fin fin

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year?

Dividend yield + Capital gains yield

By definition, a bank that pays simple interest on a savings account will pay interest:

only on the principal amount originally invested.

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending.

The stream of customer instructions to buy and sell securities is called the:

order flow.

Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

6.5 percent simple interest

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023. At this price, the bonds yield 6.4 percent. What must be the coupon rate on these bonds?

6.66%

Lawler's BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends of $4,500. What is the plowback ratio?

62.99%

Which statement is true?

An indenture is a contract between a bond's issuer and its holders.

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?

Annuity

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?

Annuity B has both a higher present value and a higher future value than Annuity A.

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

Average tax rate

The primary goal of financial management is to maximize:

the market value of existing stock.

Opulance Corporation common stock is selling for $44.25 a share and has a dividend yield of 1.9 percent. What is the dividend amount?

$0.84

A bond that pays interest semiannually has a coupon rate of 5.56 percent and a current yield of 4.99 percent. The par value is $1,000. What is the bond's price?

$1,114.23

Railway Cabooses just paid its annual dividend of $3.90 per share. The company has been reducing the dividends by 12.4 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 14 percent?

$12.94

A particular stock sells for $43.20 share and provides a total return of 11.6 percent. The total return is evenly divided between the capital gains yield and the dividend yield. Assuming a constant dividend growth rate, what is the current dividend per share?

$2.37

You need to have $34,750 in 5 years. You can earn an annual interest rate of 6 percent for the first 3 years, and 6.6 percent for the next 2 years. How much do you have to deposit today?

$25,675.73

You want to have $32,000 for a down payment on a house 5 years from now. If you can earn 4.3 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?

$25,925.58

River Rock, Incorporated, just paid an annual dividend of $2.80. The company has increased its dividend by 2.7 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?

$25.37

Earley Construction has beginning retained earnings of $284,300. For the year, the company earned net income of $13,700 and paid dividends of $9,000. The company also issued $25,000 worth of new stock. What is the value of the retained earnings account at the end of the year?

$289,000

A balance sheet shows beginning values of $56,300 for current liabilities and $289,200 for long-term debt. The ending values are $61,900 and $318,400, respectively. The income statement shows interest paid of $29,700 and dividends of $19,000. What is the amount of the net new borrowing?

$29,200

Variance Logistics wants to issue 20-year, zero coupon bonds that yield 6.2 percent. What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

$294.89

The Red Bud Company pays a constant dividend of $1.80 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 7.4 percen

$3.24

A bond has a par value of $1,000, a current yield of 6.54 percent, and semiannual coupon payments. The bond is quoted at 96.49. What is the amount of each coupon payment?

$31.55

Zoey Pet Supply had $314,000 in net fixed assets at the beginning of the year. During the year, the company purchased $98,200 in new equipment. It also sold, at a price of $10,000, some old equipment that had a book value of $12,500. The depreciation expense for the year was $24,500. What is the net fixed asset balance at the end of the year?

$375,200

KIT Kars stock currently sells for $54.10 per share and has a fixed 2.5 percent dividend growth rate. What was the amount of the last dividend paid if the required rate of return is 11 percent?

$4.49

You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $2,100 today and both accounts have an annual interest rate of 5 percent. How much more interest will you receive in the 10th year in the account that pays compound interest?

$57.89

Turner's Store had a profit margin of 6.8 percent, sales of $498,200, and total assets of $542,000. If management set a goal of increasing the total asset turnover to 1.10 times, what would the new sales figure need to be, assuming no increase in total assets?

$596,200

Mariota Corporation just paid a dividend of $3.65 per share on its stock. The dividend growth rate is expected to be 3.85 forever and investors require a return of 12.3 percent on this stock. What will the stock price be in 8 years?

$60.69

Utamuro Markets has beginning long-term debt of $64,500, which is the principal balance of a loan payable to Centre Bank. During the year, the company paid a total of $16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000. What is the value of the ending long-term debt?

$63,300

A $1,000 face value bond currently has a yield to maturity of 7.14 percent. The bond matures in sixteen years and pays interest semiannually. The coupon rate is 6.95 percent. What is the current price of this bond?

$982.05

The most recent census for a city indicated that there were 857,382 residents. The population of the city is expected to increase at an annual rate of 3.1 percent each year for the next 7 years. What will the population be at that time?

1,061,659

Castaway Resort common stock is selling for $42.50 a share. The company has earnings per share of $.79 and a book value per share of $17.50. What is the market-to-book ratio?

2.43

For the past six years, the price of Slippery Rock stock has been increasing at a rate of 8.21 percent a year. Currently, the stock is priced at $43.40 a share and has a required return of 11.65 percent. What is the dividend yield?

3.44%

A taxable bond has a coupon rate of 6.04 percent and a YTM of 5.67 percent. If an investor has a marginal tax rate of 39 percent, what is the equivalent aftertax yield?

3.46%

There is a zero coupon bond that sells for $4,481.74 and has a par value of $10,000. If the bond has 21 years to maturity, what is the yield to maturity? Assume semiannual compounding.

3.86%

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $985. The bonds pay interest semiannually and have a yield to maturity of 4.03 percent. What is the coupon rate?

3.90%

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

4 percent interest, compounded annually

Xinya Controls has a profit margin of 7.5 percent and net income of $112,545. What is the common-size percentage for the cost of goods sold if that expense amounted to $855,425 for the year?

57.01%

There is a bond that has a quoted price of 109.629 and a par value of $2,000. The coupon rate is 7.02 percent and the bond matures in 20 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?

6.18%

Warson Motors wants to raise $2 million by selling 20-year coupon bonds at par. Comparable bonds in the market have a coupon rate of 6.3 percent, semiannual payments, 20 years to maturity, and are selling at 96.5 percent of par. What coupon rate should Warson Motors set on its bonds?

6.62%

When your father was born 51 years ago, his grandparents deposited $275 in an account for him. Today, that account is worth $15,000. What was the annual rate of return on this account?

8.16%

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds?

9.50%

The inflation rate over the past year was 2.1 percent. If an investment had a real return of 7.3 percent, what was the nominal return on the investment?

9.55%

Which one of the following parties can sell shares of ABC stock in the primary market?

ABC company

Which of the following is not a basic area of finance as described by the text?

Accounting

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Which one of the following statements is correct?

All over-the-counter sales occur in dealer markets.

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Capital expenditures

Which one of the following must equal zero if a firm pays a constant annual dividend?

Capital gains yield

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

Cash management

Which one of the following occupations best fits into the corporate area of finance?

Chief financial officer

Which one of the following types of securities has the lowest priority in a bankruptcy proceeding?

Common stock

The price of a stock at Year 3 can be expressed as:

D4/(R − g).

The DuPont identity can be accurately defined as:

Equity multiplier × Return on assets.

Which statement is true?

From a legal perspective, preferred stock is a form of corporate equity.

Which one of the following is a working capital decision?

How much cash should the firm keep in reserve?

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Increase the protections against corporate fraud

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

Internal growth rate

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

What is the primary goal of financial management for a sole proprietorship?

Maximize the market value of the equity

Which one of the following features applies to Nasdaq but not the NYSE?

Multiple market maker system

Which one of the following statements is correct?

Nasdaq has more listed stocks than does the NYSE.

Which one of these is correct?

Net income is distributed either to dividends or retained earnings.

The term structure of interest rates represents the relationship between which of the following?

Nominal rates on default-free, pure discount bonds and time to maturity

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets

Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations?

SIC

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

Which one of the following premiums is paid on a corporate bond due to its tax status?

Taxability premium

Which one of the following correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer.

Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?

The period of time she has to wait decreases as the amount she invests increases.

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers.

The shareholders of Qiang's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

an agency conflict.

The price at which a dealer will purchase a bond is referred to as the _____ price.

bid

A broker is an agent who:

brings buyers and sellers together.

Security dealers:

buy and sell from their own inventory.

All else held constant, the future value of a lump-sum investment will decrease if the:

interest is changed to simple interest from compound interest.

The current yield on a bond is equal to the annual interest divided by the:

current market price.

The goal of financial management is to increase the:

current market value per share.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.

Calculating the present value of a future cash flow to determine its worth today is commonly called:

discounting cash flow valuation.

Bond ratings classify bonds based on:

default risk only.

Most trades on the NYSE are executed:

electronically.

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

Municipal bonds are:

generally callable.

An auction market:

has a physical trading floor.

The future value of a lump-sum investment will increase if you:

increase the time period.

Cash flow to creditors is defined as:

interest paid minus net new borrowing.

Net working capital increases when:

inventory is sold at a profit.

The relationship between the present value and the investment time period is best described as:

inverse.

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

is selling at a premium

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

is selling at a premium.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

marginal tax rate.

The primary goal of financial management is most associated with increasing the:

market value of the firm.

The issuer of a security must be involved in all _____ transactions involving that security.

primary market

The primary purpose of bond covenants is to:

protect the bondholders.

The recognition principle states that:

sales should be recorded when the earnings process is virtually completed, and the value of the sale can be determined.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

secondary market.

The 6.4 percent bond of Berberich, Incorporated, has a yield to maturity of 6.9 percent. The bond matures in eleven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

$32.00

Gamma Corporation is expected to pay the following dividends over the next four years: $7.50, $8.25, $15, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return is 14 percent, what is the current share price?

$35.20

Efran's Auto Repair has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485. What is the total debt ratio?

0.37

For the past six years, the stock price of Slippery Rock Mining has been increasing at a rate of 7.8 percent per year. Currently, the stock is selling for $80 per share and has a required return of 9.8 percent. What is the dividend yield?

2.00%

Assume earnings before interest and taxes of $56,850 and net income of $23,954. The tax rate is 21 percent. What is the times interest earned ratio?

2.14

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority?

Proxy

Ratio analysis cannot be taken at face value for all of the following except which reason?

While GAAP is consistent across the globe, multiple currencies may be considered.

A private placement is most apt to involve

a life insurance

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms.

A debenture is:

an unsecured bond.

Nishaa has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

Dividends are best defined as:

cash or stock payments to shareholders.

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:

compound interest.

Russell's has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the _____ provision.

deferred call

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

discounted cash flow valuation.

All else held constant, the book value of owners' equity will decrease when:

dividends exceed net income for a period.

A sole proprietorship:

has its profits taxed as personal income.

Corporate shareholders:

have the ability to change the corporation's bylaws.

The cash ratio is used to evaluate the:

length of time that a firm can pay its bills if no additional cash becomes available.

A protective covenant:

limits the actions of the borrower.

Market values:

reflect expected selling prices given the current economic situation.

Given an interest rate of zero percent, the future value of a lump sum invested today will always:

remain constant, regardless of the investment time period.

Net income increases when:

revenue increases.

If a firm has an inventory turnover of 15, the firm:

sells its entire inventory an average of 15 times each year.

An employee has a claim on the cash flows of Westlake Machines. This claim is defined as a claim by one of the firm's:

stakeholders.

Operating cash flow is defined as:

the cash that a firm generates from its normal business activities.

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Newly issued securities are sold to investors in which one of the following markets?

Primary

Symon's Suppers Company has announced that it will pay a dividend of $4.59 per share one year from today. Additionally, the company expects to increase its dividend by 3.2 percent annually. The required return on the company's stock is 12.4 percent. What is the current share price?

$49.89

The common stock of Federal Logistics is selling for $57.56 per share. The company pays a constant annual dividend and has a total return of 10.13 percent. What is the amount of the dividend?

$5.83

Sankey Company has earnings per share of $4.15. The benchmark PE is 19.2 times. What stock price would you consider appropriate?

$79.68

Sunny Disposition, Incorporated, has net working capital of $32,500, current assets of $59,000, equity of $74,500, and long-term debt of $42,500. What is the amount of the net fixed assets?

$84,500

Flash Freeze Frozen Foods is expected to pay annual dividends of $1.34 and $1.45 at the end of the next two years, respectively. After that, the company expects to pay a constant dividend of $1.50 a share. What is the value of this stock at a required return of 15.1 percent?

$9.76

A stock is expected to maintain a constant dividend growth rate of 4.7 percent indefinitely. If the stock has a dividend yield of 6 percent, what is the required return on the stock?

10.70%

The common stock of Sweet Treats is selling for $52.40 per share. The company is expected to have an annual dividend increase of 4.1 percent indefinitely and pay a dividend of $4.05 in one year. What is the total return on this stock?

11.83%

Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity?

12.67%

High Road Transport has a current stock price of $5.60. For the past year, the company had net income of $287,400, total equity of $992,300, sales of $1,511,000, and 750,000 shares outstanding. What is the market-to-book ratio?

4.23

The 5 percent semiannual coupon bonds of Under The Counter, Incorporated, are selling for $995.25. The bonds have a face value of $1,000 and mature in 12 years. What is the yield to maturity?

5.05%

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio?

5.11%

New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 20 years, and have a 5.8 percent coupon. The current price is quoted at 103.25. What is the yield to maturity?

5.53

The $1,000 face value bonds of Galaxies International have coupon of 5.5 percent and pay interest semiannually. Currently, the bonds are quoted at 98.02 and mature in 12 years. What is the yield to maturity?

5.73%

Russell Foods will pay a dividend of $2.28 next year. At a required return of 11.5 percent, the stock is valued at $43.20 a share. What is the dividend growth rate at this price?

6.22%

A bond that pays interest semiannually has a price of $955.25 and a semiannual coupon payment of $29.75. If the par value is $1,000, what is the current yield?

6.23%

Letitia borrowed $6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have?

Amortized

The constant growth model can be used to value the stock of firms that have which type(s) of dividends?

Dividends that are either constant or change annually at a constant rate

Deandre and Mason will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

LaVerne's Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios?

II and III only

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Inflation

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Investments

All else held constant, which one of the following will decrease if a firm increases its net income?

Price-earnings ratio

Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?

She could have the same future value and invest less than $2,000 initially if she could earn more than 6.5 percent interest.

Sixty years ago, your grandparents opened two savings accounts and deposited $250 in each account. The first account was with City Bank at 3.6 percent, compounded annually. The second account was with Country Bank at 3.65 percent, compounded annually. Which one of the following statements is true concerning these accounts?

The Country Bank account has paid $61.30 more in interest than the City Bank account.

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today:

will be greater if you invest with Northern Bank.

The daily financial operations of a firm are primarily controlled by managing the:

working capital.

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

zero percent.

One year ago, Alpha Supply issued 20-year bonds at par. The bonds have a coupon rate of 6.5 percent, paid semiannually, and a face value of $1,000. Today, the market yield on these bonds is 7.2 percent. What is the percentage change in the bond price over the past year?

−7.19%

The $1,000 face value bonds of Universe International have coupon of 6.8 percent and pay interest semiannually. Currently, the bonds are quoted at 103.5 and mature in 16 years. What is the yield to maturity?

6.45%

SRC, Incorporated, sells its inventory in an average of 52 days and collects its receivables in 3.6 days, on average. What is the inventory turnover rate? Assume a 365-day year.

7.02

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

downward sloping.

Inside quotes are defined as the:

lowest asked and highest bid offers.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.

Common-size financial statements present all balance sheet account values as a percentage of:

total assets.