1. Which one of the following has a maturity value? a. Assets b. Bonds c.

Common stock
d. Preferred stock
2. a bond indenture: a. Contains the legal agreement between the firm and the
trustee. b. States the bonds current rating. c. States the yield to maturity of the bond d.
Allows the sale of accounts receivable
3. A bond has a 1-% coupon rate, a par value of $1000, and a market price of $800. What
is the current yield of this bond? a. 10% b. 11.4% c. 12.2% d. 12.5%
4. Which type of value is shown on the firms balance sheet? a. Liquidation value b.
Book value c. Market value d. Intrinsic value
5. the present value of the expected future cash flows of an asset represents the assets: a.
Liquidation value. b. Book value c. Intrinsic value d. Par value
6. in an efficient securities market, the market value of a security is equal to its: a.
liquidation value, b. book value c. intrinsic value d. par value
7. What is the value of a bond that has a par value of $1000, a coupon of $80(annually),
and matures in 11 years? Assume a required rate of return of 11%, and round your answer
to the nearest $10. a. $320 b. $500 c. $810 d. $790
8. the interest on corporate bonds is typically paid: a. semi-annually b. annually c.
quarterly d. monthly
9. Terminator bug company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par value of $1000 and will mature 10 years from now.
Compute the value of terminator bonds if investors required rate of return is 12%,
rounded to the nearest dollar. a. $1115 b. $1149 c. $1000 d. $894
10. Cassel corporation bonds pay an annual coupon rate of 10%. If investors required
rate of return is now *% on these bonds, they will be priced at: a. par value b. a premium
to par value c. a discount to par value d. asset value
11. How is preferred stock similar to a bond? a. Preferred stock always contains a
maturity date b. Dividends are limited in amount c. Both contain a growth factor
similar to common stock d. Dividends are deductible for tax purposes
12. cumulative preferred stock: a. provides for the right to vote b. provides for the right to
vote cumulatively c. provides for a claim to dividends after common stock d. requires
dividends in arrears to be carried over into the next period

13. valuation methods treat preferred stock as a: a. perpetuity b. capital asset c. common
stock d. long-term bond
14. Style corporation preferred stock pays a dividend of $3.15 a year. What is the value of
the stock if the required rate of return is 8.5%? (round your answer to the nearest$1)
a. 23 b. 27 c. 33 d. 37
15. What is the value of a preferred stock that pays a $2.10 dividend annually to an
investor with a required rate of return of 11%? (round your answer to the nearest $1) a.
$17 b. $19 c. $21 d. $23
16. Common stock involves ____________the Corporation. a. Ownership in b.
Personally managing c. Being a creditor of d. The maturity of
17. Common stock dividends must be ________ before issued. a. Approved by common
stockholders b. Registered with the SEC c. Approved by preferred stockholders d.
Declared by the firms board of directors
18. Which of the following is an example of the internal growth factor of common stock?
a. Acquiring a loan to fund an investment in Germany b. Two strong companies merging
together to increase their economy of scale c. Issuing new stock to provide capital for
future growth d. Retaining profits in order to reinvest into the firm.
19. Little feet Shoe Company just paid a dividend of $1.65 on its common stock. This
companys dividends are expected to grow at a constant rate of 3% indefinitely. If the
required rate of return on this stock is 11%, compute the current value per share of this
stock. a. $15 b. $20.63 c. $21.25 d. $55
20. What is the expected rate of return for a stock with a current market price of $35, if
the expected dividend at the conclusion of this year is $1.75, and earnings are growing at
a 10% annual rate? (Assume that the dividends are anticipated to grow at the same rate.)
a. 25% b. 15% c. 10% d. 5%
1. What is the payback period for a $20000 project that is expected to return $6000 per
year for the first two years and $3000 per year for years three through five? a.3.5 b. b.4.5
c. c.4.66 d. d.5
2. Rymer, inc. is considering a new assembler, which costs $180,000 installed, and has a
depreciable life of 5 years. The expected annual after-tax cash flows for the assembler are
$60,000 in each of the 5 years and nothing thereafter. Calculate the net present value
(NPV) of the assembler if the required rate of return is 14%. Round to the nearest ten
dollars. a. $25,200 b. $25,980 c. $51,960 d. $120,000
3. Which of the following is considered in the calculation of incremental cash flow? a.
Re-engineering and installation costs b. Repayment of principal if new debt is issued c.

Increased dividend payments if additional common stock issued d. Interest charges

associated with raising funds.
4. An old machine was purchased for $20,000, at a book value of $5,000, and sold for
$9,000. The firms marginal tax rate is 25%. What is the amount of taxes due? a. $9000 b.
$5000 c. $2250 d. $1000
5. A firm purchased an asset with a 5-year life for $90,000, and it cost $10,000 for
shipping and installation. Using the simplified straight-line method, what is the annual
depreciation? a. $20000 b. $18000 c. $10000 d. $5000
6. The Acu Punct Corporation is considering the purchase of a new machine with an
initial outlay of $4500 and expected cash flows in years 1-4 of $2200 per year. The riskadjusted discount rate for the firm is 12%, and the risk-free rate is 5%. Compute the net
present value of this project. a. 4300 b. 2181 c. 1899 d. 1535
7. J&B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently the
yield to maturity on these bonds is 12%. If the firms tax rate is 40%, what is the cost of
debt to J&B? a. 14% b. 12% c. 8.4% d. 5.6%
8. Vipsu Corporation plans to issue 10-year bonds with a par value of $1000 that will pay
$55 every six months. The net amount of capital to the firm from the sale of each bond is
$840.68. If Vipsu is in the 25% tax bracket and its before-tax cost of capital is 14%, what
is the after-tax cost of debt? a. 7 b. 10.5 c. 11.5 d. 14
9. XYZ Corporation is trying to determine the appropriate cost of preferred stock to use
in determining the firms cost of capital. This firms preferred stock is currently selling
for $36, and pays a perpetual annual dividend of $2.60 per share. Underwriters of a new
issue of preferred stock would charge $6 per share in flotation costs. The firms tax rate is
30%. Compute the cost of new preferred stock for XYZ. a. 6.2% b. 7.2% c. 8.7% d.
16.7%
10. Shawhan supply plans to maintain is optimal capital structure of 30% debt, 20%
preferred stock, and 50% common stock far into the future. The required return on each
component is: debt 10%, preferred stock 11%, and common stock 18%. Assuming a 40%
marginal tax rate, what is the firms weighted average cost of capital? a. 10% b. 12% c.
13% d. 14.2%

1. Use the percent of sales method to forecast next years accounts payable. Current year
slaes are $24,500,000 and sales are expected to rise by 25%. The firms accounts payable
balance is $1,701,600. what is the projection for next years accounts payable? a.
$1,000,600 b. $2,127,000 c. $3,981,250 d. $6,125,000
2. A firm has a return on equity (ROE)of 15%. Dividend payout is 25% of net income.
Leverage is 1.20. What is the sustainable rate of growth? a. 3.75% b. 4.28% c. 11.25% d.
13.50%
3. A company collects 60% of its sales during the month of sale, 30% one month after the
sale, and 10% two months after the sale. Expected sales are: $10,000 in August, $20,000
in September, $30,000 in October, and $40,000 in November. How much cash is
expected to be collected in October? a. $15000 b. $25000 c. $35000 d. $60000

4. A 6-month loan of $5000 at 6% interest would require an interest payment of : a. $900

b. $600 c. $300 d. $150
5. Atlas Tire Irons, Inc. is considering borrowing $5000 for a 90-day period. The firm
will repay the $5000 principle amount plus $150 in interest. What is the effective annual
rate of interest? Use a 360-day year. a. 7% b. 12% c. 15% d. 25%
6. The effective annual cost of not taking advantage of the 3/10, net 30 terms offered by a
supplier is (Use a 360 day year.) a. 55.7% b. 45.4% c. 40.5% d. 32.3%
1. Assume that liquid funds can be invested to yield 12%. If annual remittance checks
total $2 billion, what is it worth for the firm to reduce float by 1 day? a. $54,833 b.
$657,534 c. $1,000,000 d. $24,000,000
2. If you compare the yield of a municipal bond with that of a treasury bond, what is the
equivalent before-tax yield of a municipal bond yielding 6% per year for an investor in
the 25% tax bracket? a. 4.0% b. 7.5% c. 8.0% d. 9.5%
3. Determine the effective annualized cost of foregoing the trade discount on terms 2/10
net 45, rounded to the nearest tenth of a percent. a. 16.0% b. 16.3% c. 21.0% d. 25.9%
4. Stern Corporation uses semi-hex joints in its manufacturing process. If sterns total
demand for the joints for next year is estimated to be 15,000 units, and if the cost per
order is $80, what is sterns economic order quantity of semi-hex joints? Assume that
carrying costs for semi-hex joints are $.51 per unit and round to the nearest 100 units. a.
1500 b. 1700 c. 2000 d. 2200
5. Crisp international purchased 30,000 cases of French wine at a cost of 3,136,000 euros.
If the current exchange rate is .7445 euros to the US dollar, what is the purchase price in
US dollars? a. $2,106,111 b. $2,334,752 c. $3,333,333 d. $4,212,223

6. Assume the british pound is worth $1.9459. if a new jaguar costs $49,500, what is the
cost in british pounds? a. 12,719 b. 25,438 c. 48,161 d. 96,322