FIN370-02 Exam3 Winter 2011 Key
Version A
1. Auction markets:
I. match sellers with buyers.
II. have a physical location.
III. consist solely of electronic trades.
IV. are based on dealers.
A. I, III, and IV only
B. III and IV only
C. II only
D. I and II only
E. III only
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 001 #58
SECTION: 1.6
TOPIC: AUCTION MARKET
TYPE: CONCEPTS
2. The profit margin is the amount of net profit earned for every $1 of:
A. total assets.
B. sales.
C. external financing.
D. equity.
E. long-term debt.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 003 #21
SECTION: 3.2
TOPIC: PROFIT MARGIN
TYPE: CONCEPTS
3. Portman's is considering adding a new product to its lineup. This product is expected to generate sales for
three years after which time the product will be discontinued. What is the project's net present value if the firm
wants to earn a 12 percent rate of return?
A. $4,862.07
B. $7,611.08
C. $6,795.61
D. $9,682.26
E. $1,084.41
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #51
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: PROBLEMS
4. Over the past six years, a stock had annual returns of 2 percent, 10 percent, 14 percent, 8 percent, -6 percent,
and 8 percent, respectively. What is the standard deviation of these returns?
A. 7.04 percent
B. 8.38 percent
C. 12.27 percent
D. 11.97 percent
E. 7.19 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 010 #65
SECTION: 10.4
TOPIC: STANDARD DEVIATION
TYPE: PROBLEMS
5. Given an interest rate of zero percent, the future value of a lump sum invested today will always:
A. decrease if the investment time period is shortened.
B. be greater than the initial investment amount.
C. decrease if the investment time period is lengthened.
D. remain constant, regardless of the investment time period.
E. be equal to $0.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 004 #15
SECTION: 4.1
TOPIC: FUTURE VALUE
TYPE: CONCEPTS
6. Which one of the following best exemplifies the concept of a marginal tax?
A. As the result of opening a new store, Northern Lights owed an additional $1.1 million in taxes.
B. Jefferson-Knight paid $2.1 million in taxes last year on revenue of $6.8 million.
C. High Water Adventures paid $0.18 in tax for every $1 in taxable income last year.
D. Alpha Industries received a tax refund due to an error in its tax return that the IRS discovered.
E. Southern Mills paid $3.2 million more in taxes last year than its competitor, Eastern Mills.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 002 #41
SECTION: 2.3
TOPIC: MARGINAL TAX
TYPE: CONCEPTS
7. Which of the following affect the expected rate of return on a security?
I. multiple states of the economy
II. probability of occurrence for any one economic state
III. market rate of return given a particular economic state
IV. security beta
A. I, II, and III only
B. II and III only
C. III and IV only
D. I and II only
E. I, II, III, and IV
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1 AND 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #17
SECTION: 11.1
TOPIC: EXPECTED RETURN AND CAPITAL ASSET PRICING MODEL
TYPE: CONCEPTS
8. What is the payback period for a project with the following cash flows?
A. 2.14 years
B. 2.20 years
C. 2.23 years
D. 2.50 years
E. 2.54 years
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #64
SECTION: 8.2
TOPIC: PAYBACK
TYPE: PROBLEMS
9. Your portfolio has provided you with returns of 7.9 percent, 11.2 percent, 3.8 percent, and 14.7 percent over
the past four years, respectively. What is the geometric average return for this period?
A. 9.16 percent
B. 9.40 percent
C. 9.33 percent
D. 9.44 percent
E. 8.98 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 010 #80
SECTION: 10.5
TOPIC: GEOMETRIC AVERAGE
TYPE: PROBLEMS
10. Swenson's is considering a project with a five-year life. The project requires $90,000 of fixed assets that are
classified as five-year property for MACRS. Variable costs equal 64 percent of sales. Fixed costs are $13,500
and the tax rate is 34 percent. What is the operating cash flow for year 3 given the following sales amounts and
MACRS depreciation allowance percentages?
A. $6,231.60
B. $6,714.21
C. $6,427.09
D. $5,825.80
E. $7,301.19
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #64
SECTION: 9.4
TOPIC: OPERATING CASH FLOW
TYPE: PROBLEMS
11. The primary benefit of cumulative voting is:
A. the ability to vote by proxy.
B. that each shareholder receives an equal number of total votes.
C. the ability of the shareholders to replace the entire board of directors in one election.
D. an increased probability that the largest shareholder will be able to control the entire board of directors.
E. an increased probability that minority shareholders can elect at least one director of their choice.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 007 #35
SECTION: 7.2
TOPIC: CUMULATIVE VOTING
TYPE: CONCEPTS
12. Garner, Inc. has a return on equity of 12.5 percent, an equity multiplier of 1.7, and a total asset turnover of
2.1. What is the profit margin?
A. 7.35 percent
B. 4.63 percent
C. 3.50 percent
D. 4.70 percent
E. 3.57 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 003 #90
SECTION: 3.3
TOPIC: DU PONT IDENTITY
TYPE: PROBLEMS
13. Brook's is a specialty retailer of souvenir wear. Currently, the firm offer T-shirts, sweatshirts, and caps. Its
most recent annual sales consisted of $18,000 of T-shirts, $9,000 of sweatshirts, and $1,800 of caps. The
company is adding polo shirts to the line-up and projects that this addition will result in sales next year of
$15,000 of T-shirts, $10,000 of sweatshirts, $9,500 of polo shirts, and $2,000 of caps. What amount of next
year's revenue is from side effects of the additional product?
A. $750
B. $580
C. $1,800
D. $420
E. $1,600
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #52
SECTION: 9.2
TOPIC: SIDE EFFECTS
TYPE: PROBLEMS
14. The goal of diversification is to eliminate:
A. all investment risk.
B. the market risk premium.
C. the effects of beta.
D. systematic risk.
E. unsystematic risk.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #31
SECTION: 11.5
TOPIC: UNSYSTEMATIC RISK
TYPE: CONCEPTS
15. The stock of Uptown Men's Wear is expected to produce the following returns given the various states of
the economy. What is the expected return on this stock?
A. 13.6 percent
B. 12.8 percent
C. 9.6 percent
D. 15.3 percent
E. 10.4 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #47
SECTION: 11.1
TOPIC: EXPECTED RETURN
TYPE: PROBLEMS
16. Standard deviation measures the _____ of a security's returns over time.
A. frequency
B. arithmetic average
C. mean
D. volatility
E. average value
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #32
SECTION: 10.4
TOPIC: RISK
TYPE: CONCEPTS
17. The dividend yield is computed as:
A. Dt+1 / Pt.
B. (Dt+1 Dt) / Pt+1.
C. Pt+1 / Dt.
D. (Pt+1 + Dt+1) / Pt
E. (Dt+1 Dt) / Pt.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #8
SECTION: 10.1
TOPIC: DIVIDEND YIELD
TYPE: CONCEPTS
18. The annual interest on a bond divided by the bond's market price is called the:
A. yield to call.
B. current yield.
C. total yield.
D. yield to maturity.
E. required yield.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #6
SECTION: 6.1
TOPIC: CURRENT YIELD
TYPE: DEFINITIONS
19. Which one of the following ignores the time value of money?
A. profitability index
B. discounted cash flow analysis
C. net present value
D. payback
E. internal rate of return
BLOOMS TAXONOMY QUESTION TYPE: BASIC
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #22
SECTION: 8.2
TOPIC: PAYBACK
TYPE: CONCEPTS
20. B&T, Inc. is expected to pay its first annual dividend five years from now. That payment will be $3.10 a
share. Starting in year six, the company will increase the dividend by 2 percent per year. The required return is
15 percent. What is the value of this stock today?
A. $11.86
B. $12.09
C. $15.71
D. $13.63
E. $14.66
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 007 #71
SECTION: 7.1
TOPIC: UNEQUAL DIVIDENDS
TYPE: PROBLEMS
21. The return on which one of the following is used as the risk-free rate of return?
A. long-term corporate bonds
B. short-term corporate bonds
C. long-term government bonds
D. U.S. Treasury bills
E. the Consumer Price Index
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #28
SECTION: 10.3
TOPIC: RISK-FREE RATE
TYPE: CONCEPTS
22. An increase in which of the following will increase the future value of a lump sum investment made today
assuming that all interest is reinvested? Assume the interest rate is a positive value.
I. interest rate
II. amount of the lump sum
III. frequency of the interest payments
IV. length of the investment period
A. II and IV only
B. I, II, and IV only
C. II, III, and IV only
D. I, II, III, and IV
E. I and III only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 004 #17
SECTION: 4.1
TOPIC: FUTURE VALUE
TYPE: CONCEPTS
23. The primary market is:
A. the NYSE.
B. a reference to any dealer market.
C. any large stock exchange accessible to the general public for trading either debt or equity securities.
D. a reference to any auction market.
E. the market where all new issues of debt and equity securities are sold to the public.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 001 #56
SECTION: 1.6
TOPIC: PRIMARY MARKET
TYPE: CONCEPTS
24. The concept that the expected return on an investment depends solely on that asset's nondiversifiable risk is
referred to as:
A. the principle of elimination.
B. the principle of diversification.
C. the expected return theory.
D. the systematic risk principle.
E. systematic investing.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #7
SECTION: 11.6
TOPIC: SYSTEMATIC RISK PRINCIPLE
TYPE: DEFINITIONS
25. The control of a corporation ultimately lies with the:
A. chief financial officer.
B. chairman of the board.
C. company president.
D. chief executive officer.
E. company stockholders.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 001 #46
SECTION: 1.5
TOPIC: CORPORATE CONTROL
TYPE: CONCEPTS
26. Discounted cash flow analysis is the process of discounting the:
A. nominal rate of return to determine the aftertax rate of return.
B. present value of an investment to determine its future value as of a specified date.
C. future cash flows of a project to determine the project's current value.
D. rate of return to determine the aftertax cash flow from a project.
E. cost of a project to determine its current value.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #2
SECTION: 8.1
TOPIC: DISCOUNTED CASH FLOW VALUATION
TYPE: DEFINITIONS
27. A firm is reviewing a project that has an initial cost of $85,000. The project will produce cash inflows,
starting with year 1, of $10,000, $15,500, $23,600, $30,100, and finally in year five, $38,700. What is the
profitability index if the discount rate is 14 percent?
A. 1.06
B. .64
C. .95
D. .88
E. .72
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 6
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #95
SECTION: 8.5
TOPIC: PROFITABILITY INDEX
TYPE: PROBLEMS
28. You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in
stock D. What is the portfolio weight of stock D?
A. 19.46 percent
B. 17.91 percent
C. 18.42 percent
D. 19.07 percent
E. 17.68 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #57
SECTION: 11.2
TOPIC: PORTFOLIO WEIGHT
TYPE: PROBLEMS
29. A pro forma financial statement is a financial statement that:
A. values all assets based on their current market values.
B. expresses all values as a percentage of either total assets or total sales.
C. compares actual results to the budgeted amounts.
D. compares the performance of a firm to its industry.
E. projects future years' operations.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #6
SECTION: 9.3
TOPIC: PRO FORMA FINANCIAL STATEMENT
TYPE: DEFINITIONS
30. Which one of the following has the lowest effective annual rate?
A. 7 percent compounded monthly
B. 7 percent compounded semi-annually
C. 7 percent compounded annually
D. 7 percent compounded daily
E. 7 percent compounded quarterly
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 005 #24
SECTION: 5.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: CONCEPTS
31. You own a portfolio that is invested 22 percent in stock A, 36 percent in stock B, and the remainder in stock
C. The expected returns on these stocks are 9.7 percent, 14.5 percent, and 11.2 percent, respectively. What is the
expected return on the portfolio?
A. 12.97 percent
B. 13.33 percent
C. 13.11 percent
D. 12.48 percent
E. 12.06 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #60
SECTION: 11.2
TOPIC: EXPECTED RETURN
TYPE: PROBLEMS
32. The Town Talker has a printing press that is not being used at the present time. In fact, this press has not
been used for over a year. The press has no market value because it utilizes old technology. The firm could get
$150 for the press as scrap metal. The press is five years old and originally cost $97,000. The current book
value is $1,450. The president of the firm is considering a new project and feels he can use this press for that
project. What value should be assigned to the press and included in the initial project cost?
A. $1,450
B. $1,600
C. $0
D. $1,300
E. $150
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #51
SECTION: 9.2
TOPIC: OPPORTUNITY COST
TYPE: PROBLEMS
33. A project has the following cash flows. What is the internal rate of return?
A. 15.39 percent
B. 14.08 percent
C. 13.97 percent
D. 16.20 percent
E. 12.46 percent
BLOOMS TAXONOMY TYPE: QUESTION APPLICATION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #82
SECTION: 8.4
TOPIC: INTERNAL RATE OF RETURN
TYPE: PROBLEMS
34. Stock X has a beta of 1.6 and an expected return of 19 percent. Stock Y has a beta of 1.2 and an expected
return of 15.5 percent. What is the risk-free rate if these securities both plot on the security market line?
A. 5.0 percent
B. 4.5 percent
C. 4.2 percent
D. 4.0 percent
E. 4.8 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #85
SECTION: 11.7
TOPIC: CAPITAL ASSET PRICING MODEL
TYPE: PROBLEMS
35. Julie owns a stock with a market price of $43 per share. This stock pays a constant annual dividend of $1.34
a share. If the price of the stock suddenly falls to $31 a share, you would expect the:
I. dividend yield to increase.
II. dividend yield to decrease.
III. capital gains yield to increase.
IV. capital gains yield to decrease.
A. I and III only
B. II only
C. II and IV only
D. I only
E. III only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 007 #32
SECTION: 7.1
TOPIC: DIVIDEND AND CAPITAL GAIN YIELDS
TYPE: CONCEPTS
36. Percentage returns:
I. easily convey the return for each dollar invested.
II. relay information about a security more easily than dollar returns do.
III. are not affected by the amount of the investment.
IV. can be easily separated into dividend and capital gain yields.
A. II and III only
B. II and IV only
C. I and III only
D. I, II, III, and IV
E. I, II, and IV only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #11
SECTION: 10.1
TOPIC: PERCENTAGE RETURNS
TYPE: CONCEPTS
37. You earned 16.7 percent on your investments for a time period when the risk-free rate was 6.1 percent and
the inflation rate was 5.4 percent. What was your real rate of return for the period?
A. 9.89 percent
B. 9.78 percent
C. 11.83 percent
D. 10.72 percent
E. 10.60 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #56
SECTION: 10.1
TOPIC: REAL RETURN
TYPE: PROBLEMS
38. Which one of the following will increase the cash flow from assets, all else constant?
A. a decrease in dividends paid
B. an increase in depreciation
C. an increase in net capital spending
D. an increase in the change in net working capital
E. a decrease in the cash flow to creditors
BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: CHALLENGE
Ross - Chapter 002 #42
SECTION: 2.4
TOPIC: CASH FLOW FROM ASSETS
TYPE: CONCEPTS
39. Conway & Sons had $26,500 in net fixed assets at the beginning of the year. During the year, the company
purchased $5,700 in new equipment. It also sold, at a price of $1,000, some old equipment with a book value of
$850. The depreciation expense for the year was $4,300. What is the net fixed asset balance at the end of the
year?
A. $26,900
B. $15,650
C. $31,200
D. $20,800
E. $27,050
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 002 #57
SECTION: 2.1
TOPIC: NET FIXED ASSETS
TYPE: PROBLEMS
40. The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the
depreciation:
A. opportunity cost.
B. tax shield.
C. credit.
D. adjustment.
E. erosion.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #7
SECTION: 9.3
TOPIC: DEPRECIATION TAX SHIELD
TYPE: DEFINITIONS
41. Which one of the following best exemplifies unsystematic risk?
A. an unexpected economic boom
B. an unexpected decrease in interest rates
C. an unexpected increase in the sales of a firm
D. an expected increase in tax rates
E. a sudden increase in the inflation rate
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #27
SECTION: 11.4
TOPIC: UNSYSTEMATIC RISK
TYPE: CONCEPTS
42. You can deposit $850 today into a savings account. How long must you wait for the investment to grow to
$5,000 if you can earn 6 percent on this money?
A. 30.41 years
B. 22.63 years
C. 23.81 years
D. 59.95 years
E. 31.45 years
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 004 #53
SECTION: 4.3
TOPIC: TIME PERIOD
TYPE: PROBLEMS
43. Which one of the following is a perpetuity?
A. student loan payments of $360 a month for five years
B. car payments of $260 a month for 60 months
C. $1,000 annual payments from a trust fund forever
D. $680 a month over the life of a lease
E. social security payments of $1,100 a month for life
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 005 #13
SECTION: 5.2
TOPIC: PERPETUITY
TYPE: CONCEPTS
44. Which of the following will increase the profit margin of a firm, all else constant?
I. increasing depreciation
II. decreasing cost of goods sold
III. decreasing the tax rate
IV. increasing interest expense
A. II and III only
B. I, II, III, and IV
C. I, II, and III only
D. I and III only
E. II and IV only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 003 #22
SECTION: 3.2
TOPIC: PROFIT MARGIN
TYPE: CONCEPTS
45. You can ensure that an investment is expected to create value for a firm's owners by selecting projects that:
A. have positive IRRs.
B. have positive NPVs.
C. have positive AARs.
D. produce negative rates of return.
E. have a PI equal to zero.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #17
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: CONCEPTS
46. Two brothers are discussing a truck they use for local deliveries. Which one of the following items from
their discussion represents a sunk cost?
A. engine tune-up that is scheduled for this afternoon
B. new tail gate that is needed since the old one was damaged in an accident last week
C. transmission repair that was done last week
D. new set of tires that will be needed for winter
E. cost of the state required annual inspection that must be done this month
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #22
SECTION: 9.2
TOPIC: SUNK COST
TYPE: CONCEPTS
47. A debenture is:
A. long-term debt secured by fixed assets of the borrower.
B. any type of debt that is short-term in nature.
C. unsecured debt that generally matures in less than ten years.
D. long-term debt secured by real estate.
E. unsecured debt that generally matures in ten years or more.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #10
SECTION: 6.2
TOPIC: DEBENTURE
TYPE: DEFINITIONS
48. The National Bank offers personal loans at 8 percent compounded monthly. The Global Bank offers similar
loans at 8.25 percent compounded quarterly. Which one of the following statements is correct concerning these
two banks?
A. The Global Bank loan has an effective rate of 8.51 percent.
B. The National Bank loan has an effective rate of 8.27 percent.
C. The National Bank loan has a higher effective rate than the Global Bank loan.
D. The National Bank loan has an effective rate of 8.33 percent.
E. The Global Bank loan has an effective rate of 8.30 percent.
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 005 #85
SECTION: 5.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: PROBLEMS
49. Whole Foods has decided to expand its retail store by building on a vacant lot it currently owns. This lot
was purchased six years ago at a cost of $495,000, which the firm paid in cash. To date, the firm has spent
another $89,000 on land improvements, all of which was also paid in cash. Today, the lot has a market value of
$689,000. The financial manager of Whole Foods is trying to determine the amount, if any, that should be
assigned to the building project for the cost of the land. The project should:
A. not be charged for the land since it is currently owned, debt-free, by the firm.
B. be assigned a cost equal to the current market value of the land plus the cash paid for the improvements.
C. be assigned a cost equal to the cash paid to date for both the lot and the improvements.
D. be assigned a cost equal to the original purchase price only.
E. be assigned a cost equal to the current market value of the land.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #20
SECTION: 9.1
TOPIC: OPPORTUNITY COST
TYPE: CONCEPTS
50. The Bailey Brothers want to issue 20-year, zero coupon bonds that yield 9 percent. What price should it
charge for these bonds if the face value is $1,000?
A. $194.49
B. $202.64
C. $157.25
D. $178.43
E. $163.70
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #103
SECTION: 6.4
TOPIC: ZERO COUPON BONDS
TYPE: PROBLEMS
51. Boyes Beach Wear is adding a new product to its sales lineup. Initially, the firm will stock $22,000 of
inventory, which will be purchased on 30-days credit from its supplier. The firm will also invest $16,000 in
accounts receivable and $54,000 in equipment. What amount should be included in the initial costs for net
working capital?
A. $6,000
B. $0
C. $6,000
D. $38,000
E. $16,000
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #57
SECTION: 9.2
TOPIC: NET WORKING CAPITAL
TYPE: PROBLEMS
52. Wheaton, Inc. pays a constant annual dividend. Last year, the dividend yield was 3.6 percent when the stock
was selling for $28 a share. What is the current price of the stock if the current dividend yield is 3.2 percent?
A. $33.70
B. $32.60
C. $31.50
D. $33.40
E. $32.90
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #46
SECTION: 10.1
TOPIC: DIVIDEND YIELD
TYPE: PROBLEMS
53. Given the following information, what is the variance for this stock?
A. .004638
B. .019949
C. .012121
D. .006667
E. .017406
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 011 #53
SECTION: 11.1
TOPIC: VARIANCE
TYPE: PROBLEMS
54. Truman Florists pays a constant annual dividend of $2.20 per share on its stock. Last year at this time, the
market rate of return on this stock was 12.6 percent. Today, the market rate has fallen to 9.7 percent. What
would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock
today?
A. 23.02 percent
B. 9.70 percent
C. 14.57 percent
D. 2.90 percent
E. 29.90 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #50
SECTION: 10.1
TOPIC: CAPITAL GAINS YIELD
TYPE: PROBLEMS
55. A 5-year project is expected to generate revenues of $92,000, variable costs of $67,000, and fixed costs of
$11,000. The annual depreciation is $4,000 and the tax rate is 35 percent. What is the annual operating cash
flow?
A. $11,100
B. $8,700
C. $9,900
D. $10,500
E. $9,100
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #58
SECTION: 9.3
TOPIC: OPERATING CASH FLOW
TYPE: PROBLEMS
56. Which one of the following correctly defines the average accounting return?
A. average net income divided by average book value
B. average book value divided by average market value
C. average book value divided by average net income
D. average cash flow divided by average book value
E. average book value divided by average cash flow
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #4
SECTION: 8.3
TOPIC: AVERAGE ACCOUNTING RETURN
TYPE: DEFINITIONS
57. Which one of the following is the preferred method of analyzing a proposed investment?
A. net present value
B. accounting rate of return
C. payback
D. profitability index
E. internal rate of return
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #13
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: CONCEPTS
Exam3 FIN370-02 Winter 2011 Summary
Category
# of Questions
BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS
1
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
25
BLOOMS TAXONOMY QUESTION TYPE: BASIC
1
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
10
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
20
LEARNING OBJECTIVE NUMBER: 1
26
LEARNING OBJECTIVE NUMBER: 1 AND 4
1
LEARNING OBJECTIVE NUMBER: 2
12
LEARNING OBJECTIVE NUMBER: 3
4
LEARNING OBJECTIVE NUMBER: 4
9
LEARNING OBJECTIVE NUMBER: 6
1
LEVEL OF DIFFICULTY: BASIC
48
LEVEL OF DIFFICULTY: CHALLENGE
1
LEVEL OF DIFFICULTY: INTERMEDIATE
8
Ross - Chapter 001
3
Ross - Chapter 002
3
Ross - Chapter 003
3
Ross - Chapter 004
3
Ross - Chapter 005
3
Ross - Chapter 006
3
Ross - Chapter 007
3
Ross - Chapter 008
9
Ross - Chapter 009
9
Ross - Chapter 010
9
Ross - Chapter 011
9
SECTION: 1.5
1
SECTION: 1.6
2
SECTION: 10.1
5
SECTION: 10.3
1
SECTION: 10.4
2
SECTION: 10.5
1
SECTION: 11.1
3
SECTION: 11.2
2
SECTION: 11.4
1
SECTION: 11.5
1
SECTION: 11.6
1
SECTION: 11.7
1
SECTION: 2.1
1
SECTION: 2.3
1
SECTION: 2.4
1
SECTION: 3.2
2
SECTION: 3.3
1
SECTION: 4.1
2
SECTION: 4.3
1
SECTION: 5.2
1
SECTION: 5.3
2
SECTION: 6.1
1
SECTION: 6.2
1
SECTION: 6.4
1
SECTION: 7.1
2
SECTION: 7.2
1
SECTION: 8.1
4
SECTION: 8.2
2
SECTION: 8.3
1
SECTION: 8.4
1
SECTION: 8.5
1
SECTION: 9.1
1
SECTION: 9.2
4
SECTION: 9.3
3
SECTION: 9.4
1
TOPIC: AUCTION MARKET
1
TOPIC: AVERAGE ACCOUNTING RETURN
1
TOPIC: CAPITAL ASSET PRICING MODEL
1
TOPIC: CAPITAL GAINS YIELD
1
TOPIC: CASH FLOW FROM ASSETS
1
TOPIC: CORPORATE CONTROL
1
TOPIC: CUMULATIVE VOTING
1
TOPIC: CURRENT YIELD
1
TOPIC: DEBENTURE
1
TOPIC: DEPRECIATION TAX SHIELD
1
TOPIC: DISCOUNTED CASH FLOW VALUATION
1
TOPIC: DIVIDEND AND CAPITAL GAIN YIELDS
1
TOPIC: DIVIDEND YIELD
2
TOPIC: DU PONT IDENTITY
1
TOPIC: EFFECTIVE ANNUAL RATE
2
TOPIC: EXPECTED RETURN
2
TOPIC: EXPECTED RETURN AND CAPITAL ASSET PRICING MODEL
1
TOPIC: FUTURE VALUE
2
TOPIC: GEOMETRIC AVERAGE
1
TOPIC: INTERNAL RATE OF RETURN
1
TOPIC: MARGINAL TAX
1
TOPIC: NET FIXED ASSETS
1
TOPIC: NET PRESENT VALUE
3
TOPIC: NET WORKING CAPITAL
1
TOPIC: OPERATING CASH FLOW
2
TOPIC: OPPORTUNITY COST
2
TOPIC: PAYBACK
2
TOPIC: PERCENTAGE RETURNS
1
TOPIC: PERPETUITY
1
TOPIC: PORTFOLIO WEIGHT
1
TOPIC: PRIMARY MARKET
1
TOPIC: PRO FORMA FINANCIAL STATEMENT
1
TOPIC: PROFIT MARGIN
2
TOPIC: PROFITABILITY INDEX
1
TOPIC: REAL RETURN
1
TOPIC: RISK
1
TOPIC: RISK-FREE RATE
1
TOPIC: SIDE EFFECTS
1
TOPIC: STANDARD DEVIATION
1
TOPIC: SUNK COST
1
TOPIC: SYSTEMATIC RISK PRINCIPLE
1
TOPIC: TIME PERIOD
1
TOPIC: UNEQUAL DIVIDENDS
1
TOPIC: UNSYSTEMATIC RISK
2
TOPIC: VARIANCE
1
TOPIC: ZERO COUPON BONDS
1
TYPE: CONCEPTS
25
TYPE: DEFINITIONS
7
TYPE: PROBLEMS
25