Question
1. Which of the following is true?
- A random walk for stock price changes is inconsistent with observed patterns in price changes.
- If the stock market follows a random walk, price changes should be highly correlated.
- If the stock market is weak form efficient, then stock prices follow a random walk.
- All of these.
- Both If the stock market follows a random walk, price changes should be highly correlated; and If the stock market is weak form efficient, then stock prices follow a random walk.
2. You are planning a trip to Australia. Your hotel will cost you A$150 per night for five nights. You expect to spend another A$2,000 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars given the following exchange rates?
- $1,926
- $2,007
- $2,782
- $2,856
- $3,926
3. A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?
- 11.11% decrease
- 12.38% decrease
- 12.38% increase
- 14.13% decrease
- 14.13% increase
4. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 15%. There is a 30% chance of a boom economy. The remainder of the time, the economy will be at normal levels. What is the standard deviation of the returns on Kali's Ski Resort, Inc. stock?
- 10.05%
- 12.60%
- 15.83%
- 17.46%
- 25.04%
5. The Lemon Company made a credit sale of $20,000. The invoice was sent today with the terms, 3/10 net 30. This customer normally pays at the net date. If your opportunity cost of funds is 10% the expected payment is worth how much today?
- $15,000
- $15,657
- $19,843
- $20,000
- None of these.
6. A firm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?
- 37.00 days
- 40.19 days
- 42.87 days
- 63.08 days
- 73.37 days
7. The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month.
Based on the firm's current practice, what is the average daily cash balance (a month has 30 days)?
- $50.00
- $69.44
- $94.44
- $138.89
- None of these.
8. Thornton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% compounded semiannually. Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance?
- $373,108.
- $375,657.
- $665,500.
- $670,048.
- None of these is within $10 of the correct answer.
9. Frank's Formals rents apparel throughout the year. They have experienced non-payment by about 15% of their customers with an average loss of $400. Frank's wants to stem their losses by using an instant electronic credit check on the customer. These checks will cost them $15 on each of the 1,000 customers. The opportunity cost is 2.0% for the credit period. Should they pursue the credit check?
- No, because the $15,000 cost is too high.
- No, because a $400 loss is minor.
- Yes, because the net gain is $30,000.
- Yes, because the net gain is $45,000.
- Yes, because the net gain is $60,000.
10. On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. If the average daily float is $3,300, what is the net present value per day?
- $-0.81
- $-79.41
- $-282.48
- $-297.00
- None of these.
11. Winslow, Inc. is considering the purchase of a $225,000 piece of equipment. The equipment is classified as 5-year MACRS property. The company expects to sell the equipment after four years at a price of $50,000. What is the after-tax cash flow from this sale if the tax rate is 35%?
- $37,036
- $38,880
- $46,108
- $47,770
- $53,892
12. You are considering two independent projects both of which have been assigned a discount rate of 8%. Based on the profitability index, what is your recommendation concerning these projects?
- You should accept both projects since both of their PIs are positive.
- You should accept project A since it has the higher PI.
- You should accept both projects since both of their PIs are greater than 1.
- You should only accept project B since it has the largest PI and the PI exceeds 1.
- Neither project is acceptable.
13. What is the expected return on a portfolio which is invested 20% in stock A, 50% in stock B, and 30% in stock C?
- 7.40%
- 8.25%
- 8.33%
- 9.45%
- 9.50%
4. The divident yield on Alpha's common stock is 4.8%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alpha's stock?
- 10.04%
- 16.07%
- 21.88%
- 43.75%
- 45.94%
15. Given the following information, calculate the present value break-even point.
Initial investment: $2,000
Fixed costs: $2,000 per year
Variable costs: $6 per unit
Depreciation: $250 per year
Price: $20 per unit
Discount rate: 10%
Project life: 4 years
Tax rate: 34%
- 100 units per year
- 143 units per year
- 202 units per year
- 286 units per year
- None of these
16. D & F, Inc. expects sales of $620, $650, $730 and $780 for the months of April through July, respectively. The firm collects 20% of sales in the month of sale, 50% in the month following the month of sale and 28% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of July?
- $645
- $703
- $711
- $742
- $755 .
17. The following time period(s) is/are consistent with the bubble theory:
- the stock market crash of 1929.
- the stock market crash of 1972.
- the stock market crash of 1987.
- the stock market crash of 1929 and the stock market crash of 1987.
- the stock market crash of 1929; the stock market crash of 1972; and the stock market crash of 1987.
18. The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month.
Based on the firm's current practice, how many times during the next 3 months will the cash balance be replenished?
- 3.33 times
- 4.42 times
- 8.33 times
- 13.35 times
- None of these.
19. In the spot market, $1 is currently equal to £.55. The expected inflation rate in the U.K. is 4 percent and in the U.S. 3 percent. What is the expected exchange rate two years from now if relative purchasing power parity exists?
- £.5391
- £.5445
- £.5555
- £.5611
- £.5667
20. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?
- $35.63
- $38.19
- $41.05
- $43.19
- $45.81