Which one of the following types of securities has no priority in a bankruptcy proceeding?
Convertible bond
Senior debt
Common stock
Preferred stock
Straight bond
Question 32
Any person who owns a license to trade on the NYSE is called a:
dealer.
floor trader.
specialist.
member.
proxy.
Question 33
The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to:
produce a positive annual cash flow.
produce a positive cash flow from assets.
offset its fixed expenses.
offset its total expenses.
recoup its initial cost
Question 34
Which one of the following defines the internal rate of return for a project?
Discount rate that creates a zero cash flow from assets
Discount rate which results in a zero net present value for the project
Discount rate which results in a net present value equal to the project’s initial cost
Rate of return required by the project’s investors
The project’s current market rate of return
Question 35
Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B?
Mutually exclusive
Conventional
Multiple choice
Dual return
Crosswise
Question 36
Any changes to a firm’s projected future cash flows that are caused by adding a new project are referred to as which one of the following?
Eroded cash flows
Deviated projections
Incremental cash flows
Directly impacted flows
Assumed flows
Question 37
A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions. By doing so, the firm:
automatically gives preferential treatment in the allocation of funds to its riskiest division.
encourages the division managers to only recommend their most conservative projects.
maintains the current risk level and capital structure of the firm.
automatically maximizes the total value created for its shareholders.
allocates capital funds evenly amongst its divisions
Question 38
A pro forma financial statement is a financial statement that:
expresses all values as a percentage of either total assets or total sales.
compares actual results to the budgeted amounts.
compares the performance of a firm to its industry.
projects future years’ operations.
values all assets based on their current market values.
Question 39
Sensitivity analysis:
looks at the most reasonably optimistic and pessimistic results for a project.
helps identify the variable within a project that presents the greatest forecasting risk.
is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional.
is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable.
illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project.
Question 40
The rate of return on which one of the following is used as the risk-free rate?
Long-term government bonds
Long-term corporate bonds
Inflation, as measured by the Consumer Price Index
U.S. Treasury bill
Large-company stocks
Question 41
Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset?
Squared deviation
Beta coefficient
Standard deviation
Mean
Variance
Question 42
Systematic risk is:
totally eliminated when a portfolio is fully diversified.
defined as the total risk associated with surprise events.
risk that affects a limited number of securities.
measured by beta.
measured by standard deviation

Question 43
Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the:
pure play cost.
cost of debt.
weighted average cost of capital.
subjective cost.
cost of equity.
Question 44
Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision?
Amount of debt used to finance the project
Use, or lack thereof, of preferred stock to finance the project
Mix of funds used to finance the project
Risk level of the project
Length of the project’s life
Question 45
Old Town Industries has three divisions. Division X has been in existence the longest and has the most stable sales. Division Y has been in existence for five years and is slightly less risky than the overall firm. Division Z is the research and development side of the business. When allocating funds, the firm should probably:
require the highest rate of return from division X since it has been in existence the longest.
assign the highest cost of capital to division Z because it is most likely the riskiest of the three divisions.
use the firm’s WACC as the cost of capital for division Z as it provides analysis for the entire firm.
use the firm’s WACC as the cost of capital for divisions A and B because they are part of the revenue-producing operations of the firm.
allocate capital funds evenly amongst the divisions to maintain the current capital structure of the firm.
Question 46
Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called?
Operating projection
Receivables schedule
Balance sheet
Cash budget
Compromise policy
Question 47
Baxter’s, Inc. generally holds $125,000 in cash in case an unexpected investment opportunity arises. Which one of the following refers to holding cash for this type of purpose?
Precautionary motive
Opportunistic motive
Speculative motive
Reserve motive
Transaction motive
Question 48
Which one of the following is the need to hold cash simply as a financial reserve?
Precautionary motive
Opportunistic motive
Speculative motive
Activity motive
Transaction motive
Question 49
The transaction motive for holding cash refers to the need to have cash for which one of the following purposes?
Safety margin
Investment opportunities
Daily operations
Financial reserve
Bargain opportunities
Question 50
A firm offers terms of 2/5, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount?
21.69 percent
24.42 percent
28.97 percent
31.08 percent
34.31 percent

Question 51
51. Jamie is analyzing the estimated net present value of a project under various what if scenarios. The type of analysis that Jamie is doing is best described as:
A. sensitivity analysis.
B. erosion planning.
C. scenario analysis.
D. benefit planning.
E. opportunity evaluation.
Question 52
52. Mark is analyzing a proposed project to determine how changes in the variable costs per unit would affect the project’s net present value. What type of analysis is Mark conducting?
A. Sensitiviity analysis
B. Erosion planning
C. Scenario analysis
D. Cost-benefit analysis
E. Opportunity cost analysis
Question 53
53. Which one of the following portfolios will have a beta of zero?
A. A portfolio that is equally as risky as the overall market.
B. A portfolio that consists of a single stock.
C. A portfolio comprised solely of U.S. Treasury bills.
D. A portfolio with a zero variance of returns.
E. No portfolio can have a beta of zero.
Question 54
54. Which one of the following terms applies to a bond that initially sells at a deep discount and pays no interest payments?
A. Callable
B. Income
C. Zero coupon
D. Convetible
E. Tax-free
Question 55
55. The payback method of analysis ignores which one of the following?
A. Initial cost of an investment
B. Arbitrary cutoff point
C. Cash flow direction
D. Time value of money
E. Timing of each cash inflow
Question 56
56. Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive?
A. INternal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
E. Average accounting return

Question 57
57. You want to create a $100,000 portfoloio that consists of three stocks. Curently, you own 40,000 shares of stock A, 20,000 shares of stock B and 40,000 shares of stock C. The expected return for stock A is 5 percent, stock B is 20 percent and stock C is 15 percent. What is the expected rate of retrn for the protfolio?
A. 9 percent
B. 10 percent
C. 12 percent
D. 13 percent