1. You borrow 1,000 today from a bank and agree to repay 2,000 at the end of 5 years. What rate of interest is the bank charging you?
2. What is the percent value of $1 million to be received at the end of year 50, if the interest rate is 12%, compounded annually?
3. A zero- coupon bond with a positive yield to maturity will have an offering price?
A. Less than the contribution margin
B. Less than par
C. Equal to par
D. Equal to the market rate
4. What is the market value of share common stock affected by?
A. Par value
B. Risk-free rate
C. Paid in capital
D. Book value
5. For an investor, what is most useful in determining the market value of a corporate bond?
A. The bond rating
B. The size of the issue
C. The required rate of return
D. The sinking fund provision
6. Advantage of using simulation to access capital budgeting risk include?
A. Adjustment for risk in the resulting distribution of net present values
B. Single period investment since discounting is not possible
C. Presenting a range of possible outcomes
D. Graphically displaying all possible outcomes of the investment
7. The owner of a seat on the New York Stock Exchange (NYSE) is also?
8. Based on the historical record from 1925 to the present, which type of securities earned highest return?
A. The common stock of the small capitalization firms on the NYSE
B. Long term US. Government bonds
C. The common stock of the largest 500 firms on the NYSE
D. Long term corporate bonds
9. Which statement is true?
A. Typically, the after-tax cost of debt financing exceeds the after tax cost of equity financing
B. The weighted average cost of capital is a measure of the before tax cost of capital
C. The weighted average cost of capital measures the marginal after tax cost of capital
D. The marginal cost of capital is always higher than the weight average cost of capital measures
10. A higher corporate tax rate?
A. Will increase the WACC of a firm with debt and equity in its capital structure
B. Will change the WACC of a firm with debt in its capital structure
C. Will not affect the WACC of a firm with debt in its capital structure
D. Will decrease the WACC of a firm with debt in its capital structure
E. Will decrease the WACC of a firm with only equity in its capital structure
11.The cost of capital in a firm that has both debt and equity?
A. Will be the same for its different divisions
B. Depends on the source of the funds for a project
C. Is what a firm must earn on a project to compensate investors for the use of their funds
D. It equal to the cost of debt or equity, depending on which type of financing the firm typically uses
E. It also known as the internal rate of return
12. 35. Which statement is true about the weighted average cost of capital (WACC)?
A. Since discount rate and firm value move in the same direction minimizing the WACC will minimized the value of the firm.
B. The value of the firm will be maximized when the WACC is minimized
C. The WACC is the appropriate discount rate for all new projects of the firm
D. The WACC is virtually impossible to calculate for a firm with multiple division
E. The optimal capital situation is the one that maximize the WACC
13. A company charges $5 per hour, for parking. It can rent 100 spots over an entire upcoming Sunday for a lump sum of 3,000. What would happen to the company's profit it it rented 100 spots?
A. Increase by 3,000
B. Decrease by 500
C. Increase by 1,000
D. Decrease by 2,000
14. The variable cost of a product are $25, fixed cost are $5 per unit based on 10,000 units produced during this period. The company has enough capacity to accept a special order of 1,000 units. What is the minimum price that should be charged for the special order?
15. .Balance sheets Income statement
Assets Sale(all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Interests expense 750,000
Inventory 600,000 Income taxes 750,000
Net fixed assets 1,800,000 Net Income 750,000
Based on the given information, what is the debt to assets ratio?
Balance sheets Income statement
Assets Sales (all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Operating expenses 750,000
Inventory 600,000 Interest expense 750,000
Net fixed assets 1,800,000 Income taxes 750,000
Net Income 750,000
Liabilities of owner's equity:
Accounts payable 150,000
Notes payable 150,000
Long term debt 1,200,000
Owner's equity 1,500,000
Based on the information, what is the average collection period using a 360-day year?
A. 9.0 days
B. 13.2 days
C. 27.0 days
D. 36.0 days
The problem set are multiple choice questions dealing with time value of money concept, bond valuation etc.