C708 - Principles of Finance

2.39

With the accompanying balance sheets on page 8, what was XYZ's quick ratio in 2012? a.) 2.39 b.) 2.99 c.) 1.16 d.) 3.14

$185,000

With the accompanying information on page 4, what is the cash flow from financing? a.) $185,000 b.) ($19,000) c.) ($17,000) d.) $194,000

($1,430)

With the accompanying information on page 5, what is the cash flow from investing in millions? a.) ($1,430) b.) $1,430 c.) ($1,039) d.) $1,039

$1,578.95 million

With the accompanying information on page 55, What is the value of this firm? (Round your answer to two decimal places.) a.) $1,984.53 million b.) $1,578.95 million c.) $2,147.03 million d.) $1,178.35 million e.) $2,341.78 million

$2,829,325

With the accompanying information on page 56, what is the value of this firm if the weighted average cost of capital is 10%? a.) $2,829,325 b.) $1,984,525 c.) $2,668,484 d.) $1,845,541 e.) $3,510,189

6.99

With the accompanying information on page 6, what is the correct times interest earned? a.) 1.50 b.) 2.05 c.) 2.91 d.) 3.59 e.) 6.99

3.14 years

Year 0 ($102.4 million) Year 1 $37.4 million Year 2 $33.1 million Year 3 $28.4 million Year 4 $24.9 million Year 5 $17.1 million Year 6 $15.9 million What is the payback period for this stream of cash flows if the discount rate is 16%? a.) 2.84 years b.) 2.96 years c.) 3.05 years d.) 3.14 years e.) 3.55 years

($4,881)

Year 0 ($54,000) Year 1 $21,000 Year 2 $14,000 Year 3 $23,400 What is the net present value of this stream of cash flows if the discount rate is 9%? a.) $8,421 b.) $3,128 c.) $107 d.) ($2,415) e.) ($4,881)

How much will Matthew be able to borrow to buy a car if he can get 1.5% annual interest, compounded monthly, on a 60-month loan, and can afford $300 payments each month? Your Answer Correct Answer Answer Choices $16,781.98 $17,331.13 $18,268.13 $19,245.16

$17,331.13

Use the following information to answer the question below. Cash balance was a fixed percentage of sales for 2012. The same percentage will be used for 2013 for cash. Accounts Receivables were $4,500 in 2013. Sales in 2012 were $87,000. Sales in 2013 are projected at $99,300. Inventory increased by 10% for 2013. What is the ending cash balance for 2013?

$2,850

The income statement for Serentic Inc. for 2011 is shown below. With a net income of $15,000, tax rate was at 27% in 2012, and the board of directors decided to cut the dividend payments by 50%. 2011 Sales $77,280 COGS $47,914 Gross Margin $29,366 SG&A Expense $7,890 Depreciation expense $2,090 EBIT $19,386 Interest Expense $860 Taxable Income $18,526 Taxes $5,373 Net Income $13,154 Dividends $850 Retained earnings $12,304 What are the retained earnings for 2012?

$22,829

A share of stock is expected to have a very high dividend growth rate of 10% for the next two years, and then will settle back to its standard 2% dividend growth rate. Assume that the last paid dividend was $3.00 and the expected rate of return is 18%. What is the value of this share of stock? Your Answer Correct Answer Answer Choices $21.76 $22.02 $25.87 $26.12

$22.02

Which formula shows the future value of $25,000 that earns an annual interest rate of 3% for six years?

$25,000 x (1 + 0.03) 6

The price of a share of stock is $25.00 and the current expected rate of return is 15%, with a constant growth rate of 3%. What is the next expected dividend (D1)? Your Answer Correct Answer Answer Choices $2.50 $3.00 $3.50 $4.50

$3.00

A share of stock in the local fast food restaurant chain will pay a next dividend in the amount of $1.50. It is expected that dividends paid for stocks from this restaurant will grow by 1% per year. The appropriate discount rate for stocks of this type is 6%. What is the per share value of this stock? Choices $22.75 $30.00 $37.50 $45.25

$30.00

Mark is saving for new furniture and saving $200 at the beginning of each month. He can save at an annual rate of 5%, compounded monthly for the next two years. How much will Mark be able to save? Choices $4,890.08 $4,971.16 $5,001.30 $5,058.17

$5,058.17

Ben just won the lottery and has a choice between accepting a lump sum payment of $5,000,000 or annual payments of $375,000 at the end of each year for the next 30 years, which he could then invest in a financial instrument that will pay him 6%. Ben decides to take the annual payments. How much is this choice worth today? Choices $4,989.237.91 $5,003,714.82 $5,161,811.68 $6,271,390.46

$5,161,811.68

The price of a stock is $40.00 per share and there is an expected rate of return on shares of this kind of 17%. Dividends have been growing at a constant rate of 2%. What must be the value of D0 and D1? Your Answer Correct Answer Answer Choices $4.58 and $5.89 $5.50 and $6.25 $5.67 and $6.23 $5.88 and $6.00

$5.88 and $6.00

Assume that the cost of goods sold for 2012 increases 10% from the previous year. Other expenses remain constant for 2012. What is the net income forecast for the year 2012? $65,000 -5,850

$59,150

Match the present values for the following ten-year investments with the following cash flows. Answer options may be used more than once or not at all. Select your answers from the pull-down list.

$6,418 Present value of annual $1,000 cash flows at 9% per year $6,231 Present value of semiannual $500 cash flows at 10% per year compounded semiannually $6,276 Present value of quarterly $250 cash flows at 10% per year compounded quarterly $5,268 Present value of annual $750 cash flows at 7% per year

Use the following income statement for the current year. Assume the sales are 35% higher than the last year sales of $800,000. Calculate the net income.

$604,000

Use the following partial income statement data to answer the question below. What is the 2013 ending balance of accounts payable?

$7,600

The only difference between two contracts to purchase a new laptop is that the one vendor wants to be paid at the beginning of each month, starting immediately, whereas the other vendor wants to be paid at the end of each month. This is the difference between present value calculated as an ordinary annuity and the present value of an annuity due. Assume Ashley decides to make payments of $100 per month for 15 months at an annual discount rate of 8%. How much would Ashley save on the laptop if she chose the vendor that wanted to be paid at the end of the month? $8.12 $9.49 $10.25 $13.27

$9.49

An analysis of a potential purchase of a new piece of equipment has been completed. The analysis included a review of the initial cost of the equipment, annual operating expenses, and the value of the expected increased production adjusted for the time value of money over the life of the equipment. Place the investments in the order they should be selected based on their valuation (from highest to lowest value). Select your answers from the pull-down list. Total costs of $700,000 and expected income $850,000 Total costs of $500,000 and expected income of $700,000 Total costs of $700,000 and expected income $875,000 Total costs of $500,000 and expected income $600,000

2) Total costs of $700,000 and expected income $850,000 3) Total costs of $500,000 and expected income of $700,000 1) Total costs of $700,000 and expected income $875,000 4) Total costs of $500,000 and expected income $600,000

What annual interest rate would John need to earn if he wanted a $1,000 per month contribution to grow to $65,000 in five years? Choices: 2.8% 3.2% 4.4% 5.4%

3.2%

An investor receives a $30 dividend on her share of preferred stock, valued at $375. What rate of return is she earning? Your Answer Correct Answer Answer Choices 6% 7% 8% 10%

8%

24.43%

A company as sales of $132 million, net income of $24 million, a total asset turnover of .84, and a leverage multiplier of 1.6. Using the DuPont Formula, what is the company's return on equity? (Round your answer to two decimal places.) a.) 24.43% b.) 18.18% c.)16.79 % d.) 15.41%

$54.6 million

A company currently has $50 million in sales, $23 million in current assets, $39 million in fixed assets, and $15 million in accounts payable. The fixed assets are currently operated with full capacity and will change proportionally with the sales growth. Sales are projected to be $70 million, current assets are projected to be $32.2 million, and accounts payable are projected to be $21.0 million. What are fixed assets projected to be, given this information? (Round your answer to one decimal place.) a.) $45.8 million b.) $74.1 million c.) $54.6 million d.) $41.4 million

$32.2 million

A company currently has $50 million in sales, $23 million in current assets, $39 million in fixed assets, and $15 million in accounts payable. The fixed assets are currently operated with full capacity and will change proportionally with the sales growth. Sales are projected to be $70 million, fixed assets are projected to be $54.6 million, and accounts payable are projected to be $21.0 million. What are current assets projected to be, given this information? (Round your answer to one decimal place.) a.) $19.4 million b.) $32.2 million c.) $40.1 million d.) $22.1 million

13.98%

A company has a beta of 1.2. The expected return on the market is 12% while the risk-free rate is 2.1%. What is the return required by share holders? (Round your answer to two decimal places.) a.) 9.90% b.) 11.88% c.) 12.00% d.) 13.98%

$227 million

A company has fixed assets of $509 million, total equity of $218 million, current liabilities of $128 million, and long-term debt of $390 million. What is the total for the company's current assets? a.) $262 million b.) $119 million c.) $128 million d.) $227 million

$114.9 million

A company has just reported sales of $557 million, costs of goods sold of $150 million, depreciation of $190 million and interest expense of $40.2 million. What is the company's net income if the tax rate is 35%? (Round your answer to the nearest decimal place.) a.) $407.0 million b.) $217.0 million c.) $114.9 million d.) $187.6 million

39.90%

A company has sales of $56 million, net income of $19 million, a total asset turnover of .98, and a leverage multiplier of 1.2. Using the DuPont Formula, what is the company's return on equity? (Round your answer to two decimal places.) a.) 39.90% b.) 41.20% c.) 19.80% d.) 32.50%

$9.17 million

A company is looking to invest in a new asset. The cost of the asset, including shipping and installation costs, is $8.4 million. The company has a buyer for the old asset who is willing to pay $1.2 million. Currently the book value of the old asset is $0. The company will also invest working capital in additional inventory in order to sustain the higher levels of efficiency that come with the new machinery. The total investment in net working capital will be $1.5 million. What is the initial outlay if the company's marginal tax rate is 39%? a.) $10.63 million b.) $11.10 million c.) $9.17 million d.) $8.10 million e.) 8.70 million

11.30%

A company is looking to invest in new machinery. The current financing is 30% debt, 45% common stock, and 25% preferred stock. The company anticipates the new debt issue will consist of 10-year $1,000 face-value bonds that will be priced at par. The bonds will pay an annual coupon of $80. Flotation costs for this new bond issue will be $35 per bond. The company has recently paid a dividend of $2.30 and is expecting to increase the dividend by 5% per year, indefinitely. The current share price for the company's common stock is $29.76. The company also plans to issue preferred stock that will pay a dividend per share of $3.50 per year in perpetuity. The market price of the preferred stock will be $32. The flotation costs of both the common stock issue and preferred stock issue will be $4.50 per share. What is the weighted average cost of capital for this company if the company'd marginal tax rate is 39%? a.) 11.30% b.) 12.41% c.) 10.44% d.) 13.84% e.) 9.41%

11.85%

A company is looking to invest in new production machinery. The market value of common stock is $44 million, the market value of preferred stock is $9 million, and the market value of total debt is $33 million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity to be 12%, and the cost of debt to be 9.5%. What is the weighted average cost of capital if the marginal tax rate is 34%? (Round your answer to two decimal places.) a.) 10.41% b.) 9.88% c.) 14.51% d.) 12.33% e.) 11.85%

13.76%

A firm has a net income of $68.0 million and pays out $9.1 million in dividends. The firm has total assets of $987 million and total liabilities of $559 million. What is the firm's sustainable growth rate,given this information? (Round your answer to two decimal places.) a.) 17.51% b.) 19.11% c.) 13.76% d.) 11.21%

$8 million

A firm has projected assets to be $22 million, liabilities to be $11 million, and owner's equity to be $3 million. What is the discretionary financing need? a.) $11 million b.) $33 million c.) $18 million d.) $8 million

$6 million

A firm has projected current assets to be $10 million, fixed assets to be $73 million, current liabilities to be $5 million, long-term debt to be $57 million, and owner's equity to be $15 million. What is the discretionary financing need? a.) $4 million b.) $18 million c.) $21 million d.) $6 million

$4,300

A person is planning to open a savings account with the intent to buy a house in 5 years. They will invest an equal amount each month for 5 years. This account will earn 6% per year (0.5% per month) and will have $300,000 at the end of the 5-year term. What is the amount of the monthly investment? (Round your answer to the nearest dollar.) a.) $4,169 b.) $4,300 c.) $4,435 d.) $5,296

$3,217.59

A person is planning to open a savings account with the intent to buy a house in 8 years. They will invest an equal amount each month for 8 years. This account will earn 9% annually and will have $450,000 at the end of the 8-year term. What is the amount of the monthly investment? a.) $4,687.50 b.) $5,487.30 c.) $3,217.59 d.) $4,803.47

Which two statements are true of compounding interest? Choose 2 answers A person will earn less interest when compounding occurs more frequently. A person will earn interest on previously earned interest. A person will earn more interest when compounding occurs more frequently. A person will earn interest on the principle only.

A person will earn interest on previously earned interest. A person will earn more interest when compounding occurs more frequently.

20.8%

A recent startup technology company that has a very low market cap is looking to calculate the return required by share holders using the build-up method. Historically, long-term government bonds have been 4.8%, and the equity risk premium is approximately 6%. The startup premium and the micro-cap premium are both 5%. What is the return required by share holders? a.) 20.8% b.) 15.8% c.) 10.8% d.) 6.0%

$1,350.00

A small-business owner has a debt of $81,319.50 at a rate of 10%. The goal is to pay off this debt in 7 years. What should the monthly payment be in order to meet this goal? a.) $968.09 b.) $1,064.90 c.) $1,350.00 d.) $6,776.00 e.) $12,007.52

$28.96

A-Z Inc. has a unique dividend policy. This recent startup is expecting to pay a dividend of $2.00 in the next year, a dividend of $2.50 in year 2, and a dividend of $3.00 in the third year. After year 3, the company is anticipating increasing its dividend by 2.5% per year indefinitely. The required return by share holders is currently 12%. What is the price of the stock? a.) $24.71 b.) $26.10 c.) $27.90 d.) $28.96

$950

A-Z Inc. is planning to issue a $1,000 face-value bond with an annual coupon rate of 4% that matures in 10 years. A-Z is planning to pay quarterly interest payments. Similar A-Z bonds are quoting at 95% of par. What is the price that bond holders will pay for this bond? a.) $950 b.) $1004 c.) $1000 d.) $988

$1022.50

A-Z Inc. is planning to issue a $1,000 face-value bond with an annual coupon rate of 4.5% that matures in 10 years. A-Z is planning to pay semi-annual interest payments. Similar A-Z bonds are quoting at 95% of par. What is the amount of the final cash flow that a bond holder will receive? a.) $1022.50 b.) $1011.25 c.) $972.50 d.) $961.25

How could a company that has a positive accounting income also be in trouble of going bankrupt when looking at its cash balance?

Accounting income does not take into account the cash that is needed to pay salaries and dividends.

c.

An analyst has conducted thorough analysis and has estimated the net present value (NPV) of a project to be $2.3 million, the internal rate of return (IRR) to be 11%, and the payback period to be 4.24 years. Should the company recommend that the capital project be accepted? a.) Yes, because the IRR is greater than 10%. b.) No, because the IRR is less than 15%. c.) Yes, because the NPV is greater than zero. d.) No, because the payback eriod is less than 5 years.

c.

An analyst has conducted thorough analysis and has estimated the net present value of a project to be $1.4 million, the internal rate of return to be 12%, and the payback period to be 2.34 years. Should the company recommend that the capital project be accepted? a.) Yes, because the internal rate of return is less than 15%. b.) Yes, because the payback period is less than 4 years. c.) Yes, because the net present value is greater than zero. d.) No, because the internal rate of return is not greater than 15%. e.) No, because the payback period is not less than 2 years.

6.94%

An investor bought a 10-year $1,000 face-value bond for $925 one year ago. The annual coupon rate is 7%, and interest payments are paid annually. The price today is $1,004, and the yield to maturity was 8.12% at the time of purchase. What is the yield to maturity today? a.) 6.94% b.) 8.11% c.) 7.06% d.) 9.56%

Which scenario illustrates the strong form of the efficient market hypothesis (EMH)?

An investor is making an investment decision based on public information, as well as private information that is known only to company insiders. This type of information is also known as insider trading.

Jane Eden works at CIME Inc. in the finance department. She was examining the finance forecasts given below. Product management was very optimistic about the forecasts because the net income showed a very positive trend. Jane was cautious, so she conducted percentage sales analysis. What is the correct action for Jane to take, given the above figures?

Analyze the increases in marketing expenses to get a better understanding before presenting the analysis to management.

a. and c.

As an analyst, you have been given the responsibility to determine effectiveness of management's business decisions for two competing firms over the past 3 years. Firm A has increased its return on equity (ROE) more than Firm B. Which business decisions may have contributed to Firm A's larger increase in ROE during the past three years? (Choose 2 answers.) a.) Firm A has significantly reduced depreciation expense. b.) Firm B has significantly reduced depreciation expense. c.) Firm A has increased the company's return on assets relative to Firm B. d.) Firm B has increased the company's return on assets relative to Firm A.

Ellen Ekman is a finance manager for Cubist Inc. She was discussing the financial forecast with the team from marketing, production, purchasing, and accounting. This team had provided the three scenarios for sales forecast for the business plan. The three scenarios show unit forecasts for the next six years at different levels of optimism. When Ellen examines the assumptions, she finds that the team has used the same price for Product A under all these assumptions. From her point of view, the sales forecasts need to take into account prices, since she believes that the higher unit forecast should assume lower prices. What is the correct action for Ellen to take in this situation?

Ask the team to provide market research analysis and competitive intelligence to support these three forecasts and pricing assumptions.

In credit unions, boards of directors that hire executives are elected from among volunteering members (whereas in commercial banks, they are hired by the stockholders from among non-member outsiders). Which agency problem with banks does this structure seek to eliminate?

Between owners and board of directors

b.

Bond A and Bond B have the same face value and the same coupon rate. However, Bond B has a longer time until maturity than Bond A. When comparing the returns required by bond holders, how should Bond A's required rate of return compare to that of Bond B? a.) Higher b.) Lower c.) Similar d.) Cannot be determined

Which section of the statement of cash flows includes such transactions as paying dividends to shareholders, repurchasing common stock, and proceeds from the sale of long-term debt?

Cash flows from financing activities

Match each account to the pair of financial accounting statements that it appears on. Answer options may be used more than once or not at all. Select your answers from the pull-down list.

Cash-Balance sheet and statement of cash flows Net income-Income statement and statement of cash flows Retained earnings-Balance sheet and income statement

Holly is trying to calculate the present value of an ordinary annuity for a practice exam on her old financial calculator. Match the appropriate number to the symbol Holly will use on the calculator for finding the present value of a series of three payments, made at the end of each year, of $5,000. The current available rate of return is 4% and there is no future value. The list of available symbols includes PMT, PV, FV, N, and I/Y. Answer options may be used more than once or not at all. Select your answers from the pull down list. Your Choices I/Y 4 PMT $5,000 N 3 FV 0 PV -$13,875.46

Choices I/Y 4 PMT $5,000 N 3 FV 0 PV -$13,875.46

8.49%

Company A expects to issue a $1,000 face-value bond that matures in 10 years. The annual coupon rate is 8.25% and interest payments are expected to be paid annually. Similar bonds are currently priced at 98.4% of face value. What is the required return by bond holders? a.) 8.49% b.) 8.77% c.) 9.08% d.) 9.26%

3.3%

Current government treasury bills (i.e., short-term bonds) are priced at 96.8% of par, which is $1,000. These bonds mature 1 year from today and do not pay a coupon. What is the yield to maturity on these bonds? a.) 3.5% b.) 2.2% c.) 4.1% d.) 3.3%

13.89%

Current government treasury bills (i.e., short-term bonds) are priced at 96.8% of par, which is $1,000. These bonds mature 3 months from today and do not pay a coupon. What is the yield to maturity on these bonds? a.) 3.20% b.) 9.68% c.) 12.80% d.) 13.89%

Corporations establish goals in areas including finance, diversity, and social responsibility. Match the corporate goal with the area that it addresses. Answer options may be used more than once or not at all. Select your answers from the pull-down list. Environmental goal Diversity goal Financial goal Financial goal

Environmental goal-Create zero waste Diversity goal-Promote women and minorities Financial goal-Make a profitable investment for the company Financial goal-Switch to a freight company that provides a high volume discount

$135.33

Firm A has a price-to-earnings ratio of 3.9-to-1. Firm B has recently reported sales of $56 million. Firm B also has shares outstanding of 2,500,000 and a reported net income of $86,750,000. What is the price per share of Firm B according to the comparable multiples approach? a.) $99.87 b.) $61.42 c.) $87.36 d.) $91.08 e.) $135.33

$87.36

Firm A has a price-to-sales ratio of 3.9-to-1. Firm B has recently reported sales of $56 million. Firm B also has shares outstanding of 2,500,000. What is the price per share of Firm B, according to the comparable multiples approach? a.) $102.54 b.) $54.79 c.) $87.36 d.) $91.79 e.) $61.88

Classify each item as to whether it has or lacks a fundamental influence on valuation. Answer options may be used more than once or not at all. Select your answers from the pull-down list.

Fundamental influence-Opportunity cost Fundamental influence-Cash flow Not a fundamental influence-Taxable income Not a fundamental influence-Revenue recognition

Which statement concerning the use of ratio analysis for long-term forecasting versus short-termforecasting is appropriate?

Generally for shorter time periods there is a high chance that the ratio could be more stable, since drastic changes in products and components used in these products is less likely.

Larry believes that he will benefit by investing in common stock shares rather than preferred. Which statement regarding his investment choice is appropriate? Your Answer Correct Answer Answer Choices He does not want to incur any unnecessary risk. He believes that the company will be profitable. He fears that the company could fail. He does not want to vote for members of the board of directors.

He believes that the company will be profitable.

Small companies

In which type of company is the unpaid salary issue most likely to be of consequence? a.) Public companies b.) Large companies c.) Small companies d.) Private companies

Sam invested $1,000,000 in an investment that will make him and his descendants a payment forever. Which two factors affect how much that payment will be? Choose 2 answers The number of years that Sam lived The annual rate of return earned on the investment The number of years that Sam's descendants will live The number of times per year that the payment is received The number of descendants that Sam has

The annual rate of return earned on the investment The number of times per year that the payment is received

Ar/Daily credit sales, Sales/Fixed assets, Net income/Total equity, COGS/Inventory, and (Current assets - Inventory)/Current liabilities

Match the following ratios with the appropriate ratio formulas. Average collection period, fixed asset turnover, return on equity, inventory turnover, and quick ratio. a.) Sales/Fixed assets, COGS/Inventory, AR/Daily credit sales, Net income/Total equity, and (Current assets - Inventory)/Current liabilities b.) (Current assets - Inventory)/Current liabilities, COGS/Inventory, Sales/Fixed Assets, Net income/Total equity, and AR/Daily credit sales c.) AR/Daily credit sales, Sales/Fixed assets, Net income/Total equity, COGS/Inventory, and (Current assets - Inventory)/Current liabilities d.) COGS/Inventory, AR/Daily credit sales, (Current assets - Inventory)/Current liabilities, Sales/Fixed assets, and Net income/Total equity

Preferred stock, common stock, preferred stock, and common stock

Match the following statements with the type of stock it defines. First claim to dividends, has company voting rights, dividend payments are fixed, and dividend payments vary depending on the company's dividend policy. a.) Preferred stock, common stock, preferred stock, and common stock b.) Preferred stock, preferred stock, common stock, and common stock c.) Common stock, common stock, preferred stock, and preferred stock d.) Common stock, preferred stock, common stock, and preferred stock

$53.81

One year ago, an investor bought a 15-year $1,000 face-value bond that has an annual coupon rate of 6%, and interest payments are paid semi-annually. The yield to maturity was 8.3% when the investor bought the bond, but the yield to maturity is 9.2% today. How much has the price of the bond decreased since the date of purchase? a.) $61.56 b.) $62.29 c.) $53.07 d.) $53.81 e.) $90.00

Which three factors are lenders compensated for through interest payments? Choose 3 answers Opportunity cost of having the money unavailable for the length of the loan The fact that the loan principal is guaranteed to be more valuable in the future Risk associated with making a loan Losses incurred due to government regulation Expected inflation for the period of the loan Sudden changes in interest rates on the day that the loan was made

Opportunity cost of having the money unavailable for the length of the loan Risk associated with making a loan Expected inflation for the period of the loan

Place the following ordinary annuity options in order from lowest present value to highest present value. Answer options may be used more than once or not at all. Select your answer from a pull-down list. One payment of $1,200, for each of three years, with an annual discount rate of 4% Twelve payments of $100 each, for each of three years, with an annual discount rate of 4% Four payments of $300 each, for each of three years, with an annual discount rate of 4% Two payments of $600 each, for each of three years, with an annual discount rate of 4%.

Place the following ordinary annuity options in order from lowest present value to highest present value. Answer options may be used more than once or not at all. Select your answer from a pull-down list. 1 One payment of $1,200, for each of three years, with an annual discount rate of 4% 4 Twelve payments of $100 each, for each of three years, with an annual discount rate of 4% 3 Four payments of $300 each, for each of three years, with an annual discount rate of 4% 2 Two payments of $600 each, for each of three years, with an annual discount rate of 4%.

What is the face value of a bond?

Principal

A company's accounting records include inflated numbers that give the company a higher net income than its actual numbers. This overstatement was agreed upon by the company and its auditors. This collusion between the company and its auditors would be caught rather quickly due to regulations. What agency regulates accounting practices between companies and their accounting firms?

Public Company Accounting Oversight Board

Rank in order from highest to lowest the following investments in terms of future value for a $1,000 investment for 1 year. Answer options may be used more than once or not at all. Select your answers from the pull-down list. Choices: $1,000 invested at 8% per year, compounded quarterly $1,000 invested at 4% per year, compounded semiannually $1,000 invested at 2% per year, compounded yearly $1,000 invested at 8% per year, compounded weekly

Rank 1 $1,000 invested at 8% per year, compounded weekly Rank 2 $1,000 invested at 8% per year, compounded quarterly Rank 3 $1,000 invested at 4% per year, compounded semiannually Rank 4 Rank 4 $1,000 invested at 2% per year, compounded yearly

What are two considerations in investing? Choose 2 answers Liquidity Risk Return Length of payback period

Risk Return

Why is transferability of ownership relatively easy in the case of corporations?

Stocks can be bought and sold in the stock market.

Karter has an amortized loan of equal payments over an extended period of time. How does the proportion of Karter's payment that goes to interest fluctuate? Your Answer Correct Answer Answer Choices The amount starts higher and goes down The amount starts lower and goes up The amount always equals the proportion of principle that Karter is paying The amount remains at zero until the end of the loan

The amount starts higher and goes down

a.

Two Firms have the same net profit margin and asset turnover. However, Firm A has made the business decision to have a higher debt-to-equity ratio than Firm B. Assuming a positive return on assets (ROA), which firm will have a greater return on equity (ROE)? a.) Firm A b.) Firm B c.) Both firms will have the same ROE. d.) The result cannot be determined.

a., c., and d.

What are the steps involved in computing the future value of cash flows? (Choose 3 answers) a.) Prepare a timeline to identify the size and timing of the cash flows. b.) Calculate the present value of each individual cash flow using an appropriate discount rate. c.) Calculate the future value of each individual cash flow using an appropriate discount rate. d.) Add up the present values of the individual cash flows to obtain the present value of a cash flow stream. e.) Add up the discounted cash flows and divide by the number of cash flows.

d.

What does a spontaneous account refer to? a.) An account of the balance sheet that changes when net income is changed b.) An account on the income statement that cyclically appears c.) An account on the balance sheet and income statement that is calculated using the time value of money d.) An account on the balance sheet and income statement that tends to vary when sales are changed

b.

What have bond prices done if returns required by bond holders have increased 1.5% from last year? a.) Increased by 1.5% b.) Decreased c.) Remain unchanged d.) Increased by more than 1.5%

Compounding finds the future value of a present value and discounting finds the present value of a future value.

What is the difference between compounding and discounting of cash flows? a.) Compounding finds the present value of a future value and discounting finds the future value of a present value. b.) Discounting finds the future value of the present value and compounding finds the present value of the future value. c.) Compounding finds the future value of a present value and discounting finds the present value of a future value. d.) Discounting finds the future value of the future value and compounding finds the present value of a present value.

$33,795

What is the present value of a 10-year $5,000 annuity due if the discount rate is 10%? (Round your answer to the nearest dollar.) a.) $30,723 b.) $40,723 c.) $51,541 d.) $57,410 e.) $33,795

$44,970

What is the present value of a 12-year $6,000 annuity due if the discount rate is 10%? (Round your answer to the nearest dollar.) a.) $40,882 b.) $44,970 c.) $50,970 d.) $46,882 e.) $7,200

$5,625

What would the present value be if a person received $900 in perpetuity and the interest rate is 16%? a.) $1,044 b.) $5,625 c.) $9,722 d.) $14,400

What is a limitation of financial forecasting and analysis?

When new products are launched, these could make the ratios less reliable since there is no historic information on new products.

d.

Which item from a company's financial statement is considered a non-cash item? a.) Interest b.) Taxes c.) Utilities d.) Intangibles

a. and d.

Which security represents ownership in the firm? (Choose 2 answers.) a.) Common stock b.) Bond c.) Dividend d.) Preferred

d.

Which statement correctly describes the replacement cost method for determining firm value? a.) The replacement cost method attempts to replace unspecified cash flows with realizable cash flows. b.) The replacement cost method attempts to replace inefficient labor. c.) The replacement cost method attempts to determine the cost of replacing negative NPV projects with positive NPV projects. d.) The replacement cost method attempts to determine the cost of replacing the balance sheet equity.

c.

Which statement describes an ideal criteria for the methods used to evaluate a capital investment project? a.) The method must account for the success of previous projects. b.) The method must consider sales of previous products as a benchmark. c.) The method must account for the time value of money. d.) The method must consider only the cash flows of the payback period of the investment.

b.

Which step in the percent-of-sales method comes directly after forecasting change in spontaneous balance sheet accounts? a.) Project sales and expenses b.) Deal with discretionary accounts c.) Calculate retained earnings d.) Calculate discretionary financing need

c.

Which step in the percent-of-sales method comes immediately before determining total financing need? a.) Forecast change in spontaneous balance sheet accounts b.) Deal with discretionary accounts c.) Calculate retained earnings d.) Calculate discretionary financing need

c.

Which strategy is a possible method for reducing the discretionary financing need? a.) Stronger sales growth b.) Higher dividend payouts c.) Increased net margin d.) Higher projected assets

c.

Which word describes the relation between a bond's yield to maturity and time to maturity? a.) Independent b.) Inverse c.) Direct d.) Uncorrelated

$15,665

Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $12,000 Year 6 $12,000 Year 7 $12,000 What is the present value of this stream of future cash flows if the discount rate is 15%? (Round your answer to the nearest dollar.) a.) $15,665 b.) $27,399 c.) $34,622 d.) $49,925