FIN 323 Exam 1 prep

D

A one-time gift to your college will provide $25,000 in scholarship funds next year with that amount increasing by 2 percent annually thereafter. If the discount rate is 5.5 percent, what is the current value of this perpetual gift? a. $777,777.78 b. $748,602.49 c. $726,849.29 d. $714,285.71 e. $725,000.00

C

According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities. a. increase; operating b. decrease; financing c. decrease; operating d. increase; financing e. increase; investment

A

Aidan deposited $8,500 in an account today. If the account earns 8.5 percent per year, compounded annually, how many years will it take for the account to reach a balance of $138,720? a. 34.23 years b. 29.78 years c. 46.55 years d. 16.32 years e. 6.13 years

C

Assume your mother invested a lump sum 28 years ago at 4.05 percent interest, compounded annually. Today, she gave you the proceeds of that investment, totaling $48,613.24. How much did your mother originally invest? a. $14,929.00 b. $16,500.00 c. $15,994.70 d. $14,929.29 e. $16,500.93

C

BL Industries has ending inventory of $302,800, annual sales of $2.33 million, and annual cost of goods sold of $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold? a. 47.43 days b. 22.18 days c. 78.38 days d. 61.78 days e. 83.13 days

A

Seitz Tooling is currently operating at 82 percent of capacity. All costs and net working capital vary directly with sales. The firm currently has $42,700 of net fixed assets. What is the amount of pro forma net fixed assets for next year if sales are projected to increase by 7 percent? a. $42,700 b. $33,412 c. $38,101 d. $37,968 e. $42,148

C

Shah Fabrication currently has $298,900 in sales and is operating at 86 percent of the firm's capacity. The dividend payout ratio is 40 percent and cost of goods sold is $211,300. If the firm were to operate at full capacity, what would sales be? a. $245,697.67 b. $208,534.88 c. $347,558.14 d. $211,300.00 e. $254,500.00

A

The Music Alliance has a debt-equity ratio of .57. What is the total debt ratio? a. .36 b. .30 c. .44 d. 2.27 e. 2.75

E

The financial planning process includes: I. determining asset requirements. II. developing contingency plans. III. establishing priorities. IV. analyzing funding options. a. I and III only b. II and IV only c. I, III, and IV only d. I, II, and III only e I, II, III, and IV

C

The internal growth rate of a firm is best described as the ______ growth rate achievable ______. a. minimum; assuming a retention ratio of 100 percent b. minimum; if the firm maintains a constant equity multiplier c. maximum; excluding external financing of any kind d. maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio e. maximum; with unlimited debt financing

B

The plowback ratio is: a. equal to net income divided by the change in total equity. b. the percentage of net income available to the firm to fund future growth. c. equal to one minus the retention ratio. d. the change in retained earnings divided by the dividends paid. e. the dollar increase in net income divided by the dollar increase in sales.

D

The sources and uses of cash over a stated period of time are reflected on the: a. income statement. b. balance sheet. c. tax reconciliation statement. d. statement of cash flows. e. statement of operating position.

C

This morning, Clayton deposited $2,500 into an account that pays 5 percent interest, compounded annually. Also this morning, Jayda deposited $2,500 at 5 percent interest, compounded annually. Clayton will withdraw his interest earnings and spend it as soon as possible. Jayda will reinvest her interest earnings into her account. Given this information, which one of the following statements is true? a. Jayda will earn more interest in Year 1 than Clayton will earn. b. Clayton will earn more interest in Year 3 than Jayda will earn. c. Jayda will earn more interest in Year 2 than Clayton will earn. d .After five years, Clayton and Jayda will both have earned the same amount of interest. e. Clayton will earn compound interest.

D

When compiling a pro forma statement, which policy most directly affects the projection of the retained earnings account balance? a. Net working capital policy b. Capital structure policy c. Dividend policy d. Capital budgeting policy e. Capacity utilization policy

E

Which one of the following has the least effect on a firm's sustainable rate of growth? a. Capital intensity ratio b. Net profit margin c. Dividend policy d. Debt-equity ratio e. Quick ratio

E

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q? a. .85 b. .87 c. .90 d. .94 e. .91

B

Baskar Production is currently operating at 84 percent of capacity. Annual sales are $28,400 and net income is $2,250. The firm has current liabilities of $2,700, long-term debt of $9,800, net fixed assets of $16,900, net working capital of $5,000, and owners' equity of $12,100. All costs and net working capital vary directly with sales. The tax rate and net profit margin will remain constant. The dividend payout ratio is constant at 40 percent. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent? a. −$810 b. −$912 c. −$642 d. $264 e. $358

E

Boutique Marketing has total debt of $4,910 and a debt-equity ratio of .52. What is the value of the total assets? a. $16,128.05 b. $7,253.40 c. $9,571.95 d. $11,034.00 e. $14,352.31

C

Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent? a. The present values of Caroline's and Jiexin's awards are equal. b. In future dollars, Jiexin's award is worth more than Caroline's award. c. In today's dollars, Caroline's award is worth more than Jiexin's. d. Twenty years from now, the value of Caroline's award will equal the value of Jiexin's award. e. Jiexin's award is worth more today than Caroline's award.

D

Coulter Supply has a total debt ratio of .46. What is the equity multiplier? a. .89 b. 1.17 c. 1.47 d. 1.85 e. 2.17

E

Fang Packaging is an all-equity company with sales of $21,600, costs of $14,780, depreciation of $2,000, and taxes of $1,012. The dividend payout ratio is 12 percent. Sales are expected to increase by 22 percent next year. What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales? a. $4,899 b. $3,745 c. $3,892 d. $4,011 e. $4,088

A

First City Bank offers an APR of 7.65 percent on its loans. What is the maximum effective annual rate the bank can earn based on the quoted rate? a. 7.95% b. 8.14% c. 8.21% d. 7.78% e. 7.87%

C

Grace is retiring today and has $300,000 in her retirement savings. She expects to earn 8.5 percent per year compounded monthly. How much can she withdraw from her retirement savings each month if she plans to spend her last penny 17 years from now? a. $18,793.23 b. $25,500.00 c. $2,784.88 d. $33,993.59 e. $2,832.80

A

Humphries has cash of $10,000, accounts receivable of $2,500, accounts payable of $900, and inventory of $1,200. What is the value of the quick ratio? a. 13.89 b. 14.22 c. 12.89 d. 15.22 e. 9.12

D

Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: a. free interest. b. bonus income. c. simple interest. d. interest on interest. e. present value interest.

E

John's Auto Repair just obtained an interest-only loan of $35,000 with annual payments for 10 years and an interest rate of 8 percent. What is the amount of the loan payment in Year 8? a. $5,216.03 b. $4,918.07 c. $4,280.00 d. $5,211.06 e. $2,800.00

A

Jonathan invested $6,220 in an account that pays 11 percent simple interest. How much money will he have at the end of 40 years? a. $33,588 b. $408,671 c. $106,905 d. $159,654 e. $404,305

C

Kasturi Safe & Lock generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? a. $776 b. $865 c. $959 d. $922 e. $985

E

Mashburn Roasters has sales of $807,200, total assets of $768,100, and a net profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity? a. 13.09% b. 12.04% c. 11.03% d. 8.56% e. 15.26%

C

Qiaochu purchased a parcel of land costing $67,900. Today, that land is valued at $64,800. How long has she owned this land if the price has been decreasing by 1.5 percent per year? a. 3.33 years b. 2.48 years c. 3.09 years d. 2.97 years e. 2.08 years

A

Randall's Bakery has sales of $42,000 and a net profit margin of 5.8 percent. The firm estimates that sales will increase by 4.5 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income? a. $2,545.62 b. $2,326.38 c. $2,533.44 d. $2,557.80 e. $2,436.00

D

Which one of these statements related to growing annuities and perpetuities is correct? a. You can compute the present value of a growing annuity but not a growing perpetuity. b. In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate. c. The future value of an annuity will decrease if the growth rate is increased. d. An increase in the rate of growth will decrease the present value of an annuity. e. The present value of a growing perpetuity will decrease if the discount rate is increased.

B

You are considering two savings options. Both options offer a rate of return of 8.3 percent. The first option is to save $1,500, $1,250, and $6,400 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? a. $7,203 b. $7,489 c. $8,449 d. $11,623 e. $11,428

A

You are paying an EAR of 16.78 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? a. 15.61% b. 13.97% c. 14.98% d. 15.75% e. 16.35%

C

You borrowed $185,000 for 30 years to buy a house. The interest rate is 4.35 percent compounded monthly. If you pay all of your monthly payments as agreed, how much total interest will you pay on this mortgage? (Round the monthly payment to the nearest whole cent.) a. $150,408 b. $147,027 c. $146,542 d. $154,319 e. $141,406

E

You have a savings account valued at $1,500 today that earns an annual interest rate of 8.7 percent. How much more would this account be worth if you wait to spend the entire balance in 25 years rather than in 20 years? (Assume annual compounding.) a. $6,306.16 b. $4,658.77 c. $3,311.18 d. $6,907.17 e. $4,117.64

C

You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it? a. $73,340.00 b. $68,666.67 c. $72,103.59 d. $66,818.02 e. $69,023.16

C

You will receive $4,000 at graduation 3 years from now. You plan on investing this money at 5 percent annually compounded interest until you have accumulated $50,000. How many years from today will it be when this occurs? a. 51.42 years b. 49.08 years c. 54.77 years d. 48.42 years e. 51.77 years

A

Your grandfather left you an inheritance that will provide an annual income for the next 20 years. You will receive the first payment one year from now in the amount of $2,500. Every year after that, the payment amount will increase by 5 percent. What is your inheritance worth to you today if you can earn 7.5 percent on your investments? a. $37,537.88 b. $28,667.40 c. $23,211.00 d. $35,612.20 e. $30,974.92