Exam3 FIN370-02 Winter 2011 Key

Version B

1. Auction markets: I. match sellers with buyers. II. have a physical location. III. consist solely of electronic trades. IV. are based on dealers. A. II only B. III only C. III and IV only D. I and II only E. I, III, and IV only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 001 #58 SECTION: 1.6 TOPIC: AUCTION MARKET TYPE: CONCEPTS

2. The Town Talker has a printing press that is not being used at the present time. In fact, this press has not been used for over a year. The press has no market value because it utilizes old technology. The firm could get $150 for the press as scrap metal. The press is five years old and originally cost $97,000. The current book value is $1,450. The president of the firm is considering a new project and feels he can use this press for that project. What value should be assigned to the press and included in the initial project cost? A. $1,450 B. $1,300 C. $150 D. $0 E. $1,600

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #51 SECTION: 9.2 TOPIC: OPPORTUNITY COST TYPE: PROBLEMS

3. Which one of the following correctly defines the average accounting return? A. average cash flow divided by average book value B. average net income divided by average book value C. average book value divided by average net income D. average book value divided by average cash flow E. average book value divided by average market value

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #4 SECTION: 8.3 TOPIC: AVERAGE ACCOUNTING RETURN TYPE: DEFINITIONS

4. Percentage returns: I. easily convey the return for each dollar invested. II. relay information about a security more easily than dollar returns do. III. are not affected by the amount of the investment. IV. can be easily separated into dividend and capital gain yields. A. I, II, and IV only B. I and III only C. II and III only D. II and IV only E. I, II, III, and IV

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #11 SECTION: 10.1 TOPIC: PERCENTAGE RETURNS TYPE: CONCEPTS

5. Which one of the following ignores the time value of money? A. profitability index B. payback C. discounted cash flow analysis D. internal rate of return E. net present value

BLOOMS TAXONOMY QUESTION TYPE: BASIC LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #22 SECTION: 8.2 TOPIC: PAYBACK TYPE: CONCEPTS

6. The stock of Uptown Men's Wear is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

A. 9.6 percent B. 12.8 percent C. 13.6 percent D. 10.4 percent E. 15.3 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #47 SECTION: 11.1 TOPIC: EXPECTED RETURN TYPE: PROBLEMS

7. Your portfolio has provided you with returns of 7.9 percent, 11.2 percent, 3.8 percent, and 14.7 percent over the past four years, respectively. What is the geometric average return for this period? A. 9.16 percent B. 9.33 percent C. 9.40 percent D. 9.44 percent E. 8.98 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 010 #80 SECTION: 10.5 TOPIC: GEOMETRIC AVERAGE TYPE: PROBLEMS

8. The goal of diversification is to eliminate: A. all investment risk. B. the market risk premium. C. unsystematic risk. D. the effects of beta. E. systematic risk.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #31 SECTION: 11.5 TOPIC: UNSYSTEMATIC RISK TYPE: CONCEPTS

9. What is the payback period for a project with the following cash flows?

A. 2.14 years B. 2.20 years C. 2.50 years D. 2.54 years E. 2.23 years

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #64 SECTION: 8.2 TOPIC: PAYBACK TYPE: PROBLEMS

10. Garner, Inc. has a return on equity of 12.5 percent, an equity multiplier of 1.7, and a total asset turnover of 2.1. What is the profit margin? A. 4.70 percent B. 4.63 percent C. 3.50 percent D. 7.35 percent E. 3.57 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 003 #90 SECTION: 3.3 TOPIC: DU PONT IDENTITY TYPE: PROBLEMS

11. Two brothers are discussing a truck they use for local deliveries. Which one of the following items from their discussion represents a sunk cost? A. new tail gate that is needed since the old one was damaged in an accident last week B. transmission repair that was done last week C. cost of the state required annual inspection that must be done this month D. new set of tires that will be needed for winter E. engine tune-up that is scheduled for this afternoon

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #22 SECTION: 9.2 TOPIC: SUNK COST TYPE: CONCEPTS

12. A 5-year project is expected to generate revenues of $92,000, variable costs of $67,000, and fixed costs of $11,000. The annual depreciation is $4,000 and the tax rate is 35 percent. What is the annual operating cash flow? A. $11,100 B. $9,100 C. $10,500 D. $9,900 E. $8,700

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #58 SECTION: 9.3 TOPIC: OPERATING CASH FLOW TYPE: PROBLEMS

13. You can deposit $850 today into a savings account. How long must you wait for the investment to grow to $5,000 if you can earn 6 percent on this money? A. 31.45 years B. 30.41 years C. 23.81 years D. 22.63 years E. 59.95 years

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 004 #53 SECTION: 4.3 TOPIC: TIME PERIOD TYPE: PROBLEMS

14. Julie owns a stock with a market price of $43 per share. This stock pays a constant annual dividend of $1.34 a share. If the price of the stock suddenly falls to $31 a share, you would expect the: I. dividend yield to increase. II. dividend yield to decrease. III. capital gains yield to increase. IV. capital gains yield to decrease. A. I only B. I and III only C. II only D. II and IV only E. III only

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 007 #32 SECTION: 7.1 TOPIC: DIVIDEND AND CAPITAL GAIN YIELDS TYPE: CONCEPTS

15. A pro forma financial statement is a financial statement that: A. values all assets based on their current market values. B. projects future years' operations. C. compares actual results to the budgeted amounts. D. expresses all values as a percentage of either total assets or total sales. E. compares the performance of a firm to its industry.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #6 SECTION: 9.3 TOPIC: PRO FORMA FINANCIAL STATEMENT TYPE: DEFINITIONS

16. The primary benefit of cumulative voting is: A. that each shareholder receives an equal number of total votes. B. the ability to vote by proxy. C. the ability of the shareholders to replace the entire board of directors in one election. D. an increased probability that minority shareholders can elect at least one director of their choice. E. an increased probability that the largest shareholder will be able to control the entire board of directors.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 #35 SECTION: 7.2 TOPIC: CUMULATIVE VOTING TYPE: CONCEPTS

17. You can ensure that an investment is expected to create value for a firm's owners by selecting projects that: A. have a PI equal to zero. B. have positive NPVs. C. have positive AARs. D. produce negative rates of return. E. have positive IRRs.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #17 SECTION: 8.1 TOPIC: NET PRESENT VALUE TYPE: CONCEPTS

18. The annual interest on a bond divided by the bond's market price is called the: A. yield to call. B. required yield. C. total yield. D. current yield. E. yield to maturity.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 #6 SECTION: 6.1 TOPIC: CURRENT YIELD TYPE: DEFINITIONS

19. The concept that the expected return on an investment depends solely on that asset's nondiversifiable risk is referred to as: A. the principle of diversification. B. systematic investing. C. the expected return theory. D. the principle of elimination. E. the systematic risk principle.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #7 SECTION: 11.6 TOPIC: SYSTEMATIC RISK PRINCIPLE TYPE: DEFINITIONS

20. Which one of the following best exemplifies unsystematic risk? A. an unexpected economic boom B. an expected increase in tax rates C. a sudden increase in the inflation rate D. an unexpected increase in the sales of a firm E. an unexpected decrease in interest rates

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #27 SECTION: 11.4 TOPIC: UNSYSTEMATIC RISK TYPE: CONCEPTS

21. B&T, Inc. is expected to pay its first annual dividend five years from now. That payment will be $3.10 a share. Starting in year six, the company will increase the dividend by 2 percent per year. The required return is 15 percent. What is the value of this stock today? A. $13.63 B. $11.86 C. $14.66 D. $15.71 E. $12.09

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 007 #71 SECTION: 7.1 TOPIC: UNEQUAL DIVIDENDS TYPE: PROBLEMS

22. Which one of the following is the preferred method of analyzing a proposed investment? A. profitability index B. internal rate of return C. net present value D. accounting rate of return E. payback

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #13 SECTION: 8.1 TOPIC: NET PRESENT VALUE TYPE: CONCEPTS

23. Which one of the following is a perpetuity? A. social security payments of $1,100 a month for life B. $680 a month over the life of a lease C. $1,000 annual payments from a trust fund forever D. student loan payments of $360 a month for five years E. car payments of $260 a month for 60 months

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 #13 SECTION: 5.2 TOPIC: PERPETUITY TYPE: CONCEPTS

24. A project has the following cash flows. What is the internal rate of return?

A. 12.46 percent B. 13.97 percent C. 14.08 percent D. 16.20 percent E. 15.39 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #82 SECTION: 8.4 TOPIC: INTERNAL RATE OF RETURN TYPE: PROBLEMS

25. Which one of the following will increase the cash flow from assets, all else constant? A. an increase in depreciation B. a decrease in dividends paid C. an increase in the change in net working capital D. a decrease in the cash flow to creditors E. an increase in net capital spending

BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: CHALLENGE Ross - Chapter 002 #42 SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: CONCEPTS

26. Brook's is a specialty retailer of souvenir wear. Currently, the firm offer T-shirts, sweatshirts, and caps. Its most recent annual sales consisted of $18,000 of T-shirts, $9,000 of sweatshirts, and $1,800 of caps. The company is adding polo shirts to the line-up and projects that this addition will result in sales next year of $15,000 of T-shirts, $10,000 of sweatshirts, $9,500 of polo shirts, and $2,000 of caps. What amount of next year's revenue is from side effects of the additional product? A. $420 B. $1,800 C. $1,600 D. $580 E. $750

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #52 SECTION: 9.2 TOPIC: SIDE EFFECTS TYPE: PROBLEMS

27. The return on which one of the following is used as the risk-free rate of return? A. long-term corporate bonds B. long-term government bonds C. U.S. Treasury bills D. the Consumer Price Index E. short-term corporate bonds

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #28 SECTION: 10.3 TOPIC: RISK-FREE RATE TYPE: CONCEPTS

28. Which of the following will increase the profit margin of a firm, all else constant? I. increasing depreciation II. decreasing cost of goods sold III. decreasing the tax rate IV. increasing interest expense A. I and III only B. I, II, and III only C. II and IV only D. II and III only E. I, II, III, and IV

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 003 #22 SECTION: 3.2 TOPIC: PROFIT MARGIN TYPE: CONCEPTS

29. The profit margin is the amount of net profit earned for every $1 of: A. long-term debt. B. total assets. C. external financing. D. equity. E. sales.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 003 #21 SECTION: 3.2 TOPIC: PROFIT MARGIN TYPE: CONCEPTS

30. Swenson's is considering a project with a five-year life. The project requires $90,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 64 percent of sales. Fixed costs are $13,500 and the tax rate is 34 percent. What is the operating cash flow for year 3 given the following sales amounts and MACRS depreciation allowance percentages?

A. $5,825.80 B. $7,301.19 C. $6,231.60 D. $6,714.21 E. $6,427.09

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #64 SECTION: 9.4 TOPIC: OPERATING CASH FLOW TYPE: PROBLEMS

31. You own a portfolio that is invested 22 percent in stock A, 36 percent in stock B, and the remainder in stock C. The expected returns on these stocks are 9.7 percent, 14.5 percent, and 11.2 percent, respectively. What is the expected return on the portfolio? A. 12.48 percent B. 12.97 percent C. 13.11 percent D. 13.33 percent E. 12.06 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #60 SECTION: 11.2 TOPIC: EXPECTED RETURN TYPE: PROBLEMS

32. Which one of the following best exemplifies the concept of a marginal tax? A. Southern Mills paid $3.2 million more in taxes last year than its competitor, Eastern Mills. B. High Water Adventures paid $0.18 in tax for every $1 in taxable income last year. C. As the result of opening a new store, Northern Lights owed an additional $1.1 million in taxes. D. Alpha Industries received a tax refund due to an error in its tax return that the IRS discovered. E. Jefferson-Knight paid $2.1 million in taxes last year on revenue of $6.8 million.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 002 #41 SECTION: 2.3 TOPIC: MARGINAL TAX TYPE: CONCEPTS

33. You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock D? A. 19.46 percent B. 18.42 percent C. 19.07 percent D. 17.91 percent E. 17.68 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #57 SECTION: 11.2 TOPIC: PORTFOLIO WEIGHT TYPE: PROBLEMS

34. Standard deviation measures the _____ of a security's returns over time. A. frequency B. volatility C. average value D. arithmetic average E. mean

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #32 SECTION: 10.4 TOPIC: RISK TYPE: CONCEPTS

35. Over the past six years, a stock had annual returns of 2 percent, 10 percent, 14 percent, 8 percent, -6 percent, and 8 percent, respectively. What is the standard deviation of these returns? A. 7.04 percent B. 8.38 percent C. 11.97 percent D. 12.27 percent E. 7.19 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 010 #65 SECTION: 10.4 TOPIC: STANDARD DEVIATION TYPE: PROBLEMS

36. Given the following information, what is the variance for this stock?

A. .019949 B. .006667 C. .012121 D. .017406 E. .004638

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 011 #53 SECTION: 11.1 TOPIC: VARIANCE TYPE: PROBLEMS

37. Boyes Beach Wear is adding a new product to its sales lineup. Initially, the firm will stock $22,000 of inventory, which will be purchased on 30-days credit from its supplier. The firm will also invest $16,000 in accounts receivable and $54,000 in equipment. What amount should be included in the initial costs for net working capital? A. $6,000 B. $6,000 C. $0 D. $16,000 E. $38,000

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #57 SECTION: 9.2 TOPIC: NET WORKING CAPITAL TYPE: PROBLEMS

38. Which of the following affect the expected rate of return on a security? I. multiple states of the economy II. probability of occurrence for any one economic state III. market rate of return given a particular economic state IV. security beta A. I, II, and III only B. I, II, III, and IV C. II and III only D. III and IV only E. I and II only

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 AND 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #17 SECTION: 11.1 TOPIC: EXPECTED RETURN AND CAPITAL ASSET PRICING MODEL TYPE: CONCEPTS

39. Whole Foods has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased six years ago at a cost of $495,000, which the firm paid in cash. To date, the firm has spent another $89,000 on land improvements, all of which was also paid in cash. Today, the lot has a market value of $689,000. The financial manager of Whole Foods is trying to determine the amount, if any, that should be assigned to the building project for the cost of the land. The project should: A. be assigned a cost equal to the current market value of the land. B. be assigned a cost equal to the cash paid to date for both the lot and the improvements. C. not be charged for the land since it is currently owned, debt-free, by the firm. D. be assigned a cost equal to the original purchase price only. E. be assigned a cost equal to the current market value of the land plus the cash paid for the improvements.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #20 SECTION: 9.1 TOPIC: OPPORTUNITY COST TYPE: CONCEPTS

40. Given an interest rate of zero percent, the future value of a lump sum invested today will always: A. be equal to $0. B. remain constant, regardless of the investment time period. C. be greater than the initial investment amount. D. decrease if the investment time period is lengthened. E. decrease if the investment time period is shortened.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 004 #15 SECTION: 4.1 TOPIC: FUTURE VALUE TYPE: CONCEPTS

41. Truman Florists pays a constant annual dividend of $2.20 per share on its stock. Last year at this time, the market rate of return on this stock was 12.6 percent. Today, the market rate has fallen to 9.7 percent. What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today? A. 9.70 percent B. 2.90 percent C. 23.02 percent D. 29.90 percent E. 14.57 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #50 SECTION: 10.1 TOPIC: CAPITAL GAINS YIELD TYPE: PROBLEMS

42. Portman's is considering adding a new product to its lineup. This product is expected to generate sales for three years after which time the product will be discontinued. What is the project's net present value if the firm wants to earn a 12 percent rate of return?

A. $6,795.61 B. $1,084.41 C. $7,611.08 D. $4,862.07 E. $9,682.26

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #51 SECTION: 8.1 TOPIC: NET PRESENT VALUE TYPE: PROBLEMS

43. You earned 16.7 percent on your investments for a time period when the risk-free rate was 6.1 percent and the inflation rate was 5.4 percent. What was your real rate of return for the period? A. 10.60 percent B. 9.78 percent C. 10.72 percent D. 9.89 percent E. 11.83 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #56 SECTION: 10.1 TOPIC: REAL RETURN TYPE: PROBLEMS

44. A debenture is: A. long-term debt secured by fixed assets of the borrower. B. unsecured debt that generally matures in ten years or more. C. any type of debt that is short-term in nature. D. unsecured debt that generally matures in less than ten years. E. long-term debt secured by real estate.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 #10 SECTION: 6.2 TOPIC: DEBENTURE TYPE: DEFINITIONS

45. Which one of the following has the lowest effective annual rate? A. 7 percent compounded semi-annually B. 7 percent compounded daily C. 7 percent compounded quarterly D. 7 percent compounded monthly E. 7 percent compounded annually

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 #24 SECTION: 5.3 TOPIC: EFFECTIVE ANNUAL RATE TYPE: CONCEPTS

46. The National Bank offers personal loans at 8 percent compounded monthly. The Global Bank offers similar loans at 8.25 percent compounded quarterly. Which one of the following statements is correct concerning these two banks? A. The National Bank loan has a higher effective rate than the Global Bank loan. B. The National Bank loan has an effective rate of 8.33 percent. C. The Global Bank loan has an effective rate of 8.30 percent. D. The National Bank loan has an effective rate of 8.27 percent. E. The Global Bank loan has an effective rate of 8.51 percent.

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 005 #85 SECTION: 5.3 TOPIC: EFFECTIVE ANNUAL RATE TYPE: PROBLEMS

47. Conway & Sons had $26,500 in net fixed assets at the beginning of the year. During the year, the company purchased $5,700 in new equipment. It also sold, at a price of $1,000, some old equipment with a book value of $850. The depreciation expense for the year was $4,300. What is the net fixed asset balance at the end of the year? A. $27,050 B. $26,900 C. $20,800 D. $15,650 E. $31,200

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 002 #57 SECTION: 2.1 TOPIC: NET FIXED ASSETS TYPE: PROBLEMS

48. A firm is reviewing a project that has an initial cost of $85,000. The project will produce cash inflows, starting with year 1, of $10,000, $15,500, $23,600, $30,100, and finally in year five, $38,700. What is the profitability index if the discount rate is 14 percent? A. .88 B. .64 C. .95 D. .72 E. 1.06

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 6 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #95 SECTION: 8.5 TOPIC: PROFITABILITY INDEX TYPE: PROBLEMS

49. The dividend yield is computed as: A. (Dt+1 Dt) / Pt. B. Dt+1 / Pt. C. (Pt+1 + Dt+1) / Pt D. Pt+1 / Dt. E. (Dt+1 Dt) / Pt+1.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #8 SECTION: 10.1 TOPIC: DIVIDEND YIELD TYPE: CONCEPTS

50. The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation: A. opportunity cost. B. credit. C. adjustment. D. erosion. E. tax shield.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 009 #7 SECTION: 9.3 TOPIC: DEPRECIATION TAX SHIELD TYPE: DEFINITIONS

51. An increase in which of the following will increase the future value of a lump sum investment made today assuming that all interest is reinvested? Assume the interest rate is a positive value. I. interest rate II. amount of the lump sum III. frequency of the interest payments IV. length of the investment period A. II and IV only B. II, III, and IV only C. I, II, and IV only D. I, II, III, and IV E. I and III only

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 004 #17 SECTION: 4.1 TOPIC: FUTURE VALUE TYPE: CONCEPTS

52. The control of a corporation ultimately lies with the: A. chief financial officer. B. company president. C. chief executive officer. D. chairman of the board. E. company stockholders.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 001 #46 SECTION: 1.5 TOPIC: CORPORATE CONTROL TYPE: CONCEPTS

53. Stock X has a beta of 1.6 and an expected return of 19 percent. Stock Y has a beta of 1.2 and an expected return of 15.5 percent. What is the risk-free rate if these securities both plot on the security market line? A. 4.5 percent B. 4.8 percent C. 4.2 percent D. 4.0 percent E. 5.0 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 011 #85 SECTION: 11.7 TOPIC: CAPITAL ASSET PRICING MODEL TYPE: PROBLEMS

54. The primary market is: A. the NYSE. B. the market where all new issues of debt and equity securities are sold to the public. C. any large stock exchange accessible to the general public for trading either debt or equity securities. D. a reference to any dealer market. E. a reference to any auction market.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 001 #56 SECTION: 1.6 TOPIC: PRIMARY MARKET TYPE: CONCEPTS

55. The Bailey Brothers want to issue 20-year, zero coupon bonds that yield 9 percent. What price should it charge for these bonds if the face value is $1,000? A. $202.64 B. $157.25 C. $194.49 D. $163.70 E. $178.43

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 #103 SECTION: 6.4 TOPIC: ZERO COUPON BONDS TYPE: PROBLEMS

56. Wheaton, Inc. pays a constant annual dividend. Last year, the dividend yield was 3.6 percent when the stock was selling for $28 a share. What is the current price of the stock if the current dividend yield is 3.2 percent? A. $33.70 B. $33.40 C. $32.90 D. $32.60 E. $31.50

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 010 #46 SECTION: 10.1 TOPIC: DIVIDEND YIELD TYPE: PROBLEMS

57. Discounted cash flow analysis is the process of discounting the: A. nominal rate of return to determine the aftertax rate of return. B. cost of a project to determine its current value. C. future cash flows of a project to determine the project's current value. D. present value of an investment to determine its future value as of a specified date. E. rate of return to determine the aftertax cash flow from a project.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 008 #2 SECTION: 8.1 TOPIC: DISCOUNTED CASH FLOW VALUATION TYPE: DEFINITIONS