Finance Middle Term

Which one of the following characteristic applies to a limited liability company ?

Taxed similar to a partnership

Which one of the following statements related to an income statement is correct?

Taxes reduce both net income and operating cash flow.

Which one of the following will produce the lowest present value interest factor?

8 percent interest for 10 years

Which one of the following is the financial statement that shows the accounting value of a firm's equity as a particular date?

Balance Sheet

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following ?

Base-year accounts receivables.

You're trying to save to buy a new $72,000 sport car you have $38,000 today that can be invested at your bank. The bank pays 1.26 percent annual interest on its accounts. How many years will it be before you have enough to buy the car assuming the price of the car remains constant?

51.04 years

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets?

$13,358.77

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?

$720

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $289,740?

33.22 Percent

One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn?

6.92 percent

A firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

1.51 percent

If a firm has a debt-equity ratio of 1.0, then its total ratio must be which one of the following ?

.5

Which one of the following actions by a financial management is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity.

A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit?

cash

Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the base year.

(2015 inventory / 2015 total assets) / (2014 inventory / total assets))

Which of the following individuals have unlimited liability based on their ownership interest? I. general partner II. Sole proprietor III. Stockholder IV. Limited partner

I and II only

The articles of incorporation: I. Describe the purpose of the firm. II. Are amended periodically. III. Set forth the number of shares of stock that can be issued. IV. Details the method that will be used to select corporate directors.

I and III only

Which one of the following statements is correct concerning the NYSE?

The listing requirements for the NYSE are more stringent than those of NASDAQ.

Which one of the following accurately defines a perpetuity?

Unending equal payments paid at equal time intervals.

Barlow's Feed had the following current account values. What effect did the change in net working capital have on the firm's cash flows for the year ? Beginning of year End of year Cash $179 $164 Accounts receivable 415 480 Inventory 987 923 Accounts payable 562 649

Net source of cash of $101.

Cash flow from assets is also known as the firm's

Free cash flow.

You have gathered this information on JJ Enterprises: 2014 2015 Sales $6,318 - $7,202 COGS 3,945 - 4,460 Interest 303 - 277 Depreciation 601 - 578 Cash 672 - 418 Accounts receivables 601 - 578 Current Liabilities 414 - 463 Inventory 1,215 - 1,598 Long-term debt 4,780 - 4,103 Net fixed assets 7,700 - 7,330 Net fixed assets 7,700 - 7,330 Shareholder's equity 4,994 - 5,358 Taxes 217 - 317 What is the cash flow from assets for 2015?

$1,542

Which one of the following represents the most liquid asset?

$100 of inventory that is sold today for $100 cash.

You are borrowing $21,800 to buy a car. The terms of the loan call for monthly payments for five years at 8.25 percent interest. What is the amount of each payment?

$444.64 PVA = $21,800 = C × [(1 - {1 / [1 + (.0825 / 12)](5 ×12)}) / (.0825 / 12)] C = $444.64

Al invested $7,200 in an account that pays 4 percent simple interest. How much money will he have at the end of five years?

$8,640

How many days on average does it take to sell the inventory? (Use year-end values)

177.13 days

Which one of the following statements related to annuities and perpetuities is correct?

A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments given equal discount rate.

You are comparing two annuities that offer quarterly payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a sigle lump sum payment. Annuity A will pay you monthly. Starting today. While annuty B will pay Monthly, statiing one month from today. Which one of the following statements is correct aconcerning these two annuities?

Annuity B has a smaler persent value than annuty A

A stakeholder is:

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now?

Future value.

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Can provide less information to its shareholders than it did prior to "going dark."

Which one of the following terms is defined as the management of a firm's long-term investment?

Capital budgetingf

Which of these will increase the present value of an amount to be received sometime in the future?

Decrease in the interest rate.

Accounting to the statement of cash flows, an increase in interest expense will ------the cash flow from -----activities

Decrease; operating.

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Decreasing corporate profits.

Corporate Bylaws:

Determine how a corporation regulated itself.

Which one of the following is a Capital Structure decision?

Determining how much debt should be assumed to found a project.

A limited partnership:

Has a greater ability to raise capital than a sole proprietorship.

Which one of the following functions should be the responsibility of the controller rather than the treasure?

Income Tax Returns

Shareholder A sold share of Maplewood Cabinets stock to shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following ?

Secondary, auction market.

Whichone of the following will decrease the value of a firm's net working capital?

Selling inventory at a loss.

Which one of the following statements concerning stock exchanges is correct?

Some large companies are listed on NASDAQ

Which one of the following is defined as a firm's short-term assets and it's short-term liabilities?

Working Capital

You have gathered this information on JJ Enterprises: 2014 - 2015 Sales = $6,318 - $7,202 COGS = 3,945 - 4,460 Interest = 303 - 277 Depreciation = 1.204 - 1,196 Cash = 672 - 418 Accounts Receivables = 601 - 578 Current Liability = 414 - 463 Inventory = 1,215 - 1,598 Long-term debt = 4,780 - 4,103 Net fixed assets = 7,700 - 7,330 Shareholder's equity = 4,994 - 5,358 Taxes = 217 - 317 Log-term debt = 4,780 - 4,103 Net fixed assets = 7,700 - 7,330 Shareholder's equity = 4,994 - 5,358 taxes = 217 - 317 What is the net working capital for 2015?

$2,131

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?

$38,125.20

You just won the magazine, sweepstakes and opted to taked to take unending payments. The first payments will be $21,500 and be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the the present value of your prize at a discount rate of 7.9 percent?

$398.148 $21,500/ 0.025 - 0.079 = 398,148

Your insurance agent is trying to sell you an annuity that cost $50,000 today. By buying this annuity. your agent promises that you will receive payments of $250 a month for the next 20 years. What is the rate of return on this investment?

1.88 percent Calculator: N = (20 *12) = 240; I/Y (/12) ; PV= -$50,000 ; PMT = 250 ; FV = 0 CPT I/Y = 0.156 * 12 = 1.875 = 1.88

Which one of the following statement is correct?

An increase in the depreciation expense will not affect the cash coverage ratio.

Why should financial management strive to maximized the current value per share of the existing stock?

Because they have been hired to represent the interest of the current shareholders.

Which one of the following statements is correct?

Corporate can raise large amounts of capital generally easier than partnership can..

A firm has interval measure of 48, This means that the firm has sufficient liquid assets to do which one of the following?

Cover its operating costs for the next 48 days

Which one of the following is a Working Capital management decision?

Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following ?

Discount rate.

According to the Rule of 72, you can do which one of the following?

Double your money in 5 years at 14.4 percent interest

An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates?

Effective annual rate.

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel have nothing to lose doing so. All three individual will share in the firm's profits and wish to keep them initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

Limited Partnership

The U.S. government coding system that classifies a firm by the nature of its business operations is knowing as the:

Standard industrial Classification codes.

You collect old coins. Today, you have two coins each of which is valued at $100. One coin is expected to increase in value by 5.2 percent annually while the other coin is expected to increases in value by 5 percent annually. What will be the difference in the value of the two coins 25 years from now?

$16.50

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity

$18,700

You are comparing two annuities with equal present values. The applicable disocunt rate is 7.25 percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year?

$2,681.25

You would like to give your daughter $75,000 towards her collage education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments?

$20,270.17

A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payable increased by $15, accounts receivables increasing by $28, what was the net cash flow from operating activity?

$959

During the year, RIT Corp. had sales of $565,600. Costs of good sold, administrative and selling expenses, and depreciation expenses were $476,000, $58,800, and $42,800, respectively. In addition, the company had an interest expense of $112,000 and a tax rate of 32 percent. What is the operating cash flow for the year? Ignore any tax loss carryback or carry-forward provisions.

$21,840

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year. The current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

$21,903

Stephanie is going to contribute $250 on the first of each month, starting today, to her retirement account. Her employer will provide a 50 percent match. In order words, her employer will add $125 to the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly interest rate .5 percent, how much will she have in her retirement account 25 years from now?

$261,172 FVA Due = ($250 + 125) × {[(1 + .005)^(25 × 12) - 1] / .005} × 1.005 = $261,172

You just purchased an annuality that will pay you $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8.5 percent?

$266,498

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?

$35,900 Book value of shareholders' equity = $97,400 + 41,300 - 102,800 = $35,900

You have just made a $1,500 contribution to your individual retirement account. Assume you earn a rate of return of 8.7 percent and make no additional contributions. How much more will your account be worth when you retire in 25 years than it would be if you waited another 5 years before making this contribution?

$4,117.64

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000. current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash, The book value of the Widget Co.'s assets today is ------- and the market value of those assets is ------.

$4,600,000; $3,900,000

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co's current balance sheet shows net fixed assets of $2,500,000. current liabilities of $1,375,000, and net working capital of the $725,000. If all the current assets were liquidated today, the company would received $1.9 million in cash, the book value of the Widget Co.'s assets today is ________ and the market value of those assets is _________.

$4,600,000; $3,900,000 Book value = ($725,000 + 1,375,000) + 2,500,000 = $4,600,000 Market value = $1,900,000 + 2,000,000 = $3,900,000

You are considering two saving options. Both options offer a rate of return of 11 percent. The first option is to save $2,500, $1,500, and $3,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today?

$5,663.26 PV = [$2,500/(1 + 11%)1 year] + [ $1,500/ (1 +11%)2year] + [$3,000/ (1 +11% )3 PV = 2,252.25 + 1,217.43 + 2,193.57 = 5,663.26

You have gathered the following information on JJ Enterprises. The firm neither sold nor repurchased any stock during the year. 2014 2015 Sales $6,318 - $7,202 COGS 3,945 - 4,460 Interest 303 - 277 Depreciation 1,204 - 1,196 Cash 672 - 418 Accounts receivables 601 - 418 Current Liabilities 414 - 463 Inventory 1,215 - 1,598 Long-term debt 4,780 - 4,103 Net fixed assets 7,700 - 7,330 Net fixed assets 7,700 - 7,330 Shareholder's equity 4,994 - 5,358 Taxes 217 - 317 What is the dividend amount paid in 2015?

$588

Supposed you are given the following information for Bayside Bakery: sales = $30,000; cost = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent. What is the amount of the depreciation expense?

$7,000

A firm's balance sheet showed beginning net fixed assets of $3.6 million and ending net fixed assets of $3.4 million. The depreciation expense is $900,000. What was the net capital spending for the year?

$700,000

You just won the grand prize in a national writing contest! As your prize, you will receive $1,000 a month for 10 years. If you can earn 7 percent on your money. What is this prize worth to you today?

$86,126.35

Drew owns The What-Not Shop, which he is trying to sell so that he can retire and travel. The shop owns the building in which it is located. This building was built at a cost of $647,000 and is currently appraised at $819,000. The counters and fixtures originally cost $148,000 and are currently value at $65,000. The inventory is valued on the balance sheet at $319,000 and has a retail market value equal to 1.1 times its cost. Jake expects the store to collect 96 % of the $21,700 in accounts receivable. The firm has $26,800 in cash and has total debt of $414,700. What is the market value of this firm?

$867,832

Drew owns The What-Not shop, which he is trying to sell so that he can retire and travel. the shop owners the building in which it is located. This building was built at a cost of $647,000 and is currently appraised at $819,000. The countries and fixtures originally cost $148,000 and are currently valued at $65,000. The inventory is valed on the balance sheet at $319,000 and has aretail market value equal to 1.1 times its cost. Jake expects the store to collect 96 percent of the $21,700 in account receivable. The firm has $26,800 in cash and has total debt of $414,700. What is the market value of this firm?

$867,832

You are considering an annuity that costs $160.000 today. The annuity pays $17,500 a year at an annual interest rate of 7.5 percent. What is the lengh of the annuity time period?

16 Years N = ? ; PV = -160,000 ; I/Y = 7.5 % ; PMT = 17,500 ; FV = 0

Use the below information to answer the following question. Income Statement For the year Net sales $631,000 COGS 442,220 Depreciation 28,100 EBIT $160,700 Interest 14,900 Taxable income $145,800 Taxes 49,600 Balance Sheet Beginning of year End of year Cash $38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets 849,600 $882,400 Accounts payable $136,100 104,300 Long-term debt 329,500 298,200 Common stock ($1 par value) 75,000 82,000 Retained earnings 309,000 397,900 Total liab. & equity $849,600 882,400 How many days on average does it take to sell the inventory? (use year-end values)

177.13 days

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compunded on a monthly basis.

Amortized loan with equal pricipal payments.

You want to have $1 million in your savings account when you retire. You plan on investment a single lump sum today to found this goal. You will earn 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million one the day you retire? I. invest in a different account paying a higher rate of interest. II. Invest in a different account paying a lower rate of interest. III. Retire later IV. Retire sooner

I and III only.

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raises capital. IV. Unlimited firm life.

I, III, IV only.

Which of the following questions are addressed by financial management? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II, III, and IV

Which of the following can be used to compute the return on equity? I. Profit margin return on assets II. Return on assets Equity multiplier III. Profit margin Total asset turnover Debt-equity ratio IV. Net income/ Total assets

II. only.

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management ?

Increase in the market value per share.

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by by one year and graduate two years from now?

Increases

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Limited Partnership

Decisions made by financial management should primarily focus on increasing which one of the following ?

Market value per share of outstanding stock.

You just received an insurance settlement offer realted to an acident you had three years ago. The offer provides you with three choices: Option A: $1,500 a month for 6 years Option B: $1,025 a month for 10 years Option C: $85,000 as a lump sum payment today You can earn 7.5 percent on your investments and do not care if you personally receive the funds or if they rate paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified?

Option A: it has the greatest value today.

The cash coverage ration directly measures the ability of a firm to meet which one of its following obligations?

Payment of interest to a lender

Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 year old. Neal invests $5,000 at 7 percent when he is 30 year old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming neither Sue nor Neal withdraw any money from their accounts prior to retiring?

Sue will have more money than Neal at age 60

Which one of the following statements concerning a Sole Proprietorship is correct?

T is easy to create a sole proprietorship.

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

The labor costs for producing a product when the product is sold.

Which one of the following statement related to an income statement is correct? Assume account accounting is used.

The labor costs for product are expensed when the product is sold.