FINC Sirmans Final Quizzes and Menti Questions
On the left side of the balance sheet, assets are generally ordered in terms of____.
Liquidity
Which bond is likely to exhibit the greatest sensitivity to changes in interest rates?
Long-term bond and small coupon bond
Is it contrary to market efficiency for a company to report positive earnings yet simultaneously observe a drop in stock price?
No
What is the risk of a portfolio with two stocks that each have a standard deviation of 15%
Not enough information
In a healthy firm, net working capital is usually:
Positive
According to our discussion, which one is the LEAST used among corporations to evaluate potential projects?
Profitability Index
Which group likely exhibits the greatest decline during financial market downturns?
Small stocks
Corporate dividends are:
Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.
The shape of the yield curve in normal times is:
upward-sloping
You want to buy a new sports car from Muscle Motors for $37,000. The contract is in the form of a 60-month annuity due at a 6.50 percent APR. What will your monthly payment be?
$720.05
Staind, Inc., has 8 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10 percent, what is the current bond price?
$912.89
What is the future value in 20 years of a $100,000 investment that generates a 12% annual return.
$964,000
What is the expected return of a portfolio with two stocks that each have an expected return of 5%?
5%
Which one of the following is a capital structure decision?
Determining how much debt should be assumed to fund a project.
A coupon rate of a bond is 10%, and its yield is currently 12%. Is the bond trading at a premium or discount relative to its par value?
Discount
Which formula is used for "operating cash flow"?
EBIT + Depreciation - Taxes
Why might the ROA and ROE be different?
Leverage
When interest rates rise, bond prices:
fall
What is the cash flow of a perpetuity valued at $10,000? Assume 8% discount rate.
$800
For the year just ended, Ypsilanti Yak Yogurt shows an increase in its net fixed assets account of $675. The company took $140 in depreciation expense for the year. How much did the company spend on new fixed assets?
$815
You invest $10,000 and it grows at a rate of 12% per year. What is the value after 10 years?
31,058
Assets in the balance sheet are listed in order of:
Liquidity
A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 -$31,000 1 24,000 2 16,000 3 11,000 At a required return of 38 percent, what is the NPV for this project?
$-1,021.52
For the following set of cash flows, what is the NPV at a discount rate of 22 percent? Year Cash Flow 0 -$9,900 1 4,900 2 3,700 3 5,100
$-589.11
Grohl Co. issued 13-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments. If the YTM on these bonds is 7 percent, what is the current bond price?
$1,080.29
You invest $100 in an account earning 5% interest. What is the value at the end of the year?
$105
Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. What is the value of the shareholders' equity account for this firm? Hint: Construct a simple balance sheet and remember the two sides must balance.
$11,300
The 2018 balance sheet of Saddle Creek, Inc., showed current assets of $1,490 and current liabilities of $980. The 2019 balance sheet showed current assets of $1,700 and current liabilities of $1,080. What was the company's 2019 change in net working capital, or NWC? Hint: Change in NWC = NWCend - NWCbeg
$110
Mahjong, Inc., has identified the following two mutually exclusive projects. If the required return is 8 percent, Project B has an NPV of $12,592 and an IRR of 20.03% . Year Cash Flow (A) Cash Flow (B) 0 -$36,000 -$36,000 1 18,900 6,100 2 14,400 12,600 3 11,900 19,100 4 8,900 23,100
$12.592 20.03%
You invest $100 in an account earning 5% interest. What is the value at the end of 100 years?
$13,150
Y3K, Inc., has sales of $4,600, total assets of $3,225, and a debt−equity ratio of 1.60. If its return on equity is 11 percent, what its net income? Hint: This is a complex problem that involves the DuPont Identity. If you can figure out the profit margin, then you can find net income since sales are given.
$136.44
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $29,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,034,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $1,800 per month for the next 20 years. If he can earn a 10 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 21 through 30?
$16,447.30
In 1895, the first a sporting event was held. The winner's prize money was $110. In 2007, the winner's check was $1,170,000. Assuming the same annual percentage increase will continue, what will the prize money be in 2040?
$17,974,289
What is the monthly payment on a 30-year $300,000 martgage at a monthly rate of 0.5%?
$1799
How much do I need to deposit every year over 40 years i order to have $5m at the end? Assume 8% returns.
$19,300
Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to stockholders? Hint: CFS = Dividends - Net new equity
$2,200
A project that provides annual cash flows of $2,400 for 10 years costs $13,100 today. If the required return is 9 percent, what is the NPV for this project?
$2,302.38
A stock pays a coninuos dividend of $30 per share per year and has a required return of 15%. What is its price?
$200
A stock pays a quarterly dividend of $10 and its required return is 20%. What is its price?
$200
What is the future value in 10 years of a $100 investment that generates 8% per year compounded semi-annually?
$219
XXL Roach Exterminators, Inc., has sales of $704,000, costs of $255,000, depreciation expense of $39,000, interest expense of $32,000, and a tax rate of 40 percent. What is the net income for firm? Hint: Construct a simple income statement using the information given.
$226,800
Wakers, Inc., has sales of $43 million, total assets of $24 million, and total debt of $8 million. If the profit margin is 8 percent, what is the net income? For additional practice, try calculating the ROA and ROE.
$3,440,000
If you put up $32,000 today in exchange for a 8.50 percent, 18-year annuity, what will the annual cash flow be?
$3,533.77
A firm plans to start paying a $1 dividend forever three years from today. Required return is 20%. What is its price?
$3.47
A firm just paid a $5 dividend. It is expectedto increase by 3% every year. Required return is 20%. What is its price?
$30.29
Imprudential, Inc., has an unfunded pension liability of $850 million that must be paid in 16 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.5 percent, what is the present value of this liability?
$310,331,029
You have just made your first $3,000 contribution to your retirement account. Assuming you earn an 7 percent rate of return and make no additional contributions. What will your account be worth when you retire in 35 years?
$32,030
A project will cost $300m and is expected to generate $100m per year for five years. Discount rate is 15%. What is the vaue added?
$35
What is the price of an asset that generates $100 every year for 5 years, assuming a discount rate of 10%?
$380
You have just received notification that you have won the $4.5 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 72 years from now. What is the present value of your windfall if the appropriate discount rate is 10 percent?
$4,709.11
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $4.85 million. Klingon's current balance sheet shows net fixed assets of $3 million, current liabilities of $1.6 million, and net working capital of $510,000. If all the current assets were liquidated today, the company would receive $1.8 million cash. What is the book value of Klingon's assets today? Hint: CA = NWC + CL.
$5,110,000
The Ashwood Company has a long-term debt ratio of 0.50 and a current ratio of 1.60. Current liabilities are $970, sales are $5,175, profit margin is 9.80 percent, and ROE is 17.60 percent. What is the amount of the firm's net fixed assets? Hint: This is another complex problem that requires a number of steps. Remember that CA + NFA = TA. So, if you find CA and TA, then you can solve for NFA. Helpful Equations: Long-term debt ratio = LTD / (LTD + TE)
$5,181.07
A firm is expected to pay a $8 dividend next year and then increase it by 4% every year. The required return is 20%. What is its price?
$50
A stock pays an annual dividend of %5 and its required return is 10%. What is its price?
$50
A firm plans to pay a continuous quarterly dividend of $3. Investors' required return is 24%. What is the stock price?
$50.00
Penguin Pucks, Inc., has current assets of $3,400, net fixed assets of $18,500, current liabilities of $2,900, and long-term debt of $7,700. How much is net working capital? Hint: NWC = CA − CL.
$500
You deposit $1,300 at the end of each year into an account paying 11.1 percent interest. How much money will you have in the account in 16 years?
$51,390.6
You plan to sell a painting in 5 years for $10,000. You want an annual 10% return. What do you pay for it today?
$6,209
Dinero Bank offers you a $36,000, 8-year term loan at 8 percent annual interest. What will your annual loan payment be?
$6,264.53
A bond's face value is $1000, coupon rate is 6% (paid annually), and maturity is 5 years. It is currently yielding 12%. What is the coupon payment?
$60
What is the present value of $1,000 to be recieved 10 years from now and the discount rate is 5%.
$614
Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 cash flow to creditors? Hint: CFC = Interest - Net new LTD
$7,900
Your coin collection contains 48 silver dollars from the year 1947. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2048, assuming they appreciate at a 10 percent annual rate?
$727,616.33
What is the present value of a 20-year $100 ordinary annuity discounted at 12%?
$747
Organic Chicken Company has a debt-equity ratio of 0.70. Return on assets is 9.20 percent, and total equity is $504,000. What is the net income? Hint: You'll need the ROE...
$78,826
Jetson Spacecraft Corp. shows the following information on its 2019 income statement: sales = $214,000; costs = $91,000; other expenses = $6,100; depreciation expense = $9,100; interest expense = $13,300; taxes = $37,800; dividends = $10,100. In addition, you're told that the firm issued $7,900 in new equity during 2009 and redeemed $9,500 in outstanding long-term debt. What is the 2019 operating cash flow? Hint: OCF = EBIT + Depreciation - Taxes.
$79,100
What is the future value of $1,000 in 20 years assuming an interest rate of 11 percent compounded semiannually?
$8,513.31
You are scheduled to receive $33,000 in two years. When you receive it, you will invest it for 6 more years at 8.0 percent per year. How much will you have in 8 years?
%52,366.85
Mahjong, Inc., has identified the following two mutually exclusive projects. If the required return is 8 percent, Project A has an NPV of $8,167.21 and an IRR of 21.55% . Year Cash Flow (A) Cash Flow (B) 0 -$36,000 -$36,000 1 18,900 6,100 2 14,400 12,600 3 11,900 19,100 4 8,900 23,100
%9,834.05 21.55%
Diversification benefits are maximized when assets in your portfolio have a correlation of ______
-1
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, a sculpture was sold at auction for a price of $10,309,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,374,500. What was his annual rate of return on this sculpture?
-4.46%
The IRR is the discount rate that makes NPV equal to_______
0
Braam Fire Prevention Corp. has a profit margin of 10.70 percent, total asset turnover of 1.39, and ROE of 18.71 percent. What is its firm's debt-equity ratio? Hint: Refer to the Du Pont Identity.
0.26
You are looking at an investment that has an effective annual rate of 6 percent. What is the effective monthly return?
0.49%
Crystal Lake, Inc., has a total debt ratio of 0.36. What is its debt-equity ratio? Hint: What you are given is TD / (TD + TE). What you need to find is TD / TE.
0.56
SDJ, Inc., has net working capital of $1,640, current liabilities of $4,450, and inventory of $1,895. What is the current ratio? Hint: Current ratio is CR = CA / CL.
1.37
What is the payback period for the following set of cash flows? Year Cash Flow 0 −$ 2,500 1 2,400 2 1,600 3 1,800 4 2,300
1.06
$3000 in Apple (beta=1.2), $550 in Microsoft (beta=0.8), $1500 in Amazon (beta=2.0). What is your portfolio beta?
1.1
An investment project has annual cash inflows of $5,200, $6,300, $7,100, and $8,400, and a discount rate of 19 percent. What is the discounted payback period for these cash flows if the initial cost is $8,000?
1.82 years
Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,450 monthly. The contract currently sells for $74,000. What is the monthly return on this investment vehicle?
1.96%
One More Time Software has 8.8 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 89.0 percent of par. What is the yield to maturity (YTM)?
10.25%
One More Time Software has 8.8 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 89.0 percent of par. What is the effective yield? To answer this, remember the difference between the stated rate and effective rate. In this case, use the YTM you found in the previous problem as the stated rate.
10.51%
Ngata Corp. issued 18-year bonds 2 years ago at a coupon rate of 10.6 percent. The bonds make semiannual payments. If these bonds currently sell for 100 percent of par value, what is the YTM?
10.60%
Seether Co. wants to issue new 19-year bonds for some much-needed expansion projects. The company currently has 8.0 percent coupon bonds on the market that sell for $789.18, make semiannual payments, and mature in 19 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?
10.60%
Metroplex Corporation will pay a $4.60 per share dividend next year. The company pledges to increase its dividend by 4.60 percent per year indefinitely. If you require an 9.20 percent return on your investment, how much will you pay for the company's stock today?
100.00
The next dividend payment by Hot Wings, Inc., will be $4.15 per share. The dividends are anticipated to maintain a 3 percent growth rate forever. If the stock currently sells for $46 per share, what is the required return?
12.02
Company has 15-year bonds, coupon rate of 10%, face value of $1000, and selling for $850. What is cost of debt?
12.23%
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Blue Co.?
12.61
Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 14 percent per year. The bank uses daily compounding on its loans. What is the APR of these loans?
13.11%
How many years does it take for a $1 investment to grow to $5 assuming an 12% annual return compounded monthly?
13.5
Organic Chicken Company has a debt-equity ratio of 0.70. Return on assets is 9.20 percent, and total equity is $504,000. What is the return on equity (ROE)? Hint: First find the equity multiplier, EM = 1 + D/E. Then use the EM to convert ROA to ROE.
15.64%
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Yellow Corp.?
16.47
Kiss the Sky Enterprises has bonds on the market making annual payments, with 13 years to maturity, and selling for $930. At this price, the bonds yield 10.0 percent. What must the coupon rate be on the bonds?
18.03%
If Roten Rooters, Inc., has an equity multiplier of 1.40, total asset turnover of 1.26, and a profit margin of 10.50 percent. What is its ROE? Hint: Refer to the Du Pont Identity.
18.52%
A project will cost $300m and is expected to generate $100m per year for five years. What is the implied rate of return?
19.9%
Suppose you paid $20 for a stock at year 0 and sold it at year 1 for $24. During the year, the stock paid $4 in dividends. What is the dividend yield?
20%
Apocalyptica Corp. pays a constant $28 dividend on its stock. The company will maintain this dividend for the next 10 years and will then cease paying dividends forever. If the required return on this stock is 6 percent, what is the current share price?
206.08
You expect to receive $16,000 at graduation in two years. You plan on investing it at 9 percent until you have $98,000. How long will you wait from now?
23.03 years
What is the IRR of the following set of cash flows? Year Cash Flow 0 -$9,444 1 5,700 2 4,200 3 4,100
24.26%
What return must I earn in order to triple my money in five years?
25%
Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $1.40 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.50 percent, and 15.10 percent, respectively. What is the stock price for Red. Inc.?
28.00
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.36 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a 10 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?
28.56
A project will cost $300m and is expected to generate $100m per year for five years. Discount rate is 15%. How long does it take to get paid back?
3 years
In January 2007, the average price of an asset was $28,858. 8 years earlier, the average price was $21,808. What was the annual increase in selling price?
3.56%
Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 12 percent, what is the present value of these cash flows? Year Cash Flow 1 $850 2 1,040 3 1,340 4 1,160
3279
You purchased a stock for $20, held it for 5 years, and sold it for $98. What is your annual return?
37%
Suppose you paid $20 for a stock at year 0 and sold it at year 1 for $24. During the year, the stock paid $4 in dividends. What was your total return?
40%
You're trying to save to buy a new $210,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 3.5 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
41.72 years
Far Side Corporation is expected to pay the following dividends over the next four years: $11, $7, $6, and $3. Afterward, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 15%, what is the current share price?
43.46
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend in 9 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?
47.02
How long does it take to double your money if your rate of return is 15%?
5 years
Suppose you know a company's stock currently sells for $80 per share and the required return on the stock is 14 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current (time 0) dividend per share?
5.23
An investment project provides cash inflows of $650 per year for 9 years. What is the project payback period if the initial cost is 3,640?
5.6 years
If the mean return of a stock is 15% and return are normally distributed, what is the likelihood of realizing a return less than 15%?
50%
A stock has future return possibilities of -10%, 5%, and 25%, with equal likelihood. What is the expected return?
6.67
What is the implied rate of return if you purchased a stock four years ago at $4 and sold it at $32?
68%
Ackerman Co. has 6 percent coupon bonds on the market with thirteen years left to maturity. The bonds make annual payments. If the bond currently sells for $907.03, what is its YTM? Assume a par value of $1,000.
7.12%
A stock has exhibited returns of 8%, 2%, 16%, and -4% over the past four years. What is the standard deviation (sigma)?
8.5%
A stock will generate a 25% return with 0.10 prob, 10% with 0.75 prob, and -10% with 0.15 prob. What is the expected return?
8.5%
Ashes Divide Corporation has bonds on the market with 15 years to maturity, a YTM of 6.4 percent, and a current price of $1,286.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?
9.40%
One More Time Software has 9.6 percent coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 100.4 percent of par. What is the current yield on the bonds?
9.56%
Choose the highest quality bond rating.
AA
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
Agency problem
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.
Which tells us how efficiently a firm is using its assets to generate revenue?
Asset Turnover
Which credit rating represents the HIGHEST likelihood of default?
BB
Numbers reported in the balance sheet are:
Book Values
Which one of the following is a capital budgeting decision?
Deciding whether or not to purchase a new machine for the production line.
Which one is considered a cash outflow?
Decrease in book liabilities
Which one is NOT a cash outflow for the firm?
Depreciation
What is the firm's decision-making process regarding long-term investments and projects?
Capital budgeting
Which one of the following terms is defined as the management of a firm's long-term investments?
Capital budgeting
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
Capital structure
Which refers to a firm's mixture of debt and equity financing?
Capital structure
Which is a BENEFIT of a sole proprietorship?
Cash flows taxed as personal income
___ involves comparing a firm to a peer group.
Cross-sectional analysis
We will only accept a potantial project when the NPV value is _______
Greater than zero
The ideal stock is one with a ______return and _____ standard deviation of returns.
High, Low
Which one of the following actions by a financial manager is most apt to create an agency problem?
Increasing current profits when doing so lowers the value of the firm's equity.
What is it called when a company goes public and issues equity shares for the first time?
Initial Public Offering (IPO)
Which of the following BEST describes a sunk cost?
It is money that has been spent, and is not recoverable.
What is the tax rate that applies to the next $1 earned?
Marginal tax rate
Which one best represents what a firm is "worth"?
Market capitalization
Which one of the following best states the primary goal of financial management?
Maximize the current value per share.
If there is a conflict in ranking projects using NPV, IRR, and profitability index (PI), which do we prefer?
NPV
Mahjong, Inc., has identified the following two mutually exclusive projects. If the required return is 8%, which project creates more value for the firm? Year Cash Flow (A) Cash Flow (B) 0 -$36,000 -$36,000 1 18,900 6,100 2 14,400 12,600 3 11,900 19,100 4 8,900 23,100
Project B because the NPV is greater
Relative to the NPV, the profitability index (PI) adjusts for _______
Project size
Which one of the following is a means by which shareholders can replace company management?
Proxy fight
Standardizing the income statement involves dividing by...
Sales
In bankruptcy, who gets paid first?
Secured creditors
U.S. corporate bonds generally pay interest:
Semi-annually
In the CAPM, beta represents:
Sensivity to overall market
Who does the Board of Directors represent?
Shareholders
The "agency problem" refers to the relationship between which parties?
Shareholders and managers
"Inventories" would fall under which classification?
Short-term assets
Stock A has a standard deviaton of 15% and a beta of 1.2. Stock B has a standard deviation of 12% and a beta of 1.5. Which has more systematic risk?
Stock B
What is the single most important number to the financial managers of the firm?
Stock Price
Which one is NOT a category in the cash flow statement?
Strategic activities
Which of the following cost classifications woud not be considered relevant in comparing decision alternatives?
Sunk cost
As I ass more securities to my portfolio, I am left with:
Systematic risk
What ratio might I look at if evaluating corporate liquidity?
Times interest earned and Quick Ratio
Based only on the following information for Bennington Corp., did cash go up or down? By how much? Decrease in inventory $490 Decrease in accounts payable $140 Increase in notes payable $740 Increase in accounts receivable $270
Up by $820
A project will cost $300m and is expected to generate $100m per year for five years. Discount rate is 15%. Should we do it?
Yes
Can the cash flow to stockholders be NEGATIVE in a given year?
Yes
Should a firm that generates strong cash flows but does not have good investment opportunities right now pay dividends to sharholders?
Yes
When using the NPV method, an increase in the discount rate will lead us to accept ______projects.
fewer
Using the IRR method, we accept a project when the IRR is greater than______
required return