Accounting questions


Question

1. Which of the following is true?

  • A random walk for stock price changes is inconsistent with observed patterns in price changes.
  • If the stock market follows a random walk, price changes should be highly correlated.
  • If the stock market is weak form efficient, then stock prices follow a random walk.
  • All of these.
  • Both If the stock market follows a random walk, price changes should be highly correlated; and If the stock market is weak form efficient, then stock prices follow a random walk.

2. You are planning a trip to Australia. Your hotel will cost you A$150 per night for five nights. You expect to spend another A$2,000 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars given the following exchange rates?

  • $1,926
  • $2,007
  • $2,782
  • $2,856
  • $3,926

3. A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

  • 11.11% decrease
  • 12.38% decrease
  • 12.38% increase
  • 14.13% decrease
  • 14.13% increase

4. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 15%. There is a 30% chance of a boom economy. The remainder of the time, the economy will be at normal levels. What is the standard deviation of the returns on Kali's Ski Resort, Inc. stock?

  • 10.05%
  • 12.60%
  • 15.83%
  • 17.46%
  • 25.04%

5. The Lemon Company made a credit sale of $20,000. The invoice was sent today with the terms, 3/10 net 30. This customer normally pays at the net date. If your opportunity cost of funds is 10% the expected payment is worth how much today?

  • $15,000
  • $15,657
  • $19,843
  • $20,000
  • None of these.

6. A firm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?

  • 37.00 days
  • 40.19 days
  • 42.87 days
  • 63.08 days
  • 73.37 days

7. The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. 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.

Based on the firm's current practice, what is the average daily cash balance (a month has 30 days)?

  • $50.00
  • $69.44
  • $94.44
  • $138.89
  • None of these.

8. Thornton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% compounded semiannually. Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance?

  • $373,108.
  • $375,657.
  • $665,500.
  • $670,048.
  • None of these is within $10 of the correct answer.

9. Frank's Formals rents apparel throughout the year. They have experienced non-payment by about 15% of their customers with an average loss of $400. Frank's wants to stem their losses by using an instant electronic credit check on the customer. These checks will cost them $15 on each of the 1,000 customers. The opportunity cost is 2.0% for the credit period. Should they pursue the credit check?

  • No, because the $15,000 cost is too high.
  • No, because a $400 loss is minor.
  • Yes, because the net gain is $30,000.
  • Yes, because the net gain is $45,000.
  • Yes, because the net gain is $60,000.

10. On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. If the average daily float is $3,300, what is the net present value per day?

  • $-0.81
  • $-79.41
  • $-282.48
  • $-297.00
  • None of these.

11. Winslow, Inc. is considering the purchase of a $225,000 piece of equipment. The equipment is classified as 5-year MACRS property. The company expects to sell the equipment after four years at a price of $50,000. What is the after-tax cash flow from this sale if the tax rate is 35%?

  • $37,036
  • $38,880
  • $46,108
  • $47,770
  • $53,892

12. You are considering two independent projects both of which have been assigned a discount rate of 8%. Based on the profitability index, what is your recommendation concerning these projects?

  • You should accept both projects since both of their PIs are positive.
  • You should accept project A since it has the higher PI.
  • You should accept both projects since both of their PIs are greater than 1.
  • You should only accept project B since it has the largest PI and the PI exceeds 1.
  • Neither project is acceptable.

13. What is the expected return on a portfolio which is invested 20% in stock A, 50% in stock B, and 30% in stock C?

  • 7.40%
  • 8.25%
  • 8.33%
  • 9.45%
  • 9.50%

4. The divident yield on Alpha's common stock is 4.8%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alpha's stock?

  • 10.04%
  • 16.07%
  • 21.88%
  • 43.75%
  • 45.94%

15. Given the following information, calculate the present value break-even point.

Initial investment: $2,000

Fixed costs: $2,000 per year

Variable costs: $6 per unit

Depreciation: $250 per year

Price: $20 per unit

Discount rate: 10%

Project life: 4 years

Tax rate: 34%

  • 100 units per year
  • 143 units per year
  • 202 units per year
  • 286 units per year
  • None of these

16. D & F, Inc. expects sales of $620, $650, $730 and $780 for the months of April through July, respectively. The firm collects 20% of sales in the month of sale, 50% in the month following the month of sale and 28% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of July?

  • $645
  • $703
  • $711
  • $742
  • $755 .

17. The following time period(s) is/are consistent with the bubble theory:

  • the stock market crash of 1929.
  • the stock market crash of 1972.
  • the stock market crash of 1987.
  • the stock market crash of 1929 and the stock market crash of 1987.
  • the stock market crash of 1929; the stock market crash of 1972; and the stock market crash of 1987.

18. The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. 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.

Based on the firm's current practice, how many times during the next 3 months will the cash balance be replenished?

  • 3.33 times
  • 4.42 times
  • 8.33 times
  • 13.35 times
  • None of these.

19. In the spot market, $1 is currently equal to £.55. The expected inflation rate in the U.K. is 4 percent and in the U.S. 3 percent. What is the expected exchange rate two years from now if relative purchasing power parity exists?

  • £.5391
  • £.5445
  • £.5555
  • £.5611
  • £.5667

20. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?

  • $35.63
  • $38.19
  • $41.05
  • $43.19
  • $45.81

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