Polaski Company manufactures and sells a single product called a Ret (A+)

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 43,000 Rets per year. Costs associated with this level of production and sales are given below:

Unit Total

Direct materials $14 $602,000

Direct labor 7 301,000

Variable manufacturing overhead 1 43,000

Fixed manufacturing overhead 8 344,000

Variable selling expense 1 43,000

Fixed selling expense 3 129,000

Total cost $34 $1,462,000

The Rets normally sell for $66 each. Fixed manufacturing overhead is constant at $344,000 per year within the range of 16,000 through 43,000 Rets per year.

Requirement 1:

Assume that due to a recession, Polaski Company expects to sell only 16,000 Rets through regular channels next year. A large retail chain has offered to purchase 4,100 Rets if Polaski is willing to accept a 14% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 71%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 4,100 units. This machine would cost $4,100. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Calculate the net increase/decrease in profits next year if this special order is accepted.

Requirement 2:

Assume again that Polaski Company expects to sell only 16,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 4,100 Rets. The Army would pay a fixed fee of $1.76 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?

Requirement 3:

Assume the same situation as that described in Requirement (2) above, except that the company expects to sell 43,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 4,100 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what they would be if the 4,100 Rets were sold through regular channels?

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Diversity in the U.S. population plays an increasing role in targeting markets (A+)

Diversity in the U.S. population plays an increasing role in targeting markets.

1. True

2. False

12. Time-based competition is based on a strategy of developing and distributing goods and services more slowly and cautiously than competitors.

1. True

2. False

13. Demarketing is a reaction to a surplus of production materials that results in product supply exceeding demand.

1. True

2. False

14. The U.S. military has historically been a source of product innovation where technology is adapted for the consumer markets.

1. True

2. False

15. Marketing strategies that work for a particular cultural group in the United States will always work when applied to the same cultural group abroad.

1. True

2. False

16. According to recent studies, about 70 percent of US population has Internet access from home, school, or work.

1. True

2. False

17. E-business is comprised of five categories of data interactions: business data exchange, customer shopping, business transactions, market and product research, and multimedia communications.

1. True

2. False

18. North Carolina established a Web site where governmental departments can purchase goods and services through participating suppliers. With the efficiency of online ordering, the departments are experiencing significant savings. The term for this type of virtual marketplace is e-procurement.

1. True

2. False

19. Business to customer marketing, called B2C, is also known as e-marketing.

1. True

2. False

20. In planning a successful Web site, an organization must first determine what it wishes to accomplish, followed by a plan outlining the scope of the project, and the resources needed behind the scenes to allow the site to deliver on its promises.

1. True

2. False

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The existence of the WTO, the passage of NAFTA, (A+)

The existence of the WTO, the passage of NAFTA, and the creation of the Euro are examples of protectionism on the part of nations concerned with increased globalization of the marketplace.

1. True

2. False

2. A focus on maintaining and satisfying existing customers is consistent with the relationship era.

1. True

2. False

3. Interactive multimedia technologies have revolutionized the way people store, distribute, retrieve, and present information.

1. True

2. False

4. Compared with traditional media, the hypermedia resources of the Web suffer from a number of disadvantages, particularly with regard to speed of access and facility of navigation.

1. True

2. False

5. Mobile marketing is a term used to describe marketing messages sent via wireless technology.

1. True

2. False

6. According to relationship marketing, companies view their suppliers as adversaries against whom they must fiercely negotiate prices, playing one off against the other so that they can offer their customers the best and cheapest.

1. True

2. False

7. When Starbucks makes a latte for a customer, it is performing a distribution function.

1. True

2. False

8. Strategies are static and, once implemented, should not be changed if the actual performance does not meet the desired results.

1. True

2. False

9. An important strategic planning tool, SWOT analysis helps planners compare internal organizational strengths and weaknesses with external opportunities and threats.

1. True

2. False

10. A customer-driven organization begins its marketing strategy with a detailed description of its target market.

1. True

2. False

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Assets, liabilities, and equity accounts are not closed; these accounts are called (A+)

Assets, liabilities, and equity accounts are not closed; these accounts are called:

a) Nominal accounts

b) Temporary accounts

c) Permanent accounts

d) Contra accounts

e) Accrued accounts

22. The closing process is necessary in order to:

a) calculate net income or net loss for an accounting period

b) ensure that all permanent accounts are closed to zero at the end of each accounting period

c) ensure that the company complies with state laws

d) ensure that net income or net loss and owner withdrawals for the period are closed into the owner’s capital account

e) ensure that management is aware of how well the company is operating

23. The assets section of a classified balance sheet usually includes:

a) Current assets, long-term investments, plant assets, and intangible assets

b) Current assets, long-term assets, revenues, and intangible assets

c) Current assets, long-term investments, plant assets, and equity

d) Current liabilities, long-term investments, plant assets, and intangible assets

e) Current assets, liabilities, plant assets, and intangible assets

24. Two common subgroups for liabilities on a classified balance sheet are:

a) current liabilities and intangible liabilities

b) present liabilities and operating liabilities

c) general liabilities and specific liabilities

d) intangible liabilities and long-term liabilities

e) current liabilities and long-term liabilities

25. The current ratio:

a) Is used to measure a company’s profitability

b) Is used to measure the relation between assets and long-term debt

c) Measures the effect of operating income on profit

d) Is used to help evaluate a company’s ability to pay its debts in the near future

e) Is calculated by dividing current assets by equity

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Profit margin is defined as (A+)

Profit margin is defined as:

a) Revenues divided by net sales

b) Net sales divided by assets

c) Net income divided by net sales

d) Net income divided by assets

e) Net sales divided by net income

12. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n):

a) Accrued expense

b) Contra account

c) Accrued revenue

d) Intangible asset

e) Adjunct account

13. The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been owned:

a) Is referred to as depreciation expense

b) Is referred to as accumulated depreciation

c) Is shown on the income statement of the final period

d) Is only recorded when the asset is disposed of

e) Is referred to as an accrued asset

14. Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

a) Debit Office Supplies $105 and credit Office Supplies Expense $105

b) Debit Office Supplies Expense $105 and credit Office Supplies $105

c) Debit Office Supplies Expense $254 and credit Office Supplies $254

d) Debit Office Supplies $254 and credit Office Supplies Expense $254

e) Debit Office Supplies $105 and credit Supplies Expense $254

15. If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

a) Debit Cash and credit Legal Fees Earned

b) Debit Cash and credit Unearned Legal Fees

c) Debit Unearned Legal Fees and credit Legal Fees Earned

d) Debit Legal Fees Earned and credit Unearned Legal Fees

e) Debit Unearned Legal Fees and credit Accounts Receivable

16. On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31?

a) $1,350.00

b) $450.00

c) $1,012.50

d) $337.50

e) $37.50

17. Unearned revenue is reported in the financial statements as:

a) A revenue on the balance sheet

b) A liability on the balance sheet

c) An unearned revenue on the income statement

d) An asset on the balance sheet

e) An operating activity on the statement of cash flows

18. Which of the following assets is not depreciated?

a) Store fixtures

b) Computers

c) Land

d) Buildings

e) All of these are depreciated

19. Which of the following does not require an adjusting entry at year-end?

a) Accrued interest on notes payable

b) Supplies used during the period

c) Cash invested by owner

d) Accrued wages

e) Expired portion of prepaid insurance

20. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are:

a) Real accounts

b) Temporary accounts

c) Closing accounts

d) Permanent accounts

e) Balance sheet accounts

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The accounting principle that requires revenue to be recorded when earned is the (A+)

The accounting principle that requires revenue to be recorded when earned is the:

a) Matching principle.

b) Revenue recognition principle

c) Time period assumption

d) Accrual reporting principle

e) Going-concern assumption

2. Adjusting entries:

a) Affect only income statement accounts

b) Affect only balance sheet accounts

c) Affect both income statement and balance sheet accounts

d) Affect only cash flow statement accounts

e) Affect only equity accounts

3. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

a) Recognition principle

b) Cost principle

c) Cash basis of accounting

d) Matching principle

e) Time period principle

4. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

a) Cash basis accounting

b) The matching principle

c) The time period assumption

d) Accrual basis accounting

e) Revenue basis accounting

5. Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

a) Items that require contra accounts

b) Items that require adjusting entries

c) Asset and equity

d) Asset accounts

e) Income statement accounts

6. The accrual basis of accounting:

a) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions

b) Is flawed because it gives complete information about cash flows

c) Recognizes revenues when received in cash

d) Recognizes expenses when paid in cash

e) Eliminates the need for adjusting entries at the end of each period

7. Which of the following statements is incorrect?

a) Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities

b) Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded

c) Adjusting entries can be used to record both accrued expenses and accrued revenues

d) Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time

e) Adjusting entries affect the cash account

8. An adjusting entry could be made for each of the following except:

a) Prepaid expenses

b) Depreciation

c) Owner withdrawals

d) Unearned revenues

e) Accrued revenues

9. A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

a) Understate net income by $28,000

b) Overstate net income by $28,000

c) Have no effect on net income

d) Overstate assets by $28,000

e) Understate assets by $28,000

10. If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

a) Assets overstated and equity understated

b) Assets and equity both understated

c) Assets overstated, net income understated, and equity overstated

d) Assets, net income, and equity understated

e) Assets, net income, and equity overstated

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Sala Corporation uses the weighted-average method in its process costing system (A+)

Sala Corporation uses the weighted-average method in its process costing system. The Fitting Department is the second department in its production process. The data below summarize the department’s operations in March.

Units

Percent Complete with Respect to Conversion

Beginning work in process inventory

10,800

15%

Transferred in from the prior department during March

45,400

Ending work in process inventory

4,100

90%

The Fitting Department’s cost per equivalent unit for conversion cost for March was $3.04.

How much conversion cost was assigned to the units transferred out of the Fitting Department during March?

a) $170,848

b) $158,384

c) $169,601.6

d) $138,016

13.

Unizat Corporation uses the weighted-average method in its process costing system. The following information pertains to one of the company’s processing departments for a recent month:

Number of units Materials Cost

Beginning work in process 49,000 $50,500

Started during the month 85,500 $93,000

Units completed 89,500

Ending work in process 45,000

All materials are added at the beginning of the process. The cost per equivalent unit for materials is closest to:

a) $1.07

b) $1.60

c) $1.68

d) $1.09

14.

Jupiter Inc. has provided the following data for the month of August. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

Work In Process

Finished Goods

Cost of Goods Sold

Total

Direct materials

$1,830

$10,100

$26,240

$38,170

Direct labor

2,350

16,150

41,980

60,480

Manufacturing overhead applied

2,100

9,100

23,800

35,000

Total

$6,280

$35,350

$92,020

$133,650

Manufacturing overhead for the month was underapplied by $2,300.

The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.

The journal entry to record the allocation of any underapplied or overapplied overhead for August would include the following:

a) credit to Cost of Goods Sold of $92,020

b) credit to Cost of Goods Sold of $1,564

c) debit to Cost of Goods Sold of $92,020

d) debit to Cost of Goods Sold of $1,564

15.

Maverick Company had the following transactions last year:

1. Raw material purchased on account totaled $165,800.

2. Raw material issued from storeroom,$138,700 (88% direct materials, 12% indirect materials).

3. Factory utility costs incurred,$34,900.

4. Employee salaries and wages incurred, $198,500 (79% direct labor, 7% indirect labor ans 14% selling, general, and administrative).

5. Depreciation on factory equipment, $28,500.

6. Depreciation on autos used by the sales staff, $14,900.

7. Overhead was applied to production at a rate of 44% of direct labor cost.

8. Goods costing $295,000 were transferred from work in process to finished goods

The total cost added to Work in Process during the year was (rounded to the nearest whole dollar):

a) $406,199

b) $337,200

c) $347,870

d) $156,815

16.

On July 1, Woolard Corporation had $21,500 of raw materials on hand. During the month, the company purchased an additional $53,800 of raw materials. During July, $48,100 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $6,500.

Prepare journal entries to record these events. Use those journal entries to answer the following question:

The credits to the Work in Process account as a consequence of the raw materials transactions in July total:

a) $53,800

b) $0

c) $41,600

d) $48,100

17.

The following data pertain to Harriman Company’s operations during July:

July 1 July 31

Raw materials inventory $0 $4,200

Work in process inventory ? $2,400

Finished goods inventory $12,700 ?

Other data:

Cost of goods manufactured $106,400

Raw materials used $41,300

Manufacturing overhead costs $21,100

Direct labor costs $39,500

Gross profit $101,000

Sales $210,800

The ending finished goods inventory was:

a) $12,700

b) $20,200

c) $9,300

d) $15,100

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The West Division of Fitzmaurice Corporation (A+)

The West Division of Fitzmaurice Corporation had average operating assets of $444,000 and net operating income of $88,500 in November. The minimum required rate of return for performance evaluation purposes is 15%.

What was the West Division’s minimum required return in November?

a) $79,875

b) $66,600

c) $13,275

d) $88,500

3.

Beak Industries is a division of a major corporation. Last year the division had total sales of $10,500,000, net operating income of $1,060,000, and average operating assets of $4,100,000.

The division’s turnover is closest to (round your answer to 2 decimal places):

a) 9.91

b) 2.56

c) 3.87

d) .26

4.

Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year’s income statement segmented by product line:

Orange Tomato Carrot Grape

Sales $63,000 $40,000 $23,500 $43,000

Variable expenses 5,800 12,900 10,400 17,300

Contribution margin 57,200 27,100 13,100 25,700

Traceable fixed expenses11,100 7,000 8,300 5,600

Segment margin $46,100 $20,100 $ 4,800 $20,100

Net operating income last year for Licuado Company as a whole was $24,500.

Licuado is considering the implementation of a $5,800 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,900. If the goal is to maximize the company’s net operating income, for which product line should Licuado implement the advertising program?

a) Grape

b) Any one of the product lines; the effect on net operating income will be identical

c) Orange

d) Carrot

e) Tomato

5.

Discover Motor Company uses a standard cost system to collect costs related to the production of its toothpick motors. The direct labor standard for each toothpick motor is 1.25 hours at a standard cost of $9.50 per hour.

During the month of May, Discover’s toothpick motor production used 5,900 direct labor-hours at a total direct labor cost of $54,575. This resulted in production of 4,800 toothpick motors for May. What is Discover’s labor efficiency variance for the month of May?

a) $950 favorable

b) $1,475 favorable

c) $8,975 unfavorable

d) $10,450 unfavorable

6.

The Fletcher Company uses standard costing. The following data are available for October:

Actual quantity of direct materials used 22,900 pounds

Standard price of direct materials $4 per pound

Materials quantity variance $1,000 favorable

The standard quantity of material allowed for October production is:

a) 22,650 pounds

b) 24,400 pounds

c) 23,900 pounds

d) 23,150 pounds

7.

Suoboda Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:

Activity Cost Pools Activity Rate

Assembling products $ 4.8 per assembly hour

Processing customer orders $ 89.8 per customer order

Setting up batches $ 15.7 per batch

Data for one of the company’s products follow:

Product I90W

Number of assembly hours 590

Number of customer orders 32

Number of batches 22

How much overhead cost would be assigned to Product I90W using the activity-based costing system?

a) $71,033.2

b) $345.4

c) $110.3

d) $6,051.0

8.

At a break-even point of 410 units sold, variable expenses were $4,920 and fixed expenses were $2,460. What will the 411th unit sold contribute to profit?

a) $18.0

b) $6.0

c) $0

d) $12.0

9.

Ringstaff Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales

Selling price $153 100%

Variable expenses 45.9 30%

Contribution margin $107.1 70%

The company is currently selling 7,200 units per month. Fixed expenses are $596,000 per month. The marketing manager believes that a $25,775 increase in the monthly advertising budget would result in a 250 unit increase in monthly sales. What should be the overall effect on the company’s monthly net operating income of this change?

a) Decrease of $25,775

b) Increase of $1,000

c) Increase of $26,775

d) Decrease of $1,000

10.

Buffo Company fabricates metal folding chairs. Data concerning the company’s revenue and cost structure follow:

Selling price per unit $36

Manufacturing cost $3,700 per month plus $17.00 per unit

Administrative expense $1,690 per month plus $1.50 per unit

Sales commissions 17.00% of sales

Advertising expense $5,250 per month

If Buffo plans to produce and sell 3,500 units next month, the expected contribution margin would be:

a) $39,830

b) $35,830

c) $105,580

d) $86,170

11.

Annarummo Inc., an escrow agent, has provided the following data concerning its office expenses:

Escrows Completed Office Expenses

January 51 $15,551

February 103 $21,122

March 29 $12,825

April 92 $14,900

May 46 $12,000

June 51 $15,551

July 65 $11,900

August 19 $10,400

September 14 $11,510

Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction.

Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to:

a) $112

b) $108

c) $305

d) $208

The West Division of Fitzmaurice Corporation had average operating assets of $444,000 and net operating income of $88,500 in November. The minimum required rate of return for performance evaluation purposes is 15%.

What was the West Division’s minimum required return in November?

a) $79,875

b) $66,600

c) $13,275

d) $88,500

3.

Beak Industries is a division of a major corporation. Last year the division had total sales of $10,500,000, net operating income of $1,060,000, and average operating assets of $4,100,000.

The division’s turnover is closest to (round your answer to 2 decimal places):

a) 9.91

b) 2.56

c) 3.87

d) .26

4.

Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year’s income statement segmented by product line:

Orange Tomato Carrot Grape

Sales $63,000 $40,000 $23,500 $43,000

Variable expenses 5,800 12,900 10,400 17,300

Contribution margin 57,200 27,100 13,100 25,700

Traceable fixed expenses11,100 7,000 8,300 5,600

Segment margin $46,100 $20,100 $ 4,800 $20,100

Net operating income last year for Licuado Company as a whole was $24,500.

Licuado is considering the implementation of a $5,800 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,900. If the goal is to maximize the company’s net operating income, for which product line should Licuado implement the advertising program?

a) Grape

b) Any one of the product lines; the effect on net operating income will be identical

c) Orange

d) Carrot

e) Tomato

5.

Discover Motor Company uses a standard cost system to collect costs related to the production of its toothpick motors. The direct labor standard for each toothpick motor is 1.25 hours at a standard cost of $9.50 per hour.

During the month of May, Discover’s toothpick motor production used 5,900 direct labor-hours at a total direct labor cost of $54,575. This resulted in production of 4,800 toothpick motors for May. What is Discover’s labor efficiency variance for the month of May?

a) $950 favorable

b) $1,475 favorable

c) $8,975 unfavorable

d) $10,450 unfavorable

6.

The Fletcher Company uses standard costing. The following data are available for October:

Actual quantity of direct materials used 22,900 pounds

Standard price of direct materials $4 per pound

Materials quantity variance $1,000 favorable

The standard quantity of material allowed for October production is:

a) 22,650 pounds

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Unsystematic risk is not relevant, because (A+)

Unsystematic risk is not relevant, because

it does not change
it can be eliminated through diversification.
it cannot be estimated
it cannot be eliminated through diversification.

23.

A highly risk-averse investor is considering the addition of an asset to a 10-stock portfolio. The two securities under consideration both have an expected return, k, equal to 15 percent. However, the distribution of possible returns associated with Asset A has a standard deviation of 12 percent, while Asset B’s standard deviation is 8 percent. Both assets are correlated with the market with r = 0.75. Which asset should the risk-averse investor add to his/her protfolio?

Asset A.
Asset B.
Both A and B.
Neither A nor B.
Cannot tell without more information.

24.

Which of the following statements is false?

Systematic risk will increase during a recession.
Adding more unrelated securities to a portfolio reduces unsystematic risk.
Market risk may be reduced through diversification.
Changes in Federal Reserve policy have more effect on systematic risk than unsystematic risk.
Oil shocks affect market risk.

25.

All of the following statements are true except

The expected return on an asset held by it is the weighted average of the possible outcomes, where the weights reflect the probability of each outcome.
The risk of an asset held by it can be measured by the standard deviation of the expected returns.
The expected return on a portfolio of assets is the weighted average of the expected returns of the assets in the portfolio.
The standard deviation of a portfolio of assets is the weighted average of the standard deviations of the assets in the portfolio.
All of the above statements are true.

26.

You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.15. You have decided to sell one of your stocks, a lead mining stock whose b = 1.0, for $5,000 net and to use the proceeds to buy $5,000 of stock in a steel company whose b =2.0. What will be the new beta of the portfolio?

1.12
1.20
1.22
1.10
1.15

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A share of common stock has just paid a dividend of $2 (A+)

A share of common stock has just paid a dividend of $2. If the expected long-run growth rate for this stock is 15%, and if investors require a 19% rate of return, what is the price of the stock?

$57.50
$62.25
$71.86
$64.00
$44.92

12.

A common source of error in estimating dividend growth rates is

Mathematical errors committed by stock analysts.
The erratic earnings records of many firms.
The fact that growth rate predictions must be based on historical information.
Analysts’ lack of training in modern forecasting techniques.
The fact that the Gordon growth model cannot be applied to ‘real world’ situations.

14.

If the average PE ratio for the construction industry is 15 and earnings per share for Lincoln Builders is $2.35, what is the current price of Lincoln’s stock?

$17.35
$ 6.38
$35.25
$ 0.16
$17.63

15.

Preferred stock is valued as if it were

a fixed-income obligation.
a bond.
a perpetuity.
a common stock.

16.

As risk aversion increases

A firm’s beta will increase.
Investors’ required rate of return will increase.
A firm’s beta will decrease.
Investors’ required rate of return will decrease.

17.

The graph of the Capital Asset Pricing Model (CAPM) that relates the beta of a stock to its required return is called the

Characteristic line.
Capital market line.
Risk/return profile.
Line of least resistance.
Security market line.

.

18.

War, inflation, and the condition of the foreign markets are all examples of

Diversifiable risk.
Non-diversifiable risk.
Economic risk.
Unsystematic.

19.

The _________________ standardizes the standard deviation to make assets with different returns comparable.

standard deviation
variance
coefficient of determination
coefficient of variation
None of the above.

20.

Inflation, recession, and high interest rates are economic events which are characterized as

Company specific risk that can be diversified away.
Market risk.
Systematic risk that can be diversified away.
Diversifiable risk.
Unsystematic risk that can be diversified away.

21.

Which of the following statements is true?

Risk-averse investors prefer securities with high standard deviations.
If the returns from a security are normally distributed, 86% of the observations fall within one standard deviation of the expected value.
Standard deviations should not be used to compare the risk of two securities that have different expected returns.
Calculus of variations (CV) adjusts standard deviations to compare the risk of securities with different expected returns.
Standard deviations can be computed for stock returns, but not for bond yields.

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