Reference no: EM132417232

1. 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

2. The DuPont identity can be used to help a financial manager determine the:

I. degree of financial leverage used by a firm. II. operating efficiency of a firm.

III. utilization rate of a firm's assets.

IV. rate of return on a firm's assets.

A. I and III only

B. II, III, and IV only

C. I, II, III, and IV

3. The present value of a lump sum future amount:

A. increases as the interest rate decreases.

B. decreases as the time period decreases.

C. is inversely related to the future value.

4. Which one of the following has the highest effective annual rate?

A. 6 percent compounded semi-annually

B. 6 percent compounded quarterly

C. 6 percent compounded monthly

5. 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. 6.30 percent

B. 7.60 percent

C. 8.47 percent

6. Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to increase this dividend by 8 percent per year the following three years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 7?

A. ($1.10) (1.08 × 3) (1.02 × 4)

B. ($1.10) (1.08)3 (1.02)4

C. ($1.10) (1.08)3 (1.02)3

7. 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. $30.66

C. $33.93

8. Scenario analysis asks questions such as:

A. How will be changing the number of units sold affect the outcome of this project?

B. What is the best outcome that should reasonably be expected?

C. Will the net present value increase or decrease if the quantity sold increases by 100 units?

9. The Shoe Box is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project?

I. Decreased revenue from products currently being offered if this new footwear is added to the lineup

II. Revenue from the new line of footwear

III. Money spent in the past looking for a new product line to add to the store's offerings IV. Cost of new counters to display the new line of footwear

A. I and IV only

B. II and III only

C. I, II, and IV only

10. 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. $1,293.97

C. $1,352.98

11.Heung Gong Yan is choosing between the following two mutually exclusive investment projects:

Whichever project he chooses, if any, Heung Gong Yan requires a 14 percent return on his investment.

Year Cash Flow (A) Cash Flow (B)

0 -$54,000 -$23,000

1 12,700 11,600

2 23,200 11,200

3 27,600 12,500

4 46,500 6,000

(a) Which project should he choose if:

i) the Payback criterion is used? 

ii) the Net Present Value (NPV) criterion is used? 

(b) Which criterion, payback or NPV, would you suggest Heung Gong Yan to adopt in making his investment decision?