1-) Bill's Boards has 6.2 million shares of common stock outstanding, 5.2 million shares of preferred
stock outstanding, and 32.00 thousand bonds. If the common shares are selling for $29.30 per share, the
preferred share are selling for $18.20 per share, and the bonds are selling for 95.88 percent of par, what
would be the weight used for equity in the computation of Bill's WACC? A) 66.67%
B) 33.33%
C) 54.23%
D) 59.18%
2-) Carrie D's has 6.5 million shares of common stock outstanding, 2.5 million shares of preferred stock
outstanding, and 15.00 thousand bonds. If the common shares are selling for $15.50 per share, the
preferred share are selling for $28.50 per share, and the bonds are selling for 108.95 percent of par,
what would be the weight used for equity in the computation of Carrie D's WACC? A) 53.49%
B) 66.67%
C) 33.33%
D) 72.10% 3-) You have been asked by the president of your company to evaluate the proposed acquisition of a
new special-purpose truck for $410,000. The truck falls into the MACRS 3-year class, and it will be
sold after 3 years for $66,000. Use of the truck will require an increase in NWC (spare parts
inventory) of $6,600. The truck will have no effect on revenues, but it is expected to save the firm
$120,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35
percent. What will the cash flows for this project be during year 3?
A) $138,721
B) $38,531
C) $136,667
D) $99,252
4-) Suppose your firm is considering investing in a project with the cash flows shown below, that the
required rate of return on projects of this risk class is 12 percent, and that the maximum allowable
payback and discounted payback statistic for the project are 2 and 3 years, respectively.
Time
Cash Flow 0
-980 1
180 2
420 3
620 4
620 5
220 6
620 Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?
A) 3.12 years, reject
B) 3.11 years, reject
C) 2.80 years, accept
D) 2.89 years, accept 5-) Rose Resources faces a smooth annual demand for cash of $11.7 million; incurs transaction
costs of $410 every time they sell marketable securities, and can earn 5.6 percent on their
marketable securities. What will be their optimal cash replenishment level? (Round your answer to 2
decimal places.)
A) $35,376.92
B) $292,678.52
C) $29,267.85
D) $413,909.93
6-) Suppose a firm has had the historical sales figures shown as follows. What would be the forecast
for next year's sales using regression to estimate a trend? A) $850,000
B) $860,000
C) $861,500
D) $874,000
7-) Suppose that Wave Industries currently has the balance sheet shown as follows, and that sales
for the year just ended were $25 million. The firm also has a profit margin of 10 percent, a retention
ratio of 20 percent, and expects sales of $27 million next year. If fixed assets have enough capacity
to cover the increase in sales and all other assets and current liabilities are expected to increase
with sales, what amount of additional funds will the company need from external sources to fund the
expected growth? A) $0
B) $300,000
C) $340,000
D) $20,000
8-) Your company doesn't face any taxes and has $760 million in assets, currently financed entirely
with equity. Equity is worth $51.00 per share, and book value of equity is equal to market value of
equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the
economy occurs this year, with the possible values of EBIT and their associated probabilities as
shown below:
State
Probability of State
Expect EBIT in State Recession
.10
$110 million Average
.75
$185 million Boom
.15
$245 million The firm is considering switching to a 15-percent debt capital structure, and has determined that they
would have to pay a 11 percent yield on perpetual debt in either event. What will be the standard
deviation in EPS if they switch to the proposed capital structure? (Round your intermediate
calculations and final answer to 2 decimal places except calculation of number of shares which
should be rounded to nearest whole number.)
A) 13.74
B) 2.62
C) 13.22
D) 6.30
9-) JEN Corp. is expected to pay a dividend of $2.75 per year indefinitely. If the appropriate rate of
return on this stock is 10 percent per year, and the stock consistently goes ex-dividend 10 days
before dividend payment date, what will be the expected minimum price in light of the dividend
payment logistics?
A) $24.68
B) $30.17
C) $27.43
D) $27.50
10-) Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.20 million to
finance plant expansion. In discussions with its investment bank, Home Improvement learns that the
bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an
underwriter's spread of 8 percent of the gross proceeds. How many bonds will Home Improvement
need to sell in order to receive the $2.20 million they need?
A) 2,391,304
B) 2,376,000
C) 2,392
D) 2,376
11-) Portfolio Beta You own $1,600 of City Steel stock that has a beta of 1.62. You also own $6,200
of Rent-N-Co (beta = 1.92) and $5,200 of Lincoln Corporation (beta = 1.02). What is the beta of your
portfolio (closest to)?
A) 1.52
B) 3.17
C) 1.00
D) 4.56
12-) Portfolio Beta You own $15,000 of City Steel stock that has a beta of 3.25. You also own
$35,000 of Rent-N-Co (beta = 1.70) and $20,000 of Lincoln Corporation (beta = -.90). What is the
beta of your portfolio?
A) 1.00
B) 1.29
C) 4.05
D) 4.97
13-) Average Return The past five monthly returns for PG Company are 2.00 percent, -3.0 percent,
5.00 percent, 4.5 percent, and 2.7 percent. What is the average monthly return?
A) 2.25%
B) 11.23%
C) 17.23%
D) 3.45% 14) Expected Return American Eagle Outfitters (AEO) recently paid a $.48 dividend. The dividend
is expected to grow at a 16.50 percent rate. At the current stock price of $25.07, what is the return
shareholders are expecting?
A) 16.50%
B) 16.52%
C) 18.48%
D) 18.73%
15-) TIPS Capital Return Consider a 4.50% TIPS with an issue CPI reference of 183.80. At the
beginning of this year, the CPI was 190.90 and was at 200.00 at the end of the year. What was the
capital gain of the TIPS in percentage terms? (Do not round the intermediate steps. Round your final
answer to 2 decimal places.)
A) 4.77%
B) 4.55%
C) 7.10%
D) 9.10%
16-) Forecasting Interest Rates on May 23, 20XX, the existing or current (spot) one-year, two-year,
three-year, and four-year zero-coupon Treasury security rates were as follows:
1 R1 = 5.85%, R2 = 6.35%, 1 1 R3 = 6.85%, 1 R4 = 7.05% Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury
bonds for year four as of May 23, 20XX
A) 6.525%
B) 7.05%
C) 24.07%
D) 7.65%
17-) Present Value of Multiple Annuities A small business owner visits his bank to ask for a loan.
The owner states that he can repay a loan at $1,900 per month for the next three years and then
$2,900 per month for the two years after that. If the bank is charging customers 7.50 percent APR,
how much would it be willing to lend the business owner?
A) $83,644.36
B) $11,250
C) $144,725.39
D) $33,739.05
18-) Moving Cash Flows What is the value in year 12 of a $2,200 cash flow made in year 5 when
the interest rates are 10 percent?
A) $3,740.00
B) $6,904.54
C) $700.99
D) $4,287.18 19-) Interest-on-Interest Consider a $2,700 deposit earning 6 percent interest per year for 9 years.
How much total interest is earned on the original deposit (excluding interest earned on interest)?
A) $1,828.17
B) $1,458.00
C) $145.80
D) $370.17
20-) Profitability and Asset Management Ratios You are thinking of investing in Tikki's Torches,
Inc. You have only the following information on the firm at year-end 2008: net income = $580,000,
total debt = $12.8 million, debt ratio = 43%. What is Tikki's ROE for 2008?
A) 10.53%
B) 4.53%
C) 3.42%
D) 1.95% 21-) Liquidity Ratios Burt's TVs has current liabilities of $25.5 million. Cash makes up 45 percent of
the current assets and accounts receivable makes up another 25 percent of current assets. Burt's
current ratio = .90 times. What is the value of inventory listed on the firm's balance sheet?
(Do not round intermediate steps.)
A) $5.74 m
B) $6.88 m
C) $30 m
D) $11.48 m 22-) Statement of Cash Flows In 2008, Lower Case Productions had cash flows from investing
activities of +$95,000 and cash flows from financing activities of +$91,000. The balance in the firm's
cash account was $98,000 at the beginning of 2008 and $74,000 at the end of the year. What was
Lower Case's cash flow from operations for 2008?
A) $74,000
B) −$24,000
C) −$210,000
D) $186,000
23-) Free Cash Flow Catering Corp. reported free cash flows for 2008 of $8.07 million and
investment in operating capital of $2.07 million. Catering listed $1.07 million in depreciation expense
and $2.07 million in taxes on its 2008 income statement. What was Catering's 2008 EBIT?
A) $10.14 million
B) $13.28 million
C) $7 million
D) $11.14 million 24-) This should be the primary objective of a firm as it may actually be the most beneficial for
society in the long run.
A) Minimizing layoffs
B) Maximizing market share
C) Minimizing costs
D) Maximizing shareholder value
25-) These individuals help firms access capital markets and advise managers about how to interact
with those capital markets.
A) Auditors
B) Investment analysts
C) Investment bankers
D) Credit analysts

 

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