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Solved by a verified expert :MBA6010 Managerial Finance
Week 5 Quiz
Question 1 Your firm has average daily receipts of $2,500. These receipts are available after 6 days on average. The interest rate that could be earned is .02% (.0002) per day. What is the approximate cost of the float per day?
Question 1 options:
a)            $2.50
b)            $3.00
c)            $30.00
d)            $50.00
e)            None of these
Question 2 The common stock of Grady Co. had an 11.25% rate of return last year. The dividend amount was $.70 a share which equated to a dividend yield of 1.5%. What was the rate of price appreciation on the stock?
Question 2 options:
a)            1.50%
b)            8.00%
c)            9.75%
d)            11.25%
e)            12.75%
Question 3 The systematic response coefficient for productivity, βp, would produce an unexpected change in any security return of ____ βP if the expected rate of productivity was 1.5% and the actual rate was 2.25%.
Question 3 options:
a)            0.75%
b)            –0.75%
c)            2.25%
d)            -2.25%
e)            1.5%
Question 4 You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?
Question 4 options:
a)            5.00%
b)            6.45%
c)            7.30%
d)            7.65%
e)            8.30%
Question 5 A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the _____ distribution.
Question 5 options:
a)            gamma
b)            poisson
c)            bi-modal
d)            normal
e)            uniform
Question 6 A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.
Question 6 options:
a)            treasury
b)            municipal
c)            floating-rate
d)            junk
e)            zero coupon
Question 7 ________ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.
Question 7 options:
a)            Tax reconciliation statement
b)            Statement of standardization
c)            Statement of cash flows
d)            Common-base year statement
e)            Common-size statement
Question 8 Which of the following are all components of the statement of cash flows?
Question 8 options:
a)            Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities
b)            Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activities
c)            Cash flow from internal activities, cash flow from external activities, and cash flow from financing activities
d)            Cash flow from brokering activities, cash flow from profitable activities, and cash flow from non-profitable activities
e)            None of these
Question 9 Marshall’s & Co. purchased a corner lot in Eglon City five years ago at a cost of $640,000. The lot was recently appraised at $810,000. At the time of the purchase, the company spent $50,000 to grade the lot and another $4,000 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1.2 million. What amount should be used as the initial cash flow for this building project?
Question 9 options:
a)            $1,200,000
b)            $1,840,000
c)            $1,890,000
d)            $2,010,000
e)            $2,060,000
Question 10 Beta is useful in the calculation of the _________.
Question 10 options:
a)            company’s variance
b)            company’s discount rate
c)            company’s standard deviation
d)            unsystematic risk
e)            company’s market rate
Question 11 It will cost $3,000 to acquire a small ice cream cart. Cart sales are expected to be $1,400 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?
Question 11 options:
a)            83 years
b)            1.14 years
c)            1.83 years
d)            2.14 years
e)            2.83 years
Question 12 One of the reasons why cash flow analysis is popular is because ________.
Question 12 options:
a)            cash flows are more subjective than net income
b)            cash flows are hard to understand
c)            it is easy to manipulate, or spin the cash flows
d)            it is difficult to manipulate, or spin the cash flows
e)            none of these
Question 13  Risk that affects at most a small number of assets is called _____ risk.
Question 13 options:
a)            portfolio
b)            nondiversifiable
c)            market
d)            unsystematic
e)            total
Question 14 The internal rate of return tends to be ________.
Question 14 options:
a)            easier for managers to comprehend than the net present value
b)            extremely accurate even when cash flow estimates are faulty
c)            ignored by most financial analysts
d)            used primarily to differentiate between mutually exclusive projects
e)            utilized in project analysis only when multiple net present values apply
Question 15 A levered firm is a company that has ________.
Question 15 options:
a)            accounts Payable as the only liability on the balance sheet
b)            some debt in the capital structure
c)            all equity in the capital structure
d)            all of the above
e)            none of the above
Question 16 Given the following information, leverage will add how much value to the unlevered firm per dollar of debt? Corporate tax rate: 34%
Personal tax rate on income from bonds: 20%
Personal tax rate on income from stocks: 0%
Question 16 options:
a)            $0.175
b)            $0.472
c)            $0.528
d)            $0.825
e)            None of these
Question 17 Holden Bicycles has 1,000 shares outstanding each with a par value of $0.10. If they are sold to shareholders at $10 each, what would the capital surplus be?
Question 17 options:
a)            $100
b)            $900
c)            $9,900
d)            $10,000
e)            $11,000
Question 18 Bradley Snapp has deposited $6,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?
Question 18 options:
a)            $2,397.00
b)            $3,288.00
c)            $6,321.32
d)            $7,574.86
e)            $8,857.59
Question 19 A project has an initial cost of $2,100. The cash inflows are $0, $500, $900, and $700 over the next four years, respectively. What is the payback period?
Question 19 options:
a)            1 year
b)            2 year
c)            3 year
d)            4 year
e)            Never
Question 20 Net working capital is defined as ________.
Question 20 options:
a)            total liabilities minus shareholders’ equity
b)            current liabilities minus shareholders’ equity
c)            fixed assets minus long-term liabilities
d)            total assets minus total liabilities
e)            current assets minus current liabilities
Question 21 An investment is available that pays a tax-free 6%. The corporate tax rate is 30%. Ignoring risk, what is the pre-tax return on taxable bonds?
Question 21 options:
a)            4.20%
b)            6.00%
c)            7.67%
d)            8.57%
e)            None of these
Question 22 Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $250,000. Today, the land is valued at $425,000. The grading and excavation work necessary to build on the land will cost $15,000. The company currently owns some unused equipment valued at $60,000. This equipment could be used for producing awnings if $5,000 is spent for equipment modifications. Other equipment costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?
Question 22 options:
a)            $800,000
b)            $1,050,000
c)            $1,110,000
d)            $1,225,000
e)            $1,285,000
Question 23 The average compound return earned per year over a multi-year period is called the _____ average return.
Question 23 options:
a)            arithmetic
b)            standard
c)            variant
d)            geometric
e)            real
Question 24 Standard deviation measures _____ risk.
Question 24 options:
a)            total
b)            nondiversifiable
c)            unsystematic
d)            systematic
e)            economic
Question 25 A bond with semi-annual interest payments, all else equal, would be priced _________ than one with annual interest payments.
Question 25 options:
a)            higher
b)            lower
c)            the same
d)            it is impossible to tell
e)            either higher or the same
Question 26 A company owning gold mines will probably have a _____ inflation beta because an ___ increase in inflation is usually associated with an increase in gold prices.
Question 26 options:
a)            negative; anticipated
b)            positive; anticipated
c)            negative; unanticipated
d)            positive; unanticipated
e)            None of these
Question 27 Calhoun Computech used internal financing as a source of long-term financing for 80% of its total needs in 2011. The company borrowed an additional 15% of its total needs in the long-term debt markets in 2011. What were Calhoun’s net new stock issues, in percentage terms, for 2011?
Question 27 options:
a)            -10%
b)            -5%
c)            5%
d)            10%
e)            15%
Question 28 Phil’s Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
Question 28 options:
a)            .33
b)            .40
c)            .50
d)            .60
e)            .67
Question 29 A corporate bond is quoted at a current price of 102.767. What is the market price of a bond with a $1,000 face value?
Question 29 options:
a)            $1,000.28
b)            $1,002.77
c)            $1,027.67
d)            $1,102.77
e)            $1,276.70
Question 30 Financial ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as _____ ratios.
Question 30 options:
a)            asset management
b)            long-term solvency
c)            short-term solvency
d)            profitability
e)            market value
Question 31 You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the total value of this firm today if you ignore taxes?
Question 31 options:
a)            $4.8 million
b)            $5.1 million
c)            $5.4 million
d)            $5.7 million
e)            $6.0 million
Question 32 The _____ tells us that the expected return on a risky asset depends only on that asset’s nondiversifiable risk.
Question 32 options:
a)            Efficient Markets Hypothesis (EMH)
b)            Systematic Risk Principle
c)            Open Markets Theorem
d)            Law of One Price
e)            Principle of Diversification
Question 33 Erosion can be explained as the ________.
Question 33 options:
a)            additional income generated from the sales of a newly added product
b)            loss of current sales due to a new project being implemented
c)            loss of revenue due to employee theft
d)            loss of revenue due to customer theft
e)            loss of cash due to the expenses required to fix a parking lot after a heavy rain storm
Question 34 Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8%. How much dividend income will you receive per year if you purchase 500 shares of this stock?
Question 34 options:
a)            $152
b)            $190
c)            $329
d)            $760
e)            $1,053
Question 35 The Smythe firm expects a total cash need of $9,000 over the next 4 months. They have a beginning cash balance of $1,000, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $4.00. 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.
Question 35 options:
a)            $20.00
b)            $45.25
c)            $54.17
d)            $69.48
e)            None of these
Question 36 If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic response coefficient from inflation, βI, would result in a change in any security return of ___ βI.
Question 36 options:
a)            9.2
b)            3.2
c)            -3.2
d)            3.0
e)            6.2
Question 37 The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the ________.
Question 37 options:
a)            treasurer
b)            director
c)            controller
d)            chairman of the board
e)            chief executive officer
Question 38 The best fit line of a pairwise plot of the returns of the security against the market index returns is called the ________.
Question 38 options:
a)            Security Market Line
b)            Capital Market Line
c)            Characteristic Line
d)            Risk Line
e)            None of these
Question 39 The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost.
Question 39 options:
a)            incremental
b)            sunk
c)            opportunity
d)            erosion
e)            equivalent annual
Question 40 The long-term debts of a firm are liabilities ________
Question 40 options:
a)            that come due within the next 12 months
b)            that do not come due for at least 12 months
c)            owed to the firm’s suppliers
d)            owed to the firm’s shareholders
e)            the firm expects to incur within the next 12 months
Question 41 The characteristic line is graphically depicted as _________.
Question 41 options:
a)            the plot of the relationship between beta and expected return
b)            the plot of the returns of the security against the beta
c)            the plot of the security returns against the market index returns
d)            the plot of the beta against the market index returns
e)            none of these
Question 42 Over the period of 1926 to 2011, small company stocks had an average return of ____%
Question 42 options:
a)            8.8
b)            10.2
c)            12.4
d)            14.6
e)            16.5
Question 43 You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?
Question 43 options:
a)            Both annuities are of equal value today
b)            Annuity B is an annuity due.
c)            Annuity A has a higher future value than annuity B.
d)            Annuity B has a higher present value than annuity A.
e)            Both annuities have the same future value as of ten years from today.
Question 44 Which one of the following statements is correct concerning the organizational structure of a corporation?
Question 44 options:
a)            The vice president of finance reports to the chairman of the board.
b)            The chief executive officer reports to the board of directors.
c)            The controller reports to the president.
d)            The treasurer reports to the chief executive officer.
e)            The chief operations officer reports to the vice president of production.
Question 45 The rate at which a stock’s price is expected to appreciate (or depreciate) is called the _____ yield.
Question 45 options:
a)            current
b)            total
c)            dividend
d)            capital gains
e)            earnings