FINANCE 325 FINAL EXAM
The inflation rate over the past year was 3.5 percent. If an investment had a real return of 7.8 percent, what was the nominal return on the investment?
11.57%
Good Drive Auto has sales of $4,500, net income of $2,750, net fixed assets of $2,600, and current assets of $1920. The firm has $430 in inventory. What is the common-size income statement value of net income?
61.11 percent
a bond's principal is repaid on the ___ date
maturity
the inflation rate over the past year was 2.8 percent. if an investment has a nominal return of 6.5 percent, what was the real return on the investment.
3.6
You are in charge of a project that has a degree of operating leverage of 1.06. What will happen to the operating cash flows if the number of units you sell increase by 3.7 percent?
3.92 percent increase
Chapmen Co. wants to sell preferred stock at $55 per share, suppose the required return is 5%, how much should they pay dividend each period?
2.75
A project has a unit price of $29.99, a variable cost per unit of $9.06, fixed costs of $487,020, and depreciation expense of $38,009. Ignore taxes. What is the accounting break-even quantity?
25,085 units
According to the statement of cash flows, an increase in inventory will ________ the cash flow from ________ activities.
decrease; operating
which one of the following represents the level of output where a project produces a rate of return equal to its requirement?
financial break-even
which one of the following is included in a firms market value but yet is excluded from the firms accounting value?
good reputation of the company
Forecasting risk is defined as the possibility that
incorrect decisions will be made due to erroneous cash flow projections.
which one of the following will decrease the net present value of a project?
increasing the project's initial cost at time zero
The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:
incremental cash flows.
which one of the following statements related to liquidity is correct?
liquid assets are valuable to a firm
shareholders' equity:
represents the residual value of a firm
frank's is a furniture store that is considering adding appliances to its offerings. which one of the following is the best example of an incremental cash flow related to the appliances?
selling furniture to appliance customers
Which type of analysis identifies the variable, or variables, that are most critical to the success of a particular project?
sensitivity
round ot inns is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. the bonds will mature in 10 years and will be sold at par. given this, which one of the following statements is correct?
the bonds will sell at a discount if the market rate is 6.5 percent
which one of the following will be used in the computation of the best-case analysis of a proposed project?
the lowest variable cost per unit that can reasonably be expected
If a project has a net present value equal to zero, then:
the project earns a return exactly equal to the discount rate
if a project has a net present value equal to zero, then
the project earns a return exactly equal to the discount rate
winston co. has a dividend yield of 4.4% and a total return for the year of 5.8% which one of the following must be true?
the stock has a positive capital gains yield
You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?
voting by proxy
the equivalent annual cost method is useful in determining:
which one of two machines should be purchased when the machines are mutually exclusive, have differing lives, and will be replaced at the end of their lives.
toms auto has sales of $3340, net income of $274, net fixed assets of $2600, and current assets of $920. the firm has $430 in inventory. what is the common-size statement value
12.22 percent
steele insulators is analyzing a new type of insulation for interior walls. the intitial fixed asset requirement is $1.62 million, which would be depreciated straight-line to zero over the 7-year life of the project. project fixed costs are $287,400 and the anticipated operating cash flow is $136,300. what is the degree of operating leverage for this project?
3.11
West Corp. issued 10-year bonds two years ago at a coupon rate of 7.5 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value. What is the YTM?
6.68%
Do-Well bonds have a face value of $1,000 and are currently quoted at 86.725 percent of par value $1000. The bonds have coupon rate of 6.5 percent. What is the current yield on these bonds?
7.49%
Steve is fairly caution when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. which type of analysis is he using?
Scenario analysis
A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?
Sensitivity analysis; to identify the key variable that affects a project's profitability
Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?
The bonds will sell at a premium if the market rate is 5.5 percent.
Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:
discounting.
PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances. This firm is facing:
hard rationing.
Capital structure decisions include determining:
how much debt should be assumed to find a project
capital structure decision include determining:
how much debt should be assumed to fund a project
which one of the following best states the primary goal of financial management?
maximize the current value pr share
the final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following?
net present value
Shareholders' equity:
represents the residual value of a firm
three years aho, knox glass purchased a machine for a three-year project. the machine is being depreciated straight-line zero over a five year period. assume the firm decided to forego any bonus depreciation. today, the project ended and the machine was sold. which one of the following correctly defines the aftertax salvage value of that machine? (Tc represent the relevant tax rate)
sale price + (book value - sale price)(Tc)
Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions. All requests represent positive net present value projects. All projects are independent. Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests. Management is following a practice known as:
soft rationing
the fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?
stand-alone principle
which one of the following statements is correct?
stocks can have negative growth rates
which one of the following statements correctly defines a time value of money relationship?
time and present value are inversely related, all else held constant
you cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. what is he granting of this authority called?
voting by proxy
Simulation analysis is based on assigning a ________ and analyzing the results.
wide range of values to multiple variables simultaneously
simulation analysis is based on assigning a _____ and analyzing the results
wide range of values to multiple variables simultaneously
when you assign the lowest anticipated sales price and the highest anticipated costs to a project, you are analyzing the project under the condition known as:
worst case scenario analysis
When you assign the highest anticipated sales price and the lowest anticipated costs to a project, you are analyzing the project under the condition known as:
worst-case scenario analysis.
Which one of the following is an example of a sunk cost?
$1,200 paid to repair a machine last year
which one of the following is an example of a sunk cost?
$1,200 paid to repair a machine last year
Fellini Co. wants to sell preferred stock at $85 per share, suppose the requires return is 4%, how much should they pay dividend each period.
$3.4
Your firm has total assets of $3,500, fixed assets of $2,000, long-term debt of $2,000, and short-term debt of $1,200. What is the amount of net working capital?
$300
What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?
$38,125.20
Al invested $3,630 in an account that pays 6 percent simple interest. How much money will he have at the end of five years?
$4,850
your firm has total assets of $4,700, fixed assets of $3,000, long-term debt of $2,700, and short-term debt of $1,000. what is the amount of net working capital?
$700
What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent?
$959.46
the DuPont identity can be used to help managers answer which of the following questions related to a company's operations?
- how many sales dollars are being generated per each dollar of assets? - how many dollars of assets have been acquired per each dollar in shareholders' equity? - how much net profit is being generating per dollar of sales?
Which one of following is the rate at which a stock's price is expected to appreciate?
Capital gains yield
Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
Good reputation of the company
project X has cash flows of $8,500, $8,000, $7,500, and $7,00 for years 1 to 4, respectively, project y has cash flows of $7,000, $7,500, $8,000, and $8,500 for years 1 to 4, respectively. which one of the following statements is true concerning these two projects given a positive discount rate?
Project Y has a higher present value than project X
Which one of the following statements concerning the corporate form of business ownership is correct?
The profits of a corporate are subject to double taxation
A project has a net present value of zero. Which one of the following best describes this project?
The project's cash inflows equal its cash outflows in current dollar terms.
Which one of the following statements correctly defines a time value of money relationship?
Time and present value are inversely related, all else held constant
All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity
a discount; less than
DLQ inc. bonds mature in 12 years and have a coupon rate of 6%. if the market rate of interest decrease, then the
coupon rate will also increase
Dixie South currently pays an annual dividend of $1.46 a share and plans on increasing that amount by 2.75 percent annually. Northern Culture currently pays an annual dividend of $1.42 a share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Northern Culture has a higher ________ than the stock of Dixie South.
capital gains yield
dixie south currently pays an annual dividend of $1.46 a share and plans on increasing that amount by 2.75% annually. northern culture currently pays a annual divident of $1.42 a share and plans on increasing its dividend by 3.1% annually. given this information, you know for certain that the stock of northern culture has a higher ___ than the stock of Dixie South.
capital gains yield
which one of the following is the rate at which a stock's price is expected to appreciate?
capital gains yield