Nabors, Inc.
2005 Income Statement
($ in millions)
Net sales $9,610
Less: Cost of goods sold 6,310
Less: Depreciation （1）
Earnings before interest and taxes 1,930
Less: Interest paid 630
Taxable Income $1,300
Less: Taxes 455
Net income （2）
Nabors, Inc.
2004 and 2005 Balance Sheets
($ in millions)
2004 2005 2004 2005
Cash $ 310 $ 405 Accounts payable $ 2,720 $ 2,570
Accounts rec. 2,0 3,055 Notes payable 100 0
Inventory 3,275 3,850 Total $2,820 $ 2,570
Total （3） $ 7,310 Long-term debt 7,875 8,100
Net fixed assets （4） 10,670 Common stock 5,000 5,250
Retained earnings （5） 2,060
Total assets $17,185 $17,980 Total liab.& equity $17,185 $17,980
1． a. 1380 b. 1370 c. 1440 d.1510 e. 1360
2． a. $845 b. $945 c. $ 860 d.$ 885 e. $910
3． a. $ 6500 b. $ 6225 c. $6355 d.$ 6150 e. $10
4． a. 10930 b. 10955 c. 10805 d.10960 e.11500
5． a. 1510 b. 1485 c.1490 d.1560 e.1495
The following balance sheet and income statement should be used for questions #6 through #15:
Windswept, Inc.
2005 Income Statement
($ in millions)
Net sales $8,450
Less: Cost of goods sold 7,240
Less: Depreciation 400
Earnings before interest and taxes 810
Less: Interest paid 70
Taxable Income $ 740
Less: Taxes 259
Net income $ 481
Windswept, Inc.
2004 and 2005 Balance Sheets
($ in millions)
2004 2005 2004 2005
Cash $ 120 $ 140 Accounts payable $1,110 $1,120
Accounts rec. 930 780 Long-term debt 840 1,210
Inventory 1,480 1,520 Common stock 3,200 3,000
Total $2,530 $2,440 Retained earnings 530 710
Net fixed assets 3,150 3,600
Total assets $5,680 $6,040 Total liabilities & equity $5,680 $6,040
6. What is the quick ratio for 2005?
a. .82
b. .95
c. 1.36
d. 2.18
e. 2.28
7. What is the days’ sales in receivables? (use 2005 values)
a. 31.8 days
b. 33.7 days
c. 38.4 days
d. 41.9 days
e. 47.4 days
8. What is the fixed asset turnover? (use 2005 values)
a. 1.4
b. 1.7
c. 2.1
d. 2.3
e. 2.6
9. What is the equity multiplier for 2005?
a. 1.6
b. 1.8
c. 2.0
d. 2.3
e. 2.5
10. What is the cash coverage ratio for 2005?
a. 11.6
b. 12.8
c. 13.7
d. 17.3
e. 18.8
11. What is the return on equity for 2005?
a. 5.7 percent
b. 6.8 percent
c. 13.0 percent
d. 15.3 percent
e. 16.0 percent
12. Windswept, Inc. has 90 million shares of stock outstanding. Their price-earnings ratio for 2005 is 12. What is the market price per share of stock?
a. $57.12
b. $59.94
c. $62.82
d. $.13
e. $65.03
13. What amount should be included in the financing section of the 2005 statement of cash flows for dividends paid?
a. $180 million
b. $301 million
c. $481 million
d. $530 million
e. $710 million
14. What is the amount of the net cash from investment activity for 2005?
a. -$50 million
b. $250 million
c. $450 million
d. $700 million
e. $850 million
15. What is the net change in cash during 2005?
a. -$40 million
b. -$20 million
c. $0
d. $20 million
e. $40 million
16. A business owned by a single individual is called a:
a. corporation.
b. sole proprietorship.
c. general partnership.
d. limited partnership.
e. limited liability company.
17. The primary goal of financial management is to:
a. maximize current dividends per share of the existing stock.
b. maximize the current value per share of the existing stock.
c. avoid financial distress.
d. minimize operational costs and maximize firm efficiency.
e. maintain steady growth in both sales and net earnings.
18. A current asset is:
a. an item currently owned by the firm.
b. an item that the firm expects to own within the next year.
c. an item currently owned by the firm that will convert to cash within the next 12 months.
d. the amount of cash on hand the firm currently shows on its balance sheet.
e. the market value of all items currently owned by the firm.
19. The proportions of the market value of the firm’s assets financed via debt, common stock, and preferred stock are called the firm’s:
a. financing costs. b. portfolio weights. c. beta coefficients. d. capital structure weights. e. costs of capital
20. The change in revenue that occurs when one more unit of output is sold is called the _____ revenue.
a. marginal
b. average
c. total
d. fixed
e. variable
21. Standard deviation measures _____ risk.
a. total
b. nondiversifiable
c. unsystematic
d. systematic
e. economic
22. Interest earned on both the initial principal and the interest reinvested from prior periods is called _____ interest.
a. free
b. annual
c. simple
d. interest on
e. compound
23. The current ratio is measured as:
a. current assets minus current liabilities.
b. current assets divided by current liabilities.
c. current liabilities minus inventory, divided by current assets.
d. cash on hand divided by current liabilities.
e. current liabilities divided by current assets.
24. Risk that affects at most a small number of assets is called _____ risk.
a. portfolio
b. undiversifiable
c. market
d. unsystematic
e. total
25. Estimates using the arithmetic average will probably tend to _____ values over the long-term while estimates using the geometric average will probably tend to _____ values over the short-term.
a. overestimate; underestimate b. underestimate; overestimate c. overestimate; overestimate d. underestimate; underestimate
26. A firm has net working capital of $350. Long-term debt is $600, total assets are $950 and fixed assets are $400. What is the amount of the total liabilities?
a. $200
b. $400
c. $600
d. $800
e. $1,200
27. Martha’s Enterprises spent $2,400 to purchase equipment three years ago. This equipment is currently valued at $1,800 on today’s balance sheet but could actually be sold for $2,000. Net working capital is $200 and long-term debt is $800. What is the book value of shareholders’ equity?
a.$200
b.$800
c.$1,200
d.$1,400
e. The answer cannot be determined from the information provided.
28. Sing Lee’s has accounts payable of $300, inventory of $250, cash of $50, fixed assets
of $500, accounts receivable of $200, and long-term debt of $400. What is the value of
the net working capital to total assets ratio?
a. 0.20
b. 0.33
c. 0.40
d. 0.50
e. 0.67
29. Mario’s Home Systems has sales of $2,800, costs of goods sold of $2,100, inventory of
$500, and accounts receivable of $400. How many days, on average, does it take
Mario’s to sell their inventory?
a. 65.2 days
b. 85.2 days
c. 86.9 days
d. 96.9 days
e. 117.3 days
30. Roy and Flo’s Flowers has $1,300 of sales and $1,755 of total assets. The firm is
operating at 80 percent of capacity. What is the capital intensity ratio at full capacity?
a. $.59
b. $.93
c. $1.08
d. $1.43
e. $1.69
31. _____ refers to the cash flow that results from the firm’s ongoing, normal business activities.
a. Operating cash flow
b. Capital spending
c. Net working capital
d. Cash flow from assets
e. Cash flow to creditors
32. Financial planning:
a. encourages managers to separate their goals from their plans.
b. is generally based solely on the best-case scenario.
c. generally has been found ineffective.
d. helps managers establish priorities.
e. prevents firms from encountering surprise events.
33. The fixed asset turnover ratio is measured as:
a. sales minus net fixed assets.
b. sales times net fixed assets.
c. sales divided by net fixed assets.
d. net fixed assets divided by sales.
e. net fixed assets plus sales.
34. Sunk costs include any cost that:
a. will change if a project is undertaken.
b. will be incurred if a project is accepted.
c. has previously been incurred and cannot be changed.
d. is paid to a third party and cannot be refunded for any reason whatsoever.
e. will occur if a project is accepted and once incurred, cannot be recouped.
35. All of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital?
I. an inventory decrease of $5,000
II. an increase in accounts receivable of $1,500
III. an increase in fixed assets of $7,600
IV. a decrease in accounts payable of $2,100
a. I and II only
b. I and III only
c. II and IV only
d. I, II, and IV only
e. I, II, III, and IV
36. Which of the following are included in current assets?
I. equipment
II. inventory
III. accounts payable
IV. cash
a. II and IV only
b. I and III only
c. I, II, and IV only
d. III and IV only
e. II, III, and IV only
37. An increase in which one of the following will cause the cash flow from assets to increase?
a. depreciation
b.change in net working capital
c.net working capital
d.taxes
e.costs
38. All else constant, the net present value of a project increases when:
a. the discount rate increases.
b. each cash inflow is delayed by one year.
c. the initial cost of a project increases.
d. the rate of return decreases.
e. all cash inflows occur during the last year of a project’s life instead of
periodically throughout the life of the project.
39. The process of finding the present value of some future amount is often called:
a. growth.
b. discounting.
c. accumulation.
d. compounding.
e. reduction.
40. The return that shareholders require on their investment in the firm is called the:
a. dividend yield.
b. cost of equity.
c. capital gains yield.
d. cost of capital.
e. income return.
41. What is the future value of $2,6 invested for twelve years at 6.5 percent compounded annually?
a. $5,827.32
b. $6,023.44
c. $6,049.45
d. $6,165.86
e. $6,218.03
42. You would like to give your daughter $40,000 towards her college education thirteen years from now. How much money must you set aside today for this purpose if you can earn 6.3 percent on your funds?
a. $17,750.00
b. $17,9.28
c. $18,077.05
d. $18,213.69
e. $18,395.00
43. One year ago, you invested $3,000. Today it is worth $3,142.50. What rate of interest did you earn?
a. 4.63 percent
b. 4.68 percent
c. 4.70 percent
d. 4.73 percent
e. 4.75 percent
44. Bob bought some land costing $14,990. Today that same land is valued at $55,000. How long has Bob owned this land if the price of land has been increasing at 6 percent per year?
a. 21.82 years
b. 21.98 years
c. 22.03 years
d. 22.31 years
e. 22.44 years
45. On your tenth birthday, you received $100 which you invested at 4.5 percent interest, compounded annually. That investment is now worth $3,000. How old are you today?
a. age 77
b. age 82
c. age 84
d. age 86
e. age 87
46. The annual coupon of a bond divided by its face value is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
47. The stated interest payment, in dollars, made on a bond each period is called the bond’s:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
48. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a _____ bond.
a. par
b. discount
c. premium
d. zero coupon
e. floating rate
49. The unsecured debts of a firm with maturities less than 10 years are most literally called:
a. unfunded liabilities.
b. sinking funds.
c. bonds.
d. notes.
e. debentures.
50. You will be receiving $5,000 from your family as a graduation present. You have
decided to save this money for your retirement. You plan to retire thirty-five years
after graduating. How much additional money will you have at that time if you can
earn an average of 8.5 percent on your investment instead of just 8 percent?
a. $12,971.49
b. $13,008.47
c. $13,123.93
d. $13,234.44
e. $13,309.85
51. You collect model cars. One particular model increases in value at a rate of 5 percent per year. Today, the model is worth $29.50. How much additional money can you make if you wait ten years to sell the model rather than selling it five years from now?
a. $9.98
b. $10.40
c. $10.86
d. $11.03
e. $11.24
52. You deposit $3,000 in a retirement account today at 5.5 percent interest. How much more money will you have if you leave the money invested for forty-five years rather than forty years?
a. $7,714.91
b. $7,799.08
c. $7,839.73
d. $7,846.52
e. $7,858.19
53. Antonette needs $20,000 as a down payment for a house five years from now. She earns 4 percent on her savings. Antonette can either deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must Antonette deposit if she waits for one year rather than making the deposit today?
a. $639.19
b. $657.54
c. $658.23
d. $659.04
e. $800.00
54. Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for
eight years from now. How much additional money will they have eight years from
now if they can earn 9 percent rather than 7 percent on this money?
a. $58,829.69
b. $86,991.91
c. $118,009.42
d. $126,745.19
e. $137,188.23
55. Rosie’s currently has $1,200 in sales and is operating at 72 percent of the firm’s capacity. What is the full capacity level of sales?
a. $8.00
b. $1,333.33
c. $1,428.00
d. $1,666.67
e. $1,728.00
56. Thomas invests $100 in an account that pays 5 percent simple interest. How much money will Thomas have at the end of five years?
a. $120.00
b. $123.68
c. $124.92
d. $125.00
57. Beatrice invests $1,000 in an account that pays 4 percent simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?
a. $15.45
b. $15.97
c. $16.65
d. $17.09
e. $21.67
58. Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5 percent?
a. $47,035.35
b. $47,522.
c. $47,747.44
d. $48,091.91
e. $48,201.60
59. A bond with a 7 percent coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.
a. $1,007; $70
b. $1,070; $35
c. $1,070; $70
d. $1,000; $35
e. $1,000; $70
60. Which one of the following bonds has the greatest interest rate risk?
a. 5-year; 9 percent coupon
b. 5-year; 7 percent coupon
c. 7-year; 7 percent coupon
d. 9-year; 9 percent coupon
e. 9-year; 7 percent coupon
61. Interest earned on the reinvestment of previous interest payments is called _____ interest. a. free
b. annual
c. simple
d. interest on
e. compound
62. Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds.
III. current assets and liabilities.
IV. net working capital.
a. I and II only
b. II and III only
c. III and IV only
d. I, II, and IV only
e. I, III, and IV only
63. _____ refers to the net total cash flow of the firm available for distribution to its
creditors and stockholders.
a. Operating cash flow
b. Capital spending
c. Net working capital
d. Cash flow from assets
e. Cash flow to creditors
. An increase in which one of the following accounts increases a firm’s current ratio without affecting its quick ratio?
a. accounts payable
b. cash
c. inventory
d. accounts receivable
e. fixed assets
65. Activities of the firm that generate cash are known as:
a. sources of cash.
b. uses of cash.
c. cash payments.
d. cash receipts.
e. cash on hand.
66. Your parents are giving you $100 a month for four years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college?
a. $3,797.40
b. $4,167.09
c. $4,198.79
d. $4,258.03
e. $4,279.32
67. Todd is able to pay $160 a month for five years for a car. If the interest rate is 4.9 percent how much can Todd afford to borrow to buy a car?
a. $6,961.36
b. $8,499.13
c. $8,533.84
d. $8,686.82
e. $9,588.05
68. You recently purchased a stock that is expected to earn 12 percent in a booming economy, 8 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock?
a. 5.00 percent
b. 6.45 percent
c. 7.30 percent
d. 7.65 percent
e. 8.30 percent
69. You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investment?
a. $60
b. $320
c. $360
d. $420
e. $540
70. You own one convertible bond with a face value of $1,000. The bond can be converted
into 15.625 shares of Zolo stock. This bond is currently selling for $1,128. What is the
conversion price?
a. $63.33
b. $.00
c. $72.00
d. $72.19
e. $86.49
71. Next year’s annual dividend divided by the current stock price is called the:
a. yield to maturity.
b. total yield.
c. dividend yield.
d. capital gains yield.
e. earnings yield.
72. A form of equity which receives preferential treatment in the payment of dividends is called _____ stock.
a. dual class
b. cumulative
c. deferred
d. preferred
e. common
73. In the event of default, _____ debt holders must give preference to more _____ debt holders in the priority of repayment distributions.
a. short-term; long-term
b. long-term; short-term
c. senior; junior
d. senior; subordinated
e. subordinated; senior
74. A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.
a. dual class
b. cumulative
c. deferred
d. preferred
e. common
75. The difference between the present value of an investment and its cost is the:
a. net present value.
b. internal rate of return.
c. payback period.
d. profitability index.
e. discounted payback period.
76. You purchased four WXO 30 call option contracts at a quoted price of $.34. What is
your net gain or loss on this investment if the price of WXO is $33.60 on the option
expiration date?
a. -$1,576
b. -$136
c. $1,304
d. $1,440
e. $1,576
77 . The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a one-month call option contract on ABC stock with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option on ABC stock with a strike price of $25 and an option price of $.50. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire?
a. -$180
b. -$140
c. -$100
d. $0
e. $180
78. What is the cost of five November 25 call option contracts on KNF stock given the
following price quotes?
KNJ (KNJ) Underlying stock price: 30.86
Call Put
Expiration Strike Last Last
Aug 25 6.15 .05
Nov 25 6.60 .10
Aug 35 .10 4.60
Nov 35 .70 5.10
a. $615
b. $660
c. $2,500
d. $3,075
e. $3,300
79. What is the expected return on this portfolio?
Expected Number Stock
Stock Return of Shares Price
A 8% 520 $25
B 15% 300 $48
C 6% 250 $26
a. 9.50 percent
b. 9.67 percent
c. 9.78 percent
d. 10.59 percent
e. 10.87 percent
80. What is the standard deviation of a portfolio that is invested 40 percent in stock Q and 60 percent in stock R?
State of Probability of Returns if State Occurs
Economy State of Economy Stock Q Stock R
Boom 25% 18% 9%
Normal 75% 9% 5%
a. 0.7 percent
b. 1.4 percent
c. 2.6 percent
d. 6.8 percent
e. 8.1 percent
81. Risk that affects a large number of assets, each to a greater or lesser degree, is called _____ risk.
a. idiosyncratic
b. diversifiable
c. systematic
d. asset-specific
e. total
82. An option based on an underlying asset such as a building or land is called a _____
option.
a. financial
b. liquid
c. fixed
d. real
e. tangible
83. The cash flow from projects for a company is computed as the:
a. net operating cash flow generated by the project, less any sunk costs and erosion costs.
b. sum of the incremental operating cash flow and after-tax salvage value of the project.
c. net income generated by the project, plus the annual depreciation expense.
d. sum of the incremental operating cash flow, capital spending, and net working capital expenses incurred by the project.
e. sum of the sunk costs, opportunity costs, and erosion costs of the project.
84. Net working capital:
a. can be ignored in project analysis because any expenditure is normally recouped by the end of the project.
b. requirements generally, but not always, create a cash inflow at the beginning of a
project.
c. expenditures commonly occur at the end of a project.
d. is frequently affected by the additional sales generated by a new project.
e. is the only expenditure where at least a partial recovery can be made at the end of a project.
85. The capital gains yield plus the dividend yield on a security is called the:
a. variance of returns.
b. geometric return.
c. average period return.
d. summation of returns.
e. total return.
86. Puffy’s Pastries generates five cents of net income for every $1 in sales. Thus, Puffy’s has a _____ of 5 percent.
a. Du Pont measure b. return on assets c. return on equity d. total asset turnover e.profit margin
87. The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.
a. net present value profiling
b. operational ambiguity
c. mutually exclusive investment decision
d. issues of scale
e. multiple rates of return
88. You own a call option on Jasper Co. stock that expires in one year. The exercise price is $42.50. The current price of the stock is $56.00 and the risk-free rate of return is 3.5 percent. Assume that the option will finish in the money. What is the current value of the call option?
a. $13.04
b. $13.50
c. $13.97
d. $14.94
e. $15.46
. The common stock of Mercury Motors is selling for $43.90 a share. U.S. Treasury bills are currently yielding 4.5 percent. What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?
a. $6.12
b. $6.40
c. $6.69
d. $7.67
e. $8.01
90. A firm has a plowback ratio of 80 percent and a sustainable growth rate of 7.759 percent. The capital intensity ratio is 1.2 and the debt-equity ratio is .5. What is the profit margin?
a. 6.6 percent
b. 6.8 percent
c. 6.9 percent
d. 7.2 percent
e. 7.4 percent
91. The division of profits and losses among the members of a partnership is formalized in the:
a. indemnity clause.
b. indenture contract.
c. statement of purpose.
d. partnership agreement.
e. group charter.
92. A current asset is:
a. an item currently owned by the firm.
b. an item that the firm expects to own within the next year.
c. an item currently owned by the firm that will convert to cash within the next 12 months.
d. the amount of cash on hand the firm currently shows on its balance sheet.
e. the market value of all items currently owned by the firm.
93. The capital intensity ratio is calculated as:
a. long-term debt multiplied by total assets.
b. net fixed assets divided by net income.
c. net fixed assets multiplied by total sales.
d. total assets divided by total sales.
e. total sales divided by total assets.
94 . Which of the following are basic elements of financial planning for a corporation?
I. dividend policy
II. net working capital decision
III. capital budgeting decision
IV. capital structure policy
a. I and IV only
b. II and III only
c. I, III, and IV only
d. II, III,and IV only
e. I, II, III, and IV
95. As the discount rate increases, the present value of $500 to be received six years from now:
a. remains constant.
b. also increases.
c. decreases.
d. becomes negative.
e. will vary but the direction of the change is unknown.
96. The form of bond issue in which the registrar of the company records ownership of each bond, with relevant payments made directly to the owner of record, is called the _____ form.
a. new-issue
b. registered
c. bearer
d. debenture
e. collateral
97. Relationships determined from a firm’s financial information and used for comparison purposes are known as:
a. financial ratios.
b. comparison statements.
c. dimensional analysis.
d. scenario analysis.
e. solvency analysis.
98. An account managed by the bond trustee for early bond redemption payments is called a:
a. sinking fund.
b. collateral payment account.
c. deed in trust account.
d. call provision.
e. par value fund.
99. The weighted average of the firm’s costs of equity, preferred stock, and aftertax debt is the:
a. reward to risk ratio for the firm.
b. expected capital gains yield for the stock.
c. expected capital gains yield for the firm.
d. portfolio beta for the firm.
e. weighted average cost of capital (WACC).
100. The percentage of a portfolio’s total value invested in a particular asset is called that asset’s:
a. portfolio return.
b. portfolio weight.
c. portfolio risk.
d. rate of return.
e. investment value.
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