Objective type problems on cost of capital and capital structure

1. Assume Sprocket Inc. is currently operating at less than full capacity. Which of the following would be LEAST likely to vary directly with sales?

1. Notes payable
2. Accounts receivable
3. Accounts payable
4. Inventory
5. Cash

2.  Sales growth _________________.

1. will typically lead to growth in current assets
2. will automatically lead to increases in long-term debt
3. is the least important item to forecast in the financial planning process
4. will require additions to net fixed assets for firms operating at less than full capacity
5. of less than 10% will make EFN negative, creating a surplus

3. The purchase and sale of securities after the original issuance occurs in the:

1. Primary market.
2. Secondary market.
3. Dealer market.
4. Auction market.
5. Liquidation market.

4.  You work for a furniture store. You normally sell a living room set for $2,500 and finance thefull purchase price for 30 monthly payments at 24% APR. You are planning to run a zero-interest financing sale during which you will finance the set over 30 months at 0% interest. How much do you need to raise the price of the bedroom set during the sale in order to earn your usual combined return on the sale and the financing?

1. $0
2. $856
3. $892
4. $937
5. $1,284

5. A firm has 1.6 million shares outstanding at a book value of $4.31 a share. The earnings per share are $0.32 and the price-earnings ratio is 24. What is the market-to-book ratio?

1. 1.64
2. 1.78
3. 1.83
4. 1.88
5. 1.92

6. As long as the interest rate is greater than zero, the present value of a single sum will always:

1. Increase as the interest rate increases.
2. Be less than the future value.
3. Decrease as the period of time decreases.
4. Equal the future value if the time period is one year.
5. Increase as the number of periods increases.

7.  You opened a savings account with $1,000 three years ago. Today, the account balance is $1,157.63. If the account earns a fixed annual interest rate, how long will it take until the account has earned a total of $225 in simple interest?

1. Less than one more year.
2. Between one and two more years.
3. Between two and three more years.
4. Between three and four more years.
5. Between four and five more years.

8. Which one of the following will withdraw the largest amount of money from their account assuming that they each withdraw their funds at the end of their initial investment period?

1. Connie, who invests $1,000 for eight years at 6% simple interest.
2. Jesse, who invests $1,000 for four years at 9% with interest compounded annually.
3. Aaron, who invests $800 for ten years at 11% with interest compounded annually.
4. Deborah, who invests $1,200 for six years at 8% simple interest.
5. Kevin, who invests $900 for nine years at 9% with interest compounded annually.

9. The steeper the slope of the security market line, the

1. Higher the risk-free rate of return.
2. Lower the risk-free rate of return.
3. Higher the market beta.
4. Higher the risk premium
5. Lower the risk premium.

10. Theoretically, a risk-free portfolio could be created by combining risky securities in a manner that caused the:

1. Portfolio standard deviation to equal one.
2. Expected return of the portfolio to equal the market expected return.
3. Portfolio beta to equal zero.
4. Risk premium to equal one.
5. Non diversifiable risk to be eliminated.