Reference no: EM132342776

1. If current market interest rates rise, what will happen to the value of outstanding bonds?

1. They will rise.

2. They will remain unchanged.

3. There is no connection between current market interest rates and the value of outstanding bonds.

4. They will fall.

2. A firm obtain cash from which of the following:

1. Operation

2. Sales of assets

3. Borrowing

4. All of the above.

3. XYZ has total current assets of $800,000; total current liabilities of $400,000; and long-term assets of $300,000. What is the firm Current Ratio?

1. 2.2

2. 1.8

3. 3.2

4. 2

4. J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12 percent. Currently the yield to maturity on these bonds is 14 percent. If the firm's tax rate is 40 percent, what is cost of debt to J & B?

1. 14.0 percent

2. 8.4 percent

3. 12.0 percent

4. 7.2 percent

5. If you invest $750 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 10 years?

1. $10,065

2. $21,731

3. $10,193

4. $22,334

6. Colby & Company bonds pay semi-annual interest of $50. They mature in 15 years and have a par value of $1,000. The market rate of interest is 8%. The market value of Colby Bonds is: (round to nearest dollar)

1. $1,173

2. $1,000

3. $743

4. $827

7. If cost of debt is 5% and preferred stock is 10% and common stock is 12% with the following capital structure:

Long-term debt = $1000,000

Preferred Stock = $400,000

and Common stocks = 2,600,000

What is the WACC?

1. 11.2%

2. 8.9%

3. 8.9%

4. 9.55%

9. A firm had $130,000 and $90,000 in current assets in 2002 and 2003 respectively. It also had $120,000 and $85,000 in current liability in 2002 and 2003 respectively. What is the net change in working capital from 2002 to 2003?

1. $5000

2. $5,500

3. -$4500

4. -$5,000

10. Dawn Swift discovered that twenty years ago, the average tuition for one year at an Ivy League school was $4,500. Today, the average cost is $29,000. What is the growth rate in tuition cost over this 20-year period? Round off to the nearest 0.1%.

1. 15.5%

2. 10.6%

3. 9.8%

4. 4.2%

11. The expected dividend is $2.50 for a share of stock priced at $25. What is the cost of retained earnings if the long-term growth in dividends is projected to be 8 percent?

1. 25.0 percent

2. 8.0 percent

3. 18.0 percent

4. 10.0 percent

12. Keith Stone has 10-year old daughter, Kate, who will be entering college in 8 years. Keith estimate college costs to be $16,000 $17,000, $18,000 and $19,000 payable at the beginning of each of Kate's four years in college. He has $2,000 in his account and intends to leave it there for the next 8 years. How much more must Keith save each year (assume end of the year payments) for each of the next 8 years to have enough savings to pay for his daughter? Assume Keith can earn 9% on his savings.

1. $5,211

2. $6,720

3. $12,400

4. $5,540

13. The most expensive source of capital is:

1. new common stock

2. debt

3. retained earnings

4. preferred stock

14. Which of the following provides the greatest annual interest?

1. 9.5% compounded monthly

2. 9% compounded daily

3. 10% compounded annually

15. Depreciation expenses affect tax-related cash flows by

1. increasing taxable income, thus increasing taxes

2. decreasing taxable income, thus reducing taxes

3. decreasing taxable income, with no effect on cash flow since depreciation is a non-cash expense

4. none of the above

16. Given the following expected returns and standard deviation of assets B, M, Q and D, which asset should the prudent financial manager select?

1. Asset Q

2. Asset B

3. Asset M

4. Asset D

17. At 8 percent compounded annually, how long will it take $750 to double?

1. 12 years

2. 48 months

3. 10 years

4. 9 years

18. A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:

1. 10 percent

2. cannot be determined

3. less than 10 percent

4. greater than 10 percent

19. Regarding the tax treatment of payments to securities holders, it is true that _______________, while ____________________.

1. interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible

2. common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible

3. interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible

4. common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible

20. A project has an initial outlay of $4,000. It has a single payoff at the end of year 4 of $6,996.46. What is the rate of return for the project (round to the nearest %)?

1. 16%

2. 21%

3. 15%

4. 13%

21. In an efficient securities market the market value of a security is equal to:

1. its liquidation value

2. its book value

3. its intrinsic value

4. none of the above