1.
Which of the following would most likely result in higher gross profit margin, assuming no fixed cost?
A.
A 10% increase in the number of units sold.
B.
A 5% decrease in production cost per unit.
C.
A 7% decrease in administrative expenses.
2.
When a company pays its rent in advance, its balance sheet will reflect a reduction in:
A.
B.
Assets and shareholders’ equity.
C.
One category of assets and an increase in another.
3.
When a company buys shares of its own stock to be held in treasury, it records a reduction in:
A.
Both assets and liabilities.
B.
Both assets and shareholders’ equity.
C.
Assets and an increase in shareholders’ equity.
4.
How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming the tickets are non-refundable?
A.
Unearned revenue is recognized to the extent that cost have been incurred.
B.
Revenue is recognized to the extent that costs have been incurred.
C.
Revenue is deferred until the sporting event is held.
5.
Which of the following would least likely to cause a change in investing cash flow?
A.
The sale of a division of a company.
B.
The purchase of a new machinery.
C.
An increase in depreciation expense.
6.
Depreciation expense would be classified as:
7.
Denali Limited, a manufacturing company, had the following income statement information: Revenue $4,000,000Cost of goods sold $3,000,000Other operating expenses $500,000Interest expense $100,000Tax expense $120,000 Denali’s gross profit is equal to:
8.
If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is:
9.
At the beginning of 2009, Glass Manufacturing purchased a new machine for its assembly line at a cost of $600,000. The machine has an estimated useful life of 10 years and estimated residual value of $50,000. How much depreciation would Glass take in 2009 for financial reporting purposes under the double-declining balance method?
10.
For 2009, Flamingo Products had net income of $1,000,000. At 1 January 2009, there were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for $20 per share. The company paid $200,000 in dividends to common shareholders. What is Flamingo’s basic earnings per share for 2009?
11.
Net income for Monique, Inc. for the year ended December 31, 2007 was $78,000. Its accounts receivable balance at December 31, 2007 was $121,000, and this balance was $69,000 at December 31, 2006. The accounts payable balance at December 31, 2007 was $72,000 and was $43,000 at December 31, 2006. Depreciation for 2007 was $12,000, and there was unrealized gain of $15,000 included in 2007 income from the change in value of trading securities. Which of the following amounts represents Monique’s cash flow from operations 2007?
12.
Raptor Inc. has retained earnings of $500,000 and total stockholders’ equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Raptor declares a 10% stock dividend on its common stock:
A.
Net income will decrease by $80,000.
B.
Retained earnings will decrease by $80,000 and total stockholders’ equity will increase by $80,000.
C.
Retained will decrease by $300,000 and total stockholders’ equity will increase by $300,000.
D.
Retained will decrease by $300,000 and total paid-in-capital will increase by $300,000.
13.
Beta is a relative measure of:
14.
Which of the following statements about correlation is false:
A.
Diversification reduces risk when correlation is less than +1.
B.
If the correlation coefficient is 0, a zero variance portfolio can be constructed.
C.
The lower the correlation coefficient, the greater the potential benefits from diversification.
15.
Which of the following statements about NPV and IRR is false:
A.
The IRR can be positive even if the NPV is negative.
B.
When the IRR is equal to the cost of capital, the NPV will be zero.
C.
The NPV will be positive if the IRR is less than the cost of capital.
16.
Which of the following about risk-averse investors is most accurate:
A.
Seeks out the investment with minimum risk, while return is not a major consideration.
B.
Will take additional investment risk if sufficiently compensated for this risk.
C.
Avoids participating in global equity markets.
17.
A portfolio was created by investing 25% of the funds in asset A (standard deviation = 15%) and the rest of the funds in asset B (standard deviation = 10%).If the correlation coefficient is 0.75, what is the portfolio’s standard deviation?
18.
A portfolio was created by investing 25% of the funds in asset A (standard deviation = 15%) and the rest of the funds in asset B (standard deviation = 10%).If the correlation coefficient is − 0.75, what is the portfolio’s standard deviation?
19.
Merck’s a leading pharmaceutical company which is facing the following Investment opportunities:InvestmentCost Life Expected ReturnFinancing SourceA$100,00020Yrs7%Debt 6%B$100,00020Yrs12%Equity 12%Which Investment is more profitable to Merck?
A.
B.
C.
D.
None is profitable to Merck.
20.
Merck’s a leading pharmaceutical company which is facing the following Investment opportunities:InvestmentCost Life Expected ReturnFinancing SourceA$100,00020Yrs7%Debt 6%B$100,00020Yrs12%Equity 12%Consider Using WACC Model 50% debt instead of using only one source of financing, in that case which project would be profitable to Merck?
A.
B.
C.
D.
None is profitable to Merck.
21.
One Dollar application an Electrical Engineering firm in Australia, has two investment opportunities X, Y.Investment Initial Investment Operating Cash Inflow Year 1 Year 2 Year 3 X $(10,000) $5,000 $5,000 $1,000 Y $(10,000) $3,000 $4,000 $3,000 Now if Mr. Clement the CFO wants to determine which investment is more profitable based on payback period approach:
22.
An analyst as gathered the following data about two projects, each with a 12% required rate of return. Project YProject ZInitial Cost$15,000$20,000Life5 years4 yearsCash inflows$5,000/year$7,500/yearIf the projects are mutually exclusive, the company should:
A.
B.
Accept Project Y and reject Project Z.
C.
Reject Project Y and accept Project Z.
23.
A company has a target capital structure of 60% equity.The company’s bonds with face value of $1,000 pay a 10% coupon rate, mature in 20 years, and sell for $849.54.The company stock beta is 1.2.Risk-free rate is 10% and market risk premium is 5%.The company is a constant growth firm that just paid a dividend of $2, sells for $27 per share, and had a growth rate of 8%.The company’s marginal tax rate is 40%.The company’s after-tax cost of debt is closest to:
24.
A company has a target capital structure of 60% equity.The company’s bonds with face value of $1,000 pay a 10% coupon rate, mature in 20 years, and sell for $849.54.The company stock beta is 1.2.Risk-free rate is 10% and market risk premium is 5%.The company is a constant growth firm that just paid a dividend of $2, sells for $27 per share, and had a growth rate of 8%.The company’s marginal tax rate is 40%.The company’s cost of equity using CAPM approach is:
25.
A company has a target capital structure of 60% equity.The company’s bonds with face value of $1,000 pay a 10% coupon rate, mature in 20 years, and sell for $849.54.The company stock beta is 1.2.Risk-free rate is 10% and market risk premium is 5%.The company is a constant growth firm that just paid a dividend of $2, sells for $27 per share, and had a growth rate of 8%.The company’s marginal tax rate is 40%.The company’s cost of equity using Dividend Discount Model: