A 30-year mortgage loan is a:

A) long-term liability.

B) current liability.

C) current
asset.

D) long-term asset

A

Perrigo Co. (PRGO) has a share price of $39.20. They have 91.33 million shares outstanding, a marketto-book ratio of 3.76. In addition, PRGO has $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.

Perrigo's price-earnings ratio (P/E) is closest to:

A) 15.96

B) 21.85

C) 29.77

D) 35.64

B

Perrigo Co. (PRGO) has a share price of $39.20. They have 91.33 million shares outstanding, a marketto-book ratio of 3.76. In addition, PRGO has $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.

Perrigo's price-earnings ratio (P/E) is closest to:

A) 15.96

B) 21.85

C) 29.77

D) 35.64

C

Consider the following timeline detailing a stream of cash flows:

0 - ?

1 - $100

2 - $100

3 - $200

4 - $200

If the current market rate of interest is 10%, then the present value of this stream of cash flows is closest to:

A) $674

B) $600

C) $460

D) $287

C

If the appropriate interest rate is 8%, then present value of $500 paid at the end of each of the next 40 years is closest to:

A) $23

B) $5962

C) $6439

D) $20,0000

B

Henry Rearden is saving for retirement and has determined that to
live comfortably he must save $3 million by his 65th birthday. Henry
just turned 30 today, and he has decided that starting on his 31
birthday and continuing on every birthday up to and including his 65th
birthday, he will deposit the same amount into an individual
retirement account (IRA). If Henry can earn 8% on his IRA, then the
amount he must set aside each year to make sure that he will have $3
million in his account on his 65^{th} birthday is closest to:

A) $18,912

B) $17,410

C) $83,335

D) $85,715

B

Wyatt oil is considering drilling a new oil well at a cost of $1,000,000. This well will produce $100,000 worth of oil during the first year, but as oil is removed from the well the amount worth of oil produced will decline by 2% per year forever. If the Wyatt oil's appropriate discount rate is 8%, then the NPV of this oil well is closest to:

A) -$250,000

B) $0

C) $250,000

D) $1,000,000

B

You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% month). If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to:

A) $2585

B) $660

C) $2536

D) $1390

C

You are looking for a new truck and see the following advertisement. "Own a new truck! No money down. Just five easy annual payments of $8000." You know that you can get the same truck from the dealer across town for only $31,120. The interest rate for the deal advertised is closest to:

A) 9%

B) 8%

C) 8.5%

D) 10%

A

The effective annual rate (EAR) for a loan with a stated APR of 10% compounded quarterly is closest to:

A) 9.65%

B) 10.00%

C) 10.38%

D) 12.50%

C

Consider a zero coupon bond with 20 years to maturity. The amount that the price of the bond will change if its yield to maturity decreases from 7% to 5% is closest to:

A) $118

B) -$53

C) $53

D) $673

A

Which of the following statements is FALSE?

A) Investors pay less for bonds with credit risk than they would
for an otherwise identical

default-free bond.

B) The yield
to maturity of a defaultable bond is equal to the expected return of
investing in the bond.

C) The risk of default, which is known as
the credit risk of the bond, means that the bond's cash flows are not
known with certainty.

D) For corporate bonds, the issuer may
default—that is, it might not pay back the full amount

promised
in the bond certificate.

B

A key difference between sovereign and corporate bonds is:

A) unlike a corporation, a country facing difficulty meeting its
financial obligations cannot default.

B) unlike corporate debt,
sovereign debt prices are not inverse to yields.

C) unlike a
corporation, any country can turn to the EMU to pay off its
debts.

D) unlike a corporation, a country facing difficulty
meeting its financial obligations typically has the option to print
more currency.

D

The internal rate of return rule can result in the wrong decision if the projects being compared have:

A) differences in scale.

B) differences in timing.

C)
differences in NPV.

D) A and B are correct.

D

Assuming that your capital is constrained, which investment tool should you use to determine the correct investment decisions?

A) Profitability Index

B) Payback method

C) NPV

D) IRR

A

Nielson Motors has a share price of $25 today. If Nielson Motors is expected to pay a dividend of $0.75 this year, and its stock price is expected to grow to $26.75 at the end of the year, then Nielson's dividend yield and equity cost of capital are:

A) 3.0% and 7.0% respectively.

B) 3.0% and 10.0%
respectively.

C) 4.0% and 6.0% respectively.

D) 4.0% and
10.0% respectively.

B

The Sisyphean Company's common stock is currently trading for $25.00 per share. The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Sisyphean Company's earnings is closest to:

A) 8%

B) 6%

C) 4%

D) 2%

C

A firm's net investment is:

A) its capital expenditures in excess of depreciation.

B) its
free cash flow net of increases in working capital.

C) its
enterprise value in excess of debt owed.

D) the market value of
equity plus debt.

A

General Industries is expected to generate the following free cash flows over the next five years:

Year Free Cash Flow

1 $22 million

2 $26 million

3 $29
million

4 $30 million

5 $32 million

After the fifth year, the free cash flows are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 9% and General Industries has cash of $15 million, debt of $45 million, and 80 million shares outstanding, what is General Industries' expected current share price?

A) $7.78

B) $8.17

C) $9.34

D) $11.67

A

Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to:

A) $13.00

B) $31.86

C) $43.47

D) $44.35

D

Which of the following statements is FALSE?

A) The variance increases with the magnitude of the deviations from
the mean.

B) The variance is the expected squared deviation from
the mean.

C) Two common measures of the risk of a probability
distribution are its variance and standard deviation.

D) If the
return is riskless and never deviates from its mean, the variance is
equal to one.

D

Suppose an investment is equally likely to have a 35% return or a
-20% return. The standard

deviation of the return for this
investment is closest to:

A) 38.9%

B) 0%

C) 19.4%

D) 27.5%

D

The firm's unlevered (asset) beta is:

A) the weighted average of the equity beta and the debt
beta.

B) the weighted average of the levered beta and the equity
beta.

C) the debt beta minus the equity beta.

D) the
unlevered beta minus the cost of capital.

A

Your estimate of the asset beta for Taggart Transcontinental is closest to:

A) 0.42

B) 0.59

C) 0.66

D) 0.71

C

Suppose that because of the large need for steel in building railroad
infrastructure, Taggart

Transcontinental and Rearden Metal decide
to form into one large conglomerate. Your estimate of the asset beta
for this new conglomerate is closest to:

A) 0.42

B) 0.59

C) 0.66

D) 0.68

D