______1. Galan Associates prepared its financial statements for 2008 based on the information below.

The company had cash of $1,234 inventory of $13,480, and accounts receivables
of $7,789. The companys net fixed assets are $42,331, and other assets are $1,822.
It has accounts payable of $9,558, notes payable of $2,756, common stock of $22,000,
and retained earnings of $14,008. How much long-term debt does the firm have?
a. $54,342
b. $76,342
c. $12,314
d. $18,334
______2. The Centennial Chemical Corporation announced that for the period ending March 31, 2009, it
earned income after taxes of $2,884,063 on revenues of $13,144,680. The companys costs
(excluding depreciation and amortization) amounted to 62 percent of revenues, and Centennial had
interest expenses of $245,621. What is the firms depreciation and amortization expense if its tax
rate was 35 percent?
a. $4,458,083
b. $ 312,337
c. $ 540,275
d. $ 630,376
______3. Ship-to-Shore had earnings after tax (EAT) of $280,000 last year. Its expenses included
depreciation of $55,000, interest of $40,000. It sold new stock for which it received $20,000.
The company also purchased a new commercial fishing boat for $40,000. What is
Ship-to-Shores net cash flow for last year?
a. $395,000
c. $355,000
b. $315,000
d. $280,000
______4. Cisco Systems had total assets of $38.50 billion, total debt of $10.726 billion, and net sales
of $24.05 billion. Their profit margin for the year was 18 percent, while the operating
profit margin was 28 percent. What was the firms ROA and ROE?
a. 12%; 18%
c. 11%; 16%
b. 14%; 20%
d. 10%; 15%
______5. GenTech Pharma has reported the following information:
.Sales/Total Assets = 2.89
ROA = 10.74%
ROE = 20.36%.
What is the firms profit margin and equity multiplier?
a. 7.1%; 0.53
b. 7.1%; 1.90

c. 3.7%; 0.53
d. 3.7%; 1.90

______ 6. You are comparing two investment options. The cost to invest in either option is the same today.
Both options provide you with $20,000 of income. Option A pays five annual payments starting
with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five
annual payments of $4,000 each. Which one of the following statements is correct given these two
investment options?
a. Both options are of equal value given that they both provide $20,000 of income.
b. Option A has a higher present value than option B given any positive rate of return.
c. Option B has a higher present value than option A given any positive rate of return.
d. Option B has a lower future value at year 5 than option A given a zero rate of
return.
____

7. Mr. Moore is 35 years today and is beginning to plan for his retirement. He wants to set aside
an equal amount at the end of each of the next 25 years so that he can retire at age 60. He
expects to live to about 80 years old, and wants to be able to withdraw $25,000 per year from
the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per
year for the entire period of time. Determine the size of the annual deposits that must be made.
a. $212,850
c. $2,164
b. $23,449
d. $8,514

_____ 8. If you were to borrow $10,000 over 5 years at 12 percent compounded monthly, what would be your
monthly payment?
a. $222.44
b. $187.28
c. $168.38
d. $ 122.44
____

9. Gary Whitmore currently has $8,000 in a money market account paying 4.35 percent annually.
She plans to use this amount and her savings over the next 8 years to make a down payment
on a house. He estimates that he will need $18,000 in 8 years. How much should he
invest in the money market account each year for the next 8 years if he wants to achieve
this target?
a. $4,803.49
b. $ 723.82
c. $ 844.15
d. $ 893.38

____ 10. Riordan Inc. offers a 7 percent coupon bond that has a $1,000 par value, semiannual coupon
payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the price of the
bond? (Round to nearest $)
a. $ 605
b. $ 867
c. $ 953
d. $1,018
____ 11. Find the present value of a payment stream of $2,000 per year for the first five years at a

discount rate of 10 percent per year, and $1,000 per year for the next fifteen years, given a 12 percent
discount rate.
a. $11,446
c. $22,347
b. $14,392
d. $15,000
____ 12. Use the following information to calculate the standard deviation of Macadam Corp.s returns.
State
Boom
Normal
Recession
a. 8.6%
b. 11.4%

Probability
20%
60%
20%

Return
40%
15%
(20%)
c. 19.1%
d. 19.8%

____ 13. Aquaman stock has exhibited a standard deviation in returns of 0.7, whereas Green Lantern
stock has exhibited a standard deviation of 0.8. The correlation coefficient between the
stock returns is 0.1. What is the standard deviation of a portfolio composed of 70 percent
Aquaman and 30 percent Green Lantern?
a. 0.32122
b. 0.54562
c. 0.56676
d. 0.75000
_____14. With respect to the probability distribution of stock returns:
a. a risky stock has a higher probability of producing a return that is closer to the
mean of the distribution and a less risky stock has a higher probability of
producing a return that is substantially different from the mean of the distribution.
b. a less risky stock is likely to produce a return that is close to the mean of the
distribution while a more risky stock has a higher probability of producing a return
that is substantially different from the mean of the distribution.
c. high risk implies lower variability in return such that returns in successive years
are likely to be insignificantly different from one another.
d. low risk implies variability in return such that returns in successive years are likely
to be considerably different from one another.
_____15. Carmen Electronics bought a new machine for $5 million. This is expected to result in
additional cash flows of $1.2 million over the next seven years. What is the payback
period for this project? If their acceptance period is 5 years, will this project be accepted?
a. 4.17 years; yes
c. 3.83 years, yes
b. 4.17 years; no
d. 3.83 years; no

_____16. Signet Pipeline Co. is looking to install new equipment that will cost $2,750,000. The cash
flows expected from the project are $612,335, $891,005, $1,132,000, and $1,412,500 for
the next four years. What is Signets internal rate of return? (Round to the nearest percent).:
a. 11%.
c. 15%.
b. 13% .
d. 17%
_____17. An investment has the following cash flows. Should the project be accepted if the required rate of
return is 9.5%?
Year
Cash Flow
0
-$24,000
1
$8,000
2
$12,000
3
$9,000
a. Yes; the required rate is greater than
IRR
b. Yes; IRR is greater than the required
rate

c. No; the required rate is greater than

____ 18. The projected cash flows for two mutually exclusive projects are as follows:
Year
Project A
Project B
0
($150,000)
($150,000)
1
0
50,000
2
0
50,000
3
0
50,000
4
0
50,000
5
250,000
50,000
If the cost of capital is 10%, the decidedly more favorable project is:
a. project B with an NPV of $39,539 and an IRR of 19.9%.
b. project A with an NPV of $5,230 and an IRR of 10.8%.
c. project A with an NPV of $39,539 and an IRR of 10.8%.
d. project B with an NPV of $5,230 and an IRR of 19.9%.

Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the
project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three
years. The cost of capital is 20 percent.
19. What is the payback period for this project?
a.
b.
c.
d.

1.7 years
2.2 years
1.2 years
2.7 years

20. What is the net present value of this project? (Round to the nearest million dollars.)
a.
b.
c.
d.

$10 million
$12 million
$14 million
$16 million

21. What is the internal rate of return that Turnbull can earn on this project? (Round to the nearest
percent.)
a.
b.
c.
d.

41%
42%
43%
44%

22. Capital budgeting analysis of mutually exclusive projects A and B yields the following:
IRR
NPV
Payback Period
a.
b.
c.
d.

Project A
18%
$270,000
2.5 yrs

Project B
22%
$255,000
2.0 yrs

Management should choose: