Questions -
Q1. Trading on the NYSE is executed without a specialist (i.e. a market maker).
True
False
Q2. Stocks and bonds are two types of financial instruments
True
False
Q3. The matching principle in accrual accounting requires that:
a. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.
b. Expenses are matched to the year in which they are incurred
c. Revenues are matched to the year in which they are booked
d. Revenues should be large enough to match expenses
Q4. A high-quality customer just purchased $500,000 worth of product from your company. The contract calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been paid to your supplier. Under accrual based accounting system, you will most likely report:
a. revenues of $300,000 and expenses of $300,000.
b. revenues of $300,000 and expenses of $200,000.
c. revenues of $500,000 and expenses of $300,000.
d. revenues of $500,000 and expenses of $200,000.
Q5. A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3, the firm reports retained earnings of $400 and pays dividends of $25. What was net income in 20x3?
a. 300
b. 400
c. 125
d. 100
Q6. The basic equation for the balance sheet is:
a. Equity = Assets - Liabilities
b. Liabilities = Equity + Assets
c. Assets = Liabilities - Equity
d. Assets = Equity - Liabilities
Q7. Intel reported the following for 2014:
Net Income 100,000
Depreciation 20,000
Change in A/R 10,000
What is the cash flow from operating activities?
a. 100,000
b. 110,000
c. 120,000
d. (130,000)
Q8. Intel reported the following for 2014:
Gross Equipment (1/1/14) 50,000
Gross Equipment (12/31/14) 65,000
Net income 100,000
Depreciation 20,000
What is the cash flow from investing activities for 2014?
a. 100,000
b. 80,000
c. 15,000
d. (15,000)
Q9. Last year a firm recorded Net PP&E of $4,600 while this year the same firm recorded Net PP&E of $4,500. If the depreciation expense for last year and this year are $500 and $800 respectively, what is the CFI of the company? (Assume no asset disposals)
a. 100 outflow
b. 900 outflow
c. 100 inflow
d. 700 outflow
Q10. The statement of cash flows
a. serves as the replacement for the income statement and balance sheet
b. explains the change in cash balance at one point in time
c. explains the change in cash balance for one period of time
d. both (a) and (b) above
Q11. Financial data for Intel is given below for 2014
EBIT 1,000,000
Depreciation 30,000
Change in working capital (10,000)
Net capital expenditures 15,000
Tax rate 40%
Compute the Free Cash Flow for 2014?
a. 610,000
b. 675,000
c. 625,000
d. 600,000
Q12. Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely?
a. The firm has lower liquidity than the industry average.
b. The firm has too much inventory thus impairing overall liquidity.
c. The firm has too little inventory resulting in lost sales or stock-outs.
d. The firm has low sales volume.
Q13. Intel provides the following data for 2014:
A/R 600
Inventory 800
Fixed Assets 1,000
A/P 500
Long term debt 900
Common Stock 400
What is the current ratio?
a. 1.2
b. 1.5
c. 2.0
d. 2.8
Q14. Suppose a firm has a financial leverage ratio of 2.50. What percentage of the firm's assets is financed by equity?
a. 40%
b. 70%
c. 50%
d. 60%
Q15. Which of the following gives the largest effective rate (APY)
a. 18.6% compounded monthly
b. 18.6% compounded daily
c. 18.6% compounded weekly
d. 18.6% compounded yearly
Q16. Suppose that an investment will pay 24% APR for a year and the interest will be compounded monthly. What is the expected APY for the investment?
a. 24.50%
b. 26.82%
c. 25.41%
d. 28.00%
Q17. A bond issued with a face value of $1,000 pays a 6% coupon rate semiannually. It matures in four years. Current market interest is 7.5% What is the price?
a. 948.98
b. 949.76
c. 952.43
d. 1051.87
Q18. A bond issued with a face value of $1,000 pays a 3% coupon rate and matures in seven years. If an investor wants a yield of 4%, what is the investor willing to pay for the bond?
a. 939.46
b. 1067.04
c. 1033.32
d. 939.98
Q19. An investor wants to know what the yield to maturity is for a $1,000 bond with a 5.5% coupon rate that matures in 5 years if the current market price is $955?
a. 7.23
b. 6.59
c. 6.33
d. 6.62
Q20. A $1,000 bond matures in six years. It pays $35 every six months. The current market price is 1,075. What is the yield?
a. 2.76
b. 3.12
c. 5.51
d. 6.03
Q21. An investor wishes to know what the value of a common stock is if it pays a dividend of $6.00 today. The company's growth rate is 4.5% and the investor wants expects the stock to earn 7%. What is the value?
a. 179.14
b. 240.00
c. 85.71
d. 250.80
Q22. If a common stock is worth $75 and the growth rate is 5% with a dividend expected to pay $2.00 in a year's time, what is the expected rate of return?
a. .0267
b. .0550
c. .0750
d. .0767
Q23. An investor wishes to know what the value of preferred stock, when the dividend is $3.00 per share and the expected rate of return is 6.5%?
a. 72.63
b. 68.04
c. 191.45
d. 46.15
Q24. What is the expected rate of return for a stock where there is a 60% chance of a recession and a 40% chance of an expansion? The stock would return 2% during a recession and 8% in an expansionary period.
|
Cycle
|
Prob
|
Stock
|
|
Recession
|
60%
|
.02
|
|
Expansion
|
40%
|
.08
|
a. .050
b. .100
c. .044
d. .056
Q25. What is the portfolio expected rate of return given the following information:
- Expansion probability is 55%, Recession probability is 45%
- Stock A - Expansion return is 15%, recession return is 2%
- Stock B - Expansion return is 12%, recession return is -3%
- We own $75,000 worth of shares of Stock A and $15,000 worth of shares of Stock B.
|
Cycle
|
Prob
|
Stock A
|
Stock B
|
|
|
|
75,000
|
15,000
|
|
Recession
|
45%
|
.02
|
-.03
|
|
Expansion
|
55%
|
.15
|
.12
|
a. .1022
b. .0980
c. .0754
d. .0851
Q26. What is the Expected Rate of Return for a stock where treasury bills are returning 2.5% and the market as a whole, is returning 15%. The stock has a beta of 1.25?
a. .125
b. .156
c. .181
d. .100
Q27. What is the beta of a stock where the expected rate of return is 14%, the market premium is 7% and the risk free rate is 3%.
a. 1.90
b. 0.95
c. 1.45
d. 1.57
Q28. If an investor knows the idiosyncratic risk, the investor knows the:
a. Profit Margin percentage
b. Beta Coefficient
c. Operating Leverage
d. Free Cash Flow
Q29. If a company has a capital structure of $100,000 common stock, $50,000 bonds and $10,000 preferred stock and the respective rates are 15% common stock, 3% bonds (after tax) and 4% preferred stock, what is the Weighted Average Cost of Capital?
a. .1057
b. .2200
c. .0733
d. .1128
Q30. If a company has a capital structure of $5 million common stock with a cost of 17%, $2 million bonds at 4%, $1 million of Short Term Debt with a cost of 7%, and $2 million preferred stock with a cost of 3%, what is the Weighted Average Cost of Capital? The company has a 40% tax rate.
a. .1322
b. .1196
c. .1000
d. .0899
Q31. If a company has a capital structure of internal equity of $15 million at 15%, a new offering of external equity of $5 million at 17% with flotation costs of 3%, and $10 million of bonds at 5% after tax, what is the Weighted Average Cost of Capital?
a. .1207
b. .1250
c. .1632
d. .1025
Q32. If Sales are $1,000,000, then what are the total current assets given the following:
- Cash 25% of Sales
- Accounts Receivable 13% of Sales
- Accounts Payable 10% of Sales
- Accrued Payroll 5% of Sales
- Cost of Goods Sold 50% of Sales
- Inventory 15% of Cost of Goods Sold
a. 1,030,000
b. 380,000
c. 338,000
d. 455,000
Q33. What is the increase in Retained Earnings given the following:
- Sales are $10 million
- Net Earnings pre-tax are $1 million
- Dividend payout ratio is .12
- Tax rate is 40%
a. 400,000
b. 726,000
c. 880,000
d. 528,000
Q34. What is the Sustained Growth Rate given the following:
- Sales are 2.5 million
- Total Expenses (including cost of goods sold through taxes) 2.0 million
- Total Assets are 3.0 million
- Equity is 1.3 million
- Dividend payout ratio is .25
a. .2552
b. .2885
c. .7500
d. .3846
Q35. What is the differential cash flow given the following:
Sales 50,000
Expenses (w/o Depn) 30,000
Depreciation 10,000
Taxes (.40) 4,000
a. 16,000
b. 10,000
c. 6,000
d. 50,000
Q36. From the following information, calculate the terminal cash flow.
Proceeds from sale of equipment 100,000
Book Value of equipment sold 50,000
Year 3 Diff Cash Flow 225,000
Tax rate 40%
Depreciation Yrs 1 to 5 125,000
Working Capital Return 75,000
a. 485,000
b. 175,000
c. 125,000
d. 155,000
Q37. If the Investment is 140,000, then what is the Net Present Value, given the Total Present Value is 154,606?
a. 140,000
b. -71,448
c. 14,606
d. -123,420
Q38. Why is the NPV preferred over the IRR? Pick Two
a. It has a higher dollar value
b. It measures the dollar value
c. It is more reliable
d. It is harder to calculate
Q39. What is the Degree of Operating Leverage given Sales of 100,000. Variable Costs of 75,000 and EBIT of 10,000?
a. 1.0
b. 2.5
c. 10
d. 2.05
Q40. What does the Degree of Financial Leverage indicate?
a. The firms cash balance
b. The cost of financed assets
c. The reliance on debt
d. The reliance on assets
Q41. If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile?
a. Low Risk
b. Appropriate Risk
c. Higher ability to pay debt
d. Higher profits to shareholders
Q42. What is the cash cycle?
a. The speed of collecting cash from customers
b. The amount of cash kept in banks
c. The comparison of debt to cash
d. The amount of time to regenerate cash
Q43. Why is float important to understand?
a. To know how to keep the company profitable
b. To know why the company needs cash
c. To determine when to buy fixed assets
d. To time cash expenditures
e. None of the above
Q44. What should a company do to manage its working capital?
a. Collect quickly and pay slowly
b. Keep a large cash balance
c. Maximize the use of long term investment
d. Depreciate assets more slowly
Q45. If two companies have earnings of $2,000,000 and Company X has a multiple of 1.2 and Company Z has a multiple of 2.0, what can we estimate about the value of each company?
a. The value is the same
b. The value of Company X is higher
c. The value of Company Z is higher
d. The relative value can't be determined
Q46. Discounted cash flow (DCF) does not utilize the time value of money
a. True
b. False
Q47. Calculate the Free Cash Flow given the following information:
- Net Working Capital increases by 20,000
- Tax Rate is .40
- EBIT is 250,000
- Capital Expenditures are 10,000
- Depreciation is 15,000
a. 175,000
b. 200,000
c. 115,000
d. 135,000
Q48. If a company has a constant growth rate estimated at 5% and a Free Cash Flow of 150,000, what is its estimated valuation?
a. 3,000,000
b. 7,500
c. 2,500,000
d. 1,500,000
Q49. Dodd-Frank regulates which segment of the U.S. Economy?
a. Fannie Mae and Freddie Mac (Housing financing)
b. Banking Industry
c. Multi-level Marketing Industry
d. Automobile Industry
Q50. The SEC Securities & Exchange Commission requires companies to do the following: (pick two)
a. Register all public offerings
b. Change CEOs on a regular basis
c. Regulates stock sales
d. Prohibits foreign bribery
e. Regulates the Money Supply
Q51. What does the Sarbanes-Oxley Act require companies to do?
a. Have a board of directors
b. Register all foreign sales
c. Pre-pay taxes (estimated tax payments
d. Have internal control audits
Q52. FINRA (Financial Industry Regulatory Authority) does the following: (pick one)
a. No foreign bribery by corporations
b. Regulates bond prices
c. Establishes Credit Unions
d. Prosecutes naughty stock brokers
e. Regulates Hedge Funds