1.

You are considering borrowing $10,000 for 3 years at an annual interest

rate of 6%. The loan agreement calls for 3 equal payments, to be paid at
the end of each of the next 3 years. (Payments include both principal and
interest.) The annual payment that will fully pay off (amortize) the loan is
closest to
a) $ 2674 b) $ 2890 c) $ 3741 d) $ 4020
2.

Virgo Airlines will pay a $4 dividend next year on its common stock, which
is currently selling at $100 per share. What is the market's required return
on this investment if the dividend is expected to grow at 5% forever?
a) 4% b)

3.

5%

c)

7%

d) 9%

Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite
Company common stock has a beta of 1.80. The expected return on the
market is 10 percent, and the risk-free rate is 6 percent. Making use of
the information above, the required return on Plaid Pants' common stock
should be
, and the required return on Acme's common stock should
be
.
a) 3.6 % , 7.2% b) 9.6% , 13.2% c) 9% , 18% d) 14%, 23 %

4. Determine a firm's total asset turnover (TAT) if its net profit margin (NPM)
is 5 percent, total assets are $8 million, and ROI is 8 percent.
a) 1.6 b) 2.05 c) 2.5 d) 4.0
5. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the
industry average of 1.4. This means that the company
a) Will not experience any difficulty with its creditors.
b) Has less liquidity than other firms in the industry.
c) Will be viewed as having high creditworthiness.

d) Has greater than average financial risk when compared to other firms in its
industry.
6. Suppose that the market price of Company X is $45 per share and that of
Company Y is $30. If X offers three-fourths a share of common stock for
each share of Y, the ratio of exchange of market prices would be:
a) .667 b) 1 c) 1.125 d) 1.5
7. You are considering two mutually exclusive investment proposals, project
A and project B. B's expected value of net present value is $1,000 less
than that for A and A has less dispersion. On the basis of risk and return,
you would say that
a) Project A dominates project B.
b) Project B dominates project A.
c) Project A is more risky and should offer greater expected value.
d) Each project is high on one variable, so the two are basically equal.
8. This statistic can be used as a quantitative measure of relative "financial
risk."

a)
b)
c)
d)

coefficient of variation of earnings per share (CVEPS)

coefficient of variation of operating income (CVEBIT)
(CVEPS - CVEBIT)
(CVEPS + CVEBIT)