1.

Sources of cash do not include:

A.decreases in notes payable. B.decrease in account receivable.
C.increases in taxes payable.D.increases in borrowing from banks.
E.increases in accounts payable.
2. The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.
A.vertical B.backward C.forward D.horizontal E.conglomerate
3. White company needs a machine, which costs $2,000 and can will be depreciated in a straight-line manner over its
four-years life. It will have no salvage value. The company can lease the equipment with payments of $800 due at the
beginning of each year. The company is in zero tax bracket. Knowing that the appropriate interest rate is 12%, should
ABC buy or lease the equipment? NAL: NPV of Lease minus Buy
A.Should buy as the NAL is - $485.249 B.Should lease as the NAL is $485.249
C.Should buy as the NAL is - $721.465 D.Should lease as the NAL is $890.823
E.None of these options
4. A company is considering either an open market share repurchase or a cash dividend of an equal amount. Compared to
the open market share repurchase, the cash dividend is most likely to:
A.increase a shareholder's wealth by a lesser amount.
B.have a relative impact that depends on the tax treatment of the two alternatives.
C.increase a shareholder's wealth by a greater amount.
D.none of these
E.all of these
5. Net disbursement float means the:
A.book balance is greater than the ledger balance.
B.the available balance is more than the book balance.
C.collection float equals the disbursement float.
D.disbursement float and book cash.
E.collection float exceeds disbursement the float.
6. Homemade dividends are described by Modigliani and Miller to be the:
A.re-arrangement of the firm's dividend stream as management needs.
B.present value of all dividends to be paid.
C.re-arrangement of the firm's dividend stream by investors buying or selling their holdings in the stock.
D.dividend one pays oneself to avoid risky stocks.
E.None of these.
7. Reasons for leasing are
A.Tax advantages
B.Debt displacement
C.The firm's ROA is generally higher with an operating lease
D.All of these
E.None of these
8. The optimal capital structure has been achieved when the:
A.debt-equity ratio is equal to 1.
B.debt-equity ratio selected results in the lowest possible cost of debt.
C.debt-equity ratio selected results in the lowest possible weighed average cost of capital.
D.debt-equity ratio is such that the cost of debt exceeds the cost of equity.
E.weight of equity is equal to the weight of debt.
9. One difference between a finance lease and operating lease is that:
A.a finance lease is often cancellable by the lessee.
B.there is a often a call option in a finance lease.
C.there is often an option to buy in a finance lease.
D.an operating lease is often cancellable by the lessor.
E.None of these
10. Naiki sells 10,000 pair of shoes each year. If the total cost of placing an order is $6.5 and it costs $13 per year to carry
one pair in inventory, use the EOQ formula to calculate the optimal order size.
A.100 clocks B.141 clocks C.124 clocks D.70 clocks
 11. Priscilla owns 500 shares of Delta stock. It is January 1, 2006, and the company recently issued a statement that it will
pay a $0.90 per share dividend on December 31, 2006 and a $1.00 per share dividend on December 31, 2007. Priscilla
does not want any dividend this year but does want as much dividend income as possible next year. Her required return on
this stock is 11%. Ignoring taxes, what will Priscilla's homemade dividend (in total) per share be in 2007?
A.$1.68 B.$1.99 C.$.50 D.$1.62 E.$2.12
12. Signal Inc. is preparing its cash budget. It expects to have sales of $44,000 in January, $25,000 in February, and
$35,000 in March. If 20% of sales are for cash, 60% of credit sales paid in the month after the sale, and another 40% of
credit sales paid 2 months after the sale, what are the expected cash receipts for March?
A.$26,730 B.$33,080 C.$29,700 D.$25,400E.$36,300
13. Fauver Industries plans to have a capital budget of $600,000. It wants to maintain a target capital structure of 40%
debt and 60% equity, and it also wants to pay a dividend of $255,000. If the company follows the residual dividend model,
how much net income must it earn to meet its investment requirements, pay the dividend, and keep the capital structure in
balance?
A.$600,000 B.$711,000 C.$645,700 D.$584,250 E.$615,000
14. A public offer by one firm to directly buy the shares of another firm is called a:
A.spinoff. B.merger. C.consolidation. D.divestiture. E.tender offer.
15. An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board
of directors is called a:
A.tender offer. B.going-private transaction.
C.proxy contest. D.consolidation.
E.leveraged buyout.
16. Your firm is considering leasing a new radiographic device. The lease lasts for 5 years. The lease calls for 5 payments
of $50,000 per year, due at the beginning of each year. The computer would cost $250,000 to buy and would be straight-
line depreciated to a zero-salvage value over 5 years. The firm can borrow at a rate of 12%. The corporate tax rate is 40%.
All tax benefit will be received at the end of the period. What is the after-tax cash flow from leasing instead of buying in
YEAR 0
A.+ $225,000 B.+ $200,000 C.+ $169,000 D.+ $185,000 E.+ $175,000
17. Arizona Seafood, Inc., plans $45 million in new borrowing to repurchase 3.6 million shares at their market price of $
12.50. The yield on the new debt will be 12%. The company has 43.6 million shares outstanding and EPS of $0.60 before
the repurchase. The company's tax rate is 40%. The company's EPS after the share repurchase will be closest to:
A.$0.57 B.$0.50 C.$0.65 D.$0.67
18. Mid-State BankCorp recently declared a 9-for-3 stock split. Prior to the split, the stock sold for $90 per share. If the
firm's total market value is unchanged by the split, what will the stock price be following the split?
A.$20 B.$24 C.$20 D.$21 E.$30
19. A way to analyze whether debt or lease financing would be preferable is to:
A.none of these
B.compare the net present values under each alternative, using the cost of capital as the discount rate.
C.compare the effective interest costs involved for each alternative.
D.compare the payback periods for each alternative.
E.compare the net present values under each alternative, using the after-tax cost of borrrowing as the discount rate.
20. The operating cycle is defined as the time between:
A.the arrival of inventory and cash collected from receivables.
B.selling a product and collecting the accounts receivable.
C.selling a product and paying the supplier of that product.
D.the sale of inventory and cash collection.
E.cash disbursements and cash collection for an item.
21. The information content of a dividend increase generally signals that:
A.the firm has a one-time surplus of cash.
B.the firm has few, if any, net present value projects to pursue.
C.management believes that the future earnings of the firm will be strong.
D.the firm has more cash than it needs due to sales declines.
E.none of these
 22. Smith and Johnson have expected credit sales of $380, $330, $450 and $480 for the months of January through April,
respectively. The accounts receivable period is 25 days. How much did the firm collect in the month of February? Assume
that a year has 360 days.
A.$385 B.$340 C.$430 D.$370 E.$350
23. You own 300 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $.60 a share
one year from today and then issuing a final liquidating dividend of $24 a share two years from today. Your required rate
of return is 9%. Ignoring taxes, what is the value of one share of this stock in one year?
A.$23.0 B.$24.2 C.$20.8 D.$22.0 E.$28.0
24. In the event of loan default (finance lease),
A.The lessee owns the asset
B.The lease payments are made directly to the shareholders
C.The lender has a first lien on the asset
D.The lease payments are made directly to the lessor
E.The lease will be canceled
25. For 2014, Blue Moon had sales of $318,000, cost of goods sold of $249,000 and inventory of $138,000. For 2015,
sales were $349,000, cost of goods sold were $247,000, and inventory was $155,000. What was the inventory period for
2015?
A.216 days B.194 days C.206 days D.208 days E.231 days
26. The complete absorption of one company by another, wherein the acquiring firm retains its identity and the acquired
firm ceases to exist as a separate entity, is called a:
A.tender offer. B.spinoff. C.merger. D.divestiture. E.consolidation.
27. Torrence Inc. has the following data. If it uses the residual dividend model, how much total dividends, if any, will it
pay out? Capital budget: $1,000,000. %Debt: 60%. Net income (NI): $625,000
A.$225,000 B.$213,750 C.$275,000 D.$192,909 E.$183,264
28. Flexible short-term financial policies tend to:
A.maintain low cash balances. B.tightly restrict credit sales.
C.support few investments in marketable securities. D.minimize the investment in inventory.
E.None of these
29. Last year, Wilson's had credit sales of $927,000 and cost of goods sold of $805,000. The beginning of the year
inventory was $100,000 and the end of the year inventory was $154,300. If the accounts receivables average $87,400,
what is the operating cycle?
A.70.01 days B.92.07 days C.78.60 days D.95.32 days E.104.42 days
30. Your firm is considering leasing a new radiographic device. The lease lasts for 5 years. The lease calls for 5 payments
of $50,000 per year, due at the beginning of each year. The computer would cost $250,000 to buy and would be straight-
line depreciated to a zero-salvage value over 5 years. The firm can borrow at a rate of 12%. The corporate tax rate is 40%.
All tax benefit will be received at the end of the period. What is the after-tax cash flow from leasing instead of buying in
YEAR 5?
A.-$31,000 B.-$16,000 C.-$0 D.-$1,000 E.-$6,000