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Which one of the following statements is correct concerning the cash cycle?

Accepting a suppliers discount for early payment decreases the cash cycle.

Increasing the accounts payable period increases the cash cycle.

The longer the cash cycle, the more likely a firm will need external financing.

The cash cycle can exceed the operating cycle if the payables period is equal to zero.

Offering early payment discounts to customers will tend to increase the cash cycle.

Precise Machinery is analyzing a proposed project. The company expects to sell 2100 units

give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed

costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent

range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit,

give or take 2 percent. The tax rate is 35 percent. The company is conducting a sensitivity

analysis on the sales price using a sales price estimate of $755. What is the operating cash

flow based on this analysis?

$86,675

$354,874

$368,015

$293,089
$337,975

You are doing some comparison shopping. Five stores offer the product you want at

basically the same price but with differing credit terms. Which one of these terms is

best-suited to you if you plan to forgo the discount?

2/10, net 30

2/5, net 30

2/5, net 20

1/10, net 45

1/5, net 15

The plowback ratio is:

The dollar increase in net income divided by the dollar increase in sales.

Equal to net income divided by the change in total equity.

Equal to one minus the retention ratio.

The change in retained earnings divided by the dividends paid.

The percentage of net income available to the firm to fund future growth.

Which one of the following is the financial statement that summarizes a firms revenue and

expenses over a period of time?

Statement of cash flows

Market value report

Tax reconciliation statement

Balance sheet

Income statement

Kellys Corner Bakery purchased a lot in Oil City six years ago at a cost of $278000. Today,

that lot has a market value of $264,000. At the time of the purchase, the company spent

$6,000 to level the lot and another $8,000 to install storm drains. The company now wants to

build a new facility on that site. The building cost is estimated at $1.03 million. What amount

should be used as the initial cash flow for this project?

-$1,294,000

-$1,322,000

-$1,045,000

-$1,308,000

-$1,308,000

Webster United is paying a dividend of $1.32 per share today. There are 350,000 shares

outstanding with a market price of $22.40 per share prior to the dividend payment. Ignore

taxes. Before the dividend, the company had earnings per share of $1.68. As a result of this

dividend, the:

Retained earnings will decrease by $350,000.

Earnings per share will increase to $3.

Total firm value will not change.

Price-earnings ratio will be 12.55.

Retained earnings will increase by $462,000.

The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay

$2.28 per share next year when the annual dividend is distributed. The firm has established

a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing

so. What is the market rate of return on this stock?

7.67 percent

7.59 percent

7.43 percent

7.14 percent

7.28 percent

Which one of the following should earn the most risk premium based on CAPM?

Diversified portfolio with returns similar to the overall market.

Stock with a beta of 1.38.

Portfolio with a beta of 1.01.

U.S. Treasury bill.

Stock with a beta of 0.74.

Which one of these actions will increase the operating cycle? Assume all else held constant.

Decreasing the receivables turnover rate.

Decreasing the payables period.

Decreasing the average inventory level.

Increasing the payables period.

Increasing the inventory turnover rate.

Oil Wells offers 6.5 percent coupon bonds with semiannual payments and a yield to maturity

of 6.94 percent. The bonds mature in seven years. What is the market price per bond if the

face value is $1,000?

$902.60

$996.48

$913.48

$989.70

$975.93

Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the

company announced that future dividends will be increasing by 2.8 percent annually. If you

require a return of 11.6 percent, how much are you willing to pay to purchase one share of

this stock today?

$16.67
$16.00

$18.23

$17.68

$15.57

Which one of the following is a source of cash?

Granting credit to a customer

Purchase of inventory

Acquisition of debt

Payment to a supplier

Repurchase of common stock

Nadines Home Fashions has $2.12 million in net working capital. The firm has fixed assets

with a book value of $31.64 million and a market value of $33.9 million. The firm has no

long-term debt. The Home Centre is buying Nadines for $37.5 million in cash. The

acquisition will be recorded using the purchase accounting method. What is the amount of

goodwill that The Home Centre will record on its balance sheet as a result of this

acquisition?

$5.86 million

$3.34 million

$4.14 million
$1.48 million

$3.74 million

Chelsea Fashions is expected to pay an annual dividend of $1.10 a share next year. The

market price of the stock is $21.80 and the growth rate is 4.5 percent. What is the firms cost

of equity?

9.55 percent

10.54 percent

9.24 percent

7.91 percent

9.77 percent

Operating leverage is the degree of dependence a firm places on its:

Depreciation tax shield.

Variable costs.

Fixed costs.

Operating cash flows.

Sales.

Phillips Equipment has 75,000 bonds outstanding that are selling at par. Bonds with similar

characteristics are yielding 7.5 percent. The company also has 750,000 shares of 6 percent

preferred stock and 2.5 million shares of common stock outstanding. The preferred stock

sells for $64 a share. The common stock has a beta of 1.21 and sells for $44 a share. The
U.S. Treasury bill is yielding 2.3 percent and the return on the market is 11.2 percent. The

corporate tax rate is 34 percent. What is the firms weighted average cost of capital?

11.56 percent

11.30 percent

11.18 percent

10.64 percent

9.69 percent

Andy deposited $3,000 this morning into an account that pays 5 percent interest,

compounded annually. Barb also deposited $3,000 this morning into an account that pays 5

percent interest, compounded annually. Andy will withdraw his interest earnings and spend it

as soon as possible. Barb will reinvest her interest earnings into her account. Given this,

which one of the following statements is true?

Barb will earn more interest the second year than Andy.

Barb will earn more interest the first year than Andy will.

Andy will earn compound interest.

Andy will earn more interest in year three than Barb will.

After five years, Andy and Barb will both have earned the same amount of interest.

When utilizing the percentage of sales approach, managers:

1. Estimate company sales based on a desired level of net income and the current
profit margin.
2. Consider only those assets that vary directly with sales.
III. Consider the current production capacity level.

1. Can project both net income and net cash flows.

III and IV only

I, III, and IV only

II and III only

II, III, and IV only

I and II only

You are comparing two investment options that each pay 6 percent interest compounded

annually. Both options will provide you with $12000 of income. Option A pays $2,000 the first

year followed by two annual payments of $5,000 each. Option B pays three annual

payments of $4,000 each. Which one of the following statements is correct given these two

investment options? Assume a positive discount rate.

Option B is a perpetuity.

Option B has a higher present value at time zero.

Both options are of equal value since they both provide $12,000 of income.

Option A has the higher future value at the end of year three.

Option A is an annuity.

The condition stating that the interest rate differential between two countries is equal to the

percentage difference between the forward exchange rate and the spot exchange rate is

called:
Uncovered interest rate parity.

The unbiased forward rates condition.

Purchasing power parity.

Interest rate parity.

The international Fisher effect.

The Dry Dock is considering a project with an initial cost of $118400. The projects cash

inflows for years 1 through 3 are $37200, $54600 and $46900, respectively. What is the IRR

of this project?

8.42 percent

7.48 percent

8.56 percent

8.04 percent

8.22 percent

The 7 percent bonds issued by Modern Kitchens pay interest semiannually mature in eight

years and have a $1000 face value. Currently, the bonds sell for $1,032. What is the yield to

maturity?

7.20 percent

6.87 percent

6.48 percent
6.92 percent

6.08 percent

Al invested $7200 in an account that pays 4 percent simple interest. How much money will

he have at the end of five years?

$8,678

$8,710

$8,299

$8,056

$8,640

All of the following represent potential gains from an acquisition except the:

Use of surplus funds.

Tax loss carryovers acquired in the acquisition.

Obtainment of a beachhead.

Diseconomies of scale related to increased labor demand.

Lower costs per unit realized.

Fresno Salads has current sales of $6000 and a profit margin of 6.5 percent. The firm

estimates that sales will increase by 4 percent next year and that all costs will vary in direct

relationship to sales. What is the pro forma net income?

$438.70
$327.18

$405.60

$303.33

$441.10

A news flash just appeared that caused about a dozen stocks to suddenly drop in value by

20 percent. What type of risk does this news flash best represent?

Market

Unsystematic

Portfolio

Total

Non-diversifiable

Which one of the following terms is defined as the mixture of a firms debt and equity

financing?

Cash management

Cost analysis

Working Capital Management

Capital Structure

Capital budgeting
George and Pat just made an agreement to exchange currencies based on todays

exchange rate. Settlement will occur tomorrow. Which one of the following is the exchange

rate that applies to this agreement?

Forward exchange rate

Triangle rate

Cross rate

Current rate

Spot exchange rate