1. What’s themostaccurate and reliable tool used to evaluate whether a merger will be a profitable one? A.Herfindahl-Hirschman Index (HHI) B.Weighted average cost of capital (WACC) C.Economies of scale D.Net present value (NPV) 2. The process of valuing things from the perspective of a company or firm is called A.corporate governance. management. D.investment management. 3. Your firm wants to convert $1.4 million Australian into U.S. dollars in purchase in 12 months. The spot rate is $0.9704 equals $1 Australian. The inflation rates in Australia and the United States are expected to be 6 percent and 2 percent, respectively. Using the concept of purchasing power parity (PPP) as it relates to future exchange rates, what will be the difference in costs between completing the transaction now and doing it in 12 months? A.$54,320 B.$36,821 C.$42,568 D.$60,242 4. Which of the following isnotone of the basic approaches used in monitoring company managers to minimize the impact of the agency problem? A.Make the managers owners B.Ignore it if the amount of money involved is negligible C.Appoint an ethics specialist to the board of directors D.Monitor managers’ actions 5. What type of business organization would give your investors limited liability but you, as the owner and operator, unlimited liability? A.Limited liability corporation (LLC) B.Corporation C.Limited partnership (LP) D.General partnership 6. Which one of the following is a type of financial distress? A.Workout B.Misallocation of capital C.Economies of scope D.Technical insolvency 7. Determine the cross rate between Australian and Canadian dollars if $1.0344 Australian will buy $1 U.S. and $0.9788 Canadian will buy $1 U.S. A.$1.0568 B.$0.9854 C.$1.0424 D.$0.9921 8. Why do fiduciary relationships create ethical dilemmas for financial professionals? A.They’re subject to monitoring by their firms. B.Financial management requires them to analyze investments. C.They’re regulated by the government. D.They manage other people’s money. 9. Your company has invested $540,000 U.S. in purchasing real estate in Argentina. The peso exchange rate at the time of the transaction was 1 peso = $0.2484. If the Argentinean peso is subsequently devalued to $0.2186, what would be the loss in U.S. dollars because of currency fluctuation? A.$72,831.24 B.$59,243.12 C.$102,824.72 D.$64,783.19 10. Helping money flow from individuals who want to improve their financial future to businesses that want to expand the scale or scope of their operations relies on the successful application of A.economies of scale. management. theories. D.the time value of money (TVM). 11. A multinational corporation has purchased a manufacturing plant in a foreign country with an exchange rate of $0.3435 of the foreign currency = $1 U.S., for a total cost of $12,500,000 U.S. Soon after the purchase, the country’s leadership orders that the plant be nationalized and mandates that the MNC sell the plant at a discounted exchange rate of $0.2241. How much in U.S. dollars will the MNC lose on the transaction? A.$2,638,750.22 B.$5,214,424.50 C.$4,345,561.25 D.$6,154,438.75 12. If gold is selling for $1,540 per ounce in the United States, using the currency exchange rates in this table, what should gold’s price be in Australian dollars according to the concept of purchasing power parity (PPP)? A.$1,546.28 Australian per ounce B.$1,586.51 Australian per ounce C.$1,598.44 Australian per ounce D.$1,488.22 Australian per ounce 13. _______ was/were one of the causes of the financial crisis that peaked in the fall of 2008. A.Defaults by subprime mortgage borrowers B.Double taxation C.The American Recovery and Reinvestment Act D.The Sarbanes-Oxley Act 14. A business structure designed to pass through income and avoid the double taxation associated with corporations while still offering limited liability is known as a A.hybrid organization. B.partnership. C.corporation. D.sole proprietorship. 15. Acme Builders is considering merging with Joe’s Construction to achieve economies of scope sufficient to drive the combined firms’ costs down by at least $500,000. Acme Builders has costs of $5,000,000 on sales of $8,000,000, and Joe’s Construction has costs of $3,000,000 and sales of $5,000,000. What would be theminimumcombined average cost of sales expressed as a percentage necessary to achieve the cost reduction goal? A.59.43 percent B.57.69 percent C.59 percent D.55.82 percent 16. What technique can be used to profit if direct quotes and cross rates differ? A.Arbitrage B.Hedging C.Discounting D.Currency swaps 17. Using the table below for spot and forward exchange rates, what should the six-month forward rate be for the Swiss franc if U.S. six-month interest rates are 0.22 percent and Swiss six-month rates are 0.18 percent? A.1.0723 B.0.9784 C.1.0842 D.1.0743 18. Which of the followingbestexplains why minimizing costs has potentially serious shortcomings as a means of maximizing owners’ equity? A.Minimizing costs allows for the payment of larger dividends to company owners. B.It’s difficult to maximize market share without increasing spending. C.Spending lavishly can impress potential customers. D.Without spending money on R&D to improve its products, a firm won’t survive long in the constantly evolving economy 19. You’re taking a cruise to Australia and want to have $3,000 Australian in spending money for the trip. If $1.0320 Australian buys $1 U.S. and $0.9310 Swiss francs buys $1 U.S., how many Swiss francs will you need to convert into $3,000 Australian for your trip? A.2,843 B.2,684 C.3,124 D.2,706 20. Carl’s Tires is planning to merge with Joe’s Body Shop to offer a combined auto repair service shop. Carl’s Tires has total costs of $1,500,000 and sales of $2,000,000, while Joe’s Body Shop features costs of $2,200,000 and sales of $4,000,000. The combined firms will be able to achieve economies of scope sufficient to reduce costs by $400,000 while maintaining sales at current levels. Calculate the difference between the percentage values of the average costs of the merged firms and the combined average costs of two nearby competitors. These competitors continue to sell tires and do auto repair separately, having total costs of $2,000,000 and sales of $2,500,000, $2,400,000, and $3,200,000, respectively. A.28.45 percent B.34 percent C.22.19 percent D.23.56 percent 1. You have a portfolio with a beta of 1.46. What will the new portfolio beta be if you keep 75 percent of your money in the old portfolio and 25 percent in a stock with a beta of 0.6? A.1.31 B.1.67 C.1.25 D.1.14 2. Perpetuity payments are made the end of the year. B.quarterly. the start of the year. D.forever. 3. A company has earnings per share of $2.89 and aP/Eratio of 16.54. What’s the price of the company’s stock? A.$33.08 B.$47.80 C.$8.77 D.$56.70 4. How long is the useful life of a fixed asset? A.In excess of two years B.Not more than 10 years C.Less than one year D.In excess of one year 5. You’re thinking about buying a car. You can afford $800 in monthly payments for 3 years. If interest rates are 7 percent APR, what price of car can you afford? A.$29,541.23 B.$28,621.18 C.$25,909.17 D.$26,452.82 6. What’s the difference between APR and EAR? A.EAR loans use compounding interest, and APR loans don’t. B.Lenders are legally required to show borrowers the EAR on any loan offered. C.EAR is a more accurate representation of what you’ll actually pay in interest on a loan than APR. D.EAR computes interest on a loan from the first day of the loan, while APR computes interest from the end of the first month of the loan 7. What’s the future value of $600 deposited for one year earning an interest rate of 8 percent per year? A.$648 B.$664 C.$636 D.$652 8. Why is the declining price of bonds in response to rising interest rates greater for bonds with lower coupons? A.Market risk B.Interest rate risk C.Reinvestment rate risk D.Default risk 9. What’s the present value of a $1,800 annuity payment over 7 years and an interest rate of 9 percent? A.$8,246 B.$10,440 C.$12,243 D.$9,060 10. The Tall Tree Lumber Corporation’s 2015 income statement shows an EBIT of $5,280,000, a tax rate of 35 percent, and a depreciation expense of $980,000. The company’s fixed assets increased by $2,100,000 in 2015, its current assets grew $1,800,000, and spontaneous current liabilities increased by $850,000. What was the firm’s 2015 free cash flow? A.$1,362,000 B.$1,244,000 C.$1,624,000 D.$1,584,000 11. If the risk-free rate is 5 percent and the risk premium is 7 percent, what’s the required return? A.15 percent B.12 percent C.2 percent D.–2 percent 12. To analyze performance meaningfully, what must ratio results be interpreted against? A.The time value of money (TVM) B.ROE C.The discount rate D.A standard or benchmark 13. You’re using DuPont Analysis on Leonardo’s Laboratory Services. You’ve learned that total assets are $49 million, net income available to common shareholders is $5.8 million, and sales are $8.2 million. What’s the firm’s ROA? A.11.84 percent B.9.81 percent C.10.24 percent D.10.76 percent 14. A correlation value of –1 means returns from two securities A.move perfectly in sync. B.have no correlation to each other. C.are perfectly inversely correlated. D.move together 50 percent of the time 15. What’s the future value in year six of a $3,400 deposit in year one and another $5,000 deposit at the end of year three using a 6 percent interest rate? A.$11,226 B.$12,446 C.$8,341 D.$10,778 16. One-year Treasury bills currently yield 2.43 percent. You expect that one year from now, one-year Treasury bill rates will increase to 2.83 percent, and two years from now, one-year Treasury bill rates will increase to 3.04 percent. The liquidity premium on two-year securities is 0.08 percent and on three-year securities, 0.14 percent. If the liquidity premium theory iscorrect,what should the current rate be on three-year Treasury securities? A.3.26 percent B.2.84 percent C.2.68 percent D.1.94 percent 17. The applicability of beta depends on a firm’s A.growth rate. B.standard deviation. C.historical returns. D.future plans. 18. You’re valuing Horn of Plenty Mining, Inc.’s, stock in order to compare its value to its market price. You believe that the company will pay total dividends of $1.45 in 2015 and $1.56 in 2016. You also believe the company’s stock price will be $35.80 at the end of 2016. If the appropriate discount rate is 12 percent, what’s the value of Horn of Plenty Mining’s stock? A.$37.43 B.$36.87 C.$39.22 D.$38.31 19. Year-to-date, Company A has earned a 5.90 percent return. During the same period, Company B has earned 8.65 percent, and Company C has earned 14.30 percent. What’s your portfolio return if you have a portfolio made up of the following? 45 percent Company A 35 percent Company B 20 percent Company C A.5.42 B.13.41 C.9.38 D.8.54 20. In 2015, Camilla’s Pet Stores, Inc., reported an ROA of 9.24 percent, ROE of 15.8 percent, and profit margin of 21.2 percent. The firm had total assets equal to $12.8 million at the end of 2015. What’s common stockholders’ equity as of year-end 2015 for Camilla’s Pet Stores, Inc.? A.$6.7 million B.$9.3 million C.$7.5 million D.$8.1 million 1. There are two parts to computing the component cost of debt enable the computation of both NPV and IRR. B.because of the tax deductibility of debt for firms. C.because of the flotation costs. account for the tax deductibility of dividends 2. To minimize the burden of paying stable dividends, what two classes do some firms divide dividends into? A.Special and ordinary B.Ordinary and extraordinary C.Extraordinary and residual D.Residual and special 3. Fix Your Car Auto Repair, Inc., has sales of $2,880,000 and cost of goods sold of $2,140,000. The firm had a beginning inventory of $243,000 and an ending inventory of $142,000. What’s the length of the days’ sales in inventory? A.15.81 B.17.23 C.24.22 D.25.98 4. Your company is thinking about a new project that will require $2.2 million of new equipment at the start of the project. The equipment will have a depreciable life of 12 years and will depreciate to a book value of $400,000 using the straight-line depreciation method. The cost of capital is 15 percent, and the firm’s tax rate is 36 percent. What will the yearly after-tax depreciation benefit to the company be over the depreciable life of the equipment? A.$54,000 B.$64,000 C.$96,000 D.$128,000 5. The JOBS Act of 2012 enabled what type of offerings? A.Equity crowdfunding offerings conducted on the NYSE B.IPOs conducted on regional exchanges C.OPOs consisting of equity crowdfunding offerings conducted over the Internet D.Rewards-based crowdfunding offerings conducted over the Internet 6. Venture Forth Enterprises estimates that it takes five days on average for customers’ payments to arrive, two days for bookkeepers to process and deposit the payments, and three more days for the checks to clear after being deposited. What is Venture Forth’s collection float? A.5 days B.8 days C.7 days D.10 days 7. Suppose that Fortunate Ventures, Inc.’s, common shares are currently selling for $23 a share with 7 million shares outstanding. The firm also has 12,000 bonds outstanding, which are selling at 96 percent of par. If Fortunate Ventures was considering an active change to its capital structure to have a D/E ratio of 0.5, which type of security (stock or bonds) would the firm need to sell to accomplish this, and how much would it have to sell? A.Bonds; $68,980,000 B.Stock; $44,698,000 C.Stock; $38,460,000 D.Bonds; $54,325,000 8. A firm has the following sale figures: Year 2011: $4.6 million; Year 2012: $5.1 million Year 2013: $4.2 million Year 2014: $3.8 million Year 2015: $4.3 million What would the forecast for the next year’s sales be using the average approach? A.$3.2 million B.$5.4 million C.$5.1 million D.$4.4 million 9. What’s the appropriate tax rate to be used in WACC? A.The weighted average of the firm’s discounted current marginal tax rates B.The simple average of the tax rates that would have been paid on the taxable income shielded by the interest deduction C.The weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction D.The highest applicable tax rate charged on the firm’s income 10. In Baumol’s model, what’s the assumed starting level for cash? A.Safety stock B.Compensating balance C.Replenishment D.Net present value 11. The Miller-Orr model is more realistic than the Baumol model because it A.accounts for taxes. B.assumes cash starts from a replenishment level. with both cash inflows and outflows. D.includes compensation balances. 12. Which is themostpopular rate-based capital budgeting technique? A.Discount period (DP) B.Capital asset pricing model (CAPM) C.Net present value (NPV) D.Internal rate of return (IRR) 13. The preliminary version of the prospectus for a public offering is known as A.the red herring prospectus. indenture instrument. C.the statement of information. D.a shelf registration. 14. Assume that Consolidated Widgets, Inc., has annual sales of $5.9 million, cost of goods sold of $3.9 million, average inventories of $2.2 million, and average accounts receivable of $1.1 million. If all of Consolidated Widgets’ sales are on credit, what would be the firm’s operating cycle? A.273.95 days B.292.14 days C.311.42 days D.261.83 days 15. Super Fun Toys, Inc., has the following balance sheet: Suppose Super Fun Toys, Inc., has sales of $8.9 million for the year just ended, the profit margin of the firm is 16 percent with a retention rate of 28 percent, and the firm expects sales of $10.8 million next year. If fixed assets will have to grow by $800,000 to support the sales growth, with current assets and current liabilities expected to grow with sales, what amount of additional funds will Super Fun Toys need from external sources to fund the expected growth? A.$550,991 B.$622,314 C.$482,562 D.$824,511 16. XYZ, Inc., has a capital structure with 64 percent equity and 36 percent debt. The company’s before-tax cost of debt is 13 percent, while its cost of equity is 18 percent. If the appropriate weighted-average tax rate is 28 percent, what will be XYZ’s WACC? A.11.43 percent B.12.68 percent C.10.46 percent D.9.84 percent 17. Suppose a firm pays total dividends of $1,240,000 out of a net income of $8 million. What would the firm’s payout ratio be? A.18.3 percent B.12.5 percent C.15.5 percent D.14.6 percent 18. What do financial managers use to help them plan for periods during the year in which their firm will either generate large cash surpluses or cash deficits? A.The Baumol model B.The operating cycle C.The cash budget D.The Miller-Orr model 19. Themostcommon reason firms have unused fixed-asset capacity is that fixed assets A.are tax deductible. B.are subject to depreciation. C.can’t be purchased on credit. D.usually aren’t infinitely divisible 20. You’re evaluating the proposed acquisition of a new machining tool for $88,000 by your company. The tool falls into the MACRS three-year class, and it will be fully depreciated after three years and sold at that time for $26,000. Use of the tool requires an increase in NWC (spare parts inventory) of $3,500. The tool will have no effect on revenues, but it’s expected to save the firm $24,000 per year in before-tax operating costs, mostly labor. The firm’s marginal tax rate is 38 percent. What will be the adjusted total cash flow (ATCF) from the sale of the machining tool? A.$22,410 B.$18,186 C.$12,820 D.$16,120