exam3 fin370 a key

Exam3 FIN370 Winter 2012 Key Version A

1. You are considering the following two mutually exclusive projects. The crossover point is _____ percent.

A. 11.89B. 13.75C. 9.25D. 12.08E. 7.76

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 008 #89SECTION: 8.4TOPIC: NPV PROFILETYPE: PROBLEMS

2. M&A, Inc. maintains a constant debt-equity ratio of .4. The firm had net income for the year of $140,000 and paid $98,000 in dividends. The firm has total assets of $700,000. What is the maximum sustainable growth rate of the firm given this information? A. 6.38 percentB. 9.17 percentC. 16.28 percentD. 24.38 percentE. 18.62 percent

BLOOMS TAXONOMY QUESTION TYPE: ANALYSISLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 003 #103SECTION: 3.4TOPIC: SUSTAINABLE GROWTH RATETYPE: PROBLEMS

3. The future value of a series of cash flows over time can be computed by: A. discounting each of the individual cash flows and summing the results.B. summing the amount of each of the individual cash flows and multiplying the summation by (1 + r)t, where t equals the total number of cash flows.C. computing the future value of the middle cash flow and multiplying that amount by the number of cash flows.D. summing the future values of each of the individual cash flows.E. multiplying each individual cash flow by (1 + rt) and summing the results.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 005 #8SECTION: 5.1TOPIC: FUTURE VALUETYPE: CONCEPTS

4. Over the period of 1926-2006: A. large-company stocks outperformed all other investment categories.B. long-term government bonds underperformed long-term corporate bonds.C. inflation exceeded the rate of return on U.S. Treasury bills.D. small-company stocks underperformed large-company stocks.E. U.S. Treasury bills outperformed long-term government bonds.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #15SECTION: 10.3TOPIC: HISTORICAL RETURNSTYPE: CONCEPTS

5. Preferred stock: I. generally has a fixed dividend.II. generally has a dividend that increases annually.III. receives preference in bankruptcy over bonds.IV. receives preference in bankruptcy over common stock. A. I and III onlyB. I and IV onlyC. II and III onlyD. II and IV onlyE. I only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 007 #9SECTION: 7.2TOPIC: PREFERRED STOCKTYPE: DEFINITIONS

6. You have a portfolio comprised of the following. What is your portfolio beta?

A. 1.07B. 1.23C. 1.12D. 1.18E. 1.26

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #75SECTION: 11.6TOPIC: PORTFOLIO BETATYPE: PROBLEMS

7. Boone Brothers purchased a parcel of land 8 years ago for $392,500. At that time, the firm invested $127,000 modifying the site so that it could be leased to an adjacent car dealer for displaying used car inventory. The lease payment was $39,000 a year. Boone Brothers is now considering building a hotel on the site as the auto dealer is relocating to make room for a nearby shopping mall to expand. The current value of the land is $1.14 million. Boone Brothers has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land? A. $0B. $828,000C. $1,140,000D. $519,500E. $1,267,000

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #49SECTION: 9.2TOPIC: OPPORTUNITY COSTTYPE: PROBLEMS

8. Fidel's Forestry has a return on assets of 7.5 percent, a total asset turnover rate of 1.6, and a debt-equity ratio of 1.2. What is the return on equity? A. 12.00 percentB. 26.40 percentC. 26.50 percentD. 16.40 percentE. 16.50 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 003 #91SECTION: 3.3TOPIC: RETURN ON EQUITYTYPE: PROBLEMS

9. The Corner Market purchased a commercial freezer 3 years ago for $48,900. Today, it is selling this freezer for $32,000. What is the aftertax cash flow from this sale if the tax rate is 32 percent? The MACRS allowance percentages are as follows:

A. $5,210.08B. $28,602.87C. $24,496.84D. $26,403.20E. $4,477.95

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #80SECTION: 9.4TOPIC: AFTERTAX SALVAGE VALUETYPE: PROBLEMS

10. The stock of Home Office has an expected return of 9.3 percent. Given the information below, what is the expected return if the economy is in a recession?

A. -15.00 percentB. 15.00 percentC. -7.50 percentD. 7.50 percentE. -3.75 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #50SECTION: 11.1TOPIC: EXPECTED RETURNTYPE: PROBLEMS

11. Which one of the following statements concerning annuities is correct? A. An annuity due has payments that occur at the beginning of each time period.B. An annuity is an unending stream of equal payments occurring at equal intervals of time.C. The present value of an annuity is equal to the annuity amount multiplied by the number of annuity payments.D. The future value of an annuity decreases as the interest rate increases.E. If unspecified, you should assume an annuity is an annuity due.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 005 #15SECTION: 5.2TOPIC: ANNUITYTYPE: CONCEPTS

12. Given the following information, what is the variance of a portfolio that is invested 25 percent in both stocks A and C, and 50 percent in stock B?

A. .001414B. .000232C. .000106D. .000025E. .005285

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 011 #70SECTION: 11.2TOPIC: PORTFOLIO VARIANCETYPE: PROBLEMS

13. A loan disclosure, as required by law, states that a credit card has an interest rate of 18.2 percent. Interest is compounded on a quarterly basis. What is the effective annual rate? A. 16.84 percentB. 17.08 percentC. 19.48 percentD. 16.96 percentE. 19.64 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 005 #88SECTION: 5.3TOPIC: EFFECTIVE ANNUAL RATETYPE: PROBLEMS

14. Last year, you earned a rate of return of 7.86 percent on your bond investments. During that time, the inflation rate was 2.15 percent. What was your real rate of return? A. 7.74 percentB. 5.29 percentC. 10.01 percentD. 5.59 percentE. 5.71 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 006 #107SECTION: 6.6TOPIC: FISHER EFFECTTYPE: PROBLEMS

15. Junior's has a new project in mind that will increase accounts receivable by $27,000, increase accounts payable by $19,000, increase fixed assets by $46,000, and decrease inventory by $17,000. What is the amount the firm should use as the initial cash flow attributable to net working capital when it analyzes this project? A. $9,000B. $109,000C. $63,000D. $44,000E. $10,000

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #54SECTION: 9.2TOPIC: NET WORKING CAPITALTYPE: PROBLEMS

16. A portfolio is a(n): A. new issue of securities that are being offered to the public.B. group of assets held by an investor.C. type of risk-free asset.D. asset that has a beta greater than 1.0.E. security that has a beta equal to the market beta.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #2SECTION: 11.2TOPIC: PORTFOLIOTYPE: DEFINITIONS

17. Over the past five years, a stock returned 9.8 percent, -22.6 percent, -3.8 percent, 19.2 percent and 4.6 percent. What is the variance of these returns? A. .0394B. .0381C. .0250D. .0268E. .0347

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 010 #62SECTION: 10.4TOPIC: VARIANCETYPE: PROBLEMS

18. Mountain Minerals pays a constant annual dividend. One year ago, when you purchased shares of that stock at $40 a share, the dividend yield was 6.5 percent. Over this past year, the inflation rate has been 3.2 percent. Today, the required return on this stock is 9.8 percent and you just sold all of your shares. What is your total real return on this investment? A. 31.87 percentB. 26.67 percentC. 25.48 percentD. 29.43 percentE. 23.09 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 010 #58SECTION: 10.1TOPIC: REAL RETURNTYPE: PROBLEMS

19. The analysis of the effects that what-if questions have on the net present value of a project is called _____ analysis. A. scenarioB. benefitC. erosionD. opportunityE. sensitivity

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #10SECTION: 9.6TOPIC: SCENARIO ANALYSISTYPE: DEFINITIONS

20. Preston, Inc. has compiled the following information:

In whole dollars, the operating cash flow for 2007 is _____ and for 2008 it is _____. A. $2,996; $4,262B. $3,731; $5,087C. $2,872; $4,279D. $3,731; $5,606E. $3,427; $5,087

BLOOMS TAXONOMY QUESTION TYPE: ANALYSISLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 002 #98SECTION: 2.4TOPIC: OPERATING CASH FLOWTYPE: PROBLEMS

21. The discount rate that causes the net present value of a project to equal zero is called the: A. average accounting return.B. internal rate of return.C. yield to maturity.D. required return.E. market rate.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #5SECTION: 8.4TOPIC: INTERNAL RATE OF RETURNTYPE: DEFINITIONS

22. The difference between an investment's market value and its cost is called the: A. net income.B. net present value.C. present value.D. cash flow.E. capital value.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #1SECTION: 8.1TOPIC: NET PRESENT VALUETYPE: DEFINITIONS

23. Unsystematic risk: I. is also called unique risk.II. is also called asset-specific risk.III. affects a limited number of assets.IV. affects a large number of assets. A. II and IV onlyB. I and IV onlyC. I, II, and III onlyD. I and III onlyE. I, II, and IV only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #5SECTION: 11.4TOPIC: UNSYSTEMATIC RISKTYPE: DEFINITIONS

24. A project has the following cash flows. What is the payback period?

A. 1.77 yearsB. 1.48 yearsC. 1.53 yearsD. 1.31 yearsE. 1.82 years

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #62SECTION: 8.2TOPIC: PAYBACKTYPE: PROBLEMS

25. Woven Goods is considering adding a new line of baskets to its product line-up. Which of the following are relevant cash flows for this project? I. increased revenue from existing goods if these baskets are added to the lineupII. revenue from the new line of basketsIII. money spent to date investigating the availability of woven basketsIV. cost of expanding the showroom to make space for the new baskets A. II and IV onlyB. I and IV onlyC. II and III onlyD. II, III, and IV onlyE. I, II, and IV only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #18SECTION: 9.1TOPIC: RELEVANT CASH FLOWSTYPE: CONCEPTS

26. Which one of the following indicates a firm is utilizing its assets less efficiently than it has in the past? A. an increase in the cash ratioB. a decrease in the capital intensity ratioC. a decrease in days' sales in receivablesD. a decrease in the inventory turnover rateE. an increase in the profit margin

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 003 #20SECTION: 3.2TOPIC: ASSET UTILIZATIONTYPE: CONCEPTS

27. Which one of the following is the correct formula for the future value of a lump sum invested today? A. FV = PV / (1 + rt)B. FV = PV / (1 + r)t

C. FV = PV rtD. FV = PV (1 + r)t

E. FV = PV (1 + t)r

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 004 #14SECTION: 4.1TOPIC: FUTURE VALUETYPE: CONCEPTS

28. The most valuable alternative that is forfeited if a particular investment is undertaken is called: A. a sunk cost.B. a side effect.C. erosion.D. an opportunity cost.E. a marginal cost.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #4SECTION: 9.2TOPIC: OPPORTUNITY COSTTYPE: DEFINITIONS

29. A security's risk premium is equal to the: A. security's return minus the market rate of return.B. market rate minus the inflation rate.C. expected return plus the risk-free rate.D. security's return plus the market rate of return.E. expected return minus the risk-free rate.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #15SECTION: 11.1TOPIC: RISK PREMIUMTYPE: CONCEPTS

30. A security produced returns of 8 percent, 13 percent, -3 percent, 7 percent, and 16 percent over the past five years, respectively. Based on these five years, what is the probability that this stock will earn more than 15.46 percent in any one given year? A. 12.5 percentB. 17.0 percentC. 2.5 percentD. 16.0 percentE. 5.0 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 010 #72SECTION: 10.4TOPIC: PROBABILITY RANGETYPE: PROBLEMS

31. The present value of a lump sum future amount: A. is inversely related to the future value.B. is unaffected by the interest rate.C. is inversely related to the period of time.D. is directly related to the interest rate.E. is unaffected by the timing of the future cash flow.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 004 #23SECTION: 4.2TOPIC: PRESENT VALUETYPE: CONCEPTS

32. DL Industries just called a press conference and is now announcing that the firm is restructuring and will be closing two manufacturing facilities. This announcement: A. will definitely cause the firm's stock price to increase.B. is a systematic event and thus has no effect on the price of the firm's stock.C. will definitely cause the firm's stock price to decline.D. will have no effect on the firm's stock price whether or not the announcement was expected.E. will have no effect on the firm's stock price if the announcement was expected.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #23SECTION: 11.4TOPIC: ANNOUNCEMENTTYPE: CONCEPTS

33. Which one of the following statements is correct? A. The payback period is computed based on the present value of each of a project's cash flows.B. The payback rule is biased in favor of short-term investments.C. The payback rule works best when applied to mutually exclusive decisions.D. The payback period considers the timing and amount of all of a project's cash flows.E. The payback rule states that you should accept a project if the payback period is less than one year.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #18SECTION: 8.2TOPIC: PAYBACKTYPE: CONCEPTS

34. The coupon is the: A. amount of discount received when a bond is purchased.B. amount paid to a bond dealer when a bond is purchased.C. difference between the bid and ask price.D. stated interest payment on a bond.E. annual interest divided by the current bond price.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 006 #1SECTION: 6.1TOPIC: COUPONTYPE: DEFINITIONS

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

A. 19.08 percentB. 13.96 percentC. 15.51 percentD. 11.64 percentE. 17.23 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #80SECTION: 8.4TOPIC: INTERNAL RATE OF RETURNTYPE: PROBLEMS

36. Which one of the following statements is correct concerning the secondary markets? A. Secondary markets are all auction markets such as the NYSE and NASDAQ.B. Secondary markets can be either dealer or auction markets.C. The secondary markets are limited to auction markets.D. The term secondary markets refers to electronic exchanges that do not have a physical location.E. The secondary markets are those that conduct business over-the-counter only.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEVEL OF DIFFICULTY: BASICRoss - Chapter 001 #54SECTION: 1.6TOPIC: SECONDARY MARKETSTYPE: CONCEPTS

37. The net present value: A. increases as the required rate of return increases.B. is inversely related to the discount rate.C. method of analysis cannot be applied to mutually exclusive projects.D. is equal to the initial investment when the internal rate of return is equal to the required return.E. is unaffected by the timing of the related cash flows.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 008 #12SECTION: 8.1TOPIC: NET PRESENT VALUETYPE: CONCEPTS

38. The change in a firm's future cash flows that results from adding a new project are referred to as _____ cash flows. A. erodedB. residualC. incrementalD. deviatedE. direct

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #1SECTION: 9.1TOPIC: INCREMENTAL CASH FLOWSTYPE: DEFINITIONS

39. A bond that was previously rated as investment grade but has fallen to junk status is commonly referred to as a: A. converted bond.B. "3B" bond.C. fallen angel.D. split rated bond.E. downer.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 006 #56SECTION: 6.3TOPIC: FALLEN ANGELTYPE: CONCEPTS

40. Which of the following affect the current price of a stock? I. dividend growth rateII. required returnIII. dividend paid this yearIV. expected dividend next year A. II, III, and IV onlyB. I, II, and IV onlyC. II and IV onlyD. I, II, III, and IVE. I and III only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 007 #24SECTION: 7.1TOPIC: STOCK PRICETYPE: CONCEPTS

41. Which one of the following had the lowest standard deviation for the period of 1926 -2006? A. large-company stocksB. long-term government bondsC. inflationD. U.S. Treasury billE. long-term corporate bonds

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #18SECTION: 10.3TOPIC: HISTORICAL STANDARD DEVIATIONTYPE: CONCEPTS

42. The situation that exists when the units within a business are allotted a fixed amount of money for capital budgeting is referred to as: A. sunk funding.B. strategic planning.C. hard rationing.D. soft rationing.E. allocated planning.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #16SECTION: 9.7TOPIC: SOFT RATIONINGTYPE: DEFINITIONS

43. Which of the following are measures associated with the risk of an investment? I. standard deviationII. meanIII. risk premiumIV. risk-free rate A. I, II, III, IVB. I, III, and IV onlyC. I, II, and III onlyD. I and III onlyE. II and IV only

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #26SECTION: 10.4TOPIC: RISKTYPE: CONCEPTS

44. Which one of the following indicates a project has a rate of return that exceeds its required return? A. a PI less than 1.0B. an AAR that is less than the required rateC. a positive accounting rate of returnD. a positive NPVE. a payback period that exceeds the required period

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #10SECTION: 8.1TOPIC: NET PRESENT VALUETYPE: CONCEPTS

45. The hypothesis that stock markets, such as the NYSE, are efficient is called the: A. market equalization hypothesis.B. efficient markets hypothesis.C. Fisher effect.D. capital market hypothesis.E. financial markets hypothesis.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #7SECTION: 10.6TOPIC: EFFICIENT MARKETS HYPOTHESISTYPE: DEFINITIONS

46. The excess return required on a risky investment over that of a risk-free investment is called the: A. average actual return.B. inflation premium.C. required return.D. risk premium.E. real return.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #1SECTION: 10.3TOPIC: RISK PREMIUMTYPE: DEFINITIONS

47. The Stop Shoppe currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $29 each with expected sales of 6,000 tops annually. By adding the fleece tops, management feels the firm will sell an additional 975 pairs of jeans at $49 a pair and 400 fewer T-shirts at $12 each. The variable cost per unit is $28 on the jeans, $7 on the T-shirts, and $16 on the fleece tops. The depreciation expense is $36,000 a year and the fixed costs are $58,000 annually. The tax rate is 35 percent. What is the project's operating cash flow? A. $37,608.75B. $16,409.22C. $28,411.17D. $32,604.30E. $24,508.75

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 009 #68SECTION: 9.4TOPIC: OPERATING CASH FLOWTYPE: PROBLEMS

48. Which one of the following is used by company shareholders to replace company management and gain control of the firm? A. proxy fightB. Sarbanes-Oxley Act of 2002C. Agency Law of 2005D. corporate takeoverE. corporate restructure

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 001 #49SECTION: 1.5TOPIC: FIRM CONTROLTYPE: CONCEPTS

49. Tullio, Inc. has 220,000 shares of stock outstanding with a current market value of $34 a share. You own 40,000 of those shares. Next month, the election will be held to select three new members to the board of directors. The firm uses a cumulative voting system. How much additional money do you need to spend to guarantee that you will be elected to the board assuming that everyone else votes for one of the other candidates? A. $880,034B. $1,870,034C. $1,360,000D. $1,133,367E. $510,034

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 007 #86SECTION: 7.2TOPIC: CUMULATIVE VOTINGTYPE: PROBLEMS

50. The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is called the: A. mean.B. risk premium.C. beta coefficient.D. variance.E. standard deviation.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGELEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASICRoss - Chapter 011 #8SECTION: 11.6TOPIC: BETA COEFFICIENTTYPE: DEFINITIONS

51. You and your brother are planning a large anniversary party 5 years from today for your grandparents' 50th wedding anniversary. You have estimated that you will need $9,000 for this party. You can earn 4 percent compounded annually on your savings. How much would you and your brother have to deposit today in one lump sum to pay for the entire party? A. $8,151.26B. $8,175.24C. $7,397.34D. $7,383.13E. $8,853.19

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 2LEVEL OF DIFFICULTY: BASICRoss - Chapter 004 #47SECTION: 4.2TOPIC: PRESENT VALUETYPE: PROBLEMS

52. What is the net present value of the following cash flows if the relevant discount rate is 7 percent?

A. $1,820.11B. $3,906.21C. $529.19D. $18,353.51E. $19,638.26

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 008 #59SECTION: 8.1TOPIC: NET PRESENT VALUETYPE: PROBLEMS

53. Cash flow to stockholders: A. should be negative when the number of shares of stock issued remains constant for the period.B. measures the cash flow between a firm and its debtors.C. is negative when a firm increases its borrowing to finance a new business venture.D. is positive when the amount of the dividends paid exceeds the amount of net new equity raised.E. is equal to the cash flow from assets plus the cash flow to creditors.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASICRoss - Chapter 002 #52SECTION: 2.4TOPIC: CASH FLOW TO STOCKHOLDERSTYPE: CONCEPTS

54. Which one of the following statements is correct? A. The majority of the publicly traded firms in the U.S. are listed on the NYSE.B. NASDAQ is an auction market.C. The trading floor for NASDAQ is located in Chicago.D. The NYSE is a dealer market.E. The NYSE has the most stringent listing requirements.

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 001 #59SECTION: 1.6TOPIC: STOCK EXCHANGESTYPE: CONCEPTS

55. The Bake Shoppe has net working capital of $6,100, long-term debt of $10,400, total debt of $15,200, and owners' equity of $18,900. What is the value of The Bake Shoppe's net fixed assets? A. $21,300B. $12,800C. $23,200D. $16,500E. $18,900

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 002 #56SECTION: 2.1TOPIC: NET FIXED ASSETSTYPE: PROBLEMS

56. Stock A has a beta of 1.7 and has the same reward-to-risk ratio as stock B. Stock B has a beta of .8 and an expected return of 12 percent. What is the expected return on stock A if the risk-free rate is 4.5 percent? A. 12.89 percentB. 16.67 percentC. 14.46 percentD. 18.97 percentE. 20.44 percent

BLOOMS TAXONOMY QUESTION TYPE: APPLICATIONLEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: INTERMEDIATERoss - Chapter 011 #83SECTION: 11.7TOPIC: REWARD-TO-RISK RATIOTYPE: PROBLEMS

57. The lower the standard deviation of a security, the _____ the expected rate of return and the _____ the risk. A. lower; lowerB. higher; lowerC. more constant; more constantD. lower; higherE. higher; higher

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSIONLEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASICRoss - Chapter 010 #31SECTION: 10.4TOPIC: RISK AND RETURNTYPE: CONCEPTS

Exam3 FIN370 Winter 2012 Summary

Category # of Questions

BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS 2

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION 22

BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION 11

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE 22

LEARNING OBJECTIVE NUMBER: 1 19




LEVEL OF DIFFICULTY: BASIC 41

LEVEL OF DIFFICULTY: INTERMEDIATE 16

Ross - Chapter 001 3











SECTION: 1.5 1

SECTION: 1.6 2

SECTION: 10.1 1

SECTION: 10.3 3

SECTION: 10.4 4

SECTION: 10.6 1

SECTION: 11.1 2

SECTION: 11.2 2

SECTION: 11.4 2

SECTION: 11.6 2

SECTION: 11.7 1

SECTION: 2.1 1

SECTION: 2.4 2

SECTION: 3.2 1

SECTION: 3.3 1

SECTION: 3.4 1

SECTION: 4.1 1

SECTION: 4.2 2

SECTION: 5.1 1

SECTION: 5.2 1

SECTION: 5.3 1

SECTION: 6.1 1

SECTION: 6.3 1

SECTION: 6.6 1

SECTION: 7.1 1

SECTION: 7.2 2

SECTION: 8.1 4

SECTION: 8.2 2

SECTION: 8.4 3

SECTION: 9.1 2

SECTION: 9.2 3

SECTION: 9.4 2

SECTION: 9.6 1

SECTION: 9.7 1

TOPIC: AFTERTAX SALVAGE VALUE 1

TOPIC: ANNOUNCEMENT 1

TOPIC: ANNUITY 1

TOPIC: ASSET UTILIZATION 1

TOPIC: BETA COEFFICIENT 1

TOPIC: CASH FLOW TO STOCKHOLDERS 1

TOPIC: COUPON 1

TOPIC: CUMULATIVE VOTING 1

TOPIC: EFFECTIVE ANNUAL RATE 1

TOPIC: EFFICIENT MARKETS HYPOTHESIS 1

TOPIC: EXPECTED RETURN 1

TOPIC: FALLEN ANGEL 1

TOPIC: FIRM CONTROL 1

TOPIC: FISHER EFFECT 1

TOPIC: FUTURE VALUE 2

TOPIC: HISTORICAL RETURNS 1

TOPIC: HISTORICAL STANDARD DEVIATION 1

TOPIC: INCREMENTAL CASH FLOWS 1

TOPIC: INTERNAL RATE OF RETURN 2

TOPIC: NET FIXED ASSETS 1

TOPIC: NET PRESENT VALUE 4

TOPIC: NET WORKING CAPITAL 1

TOPIC: NPV PROFILE 1

TOPIC: OPERATING CASH FLOW 2

TOPIC: OPPORTUNITY COST 2

TOPIC: PAYBACK 2

TOPIC: PORTFOLIO 1

TOPIC: PORTFOLIO BETA 1

TOPIC: PORTFOLIO VARIANCE 1

TOPIC: PREFERRED STOCK 1

TOPIC: PRESENT VALUE 2

TOPIC: PROBABILITY RANGE 1

TOPIC: REAL RETURN 1

TOPIC: RELEVANT CASH FLOWS 1

TOPIC: RETURN ON EQUITY 1

TOPIC: REWARD-TO-RISK RATIO 1

TOPIC: RISK 1

TOPIC: RISK AND RETURN 1

TOPIC: RISK PREMIUM 2

TOPIC: SCENARIO ANALYSIS 1

TOPIC: SECONDARY MARKETS 1

TOPIC: SOFT RATIONING 1

TOPIC: STOCK EXCHANGES 1

TOPIC: STOCK PRICE 1

TOPIC: SUSTAINABLE GROWTH RATE 1

TOPIC: UNSYSTEMATIC RISK 1

TOPIC: VARIANCE 1

TYPE: CONCEPTS 21

TYPE: DEFINITIONS 13

TYPE: PROBLEMS 23

exam3 fin370 a key

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