fin 323 exam 1 ODU

What is the future value of $1,000 invested for 15 years at a rate of 5%?

$2,079 ***Explanation Financial calculator key strokes: N = 15 I/YR = 5 PV = $1,000 PMT = $0 FV = ??? = $2,079

What is the present value of $1,200 to be received in 18 years invested at a rate of 5%?

$499 ***Explanation Financial calculator key strokes: N = 18 I/YR = 5 PMT = $0 FV = $1,200 PV= ??? = $499

What is the future value of $400 invested each year for 15 years at a rate of 6%?

$9,310 ****Explanation Financial calculator key strokes: N = 15 I/YR = 6 PV = $0 PMT = $400 FV = ??? = $9,310

The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales $20,000 Current assets $43,126 Debt $42,504 Costs 12,000 Fixed assets 30,178 Equity 30,800 Taxable income $8,000 Total $73,304 Total $73,304 Taxes (24%) 1,920 Net income $6,080 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 18 percent dividend payout ratio. What is the sustainable growth rate?

19.31% ***Explanation To calculate the sustainable growth rate, we first need to calculate the ROE, which is: ROE = NI / TE ROE = $6,080 / $30,800 ROE = 0.1974, or 19.74% The plowback ratio, b, is one minus the payout ratio, so: b = 1 - 0.18 b = 0.82 Now we can use the sustainable growth rate equation to get: Sustainable growth rate = (ROE × b) / [1 - (ROE × b)] Sustainable growth rate = [0.1974(0.82)] / [1 - 0.1974(0.82)] Sustainable growth rate = 0.1931, or 19.31%

Assume the following ratios are constant. Total asset turnover 1.29 Profit margin 8.3% Equity multiplier 1.2 Payout ratio 61% What is the sustainable growth rate?

5.28% **Explanation We must first calculate the ROE using the DuPont ratio to calculate the sustainable growth rate. The ROE is: ROE = (PM)(TAT)(EM) ROE = (0.083)(1.29)(1.2) ROE = 0.1285, or 12.85% The plowback ratio is one minus the dividend payout ratio, so: b = 1 - 0.61 b = 0.39 Now we can use the sustainable growth rate equation to get: Sustainable growth rate = (ROE × b) / [1 - (ROE × b)] Sustainable growth rate = [0.1285(0.39)] / [1 - 0.1285(0.39)] Sustainable growth rate = 0.0528, or 5.28%

You are analyzing the Statement of Cash flows for Coffey Corporation. You have the following information: Beginning Cash: Ending Cash: $285 Net cash increase: $102 Calculate the Beginning Cash.

Beginning Cash: $183 ***Ending Cash: $285 + Net cash increase: $102

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?

Decrease the future value.

How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?

Decrease the future value. ***Explanation A decrease in the interest rate would mean that the money invested would earn less interest and therefore, be a smaller amount in the future.

Which one of the following questions is least likely to be addressed by financial managers?

How should a product be marketed?

How would a decrease in the interest rate effect the present value of a lump sum, single amount problem (all other variables remain the same)?

Increase the present value.

A common error made when solving a future value of an annuity problem is:

Multiplying the annual deposit and the number of years before calculating the problem.

You are analyzing the Statement of Cash flows for Coffey Corporation. You have the following information: Beginning Cash: $220 Operating Activity: $497 Investment Activity $598 Financing Activity: −$212 Calculate the Net cash increase/decrease:

Net Increase in cash: $883 ****Explanation The Beginning cash amount is not part of the calculation. Operating Activity: $497 Investment Activity$598 Financing Activity: − $212 497 + 598 - 212 = 883

The variables in a present value of a lump sum problem include all of the following, except:

Payments

The variables in a future value of a lump sum problem include all of the following, except:

Payments *** Explanation Since this is a future value of a lump sum, there are no payments to be considered

The variables in a future value of a lump sum problem include all of the following, except:

Payments ***Explanation Since this is a future value of a lump sum, there are no payments to be considered.

The three parts of the Dupont equation are:

Profit margin, Total asset turnover, & Equity Multiplier.

Davis Company has provided the following financial data: Total Asset Turnover = .245 Net Income = $400,000 Equity Multiplier = 1.20 Net Sales = $1,300,000 What is the Return on Equity?

ROE = 9.1% ******Explanation Given: Total Asset Turnover = .245 Net Income = $400,000 Equity Multiplier = 1.20 Net Sales = $1,300,000 Profit Margin = Net Income/Net Sales Profit Margin = $400,000/$1,300,000 = .31 ROE = Profit Margin × Total Asset Turnover × Equity Multiplier ROE = .31 × .245 × 1.20 = .0911

Return on equity can be calculated as ROA × Equity multiplier. What is another way to express this equation?

ROE = ROA × (1 + Debt − Equity Ratio).

Which one of the following is a working capital management decision?

Should the firm pay cash for a purchase or use the credit offered by the supplier?

The Statement of Cash Flows has all of the following categories, except:

Standard ****The Statement of Cash Flows has Operating, Financing, and Investment activities.

The variables in a future value of a lump sum problem include all of the following, except:

Usage