FINA #2

Calculate the EBIT for a firm with $3 million total revenues, $2.4 million cost of goods sold, $600,000 depreciation expense, and $130,000 interest expense. ($130,000) $600,000 $470,000 $0

$0

A firm generates $2,500 in sales and has a $750 increase in accounts receivable during an accounting period. Based on these two categories, cash flow will increase by: $750 $1,750 $3,250 $2,500

$1,750

What is the tax liability for an individual with $53,000 of income, which includes $2,000 of dividends, if the tax rate is 15% on income up to $25,350 and 25% on income over $25,350? (Do not round intermediate calculations. Round your answer to 2 decimal places.) $13,250.00 $10,715.00 $10,215.00 $12,750.00

$10,715.00

Which of the following statements regarding share value is correct? Intrinsic value is the present value of the cash payoffs from a stock or other security. The present value of a share of stock can be calculated using the dividend discount model. A stock's price today is simply the present value of all expected future cash flows. All of these.

All of these

Which of the following would you expect to exhibit the least credit risk? Securities issued by Cisco Systems; Moody's Rating A Securities issued by NewPage Corp.; Moody's Rating B Securities issued by JPMorgan Chase; Moody's Rating Aa Securities issued by Time Warner; Moody's Rating Baa

Securities issued by JPMorgan Chase; Moody's Rating Aa

The book value of a firm's equity is determined by: Multiplying share price at issue by shares outstanding. The difference between market values of assets and liabilities. The difference between book values of assets and liabilities. Multiplying share price by shares outstanding.

the difference between book values of assets and liabilities

Investors are willing to purchase stocks with high P/E ratios because: they expect these shares to sell for a lower price. they expect these shares to have greater growth opportunities. they expect these shares to offer higher dividend payments. these shares are accompanied by guaranteed earnings.

they expect these shares to have greater growth opportunities

What is the market value of equity for a firm that issued 250,000 shares of stock one year ago for $4 per share, if the shares currently sell for $20 per share? $5,000,000 $4,000,000 $1,000,000 $6,000,000

$5,000,000

If a stock's P/E ratio is 11.20 at a time when earnings are $7 per year, what is the stock's current price? (Round your answer to 2 decimal places.) $76.80 $74.20 $67.20 $78.40

$78.40

What should be the price for a common stock paying $6.80 annually in dividends if the growth rate is zero and the discount rate is 8%? (Round your answer to 2 decimal places.) $11.76 $85.00 $54.40 $81.60

$85.00

What should be the share price today for one share of a firm that will pay a $8 dividend one year from now, has an expected rate of return of 12%, and is expected to sell for $90 in one year? (Round your answer to 2 decimal places.) $73.21 $111.36 $93.18 $87.50

$87.50

How much should you pay for a $1,000 bond with 10% coupon, annual payments, and 5 years to maturity if the interest rate is 12%? $1,075.82 $927.90 $981.40 $1,000.00

$927.90

What is the yield to maturity for a bond paying $120 annually that has five years until maturity and sells for $1,000? 12.0% 14.5% 7.5% 5.0%

12%

An investor buys a 10-year, 7% coupon bond for $1,050, holds it for 1 year, and then sells it for $1,040. What was the investor's rate of return? 5.71% 6.67% 6.00% 7.00%

5.71%

What constant-growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13%? 5.00% 6.75% 6.25% 15.38%

6.75%

What is the current yield of a bond with a 6% coupon, 4 years until maturity, and a price of $750? 8.0% 12.0% 6.0% 14.7%

8.0%

What is the yield to maturity for a bond paying $200 annually that has seven years until maturity and sells for $1,550? 8.05% 10.05% 9.05% 11.05%

9.05%

Regarding stock trading terminology, which of the following is incorrect? The bid-ask spread is the source of profit for sellers of securities. A market order is an order to buy or sell shares at a predetermined price, to be executed when the market price reaches the requested price. The ask price is the price at which current shareholders are willing to sell their shares. The bid price is the price at which investors are willing to buy shares

A market order is an order to buy or sell shares at a predetermined price, to be executed when the market price reaches the requested price

Which of the following items should not be included in a listing of current assets? Accounts receivable Accounts payable Marketable securities Inventories

Accounts Payable

Which of the following is correct? A bond's coupon rate is an annual interest payment expressed as a percentage of face value. A bond's current yield is calculated by dividing annual coupon payments by bond price. A bond's yield to maturity is the interest rate for which the present value of the bond's payments equals its price. All of these.

Al of these

Suppose market interest rates rise overnight from 4% to 9%. Calculate the present values of a 9%, 4-year bond and a 9%, 40-year bond before and after this change in interest rates. Which of the following is correct? (Do not round intermediate calculations.) The price of the 40-year bond decreased more than the price of the 4-year bond. The 4-year bond decreased by $161.99. The 40-year bond decreased by $537.87. All of these are correct.

All of these are correct

Which of the following is false concerning interest rate risk? As interest rates rise, the value of the bond typically falls. The longer the time until maturity, the greater impact interest rates will have on the value of the bond. A treasury bond is expected to exhibit greater interest rate risk than a treasury bill. All of these are correct.

All of these are correct

Depreciation expense is used to: equate the historical cost and market values of an asset. determine when an asset is fully paid off. allocate historical cost over the life of an asset. allocate costs to all departments of the firm.

Allocate historical cost over the life of an asset

What would be the marginal and average tax rates for a corporation with an income level of $100,000?

Average Tax Rate: Total Tax Bill/Total Income Marginal Tax Rate: Tax that person pays on each extra dollar

Which of the following statements regarding taxes in America is correct? Marginal tax rates refer to additional taxes owed per dollar of additional income. The average tax rate is calculated by dividing the amount of taxes paid by total income. Neither A nor B Both A and B.

Both A and B

Net working capital is calculated by taking the difference between: inventory & accounts payable. cash & long-term debt. total assets & total liabilities. current assets & current liabilities.

Current Assets and Current Liabilities

Which of the following statements about market value and book value is true? Investors are most concerned with the book value of equity, not the market value. Balance sheets have traditionally recorded amounts in terms of market values. Depreciation reduces the book value of assets. Book values are "forward-looking" measures of value

Depreciation reduces the book value of assets

Net working capital is a measure of the company's: estimated liquidity. goodwill. shareholders' equity. short-term liabilities.

Estimated Liquidity

Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock? Book value per share equals $1,000. Market value of liabilities equals $1 million. Market value per share equals $2,000. Market value of liabilities exceeds book value of liabilities

Market value of liabilities equals $1 million

Which of the following best describes what investors mean by the term "random walk"? If the stock prices follow a random walk, successive stock prices fluctuate above and below a normal long-run price. If the stock prices follow a random walk, successive stock prices are fairly closely related. The history of stock prices can be used to predict future returns to investors. If security prices follow a random walk, then on any particular day, the odds are that an increase or decrease in price is equally likely.

If security prices follow a random walk, then on any particular day, the odds are that an increase or decrease in price is equally likely.

Which of the following is not a typical reason for differences between profit and cash flow? Depreciation expense Accrual accounting practices Changing levels of accounts receivable Income taxes

Income taxes

Which of the following presents the correct relationship? As the coupon rate of a bond increases, the bond's: maturity date is extended. interest payments increase. face value increases. current price decreases.

Interest payments increase

Which of the following is true concerning interest rate risk? Junk bond issuers are likelier to default; therefore investors expect lower returns on these investments. Investment grade bonds are also referred to as speculative bonds. Investors demand a higher return on bonds that exhibit greater credit risk. Investment-grade bonds offer the highest rates of return for investors and are therefore rated as the most profitable grade of investments.

Investors demand a higher return on bonds that exhibit greater credit risk.

Which of the following is correct for a bond currently selling at a premium to par? Its yield to maturity is higher than its coupon rate. Its default risk is extremely low. Its current yield is higher than its coupon rate. Its current yield is lower than its coupon rate.

Its current yield is lower than its coupon rate

Investors can earn long-term superior returns in a strong-form efficient market by: Using technical analysis, in which investors attempt to identify undervalued stocks by searching for patterns in past stock prices. Using fundamental analysis, in which investors attempt to find mispriced securities by analyzing fundamental information, such as accounting performance and earnings prospects. Both A and B Neither A nor B

Neither A nor B

Which of the following is false concerning yields and bond prices? Present values are lower when discount rates are higher, thus price and yields vary inversely. Present values are higher when discount rates are higher, thus price and yields vary inversely. Present values are higher when discount rates are higher, thus price and yields vary directly. Present values are lower when discount rates are higher, thus price and yields vary directly.

Present values are lower when discount rates are higher, thus price and yields vary inversely

Regarding stock trading terminology, which of the following is incorrect? A firm's P/E ratio is the ratio of stock price to earnings per share. The dividend yield tells how much dividend income you would receive for every $100 invested in the stock. A firm's market cap is the total value of its outstanding shares of stock. The abbreviation "ttm" stands for total 12 months.

The abbreviation "ttm" stands for total 12 months.

Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%? The bond's maturity value is lower than the bond's price. The bond's maturity value exceeds the bond's price. The face value of the bond has decreased. The bond's internal rate of return is 7%.

The bond's maturity value is lower than the bond's price

Which of the following statements concerning rate of return is false? At each point in time, all securities of the same risk are priced to offer the same expected rate of return. The expected rate of return is determined by either the growth rate or the expected dividend payment. Securities with little expected risk should offer lower expected rates of return. A stock's rate of return is determined by the rate of return offered to investors by other equally risky stocks.

The expected rate of return is determined by either the growth rate or the expected dividend payment

What occurs when the value of a firm's debt exceeds the value of shareholders' equity? The firm is financed more through debt than through equity. The firm's assets have no value. The firm is bankrupt. A high rate of interest is being paid on the debt

The firm is financed more through debt than through equity

Which of the following information would one find on the balance sheet of a corporation? The firm's assets and liabilities at a particular point in time. The firm's expected future earnings at a particular point in the coming year. The firm's revenues, expenses, and net income over a period of time. The firm's cash receipts and cash payments over a period of time.

The firm's assets and liabilities at a particular point in time. incorrect

If security prices follow a random walk, then on any particular day the odds are that an increase or decrease in price is equally likely. True False

True

Retained earnings result from: an excess of assets over liabilities. income not paid to shareholders. market values that exceed book values. the sale of additional shares of stock to investors

income not paid to shareholders

The existence of goodwill on a corporate balance sheet indicates that the corporation has: intangible assets from past acquisitions. been profitable in the past. depreciated its tangible assets. retained earnings resulting from past income

intangible assets from past acquisitions

Perhaps the best method for estimating the market value of shareholders' equity is to: multiply number of shares outstanding by the price of each share. add the retained earnings plus total liabilities. read from the firm's balance sheet. read from the firm's income statement.

multiply number of shares outstanding by the price of each share

When market interest rates exceed a bond's coupon rate, the bond will: decrease its coupon rate. sell for less than par value. increase its coupon rate. sell for more than par value.

sell for less than par value