Midterm Part 1

1. Which of the following statements is CORRECT?
2. Which of the following statements is CORRECT?
3. You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?
4. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
5. Money markets are markets for
6. You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:
7. Which of the following statements is CORRECT?
8. Which of the following statements is CORRECT?
9. The LeMond Corporation just purchased a new production line. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
10. Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes
11. Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance?
12. Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year, even though the cash on its balance sheet increased?
13. Which of the following statements is CORRECT?
14. Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation?
15. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
16. For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT?
17. Which of the following statements is CORRECT?
18. A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio?
19. Considered alone, which of the following would increase a company's current ratio?
20. If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?
21. You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?
22. Which of the following would indicate an improvement in a company's financial position, holding other things constant?
23. A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?
24. Which of the following statements is CORRECT?
25. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)?

Midterm Part 2

1. Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
2. You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?
3. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?
4. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
5. Which of the following statements is CORRECT?
6. Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. If you invest $2,000 in the CD, how much will you have when it matures?
7. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT?
8. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?
9. Which of the following statements is CORRECT?
10. Which of the following statements is CORRECT?
11. Which of the following statements is NOT CORRECT?
12. Which of the following statements is CORRECT?
13. Which of the following statements is CORRECT?
14. If markets are in equilibrium, which of the following conditions will exist?
15. Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECT?
16. Which of the following statements is CORRECT?
17. Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks?
18. Which of the following statements is CORRECT?
19. Which of the following statements is CORRECT?
20. Which of the following statements is CORRECT?
21. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
22. Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?
23. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?
24. A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?
25. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?