Test 1
If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 in one year or
$235.85 today.
If the risk-free rate of interest is 7.5%, then the value of security "A" is closest to:
$93.00.
Which of the following organization forms accounts for the most revenue
C Corporation
Which of the following statements regarding the income statement is INCORRECT?
The last or "bottom" line of the income statement shows the firm's net income.
Which of the following is/are advantage of incorporation?
Unlimited life, Limited liability, access to capital market Answer: all of these
Do corporate decisions that increase the value of the firms equity benefit society as a whole?
Yes, as long as the increase in the value of the firms equity does not come at the expense of others.
Which of the following is not an advantage of a sole proprietorship?
limited liability
Wyatt Oil is considering drilling a new self-sustaining oil well at a cost of $1,000,000. This well will produce $100,000 worth of oil during the first year, but as oil is removed from the well the amount of oil produced will decline by 2%, per year forever. If Wyatt Oil's appropriate interest rate is 8%, then the NPV of this oil well is closest to:
$0.
Taggart Transcontinental currently has a bank loan outstanding that requires it to make annual payments at the end of the next three years or to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years in the amount of $3,184,000. If the interest rate on the loan is 6%, then the annual payment the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:
$1,000,000.
For the year ending December 31, 2019 Luther's earnings per share are closest to:
$1.04.
An exchange traded fund (ETF) is a security that represents a portfolio of individual stocks. Consider an ETF for which each share represents a portfolio of two shares of Apple Inc. (APPL), one share of Google (GOOG), and ten shares of Microsoft (MSFT). Suppose the current stock prices of each individual stock are as shown below: The price per share of this ETF in a normal market is closest to:
$1267.
As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS) crude oil for 10,000 Bbls of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 Bbls of WTI crude, the added benefit (cost) to you if you take the trade is closest to:
$1400.
Due to a pre-existing contract, Recycle America Inc. has the opportunity to acquire 10,000 pounds of scrap aluminum and 2500 pounds of scrap lead for $10,750. If the current market price for scrap aluminum is $0.83 per pound and the current market price for lead is $1.06 per pound, then the added benefit (cost) to you if you acquire this metal is:
$200.
Consider a growing perpetuity that will pay $100 in one year. Each year after that, you will receive a payment on the anniversary of the last payment that is 6% larger than the last payment. This pattern of payments will continue forever. If the interest rate is 11%, then the value of this perpetuity is closest to:
$2000.
You are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage (180 months) at 9% APR (0.75% month). If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to:
$2535.
You are saving for retirement. To live comfortably, you decide that you will need $2.5 million by the time you are 65. Today is your 30th birthday, and you decide, starting today, and on every birthday up to and including your 65th birthday, that you will deposit the same amount into your savings account. Assuming the interest rate is 5%, the amount that you must set aside each year on your birthday is closest to:
$26,100.
At an annual interest rate of 7%, the future value of the cash flows in this timeline in year 2 is closest to
$3525.
Kampgrounds Inc. is considering purchasing a parcel of wilderness land near a popular historic site. Although this land will cost Kampgrounds $400,000 today, by renting out wilderness campsites on this land, Kampgrounds expects to make $35,000 at the end of every year indefinitely. If the appropriate discount rate is 8%, then the NPV of this new wilderness campsite is closest to:
$37,500.
n November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million. Perrigo's enterprise value is closest to:
$4168.06 million.
A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich, Large Coke, and a Large Fry. Assuming that there is a competitive market for McDonald's food items, at what price must a Big Mac value meal sell to ensure the absence of an arbitrage opportunity and uphold the law of one price?
$5.47
Suppose that Bondi Inc. is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants. If the value of Bondi is $130 million, and the Pizza Hut Franchises are worth $70 million, then what is the value of the Kentucky Fried Chicken Franchises?
$60 million
Rearden Metal needs to order a new blast furnace that will be delivered in one year. The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed. The blast furnace manufacturer offers Rearden Metal a discount of $50,000 if they pay for the furnace now. If the interest rate is 7%, then the NPV of paying for the furnace now is closest to:
($15,421).
Recycle America Inc. has the opportunity to trade 8000 pounds of plastic pellets made from recycled soda bottles for 5000 pounds of aluminum cans. If the current market price of scrap aluminum is $0.83 per pound and the current market price for plastic pellets is $0.57 per pound, then the added benefit (cost) of making this trade is:
($410).
If the risk-free interest rate is 10%, then the NPV for Moe is closest to:
-$3.64 million.
Luther's EBIT coverage ratio for the year ending December 31, 2018 is closest to:
1.64.
Suppose a security with a risk-free cash flow of $1000 one year from now trades for $909 today. If there are no arbitrage opportunities, then the current risk-free interest rate is closest to:
10%.
U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form?
10-K
Your great aunt Matilda put some money in an account for you on the day you were born. This account pays 8% interest per year. On your 21st birthday the account balance was $5033.83. The amount of money that your great aunt Matilda originally put in the account is closest to:
1000
Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%. The equivalent value in one year is closest to:
1035.00
Nielson Motors is considering an opportunity that requires an investment of $1,000,000 today and will provide $250,000 one year from now, $450,000 two years from now, and $650,000 three years from now. The internal rate of return of this project is closest to:
14.2%.
If the current market rate of interest is 8%, then the present value of this stream of cash flows is closest to:
21,211
If ECE's net profit margin is 8%, then ECE's return on equity (ROE) is:
24%.
You have an investment opportunity that will cost you $10,000 today, but return $12,500 to you in one year. The IRR of this investment opportunity is closest to:
25%.
How much would you have to pay to purchase 100 shares or XYZ stock on Nov. 18?
2600
You own 100 shares of a "C" Corporation. The corporation earns $5.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 21% and your personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is left for you after all taxes have been paid?
276.50
Consider the following four alternatives: 1. $132 received in two years. 2. $160 received in five years 3. $200 received in eight years .4. $220 received in ten years. The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be:
3, 1, 2, 4.
You are a shareholder in a a C corporation. This corporation earns $4 per share before taxes. After it has paid taxes it will distribute the remainder of its earnings to you as a dividend. The dividend income income to you so you will then pay taxes on these earnings. The corporate tax rate is 21% and your tax rate on dividend income is 15%. The effective tax rate on your share of the corporations earnings is closest to
33%
As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS) crude oil for 10,000 Bbls of West Texas Intermediate (WTI) crude oil. Assuming you just purchased 10,000 Bbls of WTI crude at the current market price, the added benefit (cost) to you if you take the trade is closest to:
40,800
You are considering investing in a security that will pay you $80 in interest-only at the end of each of the next 10 years. If this security is currently selling for $588.81, then the IRR for investing in this security is closest to:
6.0%.
If the current rate of interest is 8% APR, then the present value of an investment that pays $250 per quarter and lasts 20 years is closest to:
9936
Which of the following adjustments is NOT correct if you are trying to calculate cash flow from financing activities?
Add dividends paid
Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?
Add increases in accounts receivable
You overhear your manager saying that she plans to book an ocean view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive and that your manager is traveling at the company's expense. This use of additional funds comes about as a result of
An agency problem
Which of the following statements is false?
Bid prices exceed ask prices
Which of the following is (are) deducted from EBIT to determine net income?
Both Interest expense and Corporate taxes
An investment is said to be liquid if the investment
Can easily be converted into cash
Which of the following statements is FALSE?
FV = PV / (1+r)^n
Which of the following statements is false?
If the corporation fails to satisfy debt holders claims debt holders may lose control of the firm.
Which of the following is (are) deducted from EBIT to determine pretax income?
Interest expense
If Moon Corporation has depreciation or amortization expense, which of the following is TRUE?
Its EBITDA/Interest Coverage ratio will be greater than its EBIT/Interest Coverage ratio.
If the risk-free interest rate is 10%, then of the four projects listed, which project would you never want to invest in?
Moe
The statement of financial performance is also known as the:
income statement.
Which of the following statements regarding perpetuities is FALSE?
PV of a perpetuity = 7/C
If shareholders are unhappy with a CEOs performance they are most likely to
Sell their shares
The large stock market in the world by market capitalization is
The New York Stock Exchange
The person charged with running the corporation by instituting the rules and policies sit by the Board of Directors is
The chief executive officer
If you buy shares of Coca-Cola on the secondary market
You buy the shares from another investor who decided to sell the shares
A limited liability company is essentially
a limited partnership without a general partner
Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago. This reduction in value results in:
an impairment charge.
The change in Luther's quick ratio from 2018 to 2019 is closest to:
an increase of .10
Accounts payable is a:
current liability.
The firm's revenues and expenses over a period of time are reported on the firm's:
income statement or statement of financial performance.
A sole proprietorship is owned by
one person
By evaluating cost and benefits using competitive market prices, we can determine whether a decision will make the firm and its investors wealthier. This central concept is called:
the Valuation Principle.
Gross profit is calculated as
total sales - cost of sales
If we use future value rather than present value to decide whether to make an investment:
we will make the same decision using either future value or present value
The British government has a consol bond outstanding that pays ₤100 in interest each year. Assuming that the current interest rate in Great Britain is 5% and that you will receive your first interest payment immediately upon purchasing the consol bond, then the value of the consol bond is closest to:
₤2100.