Finance exam
Stephen claims that he invested $6,000 six years ago and that this investment is worth $28,700 today. For this to be true, what annual rate of return did he have to earn? Assume the interest compounded annually.
$28,700 = $6,000×(1 +r)6r = 29.80 percent
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio?
16,100 + 124,600 / 346,200 = .41
You have $500 today and want to triple your money in 6 years. What interest rate must you earn if the interest is compounded annually?
20.09 percent
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio?
348,092/ 638,227 - 348,092= 1.20
Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600. How long on average does it take the firm to sell its inventory?
365/ (764,500/123,600) = 59.01 days
It takes K's Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year.
365/ 16.8 = 21.73
Assume earnings before interest and taxes of $38,218 and net income of $14,042. The tax rate is 34 percent. What is the times interest earned ratio?
38,218/ (38,218 -[14,042/ (1-.34)])= 2.26
Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largestfuture value?
4 percent interest, compounded annually
UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate?
512,900/ 74,315= 6.90 times
When you were born, your parents opened an investment account in your name and deposited $1,500 into theaccount. The account has earned an average annual rate of return of 5.3percent. Today, the account is valued at $42,856. How old are you?
64.91 years
you want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6 percent interest. Approximately how long must you wait for your investment to double in value?
72/6 = 12 years
KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio?
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Which one of these statements is true concerning the price-earnings (PE) ratio?
A high PE ratio may indicate that a firm is expected to grow significantly.
McClary Tires plans to save$20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively. If it earns 3.3 percent on its savings, how much will the firm have saved at the end of Year 4?
FV = ($20,000 ×1.0333) + ($25,000 ×1.0332) + ($27,500 ×1.0331) + $30,000 = $107,130.78
Travis invests $5,500 today into a retirement account. He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years. After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually. How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account?
Future value = $5,500 ×(1 + .092)13×(1 + .06)(25-13)= $34,747.80
A firm has earnings before interest and taxes of $27,130, net income of $16,220, and taxes of $5,450 for the year. While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000. What is the amount of the cash flow to creditors?
Interest = $27,130 -16,220 -5,450 = $5,460 Cash flow to creditors = $5,740 + 31,600-42,000 = -$4,660
Jamie is employed as a currency trader in the Japanese yen market. Her job falls intowhich one of the following areas of finance?
International finance
Which one of the following is an advantage of being a limited partner? A. Nontaxable share of any profits B. Control over the daily operations of the firm C. Losses limited to capital invested D. Unlimited profits without risk of incurring a loss E. Active market for ownership interest
Losses limited to capital invested
Red's Tractors owes $52,311 in taxes on a taxable income of $608,606. The company has determined that it will owe $56,211 in tax if its taxable income rises to $620,424. What is the marginal tax rate at this level of income?
Marginal tax rate = ($56,211 -52,311)/($620,424-608,606) = .33, or 33 percent
the primary goal of financial management is to maximize:
Maximize the current value per share of the existing stock
Common-size financial statements present all balance sheet account values as a percentage of:
total assets
A firm has an equity multiplier of 1.5. This means that the firm has a:
total debt ratio of .33.
AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales, and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are $89,500. What is the total asset turnover rate?
318,400/ (154,500 + 89,500) = 1.30
Net working capital increases when:
inventory is sold for cash at a profit.
if you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?
investments
A corporation:
is a legal entity separate from its owners.
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
limited liability company
Which one of the following statements about a limited partnership is correct? A. All partners have their losses limited to their capital investment in the partnership. B. All partners are treated equally C. There must be at least one general partner. D. Equity financing is easy to obtain and unlimited. E. Any partner can transfer his or her ownership interest without ending the partnership.
limited partnership can sell his or her interest without the partnership dissolving.
Cash flow from assets is defined as:
operating cash flow minus the change in net working capital minus net capital spending
A limited liability company (LLC):
prefers its profits be taxed as personal income to its owners.
Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318?
present value
Limited liability companies are primarily designed to:
provide limited liability while avoiding double taxation.
Financial statement analysis:
provides useful information that can serve as a basis for forecasting future performance.
Cash flow to stockholders is defined as:
refers to the firm's dividend payments less any net new equity raised
Which one of the following situations is most apt to create an agency conflict? A. Compensating a manager based on his or her division's net income B. Giving all employees a bonus if a certain level of efficiency is maintained C. Hiring an independent consultant to study the operating efficiency of the firm D. Basing management bonuses on the length of employment E. Laying off employees during a slack period
rejecting a profitable project to protect employee jobs
You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:
secondary market.
Margie opened a used bookstore and isboth the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?
sole proprietorship
Operating cash flow is defined as
the cash that a firm generates from its normal business activities
An agency issue is most apt to develop when:
the control of a firm is separated from the firm's ownership
Isaac only has $1,090 today but needs $1,979 to buy a new computer. How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant
$1,979 = $1,090 ×(1 + .054)^t t = 11.34 years
Assume the total cost of a college education will be $325,000 when your child enters college in 16 years. You presently have $40,000 to invest and do not plan to invest anything further. What annual rate of interest must you earn on your investment to cover the entire cost of your child's college education?
$325,000 = $40,000×(1 +r)16r = 13.99 percent
What is the future value of $5,700 invested for 18 years at 9 percent compounded annually?
$5,700 ×(1.09)18= $26,887.59
A firm has net income of $28,740, depreciation of 6,170, taxes of $13,420, and interest paid of $2,605. What is the cash coverage ratio?
(28,740 + 13,420 + 2,605 + 6,170)/2,605 = 19.55
You are analyzing a company that has cash of $8,800, accounts receivable of $15,800, fixed assets of $87,600, accounts payable of $40,300, and inventory of $46,900. What is the quick ratio?
(8,800 + 15,800) / 40,300 = .61
Motor Works has total assets of$919,200, long-term debt of $264,500, total equity of $466,900, net fixed assets of $682,800, and sales of $1,021,500. The profit margin is 6.2 percent. What is the current ratio?
(919,200-682,800)/(919,200-264,500-466,900)= 1.26
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit margin of 4.4 percent. What is the return on equity?
.044 x 1,523,000/ 948,300 = 7.07 %
Spring Falls Gifts has sales of $680,300, total assets of $589,100, and a profit margin of 4.3 percent. What is the return on assets?
.43 x 680,300 = 29,252.90 29,252.90/ 589,100 =4.97%
The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:
Agency Conflict
Which one of the following has nearly the same meaning as free cash flow?A. Net income B. Cash flow from assets C. Operating cash flow D. Cash flow to shareholders E. Addition to retained earnings
Cash flow from assets
The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. The firm reduced its net working capital by $28,000 and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year?
Cash flow to stockholders = ($187,000 - $28,000 - $47,900) - $71,400 = $39,700
Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?
Change in net working capital = ($82,600 - $85,100) - ($67,200 - $71,100) = $1,400
One advantage of the corporate form of organization is the:
Corporate get double tax
Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?
Corporation
Rooster's currently has $5,200 in cash. The company owes $31,700 to suppliers for merchandise and $41,500 to the bank for a long-term loan. Customers owe the company $26,400 for their purchases. The inventory has a book value of $53,300 and an estimated market value of $56,500. If the store compiled a balance sheet as of today, what would be thebook value of the current assets?
Current assets = $5,200 + 26,400 + 53,300 = $84,900
Security dealers:
Dealers buy and sell from their own inventory
Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year. Sales totaled $361,820 with costs of $267,940. The depreciation expense was $16,500 and the tax rate was35 percent. What was the amount of the operating cash flow?
EBIT = $361,820-267,940-16,500 = $77,380 Tax = ($77,380-9,310) ×.35 = $23,824.50 OCF = $77,380 + 16,500 -23,824.50 = $70,056
which one of the following statements is correct? A. NASDAQ has more listed stocks than does the NYSE. B. The NYSE is a dealer market. C. NASDAQ is an auction market. D. NASDAQ has the most stringent listing requirements of any U.S. exchange. E. The trading floor for NASDAQ is located in Chicago.
NASDAQ has more listed stocks than does the NYSE
Marcie's has sales of $179,600,depreciation of $14,900, costs of goods sold of $138,200, and other costs of $28,400. The tax rate is 35 percent. What is the net income?
Net income = ($179,600 -138,200 -28,400 -14,900)(1 -.35) = -$1,235
The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net income for this firm?
Net income = ($398,600 - $254,800 - $26,400 - $1,600) (1 - 0.34) = $76,428
Holly Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100, and interest paid of $12,400. The tax rate is 28 percent. How much net income did the firm earn for the period?
Net income = ($509,600 -448,150 -36,100 -12,400)(1 -.28) = $9,324
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital?
Net working capital = $21,100 + $8,600 - $19,300 = $10,400
Which one of the following statements correctly applies to a sole proprietorship?
Obtaining additional equity is dependent on the owner's personal finances.
Which one of the following is the correct formula for the current value of $600 invested today at 5 percent interest for 6 years?
PV = $600 / (1 + .05)6
How much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $42,000 a year for 25 years? She expects to earn an average rate of return of 9.75 percent.
PV of an Annuity = $42,000 ×{1 - [1 / (1 + .0975)^25]} / .0975 = $388,683.83
You want to have $40,000 for a down payment on a house 4 years from now. If you can earn 5.6 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?
Present value = $40,000/(1 + .056)4 = $32,166.54
The cash ratio is used to evaluate the:
ability of a firm to pay the interests on its debit
Net working capital decreases when:
accts payable increases more than accts rec inc
The financial statement that summarizes a firm's accounting value as of a particular date is called the:
balance sheet
Highly liquid assets:
can be sold quickly at close to full value.
Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:
capital structure management
Net working capital is defined as:
current assets minus current liabilities
The interest rate used to compute the present value of a future cash flow is called the:
discount rate
Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:
future value
An auction market:
has a physical trading floor.
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm:
has a positive networking capital
A sole proprietorship:
has its profits taxed as personal income.
Corporate shareholders
have the ability to change the corporation's bylaws.
The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:
income statement
The present value of a lump sum future amount:
increases as the interest rate decreases.
Financial leverage:
increases the potential return to the shareholders.
Cash flow to creditors is defined as:
interest paid mines net new borrowing
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A. DuPont rate B. External growth rate C. Sustainable growth rate D. Internal growth rate E. Cash flow rate
internal growth rate
