Corporate Finance Exam 1

Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firms:

Working capital

Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is positive value and all interest is reinvested

a decrease in the interest rate

Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:

capital budgeting

Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure

Which one of the following functions should be assigned to the treasurer rather than the controller?

cash management

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:

compound interest

Tom earned $120 in interest on his savings account last year. Tom has decided to leave the $120 in his account so that he can earn interest on the $120 this year. This process of earning interest on prior interest earnings is called:

compounding

The interest rate used to compute the present value of a future cash flow is called the:

discount rate

Todd will be receiving a $10,000 bonus one year from now. The process of determining how much that bonus is worth today is called:

discounting

Martha is investing $5 today at 6 percent interest so she can have $10 later. The $10 is referred to as the:

future value

Corporate shareholders:

have the ability to change the corporation's bylaws.

Jamie earned $180 in interest on her savings account last year. She has decided to leave the $180 in her account so that she can earn interest on the $180 this year. The interest Jamie earns this year on this $180 is referred to as:

interest on interest

Which one of the following forms of business organization offers liability protection to some of its owners but not all of its owners?

limited partnership

Sue needs to invest $3,626 today in order for her savings account to be worth $5,000 six years from now. Which one of the following terms refers to the $3,626?

present value

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Sam wants to invest $5,000 for 5 years. Which one of the following rates will provide him with the largest future value?

7 percent interest, compounded annually

A marketing executive would most likely interact with the Finance organization to:

Set advertising and promotion budgets

A key external player to the corporate finance organization, that audits inventory levels

CPA

Which of the following is NOT an external player which interacts with the finance function of the firm?

Controller

Which of the following occupations best fits into the international area of finance?

Currency Trader

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years?

FV = $500 (1 + 0.07)^8

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Jeff deposits $3,000 into an account which pays 2.5 percent interest, compounded annually. At the same time, Kurt deposits $3,000 into an account paying 5 percent interest, compounded annually. At the end of three years:

Kurt will have a larger account value than Jeff will.

Which one of the following is an advantage of being a limited partner

Losses limited to capital invested