents are highly liquid. D. The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. E. Balance sheet accounts are listed in order of decreasing liquidity.

E. Balance sheet accounts are listed in order of decreasing liquidity.

Debt is a contractual obligation that: A. requires the payout of residual flows to the holders of these instruments. B. requires a repayment of a stated amount and interest over the period. C. allows the bondholders to sue the firm if it defaults. D. Both A and B. E. Both B and C.

E. Both B and C.

Which one of the following statements is correct? A. All classes of stock must have equal voting rights per share. B. Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions. C. Dividends are tax-free income for individual investors. D. Shareholders prefer noncumulative dividends over cumulative dividends. E. From a legal perspective, preferred stock is a form of corporate equity.

E. From a legal perspective, preferred stock is a form of corporate equity.

Which one of the following statements is correct? A. When the internal rate of return is greater than the required return, the net present value is positive. B. If two projects are mutually exclusive, you should select the project with the shortest payback period. C. Projects with conventional cash flows have multiple internal rates of return. D. The profitability index will be greater than 1.0 when the net present value is negative. E. If the IRR exceeds the required return, the profitability index will be less than 1.0.

A. When the internal rate of return is greater than the required return, the net present value is positive.

You purchase a bond with a coupon rate of 7 percent, semiannual coupons, and a clean price of $1,011. If the next coupon payment is due in four months, what is the invoice price? A. $1,022.67 B. $1,029.36 C. $1,037.67 D. $1,031.00 E. $1,044.33

A. $1,022.67

You want to buy a new sports car from Roy's Cars for $51,800. The contract is in the form of a 48-month annuity due at a 9.2 percent APR. What will your monthly payment be? A. $1,284.13 B. $1,345.70 C. $1,384.32 D. $1,352.98 E. $1,309.29

A. $1,284.13

The manager of Gloria's Boutique has approved Carla's application for credit. The maximum payment that has been approved is $65 a month for 24 months. The APR is 15.7 percent. What is the maximum initial purchase that Carla can make given this credit approval? A. $1,331.42 B. $1,300.00 C. $1,288.90 D. $1,350.00 E. $1,428.46

A. $1,331.42

What is the net present value of the following cash flows if the relevant discount rate is 8 percent? A. $1,587.61 B. $3,248.87 C. $2,900.15 D. $2,311.92 E. $3,545.60

A. $1,587.61

A firm expects to increase its annual dividend by 20 percent per year for the next two years and by 15 percent per year for the following two years. After that, the company plans to pay a constant annual dividend of $3 a share. The last dividend paid was $1 a share. What is the current value of this stock if the required rate of return is 12 percent? A. $20.50 B. $17.71 C. $18.97 D. $21.69 E. $21.08

A. $20.50

Jeffries, Inc. has 6 percent coupon bonds on the market that have 11 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price? A. $897.08 B. $921.42 C. $933.33 D. $895.88 E. $903.14

A. $897.08

Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments? A. Annuity due B. Ordinary annuity C. Perpetuity due D. Ordinary perpetuity E. Consol

A. Annuity due

Which one of the following will decrease the liquidity level of a firm? A. Cash purchase of inventory B. Credit sale of inventory C. Cash sale of inventory D. Collection of an account receivable E. Proceeds from a long-term loan

A. Cash purchase of inventory

. Which one of the following statements is correct? A. From a legal perspective, preferred stock is a form of corporate equity. B. Dividends are tax-free income for individual investors. C. Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions. D. All classes of stock must have equal voting rights per share. E. Shareholders prefer noncumulative dividends over cumulative dividends

A. From a legal perspective, preferred stock is a form of corporate equity.

A real rate of return is defined as a rate that has been adjusted for which one of the following? A. Inflation B. Taxes C. Interest rate risk D. Liquidity E. Default risk

A. Inflation

You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain? A. Interest-only B. Pure discount C. Amortized D. Lump sum E. Perpetual

A. Interest-only

New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation? A. Price-sales ratio B. Market-to-book ratio C. Profit margin D. ROE E. ROA

A. Price-sales ratio

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? A. Positive cash flow from assets B. Positive operating cash flow C. Negative cash flow to creditors D. Positive cash flow to stockholders E. Negative net capital spending

A. Positive cash flow from assets

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? A. To compute the initial loan amount, you must use a monthly interest rate. B. The $500 is the present value of the purchase. C. The car loan is an annuity due. D. The present value of the car is equal to $500 + (36 × $450). E. The future value of the loan is equal to 36 × $450.

A. To compute the initial loan amount, you must use a monthly interest rate.

Start of Midterm 3: The reinvestment approach to the modified internal rate of return: A. compounds all of the cash flows, except for the initial cash flow, to the end of the project. B. individually discounts each separate cash flow back to the present. C. reinvests all the cash flows, including the initial cash flow, to the end of the project. D. discounts all negative cash flows back to the present and combines them with the initial cost. E. discounts all negative cash flows to the present and compounds all positive cash flows to the end of the project.

A. compounds all of the cash flows, except for the initial cash flow, to the end of the project

If a firm has a negative cash flow from assets every year for several years, the firm: A. may be continually increasing in size. B. must also have a negative cash flow from operations each year. C. is operating at a high level of efficiency. D. is repaying debt every year. E. has annual net losses.

A. may be continually increasing in size.

If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent, what is the approximate real rate of interest? The exact real rate? A. 6.00 percent; 5.92 percent B. 0.40 percent; 3.89 percent C. 6.00 percent; 5.67 percent D. 6.00 percent; 5.87 percent E. 0.40 percent; 3.98 percent

B. 0.40 percent; 3.89 percent

Goshen Industrial Sales has sales of $828,900, total equity of $539,200, a profit margin of 4.6 percent, and a debt-equity ratio of 0.55. What is the return on assets? A. 3.89 percent B. 4.56 percent C. 6.67 percent D. 12.86 percent E. 13.33 percent

B. 4.56 percent

Joshua's Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is the sustainable growth rate? A. 6.98 percent B. 7.20 percent C. 7.33 percent D. 7.54 percent E. 7.91 percent

B. 7.20 percent

Which one of the following bonds is the least sensitive to changes in market interest rates? A. Zero coupon, 4 year B. 8 percent annual coupon, 4 year C. Zero coupon, 10 year D. 6 percent annual coupon, 10 year E. 6 percent annual coupon, 4 year

B. 8 percent annual coupon, 4 year

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? A. The present value of the car is equal to $500 + (36 × $450). B. To compute the initial loan amount, you must use a monthly interest rate. C. The car loan is an annuity due. D. The $500 is the present value of the purchase. E. The future value of the loan is equal to 36 × $450.

B. To compute the initial loan amount, you must use a monthly interest rate.

Growth can be reconciled with the goal of maximizing firm value: A. because greater growth always adds to value. B. because growth must be an outcome of decisions that maximize NPV. C. because growth and wealth maximization are the same. D. because growth of any type cannot decrease value. E. None of the above.

B. because growth must be an outcome of decisions that maximize NPV.

Which one of the following statements is correct? A. The APR is equal to the EAR for a loan that charges interest monthly. B. The APR on a monthly loan is equal to (1 + monthly interest rate)12 - 1. C. The EAR, rather than the APR, should be used to compare both investment and loan options. D. The APR is the best measure of the actual rate you are paying on a loan. E. The EAR is always greater than the APR.

C. The EAR, rather than the APR, should be used to compare both investment and loan options.

Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms bought $60,000 worth of equipment last year. Both firms are in the 35 percent tax bracket. The operating cash flows for each firm are identical except for the depreciation effects. Given this, you know the: A. depreciation expense for Firm A will be greater than Firm B's expense every year. B. equipment has a higher value on Firm B's books than on Firm A's at the end of year 2. C. operating cash flow of Firm A is less than that of Firm B for year 2. D. market value of Firm B's equipment is greater than the market value of Firm A's equipment. E. market value of Firm A's equipment is greater than the market value of Firm B's equipment.

C. operating cash flow of Firm A is less than that of Firm B for year 2.

What is the amount of the non-cash expenses for 2006? A. $570 B. $630 C. $845 D. $1,370 E. $2,000

D. $1,370

The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.00 per share a year for the following two years, and then cease paying dividends altogether. How much is one share of this stock worth to you today if you require a 19 percent rate of return? A. $2.56 B. $2.60 C. $2.64 D. $2.31 E. $2.36

D. $2.31

Classic Pickles is a mature manufacturing firm. The company just paid a $4 annual dividend, but management expects to reduce the payout by 4 percent per year, indefinitely. If you require a 12 percent return on this stock, what will you pay for a share today? A. $21.42 B. $25.24 C. $28.56 D. $24.00 E. $30.02

D. $24.00

The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year? A. -$171,500 B. -$86,700 C. $21,200 D. $39,700 E. $111,100

D. $39,700

Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $12,000. The additional project will increase Able Co.'s taxes by _____ and Bravo Co.'s taxes by ____. A. $1,800; $1,800 B. $4,080; $4,080 C. $4,080; $4,680 D. $4,680; $4,080

D. $4,680; $4,080

A credit card has a stated interest rate of 14.56 percent. What is the APR if interest is compounded monthly? A. 13.46 percent B. 14.82 percent C. 13.09 percent D. 14.56 percent E. 13.90 percent

D. 14.56 percent

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price? A. 5.38 percent lower B. 1.36 percent higher C. 4.99 percent lower D. 6.05 percent lower E. 0.07 percent higher

D. 6.05 percent lower

Last year, you earned a rate of return of 12.37 percent on your bond investments. During that time, the inflation rate was 3.6 percent. What was your real rate of return? A. 8.70 percent B. 6.30 percent C. 7.75 percent D. 8.47 percent E. 7.60 percent

D. 8.47 percent

The main objective of long-term financial planning models is to: A. determine the asset requirements given the investment activities of the firm. B. plan for contingencies or uncertain events. C. determine the external financing needs. D. All of the above. E. None of the above.

D. All of the above.

You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? A. Times interest earned = 1.7; debt-equity ratio = 1.6 B. Times interest earned = 1.5; debt-equity ratio = 1.2 C. Cash coverage ratio = 0.8; debt-equity ratio = 0.8 D. Cash coverage ratio = 2.6; debt-equity ratio = 0.3 E. Cash coverage ratio = 0.5; total debt ratio = 0.2

D. Cash coverage ratio = 2.6; debt-equity ratio = 0.3

An increase in which one of the following will increase operating cash flow for a profitable, tax paying firm? A. Fixed Expenses B. Interest paid C. Net capital spending D. Depreciation E. Inventory

D. Depreciation

A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively. A. tax reconciliation statement B. statement of standardization C. statement of cash flows D. common-base year statement E. common-size statement

E. common-size statement

. An income statement prepared according to GAAP: A. reflects the net cash flows of a firm over a stated period of time. B. reflects the financial position of a firm as of a particular date. C. distinguishes variable costs from fixed costs. D. records revenue when payment for a sale is received. E. records expenses based on the matching principle

E. records expenses based on the matching principle