MIDTERM

The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the ________, the so-called bottom line of the income statement.

net income

The annual report is a regular activity of public firms and is sent to current owners (shareholders) and the SEC, and is also made available to prospective owners, financial analysts, and others interested in a company's performance. Name four of the major sections contained.

Notes General description of the company Audited Statement of Income Cash Flow

Which of the following types of bonds, as characterized by a feature, by definition has two coupon payments per year?

Semiannual

Total current liabilities are $100,000 and total owners' equity is $2,000,000. What are total assets?

We need more information on long-term liabilities before we can compute total assets.

Comparing two companies using ________ may point out differences in management styles.

common-size financial statements

Total liabilities are $200,000 and total owners' equity is $100,000. What are total assets?

$300,000

On your first through fifth birthdays your parents placed $2,000 into your college fund (five total deposits of $2,000 each). The account has earned an average of 8.5% per year until today, your twenty-first birthday. How much money is in the account today?

$43,714.09

Plimpton has an annuity due that pays $800 per year for 11 years. What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

$6,291.26

Becky is seeking to expand her rare coin collection. Each year, rare coins increase in price at a three percent rate. She believes that if she invests her money for one year, she should be able to buy 26 coins for what 25 coins would cost today. What is the approximate nominal rate necessary to compensate for waiting and to cover inflation?

7.00%

The future value three years from today of a $200 three-year annuity due compounded at a rate of 10% is equal to ________.

$728.20

Douglas Distributing Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 6% and the current yield to maturity is 7%, what is the firm's current price per bond?

$875.28

A U.S. Treasury bill is currently selling at a discount basis of 0.50%. The par value of the bill is $100,000 and will mature in thirty days. What is the price of this Treasury bill?

$99,956.33

Which of the following is NOT a form of perpetuity? Preferred stock that pays the same dividend forever A philanthropic endowment fund that pays the same charitable amount every year forever A British consol bond All are examples of perpetuities.

All are examples of perpetuities.

Which industry has the lowest average industry debt-to-equity ratio?

Auto

Which of the following statements is TRUE? By DECREASING the number of payments per year, you REDUCE your total cash outflow but INCREASE your effective borrowing rate. By INCREASING the number of payments per year, you REDUCE your total cash outflow but DECREASE your effective borrowing rate. By INCREASING the number of payments per year, you REDUCE your total cash outflow but INCREASE your effective borrowing rate. By INCREASING the number of payments per year, you BOOST your total cash outflow but INCREASE your effective borrowing rate.

By INCREASING the number of payments per year, you REDUCE your total cash outflow but INCREASE your effective borrowing rate. (All other answers besides C have at least one word that disagrees with the correct words found in C.)

Which of the statements below is FALSE regarding interest rates in the United States from 2000 through 2013?

The average annual rate for the 3-month U.S. Treasury bill was 3.93%.

Which of the statements below is TRUE? The ownership accounts or owners' equity section of the balance sheet reflects the owners' stake in the firm. The retained earnings amount on the balance sheet really reflect retained earnings and other stockholder equity, but not treasury stock. The Statement of Retained Earnings is used to show the distribution of the interest paid for the past period. The ownership accounts or owners' equity section of the balance sheet is made up of common stock but not retained earnings.

The ownership accounts or owners' equity section of the balance sheet reflects the owners' stake in the firm. (The ownership accounts or owners' equity section of the balance sheet is made up of common stock AND RETAINED EARNINGS. The retained earnings amount on the balance sheet really reflects retained earnings, other stockholder equity AND TREASURY STOCK. The Statement of Retained Earnings is really the fourth financial statement and is used to show the distribution of the NET INCOME for the past period.)

Which of the following statements is TRUE? Three fundamental issues separate net income and cash flow: accrual-based accounting, noncash expense items, and interest expense. The finance manager uses the framework of the income statement to find the operating income of the company (an accounting measure), which is also the true cash flow from operations. Generally accepted accounting principles (GAAP) in the United States do not allow the use of accrual-based accounting to record revenue. In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.

Three fundamental issues separate net income and cash flow: accrual-based accounting, noncash expense items, and interest expense.

When interest rates are stated or given for loan repayments, it is assumed that they are ________ unless specifically stated otherwise.

annual percentage rates

The ________ is a market derived interest rate used to discount the future cash flows of the bond.

yield to maturity