21. As of the beginning of the quarter, you have a cash balance of $250. During the quarter you pay your suppliers $310. Your accounts receivable collections are $420. You also pay an interest payment of $30 and a tax bill of $180. In addition, you borrow $75. What is your cash balance at the end of the quarter?
A. $275
B. $245
C. $285
D. $225
E. $255
22. Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.
A. Paying a payment on a long-term debt
B. Selling a fixed asset for book value
C. Selling inventory at a profit
D. Paying an accounts payable
E. Collecting an accounts receivable
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%.
23. Your firm has average daily receipts of $2,500. These receipts are available after 6 days on average. The interest rate that could be earned is .02% (.0002) per day. What is the approximate cost of the float per day?
A. $2.50
B. $3.00
C. $30.00
D. $50.00
E. None of the above.
24. Marketability risk is synonymous with:
A. maturity risk.
B. default risk.
C. liquidity risk.
D. interest rate risk.
E. None of the above.
25. The Ault Company made a credit sale of $15,000. The invoice was sent today with the terms, 3/15 net 60. This customer normally pays at the net date. If your opportunity cost of funds is 9% the expected payment is worth how much today?
A. $13,761
B. $14,789
C. $15,000
D. $15,214
E. None of the above.
26. 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?
A. $15,000
B. $15,657
C. $19,843
D. $20,000
E. None of the above.
27. Individuals that continually monitor the financial markets seeking mispriced securities:
A. are never able to find a security that is temporarily mispriced.
B. tend to make the markets more efficient.
C. are always quite successful using only historical price information as their basis of evaluation.
D. are always quite successful using only well-known public information as their basis of evaluation.
E. tend to make substantial profits on a daily basis.
28. Studies of the performance of professionally managed mutual funds find that these funds:
A. do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semistrong form of the efficient market hypothesis.
B. do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semistrong form of the efficient market hypothesis.
C. outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semistrong form of the efficient market hypothesis.
D. outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semistrong form of the efficient market hypothesis.
E. Both C and D.
29. An example of financially irrational behavior is:
A. gambling in Las Vegas.
B. when a firm announces an increase in earnings and the stock price enjoys three days of large abnormal returns.
C. when a firm announces an increase in earnings and the stock price enjoys an immediate surge in value which is captured in one day.
D. Both A and B.
E. Both A and C.
30. Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro?
A. C$1 = €1.10
B. C$1 = €1.2364
C. C$1 = €.9091
D. C$1.36 = €1.10
E. C$1.36 = €.9091
31. The spot rate for the Japanese yen currently is ¥106 per $1. The one-year forward rate is ¥105 per $1. A risk-free asset in Japan is currently earning 5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?
A. 6.33%
B. 6.12%
C. 6.00%
D. 6.20%
E. 6.25%
32. Suppose that the spot rate on the Canadian dollar is C$1.18. The risk-free nominal rate in the U.S. is 5 percent while it is only 4 percent in Canada. Which one of the following three-year forward rates best establishes the approximate interest rate parity condition?
A. C$1.192
B. C$1.216
C. C$1.145
D. C$1.239
E. C$1.120
33. You would like to invest in the following project.
Victoria, your boss, insists that only projects that can return at least $1.10 in today’s dollars for every $1 invested can be accepted. She also insists on applying a 10% discount rate to all cash flows. Based on these criteria, you should:
A. accept the project because the NPV is $2,851.
B. reject the project because the PI is 1.05.
C. reject the project because the IRR exceeds 10%.
D. accept the project because it has a positive PI.
E. accept the project because it returns almost $1.22 for every $1 invested.
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