Chapter 1-3 FIN 3100

Your firm has sold a fleet of 50 cars to a local firm at a discounted price of $23,000 each (a total of $1,150,000) due in six months. You are willing to discount the purchase price at an annual rate of 3% if the firm pays cash today. What is the least amount of money you will accept if the firm pays your company today?

$1,133,129

Net Working Capital for 2016 is $1,890 and Net Working Capital for 2017 is $3,597. What is the change in Net Working Capital?

$1,707

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Income Statement Accounts. What is the net income for the Canary Cruises Corporation for 2017?

$135,900

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of net working capital at the year-end is ________.

$16,125

in four years your oldest child will be in 10th grade, at which point you and your family plan to vacation in Europe. You estimate that you will need $25,000 for the trip. How much do you need to set aside today if you can place your money in an investment vehicle earning an average of 4.25% per year?

$21,165.85

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of current assets for the year-end is ________.

$23,000

In two years Brandon plans to enroll at Umpqua University, a prestigious university in the Pacific Northwest of the USA. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Brandon pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.)

$26,405 and $31,448

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Corporation Income Statement Accounts. What is the EBIT for the Canary Cruises Corporation for 2017?

$272,000

Your university is running a special offer on tuition. This year's tuition cost is $16,000. Next year's tuition cost is scheduled to be $16,640. The university offers to discount next year's tuition at a rate of 4% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer?

$32,000

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Corporation Income Statement Accounts. What is the operating cash flow for the Canary Cruises Corporation for 2017?

$340,900

You intend to buy a vacation home in eight years and plan to have saved $75,000 for a down payment. How much money would you have to place today into an investment that earns 9% per year to have enough for your desired down payment?

$37,640

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of total assets for the year-end is ________.

$52,350

Cash and Equivalents are $1,561; Short-Term Investments are $1,000; Accounts Receivables are $3,616; Accounts Payable are $5,121; Short-Term Debt is $288; Inventories are $1,816; Other Current Liabilities are $1,401; and Other Current Assets are $707. What is the amount of Total Current Liabilities?

$6,810

Cash and Equivalents are $1,561, Short-Term Investments are $1,000, Accounts Receivables are $3,616, Accounts Payable is $5,121, Short-Term Debt is $288, Inventories are $1,816, Other Current Liabilities are $1,401, and Other Current Assets are $707. What are the Total Current Assets?

$8,700

An investment promises a payoff of $995 two and one-half years from today. At a discount rate of 4.5% per year, what is the present value of this investment?

$891.32

In 1975, the era of major league baseball free agency began. The average player salary was $16,000. In 1980, the average salary was $30,000. What was the average annual growth in the minimum salary in major league baseball over those five years?

13.4%

Your production manager informs you that currently the firm is producing 1,348 heating units per month but has plans to increase production at a rate of 5% per month until the firm is producing 3,000 units per month. How many months will this take?

16.4 months

You gave your little sister two rabbits for Easter three years ago and now she has 64 of the cute little bunnies. What is the average annual rate of increase in the number of rabbits your sister owns? Note: Your parents are not very pleased with you right now.

217.5%

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of equity for the year-end is ________.

27,725

Your grandfather likes to tell the story about how he started his ranch with 100 head of cattle and grew the ranch to 2,500 head of cattle. He said "My plan was simple: grow the number of head of cattle at a rate of 10% per year." How long did it take him?

33.77 years

Your father spent all of his adult life working in a small T-shirt making firm. His first year sales were $98,000 and his last year sales were $350,000. If the firm grew at an average rate of 3.35% per year, how many years did your father sell T-shirts at his firm?

38.63 years

Five years ago, Maria's annual salary was $73,500. Today, she earns $91,900. What has been the average annual percentage rate of growth of Maria's salary?

4.57%

You currently have $3,500 invested at an annual rate of 8%. How long will it take for this investment to grow to a value of $5,000?

4.63 years

The Jones Brothers Inc. had net fixed assets of $4,000,000 and $4,300,000 at the end of 2011 and 2012, respectively. Its depreciation expense in 2012 was $200,000. What was the company's net capital spending in 2012?

500,000

Drew is taking over as Chief Marketing Officer at SouthWest Foods. She has pledged to increase sales from their current level of $8,000,000 at a rate of 11% per year until the firm hits sales of $15,000,000 per year. How long will it take the firm to hit the target goal at this rate of increase?

6.02 years

Buying your own home is often mentioned as "the best investment you can make." In 1964, the average home sale price was $19,600. By 2009, the average home sale price had risen to $272,900. What was the average annual rate of change in the price of houses over this 45 year time period?

6.03% per year

For much of the 20th century, new car prices rose at an average annual rate of 5.89%. Given a beginning new car price of $900, how long did it take for the average new car price to rise to $27,865? Please round to the nearest year.

60 years

In 1930, the highest paid player in major league baseball was Babe Ruth of the New York Yankees, with an annual salary of $80,000. In 2017, the highest paid player in major league baseball was Clayton Kershaw of the Los Angeles Dodgers with a salary of $35,571,000. What was the average annual rate of growth in the top baseball salary over this time period?

7.26%

Dividend growth rate is important to many investors. You are considering investing in a firm after looking at the firm's dividends over a six-year period. At the end of the year 2010, the firm paid a dividend of $0.98. At year-end 2016, it paid a dividend of $1.64. What was the average annual growth rate of dividends for this firm?

8.96%

The current price on a 60-inch flat panel LCD HD television is $1,200. Big screen HD television prices have dropped at an average rate of 12% per year in recent years. If you expect this trend to continue, how much will this style of television cost in two years?

929

________ is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principals.

Agency theory

Which of the following statements is false?

Cash flow to owners shows cash paid to owners plus any new borrowing from owners.

Which of the following actions will DECREASE the present value of an investment?

Decrease the future value

________ is a major disadvantage of the corporate form of business.

Double taxation

________ are the forums where buyers and sellers of financial assets and commodities meet

Financial markets

Which of the following is NOT an example of an equity market transaction?

Grant contacts his broker and requests a purchase of IBM bonds.

Which of the following statements is false?

In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.

Depreciation for a tax-paying firm:

Increases expenses and lowers taxes.

Which of the following statements is false?

Long-term assets are accounts that will normally be turned into cash over the course of the operating or business cycle of the firm, and current liabilities are the accounts that will come due for payment over the operating or business cycle.

The common objective of borrowing and leaning is to

Make all parties better off

Which of the following statements is true?

Net Working Capital (NWC) = Current Assets - Current Liabilities

Which of the following statements is true?

Operating Cash Flow = EBIT + Depreciation - Taxes

Which of the following is NOT true of a sole proprietorship?

Sole proprietors have limited liability

A manufacturer of Virtual Reality headsets has seen sales increase from 25,000 units per year to 100,000 units per year in 8 years. What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

The average annual rate of change has been between 18% and 19%.

Which of the following statements is true?

The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company's revenues and expenses for that period.

Which of the following statements is TRUE?

The capital market is the term for the market for longer-term financial assets such as stocks and bonds

Double taxation refers to which of the following ?

The corporation pays taxes on its earnings, and shareholders pay taxes on dividends received

A two-year investment of $3500 is made today at an annual interest rate of 5.75%. Which of the following statements is TRUE?

The future value would be greater if the interest rate was higher.

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is TRUE?

The interest earned in year one is $12.00 and year two is $12.72.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?

The interest earned in year one is $8.00 and the interest earned in year two is $8.64.

If you invest $3,650 today, how much money will you have in 4 years?

This question cannot be answered because it is missing an annual rate of return.

Which of the following statements is true?

Three fundamental issues separate net income and cash flow: accrual-based accounting, noncash expense items, and interest expense.

______ belong to money market securities.

Treasury bills

Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Valley State Bank for a tuition loan for her son. You have $1,200 deposited into your checking account at the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?

You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash.

What annual rate of return must you earn to double your money in about 9 years? Use the Rule of 72 to determine your answer.

You would need to earn an annual rate of return of about 8%.

In your first year out of college you hope to earn $30,000 per year. How many years will you have to work until you earn $120,000 if your income increases at a rate of 10% per year? Use the Rule of 72 to determine your answer.

You would need to work for just over 14 years to reach an income level of $100,000 per year.

Bonds are bought and sold in _____ markets.

debt

Which of the following is an ADVANTAGE of a sole proprietorship?

ease of start up

Stocks are bought and sold in ________ markets.

equity

In finance, we separate operating decisions from financing decisions and thus exclude ________ as a part of operating income from the income statement.

interest expense

Which of the following is NOT an ADVANTAGE of a sole proprietorship?

limited liability

Financial assets that will mature within a year are bought and sold in the ________ market.

money

The question "How long will I have to wait to reach a certain future value?" is best answered by which form of the TVM equation?

n = ln (FV/PV) / ln (1+r)

The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the ________, the so-called bottom line of the income statement.

net income

Three fundamental issues separate net income and cash flow. Which of the answers below is NOT one of these three fundamental issues?

noncash accounting

Which one of the answers below is NOT one of the three components of the "Cash Flow from Assets"?

noncash expenses

Net income is ________.

not cash flow

The sale of "new" securities, where the financial asset is being traded for the very first time, is said to take place in the ________ market.

primary

The problem of motivating one party to act in the best interest of another party is known as the ________.

principle agent problem

In agency theory, the owners of the business are referred to as ________, and the managers are referred to as ________.

principles, agents

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

r = (FV/PV)1/n - 1

The sale of "used" securities, where the financial asset is being traded from one individual to another and the proceeds do not go to the original issuer of the security, is said to take place in the ________ market.

secondary

A negative cash flow to owners indicates that a firm has ________.

sold additional shares of stock

To find operating cash flow for the business for the year, add depreciation expense to EBIT and then ________.

subtract the taxes

The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the ________ for the period.

taxable income

The movement of money from lender to borrower and back again is known as ________.

the cycle of money

Cash flow is

the increase or decrease in cash for the period

Stimulus Industries Inc. has 2017 total current assets of $14,871,000. Last year the total current assets were equal to $12,462,000. The change in total current assets is a ________ of cash in the amount of ________.

use; $2,409,000