Finance 310

If the future value is $500 in 1 year and the interest rate is 12 percent per year, what is the present value? A: $512 B: $488 C: $446.43 D: $462.18

$446.43 $500/1.12 = $446.43

What is the order of current assets in order of liquidity?

1. cash 2. accounts receivable 3. inventory

Long-term liabilities include which of the following? A: long-term bank loans B: Property, plant and equipment C: accounts payable D: marketable securities

A long-term bank loans

If the interest rate is 10% per year, then what is the present value (PV) of $100 received one year from today? A: $90.91 B: $110.00 C: $86.78 D: $90.00

A: $90.91 PV = $100/1.10 = $90.91

Managers may take advantage of accounting rules to conceal A: free cash flow B: employee benefit packages C: unflattering information D: value added

C: unflattering information

Longer lived assets are known as __________Assets. A: current B: future C: fixed

C:fixed

When a company does not include its liabilities on its financial statements, it is practicing A: cookie-jar reserves B: channel stuffing C: repurchase agreements D: off-balance sheet financing

D: off-balance sheet financing

The first section of the statement of cash flows is the A: general and administrative activities B: investing activities C: financing activities D: operating activities

D: operating activities

Current liabilities must be repaid within the year: True False

True

IN order to calculate cash produced by the business it is necessary to add back the deprecation charge. True False

True Depreciation is a non-cash outlay, therefore, the cash deducted as an expense must be added back

Claims to the assets after paying off the liabilities is known as shareholders'____________.

equity

Maxwell Corporation had a net income of $40,000, interest of $4,000, depreciation of $5,000, additions to net working capital of $6,000, and capital expenditures of $20,000. Maxwell Corporation's free cash flow amounts to: A: $23,000 B: $35,000 C: $17,000 D: $25,000

A: $23,000 $40,000 + $4,000 +$5,000 - $6,000 = $43,000 $43,000-$20,000 =$23,000

If you are a single taxpayer and your income is greater than $9,075 and less than $36,900, you would pay _________ Cents of tax on each extra dollar you earn A: 15 B: 25 C: 10 D: 35

A: 15

Joseph signs a contract with a company that will pay him $25,000. Following the principles of the time value of money, Joseph would be best off if he received payment: A: at the beginning of the project B: At the end of the project C: In 3 equal monthly sums

A: At the beginning of the project The time value of money states that a dollar today is worth more than a dollar tomorrow. Therefore, if he received the $25,000 at the beginning of the project, he would have 3 months to invest his money and have it grow.

The cash generated from the normal business activities of the firm A: cash flows from operating activities B: Cash flows from investing activities C: cash flows from financing activities

A: Cash flows from operating activites

Financial statements called 10K that are provided ______________ contains more detailed information about the outcome of the company for the entire year. A: annually B: quarterly C: semi-annually D: monthly

A: annually

Uses of funds raised by a company are known as_____________. A: assets B: liabilities

A: assets

Which of the following statements expresses all items on the income statement as a percentage of revenue? A: common-size income statement B: common-size balance sheet C: statement of cash flows D: income statment

A: common-size income statement

If the interest rate is held constant, present value will ________as the time period ____________. A: decrease ; increase B: remain constant; increases C: decrease; decreases D: increase; increases

A: decrease; increases Present value will decrease as the time period increases. this follows the time value of money concept that a dollar today is worth more than a dollar tomorrow.

What is the term used to describe the situation in which organically earrings are taxes as corporate income and again as dividend income A: double taxation B: Double dipping C: dividend taxation D: twice taxed

A: double taxation

Financial statements provide investors with information about a company's A: earnings B: Budgets C: time tables D: assets and liabilities

A: earnings and D: assets and liabilities

Which of the following companies were charged with accounting fraud in the early 2000s? A: enron B:WorldCom C: Roctor and Gamble D: Vivendi

A: enron B:WorldCom D: Vivendi

A perpetuity is a constant stream of cash flows for a(n)_________period of time. A: infinite B: random C: finite D: undetermined

A: infinite

The time value of money concept states that a dollar today is worth __________ a dollar tomorrow. A: more than B: the same as C: less than

A: more than

Current assets minus current liabilities is known as: A: net working capital B: net income C: net current liabilities D: net earnings

A: net working capital

Free cash flow is available for which of the following uses? A: payment of dividends B: payment of interest to investors C: payment of capital investments D: payment of debt

A: payment of dividends B: payment of interest to investors D: payment of debt

Which of the following accounting approaches is based on a general approach to recording accounting transactions? A: principles-based B: mutually-based C: revenue-based D: rules-based

A: principles-based

Which of the following are included as cash outflows from investing activities? A: purchase of land B: sale of capital expenditure C: purchase of capital expendiure D: sale of land

A: purchase of land C: purchase of capital expendiure

When a company sells bonds to an investment company with the intent to buy them back within a short period of time the arrangement is known as A: repurchase agreement B: channel stuffing C: off-balance sheet financing D: cookie-jar reserves

A: repurchase agreement

Which of the following represent cash outflows from financing activities? A: repurchase of stock B: repayment of debt C: issuing stock D: payment of dividends

A: repurchase of stock B: repayment of debt D: payment of dividends

The market value of the company's assets equal the market value of the company's liabilities and the market value of the ____________equity A: shareholders' B: board of directors' C: employees

A: shareholders'

Which of the following financial statements are public companies required to file with the SEC each quarter? A: statement of cash flows B: statement of retained earnings C: balance sheet D: income statement

A: statement of cash flows C: balance sheet D: income statement

Which of the following explain why a firm's cash flows differ from the net income? A: the income statement uses the accrual accounting method B: the income statement uses the cash accounting method C: the income statement spreads capital expenditure expenses over time D: the income statement does not recognize capital expenditures as expenses in the year purchased

A: the income statement uses the accrual accounting method C: the income statement spreads capital expenditure expenses over time D: the income statement does not recognize capital expenditures as expenses in the year purchased

Which of the following is a proper definition for the effective annual interest rate? A: the interest rate that is annualized using compound interest B: The interest rate that is annualized using simple interest C: the interest rate that is annualized using interval interest

A: the interest rate that is annualized using compound interest

Shareholders' equity is made up of which of the following? A: treasury stock B: stock shares C: liabilities D: retained earnings

A: treasury stock B: stock shares D: retained earnings

Assume you have $100 to invest today. Investing it at 5% interest compounded annually will yield ________ in 10 years, while investing it at 6% interest compounded annually will yield ___________ in 10 years. A: $179.08 ; $162,89 B: $162.89; $179.08 C: $179.08; $179.08 D: $162.89; $175.00

B: $162.89; $179.08

Compound growth means that value increases after 2 periods by: A: growth rate^t B: (1 + growth rate)^t C: (1 - growth rate)^t D: 1/ growth rate x t

B: (1 + growth rate) ^t

Which of the following is the correct formula for the discount factor? A: 1/(1+r) x t B: 1/(1+r)^t C: (1+r) D: 1/(1+4)

B: 1/(1+r)^t

The cash invested in plant and equipment or the acquisition of the new businesses A: cash flows from operating activities B: Cash flows from investing activities C: cash flows from financing activities

B: Cash flows from investing activities

If the interest rate (r) increases, what will happen to present value (PV) over time? A: PV will remain constant B: PV will decline C: PV will increase

B: PV will decline If the interest rate increases, the present value will decrease over time.

Which of the following are reasons why the company's reported income is not the same as the company's reported cash? A: internal revenue service B: accural accounting C: depreciation D: cash basis accounting

B: accural accounting C: depreciation

The process of deliberately inflating profits based on the ambiguity of the revenue recognition principle is termed A: channel marking B: channel stuffing C: channel surfing D: channel networking

B: channel stuffing

Managers use a common-size sheet to: A: determine the opportunity cost of capital B: compare items from year to year C: Calculate total assets and liabilities D: determine dividends

B: compare items from year to year

Market values of assets and liabilities measure ____________value. Book values are based on _____________ value. A: original, original B: current, original C: current, current D: original, current

B: current, original

If interest rates go up, the present value of a perpetuity will ____________ A: remain unchanged B: decrease C: increase

B: decrease

Discounting a future value FV at interest rate r over time t is termed a _______________ calculation A: present interest B: discounted cash-flow C: discounted interest D: discounted present factor

B: discounted cash-flow

The rules governing the depreciation of asset values ___________ reflect actual loss of market value A: do B: do not

B: do not

Fixed assets include: A: inventory B: equipment C: buildings D: supplies

B: equipment C: buildings

intangible assets include: A: property B: goodwill C: accounts receivable D: brand name

B: goodwill and D: brand name

If the interest rate is greater than zero, the present value of an annuity due is always __________ an ordinary annuity. A: equal to B: greater than C: less than

B: greater than Cash flows for annuities due always come one period earlier than the corresponding cash flows for ordinary annuities. Therefore, each is discounted for one less period and the present value for the annuity due increases by a factor of (1+r) over that of the ordinary annuity

According to GAAP, assets must be shown on the balance sheet at book value. Book value is equal to: A: a percentage of total assets B: historical cost adjusted for depreciation C: historical cost adjusted for inflation D: historical cost less fair market value

B: historical cost adjusted for depreciation

A negative cash flow (an outflow) from financing activities indicates that the company A: borrowed more debt than it paid off and repurchased more stock that it issued B: paid off more debt that it borrowed or repurchased more stock than it issued C: paid off more debt that it borrowed or issued more stock that it repurchased D: borrowed more debt that it paid off or issued more stock that it repurchased

B: paid off more debt that it borrowed or repurchased more stock than it issued

A dollar invested today at 8.0 percent simple annual interest will be worth __________three years from now. A: $1.16 B: $1.26 C: $1.24

C: $1.24 With simple interest, the bank calculates interest only on the principle investment: $1.00 +$.08+$0.8+$0.8 = $1.24. Do not confuse this with compound interest, which computes interest earned on interest.

A dollar invested today at 8.0 percent interest compounded annually will be worth _________ three years from now. A: $1.08 B: $1.1664 C: $1.2597

C: $1.2597 FV = $1.00 x (1 + 0.8)^3

You are offered an investment that will return $1000 to you 5 years from now on a payment today of $750. What is the annual interest rate implicit promised on this investment? A: 5.92 percent B: 6.54 percent C: 5.75 percent D: 7.50 percent

C: 5.75 percent r = (FV/PV)^1/t - 1 r = (1000/750)^1/5 - r = 5.92 percent

The value in t years of an investment made today at interest rate r is called the _________ of your investment. A: Present value B: Compound value C: Future value D: Simple value

C: Future value

Managers may inflate earnings for the purpose of satisfying the A: community B: IRS C: Investors D: Customers

C: Investors

The annual percentage rate (APR) on a loan or investment is properly defined as: A: The rate applied to the loan or investment balance per year B: The annually compounded rate of interest C: The interest rate per period multiplied by the number of compounding periods per year D: A rate that is changed every year by the Federal Reserve Bank

C: The interest rate per period multiplied by the number of compounding periods per year The periodic interest rate multiplied by the number of compounding periods per year.

A fixed stream of cash flows that ends after a specified number of years is called a(n): A: perpetutity B: net present value C: annuity D: consol

C: annuity

The present value of an annuity of $1 per period is called the _________ A: annuity payment B: interest rate C: annuity factor D: perpetuity

C: annuity factor

The statement of cash flows shows the details fo the changes that took place in the A: accounts receivable account B: accounts payable account C: cash account D: cost of goods sold account

C: cash account

The cash flows from the sale of new debt or stock A: cash flows from operating activities B: Cash flows from investing activities C: cash flows from financing activities

C: cash flows from financing activities

Which of the following statements expresses cost of goods sold as a percentage of revenue? A: common-size balance sheet B: statement of cash flows C: common-size income statment D: income statement

C: common-size income statment

The incorrect usage of reserve accounts to provide a smooth and predictable earnings growth pattern is known as missing A: channel stuffing B: revenue recogintion C: cookie-jar reserves D: off-balance sheet financing

C: cookie-jar reserves

The largest single expense of a merchandising firm, such as Home Depot, is called: A: administration expenses B: wages expense C: cost of goods sold D: general expenses

C: cost of goods sold

Which of the following ratios are used to determine the liquidity of the firm? A: inventory turnover ratio B: interest coverage ratio C: current ratio D: quick ratio

C: current ratio D: quick ratio

Which of the following is treated as an annual expense on the income statement even though it is not an actual cash payment? A: cost of goods sold B: rent C: depreciation D: wages

C: depreciation

Another name for the interest rate used to calculate PV is the _________ rate. A: federal funds B: inflation C: discount D: money market

C: discount

The price at which shareholders can sell their shares i known as the _______value. A: tax B: accounting C: market D: book

C: market

C/r is the formula for the present value of a(n)_______ A: growing perpetuity B: growing annuity C: perpetuity D: annuity

C: perpetuity

A common-size balance sheet expresses all items as a percentage of A: total liabilities B: shareholders' equity C: total assets D: sales

C: total assets

Corporations with income over $18.33 million pay corporate tax rate of _______% A: 34 B: 15 C: 25 D: 35

D. 35

Which of the following accounting methods is best for matching revenues and expenses A: cost accounting B: cash accounting C: Managerial accounting D: Accural accounting

D: Accural accounting

Real-world investments often involve many payments received or paid over time. Managers refer to this as a _________ A: payment sequence B: amortized flows C: cash flow bonus D: stream of cash flows

D: Stream of cash flows

The best known price index used by economists who measure inflation is_____________. A: The purchasing managers' index (PMI) B: The DOW Jones index C: The index of leading indicators D: The consumer price index (CPI)

D: The consumer price index (CPI)

A person's total tax bill divided by their total income is known as the A: marginal tax rate B: small business tax rate C: corporate tax rate D: average tax rate

D: average tax rate

A deduction in the value of a company's plant and equipment used in producing goods is known as: A: cost of goods sold B: fair value C: interest D: depreciation

D: depreciation

GAAP stands for A: generally accepted accounting practices B: generally applicable accounting principles C: general accounting applications practices D: generally accepted accounting principles

D: generally accepted accounting principles

An annuity due is a series of level payments that begin__________. A: one year in the past B: one year hence C: any time in the future D: immediately

D: immediately

Debt that needs to be repaid after one year is known as: A: intangible liabilities B: current liabilities C: fixed liabilities D: long-term liabilities

D: long-term liabilities

Liabilities represent: A: something of value to the company B: long-term investments C: money to be received by the company D: money owed by the company

D: money owed by the company

On the balance sheet, the amount listed for the gross value of an asset is the assets' A: depreciation B: book value C: Fair value D: original cost

D: original cost

The present value of an annuity due is equal to the: A: present value of an ordinary annuity x r B: present value of ordinary annuity + (1-r) C: present value of an ordinary annuity / (1+r) D: present value of an ordinary annuity x (1+r)

D: present value of an ordinary annuity x (1+r)

Earnings that are kept and reinvested in the firm show up on the balance sheet as an increase in: A: current liabilities B: EBIT C: common stock D: retained earinings

D: retained earinings

Earnings that a firm keeps and reinvests are referred to as: A: EBIT B: shareholders' equity C: common stock D: retained earnings

D: retained earnings

Congress responded to the accounting scandals of the early 21st century by enacting the A: global anti-semitism review act B: taft-harley act C: national banking act D: sarbanes-oxley act

D: sarbanes-oxley act

How much long-term debt is worth depends on what happens to ____________ rates.

interest