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1. Beta measures:
A) how the returns of an asset covary with the returns of the market.
B) how the volatility of the market predicts the volatility of an asset.
C) how the returns of the market covary with the returns of the risk free rate.
2. Swiftwater Rafting had cash flow from assets in 2018 of $3651 (all values in thousands). The
company paid interest expense of $980 and the cash flow to shareholders was $2341. Swiftwater:
3. Holding bonds is considered less risky than holding stocks. This is because:
4. If a firm has a 15% return on assets and a 30% return on equity then the firm :
5. All else constant a bond will sell at a _______ when the yield to maturity is _____ than the coupon
rate.
A) discount; lower
B) premium; higher
C) premium; lower
A) infinite life.
B) double taxation.
C) limited liability.
7. Perseus Inc.'s price is $37.65 a share their dividend for next year is expected to be $2.30 and they
have a long term sustainable growth rate of 3.10%. The expected return on the stock is closest to:
A) 6.11%.
B) 9.21%. 37.5/(r-.031), r = .0921, 9.21%
C) 9.40%.
8. Returning money to shareholders includes paying dividends and:
11. Choose the phrase that makes the following statement true. The arithmetic mean will:
12. The efficient market hypothesis posits that the average investor:
13. The Quagmire Company is considering three possible independent projects. Using the following
information: rank the projects from highest to lowest: Project A costs 11.5 with an NPV of 1.35 and a
discount rate of 7.45%. Project B costs 17.4 with an NPV of 3.8 and a discount rate of 7.6%. Project C
costs 26.3 with an NPV of 5.2 and a discount rate of 8.0%.
14. PearlWhite has commissioned a market analysis to determine if there is enough demand for a new
product they are undecided about developing. The cost of the analysis should be:
A) Bond prices change by the same amount whether rates are rising or falling.
B) Bond prices fall faster in rising rates than they rise in falling rates.
C) Bond prices rise faster in falling rates than they fall in rising rates.
18. You are considering purchasing an asset with an expected return of 8.5%. You'd like to know that
97.5% of the time the return you earn will not be less than -15.5%. For this to be true the standard
deviation could not be more than:
A) 11.50%.
B) 10.80%.
C) 12.00%.
19. All companies with securities that are publically traded must abide by the rules and regulations of
the:
20. You've been offered a choice between a payment of $10,000 in seven years or a payment of
$6,705.50 today. You know of a risk free investment that compounds quarterly at a rate of 5.75% for
seven years. Which payment is the best choice?
A) $10,000.
B) $6,705.50.
C) Either as they are equal in value.
21. SofSkills Inc has just paid an annual dividend of $2.10. You expect dividends to grow at 15% for the
next two years then grow at 3.80% into the foreseeable future. The expected return of the stock is 9.60%.
The per share value of the company is closest to:
A) $54.22.
B) $45.89.
C) $42.47.
Period 1 2 3+
2
Div 2.10(1.15) 2.10(1.15) 2.10(1.15)2(1.038)
PV @ 9.75% 2.2035 2.3120 TV = 49.7032*
PV of TV 41.3774
Total 45.89
*TV = [2.10(1.15)2(1.038)]/(.096-.038) = 2.8828/(.096-.038) = 49.7032
22. Calamos Co. has 110.0 million shares outstanding a PE of 23.5 and a forward PE of 16.8. At a
market price of $132.65 next year's approximate estimated net income in millions is closest to:
A) $868.5. 132.65/16.8*110.0mil
B) $621.0.
C) $1,848.0.
23. You have determined that a new product line result in more sales of another product you currently
sell. As you create your capital budget projections you should:
24. Black Elk Designs stock has a beta of .87 the risk free rate is 2.15% and the expected return on the
market is 8.40%. The expected return on the stock is closest to:
A) -$1,240.
B) $1,034.
C) $1,761.
27. Springcreek Holdings has an expected return of 9.92%. The risk free rates is 2.65% and the return on
the market is 7.55%. Springcreek's beta is closest to:
A) 2.02.
B) 1.48. (9.92 – 2.65)/(7.55-2.65) from 9.92 = 2.65 + B(7.55-2.65)
C) 0.96.
28. Portia LTD has net income of $925 on total sales of $3,765. Costs are $1,865 and depreciation is
$220. The tax rate is 21%. The firm does not have interest expense. Portia's operating cash flow is
closest to:
A) $1,900.
B) $1,327.
C) $1,547. ( 3765-1865-220)*.79 = 1327.2+220 = 1547 *.79 = (1-.21)
29. Under US GAAP companies attempt to match expenses with revenues by:
30. Several years ago you purchased Badabet Tech bonds. A recent price quote on the bonds is 108.50.
The bonds have 2 years left to maturity and a coupon rate of 12%. The yield to maturity at this price is
closest to:
A) 3.68%.
B) 7.28%.
C) 7.35%.
PV 108.50
FV 100
PMT 100*.12/2
RATE or i/y 7.35%
NPER or n 2*2
31. Gigante Corp provides you the following information as they consider converting existing
warehouse space into a production facility. Sales: $115,000; COGS: $58,000; depreciation: $9,500;
lease income on property currently in use as warehouse space: 12000; tax rate 21%. Gigante also sold
equipment previously stored in the warehouse for $2,500 with no tax effect. The after tax cash flow in
year 1 is closest to:
A) $28,045.
B) $37,545. 115000-58000-9500-12000 = 35500*.79 = 28045+9500 = 37545
C) $39,520.
32. You've been promised $12,000 on your birthday three years from now towards the purchase of a car
if you can save $4,000 by your birthday. You know you can earn 1.75% compounding monthly. If you
begin saving today your monthly investments to reach your goal would be closest to:
A) $109.19.
B) $108.14.
C) $108.30.
PV 0
FV 4,000
PMT 108.30
RATE or i/y 1.75/12
NPER or n 3*12
33. Given the following information the expected return for a portfolio that is 68% of Asset A and 32%
of Asset B would be closest to:
A) 6.27%.
B) 6.37%.
C) 7.10% (.58((.68*.121)+(.32*.086)))+(.42((.68*.0375)+(.32*-.025)))
34. Ratios that measure how profitably a firm's management uses its assets and equity to generate
bottom line net income are known as ________ ratios.
A) profitability
B) market value
C) asset management
35. At the start of a project a firm invested $1,000 in net working capital and this amount increased by
2% per year for three years. The project's useful life ended in year 4. The change in net working capital
for the final year of the budget is closest to:
A) $1,061.21. (1000*(1.02)^3) *You could use the TVM functions to solve this, PV=1000, I =
2%, N=3, PMT = 0, solve for FV
B) $1,082.43.
C) $5,204.04.
36. You purchased Vincet Corp a year ago at $147.60. The company paid a dividend of $3.80 and based
on today's selling price your return on the investment was 11.12%. The price you received for selling the
stock is closest to:
37. Consider a portfolio of stocks from many sectors. If you replace 10% of the stocks with Treasury
Bills the standard deviation of the portfolio will likely:
A) decrease.
B) stay the same.
C) increase.
38. All else constant the net present value of a typical investment project decreases when the:
39. Over the life of a project investments in net working capital will most likely:
A) steadily increase.
B) increase for a time then decrease.
C) sum to zero.
40. For 2017 Monsoon Ind. had operating cash flows of $2,390,000, an increase in net working capital
of $78,000 and cash flow from assets was $1,875,000. In 2017 Monsoon:
41. If the expected return on the market is 10.30% inflation is expected to be 1.80% and the risk free rate
is 2.80% the expected market risk premium is closest to:
A) 8.50%.
B) 7.50% 10.3-2.8.
C) 5.70%.
42. The financial ratio measured as total assets divided by total equity is known as the firm's:
43. A measure that compares the risk free rate the real rate and the expected rate of inflation is called
the:
44. TerraVerde projects the following cash flows for a potential investment: -78.0; 23.0; 25.0; 27.0;
23.0. The hurdle rate for the project is estimated at 9.60%. Given this the firm should:
47. Lucre Inc wants to raise at least $25million in a 25 year zero coupon bond offering. They anticipate
the bond will sell for a yield to maturity of 4.65%. Rounding to the nearest thousand the par value of the
bonds to be issued is closest to:
A) $78,891,000.
B) $7,922,000.
C) $77,879,000.
PV 25,000,000
FV 78,891,938
PMT 0
RATE or i/y 4.65/2
NPER or n 25*2
48. The depreciation tax shield can be defined as:
49. Franconia Ind. has a net income of $1.75 million and equity of $12.4 million. The debt-equity ratio is
1.15 and the reinvestment rate is 48%. The return on assets is closest to:
A) 3.15%.
B) 3.41%.
C) 6.56%. (1.75/12.4)/(1+1.15)
50. A firm has a debt to assets ratio of 0.47. What is the debt to equity ratio?
A) 1.47.
B) 0.89. .47/.53 = .8868 = .89
C) 1.12.