1. Rolle Corp has $500,000 of assets, and it uses no debt-it is financed only with common equity. The new CFO wants to employ enough debt to bring the Debt/Asset ratio to 45%, using the proceeds from borrowing to buy back common stock at it book value. How much the firm borrow to achieve the target debt ratio?
$225,000
$240,000
$255,000
$270,000
2. Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio?
4.72
4.97
5.23
5.80
3. X-l Corp's total assets at the end of last year were $405,000 and its EDIT was 52,500. What was its basic earning power (BEP) ratio?
11.70%
12.31%
12.96%
13.61%
4. If investors expect a zero rate of inflation, then the nominal rate of return on a very short-term U.S. Treasury bond should be equal to the real risk-free rate, r*.
True
False
5. During periods when inflation is increasing, interest rates tend to increase, while interest rates tend to fall when inflation is declining.
True
False
6. Song Corp's stock price at the end of last year was $23.50 and it earnings per share for the year were $1.30. What was its P/E ratio
17.17
18.08
18.98
19.93
7. Money markets are markets for
Consumer automobile loans
Corporate stocks
Long-term bonds
Short-term debt securities such as Treasury bills
8. Royce Corp's sales last year were $280,000, and its net income was $23,000. What was its profit margin?
7.41%
7.80%
8.21%
8.63%
9. Which of thefollowing is a primary market transaction?
You sell 200 shares of IBM stock on the NYSE through your broker.
You buy 200 shares of IBM stock from your brother. The trade is not made through a broker you give him cash and he gives you the stock.
IBM issues 2,000,000 shares of new stock and sells them to the public.
One financial institution buys 200,000 shares of IBM stock from another institution. An investment broker arranges the transaction.
10. Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO)?
2.04
2.14
2.26
2.38
11. The risk that interest rates will increase, and that increase will lead to a decline in the prices of outstanding bonds, is called "interest rate risk," or "price risk."
True
False
12. Collins Inc's latest net income was $1 million, and it had 200,000 shares outstanding. The company wants to pay out 40% of its income. What dividend per share should the company declare?
$1.70
$1.80
$1.90
$2.00
13. Which of the following statements is CORRECT?
While the distinctions are bluming, investments banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.
The NYSE operates as an auction market, whereas NASDQ is an example of a dealer market.
Money market mutual funds usually invest their money in a well-diversified portfolio of liquid common stock.
Money markets are markets for long-term debt and common stock.
14. Rull Corp's assets are $500,000, and its total debt outstanding is $200,000. The new CFO wants to employ a debt ratio of 60%. How much debt must the company add or substract to achieve the target ratio?
$80,000
$90,000
$100,000
$110,000
15. Zero Corp's total common equity at the end of last year was $405,000 and its net income was $70,000. What was its ROE?
14.82%
15.60%
16.42%
17.28%
16. Which of the following is an example of capital market instrument?
Commercial paper
Preferred stock
U.S. Treasury bills
Banker's acceptance
17. Hoagland Corp's stock price at the end of last year was $33.50, and its book value per share was $25.00. What was its market/book ratio?
1.34
1.41
1.48
1.55
18. Rivers Corp's total assets at the end of last year were $415,000 and its net income was $32,750. What was its return on total assets?
7.89%
8.29%
8.70%
9.14%
19. One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation. If inflation is expected to be relatively high, then interest rates will tend to be relatively low, other things held constant.
True
False
20. Suppose the federal deficit increased sharply from one year to the next, and the Federal Reserve kept the money supply constant. Other things held constant, we woulkd expect to see interest rates decline.
True
False