Finance 300 Exam 1

Teddy's Pillows had beginning net fixed assets of $471 and ending net fixed assets of $550. Assets valued at $319 were sold during the year. Depreciation was $42. What is the amount of net capital spending?

$121

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

$123,240

For the past year, Kayla, Inc., has sales of $45,992, interest expense of $3,698, cost of goods sold of $16,309, selling and administrative expense of $11,576, and depreciation of $6,125. If the tax rate is 38 percent, what is the operating cash flow?

$14,959

For the past year, Kayla, Inc., has sales of $45,797, interest expense of $3,620, cost of goods sold of $16,134, selling and administrative expense of $11,481, and depreciation of $5,980. If the tax rate is 35 percent, what is the operating cash flow?

$15,178

What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent?

$959.46

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $2.5 million, and the 2018 balance sheet showed long-term debt of $2.65 million. The 2018 income statement showed an interest expense of $100,000. What was the firm's cash flow to creditors during 2018?

-$50,000

You want to have $3.15 million when you retire in 35 years. You feel that you can save $775 per month until you retire. What APR do you have to earn in order to achieve your goal?

10.26%

At 6.3 percent interest, how long does it take to double your money?

11.35 years

JJ Enterprises has inventory of $11,600, fixed assets of $22,400, total liabilities of $12,900, cash of $1,900, accounts receivable of $8,700, and long-term debt of $6,500. What is the net working capital?

$15,800

You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than just 7.1 percent?

$155,986.70

Imprudential, Inc., has an unfunded pension liability of $573 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.6 percent, what is the present value of this liability?

$159,591,783.50

A balance sheet has total assets of $1,588, fixed assets of $1,106, long-term debt of $588, and short-term debt of $177. What is the net working capital?

$305

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

$33,763

Troy will receive $7,500 at the end of Year 2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash flows at the end of Year 6 if the interest rate is 8 percent?

$36,121.08

You have just received notification that you have won the $1.25 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 79 years from now. The appropriate discount rate is 6.4 percent. What is the present value of your winnings?

$9,300.82

You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 30 years and the payments will increase by 3.3 percent per year. If the appropriate discount rate is 7.3 percent, what is the present value of your winnings?

17,002,500.00

Twelve years ago, your parents set aside $8,000 to help fund your college education. Today, that fund is valued at $23,902. What rate of interest is being earned on this account?

9.55%

The decision to issue additional shares of stock is an example of:

A capital structure decision

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

Age 31

What illustrates the management of a firm is adhering to the goal of financial management

An increase in the market value per share

The interest rate that is most commonly quoted by a lender is referred to as the:

Annual percentage rate

Financial managers should strive to maximize the current value per share of the existing stock to:

Best represent the interests of the current shareholders

Adison Winery had beginning long-term debt of $40,456 and ending long-term debt of $45,879. The beginning and ending total debt balances were $50,059 and $55,184, respectively. The company paid interest of $4,399 during the year. What was the company's cash flow to creditors?

−$1,024

Who has the ultimate control of a corporation?

Shareholders

What is an example of a working capital management decision?

Should the firm pay cash for a purchase or use the credit offered by the supplier

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:

Sole proprietorship

What is the relationship between the present value and future value interest factors?

The factors are reciprocals of each other

What is a statement that is true about the NYSE?

The listing requirements for the NYSE are more stringent than those of NASDAQ

Which one of these statements related to growing annuities and perpetuities is correct?

The present value of a growing perpetuity will decrease if the discount rate is increased

A perpetuity is defined as:

Unending equal payments paid at equal time intervals

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary market

What is true about loan interest rates

When comparing loans you should compare the effective annual rates

First City Bank offers an APR of 7.65 percent on its loans. What is the maximum rate the bank can actually earn based on the quoted rate?

7.95%

The 2017 balance sheet of Dream, Inc., showed current assets of $2,900 and current liabilities of $1,330. The 2018 balance sheet showed current assets of $2,870 and current liabilities of $1,515. What was the company's 2018 change in net working capital, or NWC?

$-215

he 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $3.1 million, and the 2018 balance sheet showed long-term debt of $3.3 million. The 2018 income statement showed an interest expense of $105,000. What was the firm's cash flow to creditors during 2018?

$-95,000

You want to buy a new sports car from Muscle Motors for $71,000. The contract is in the form of a 72-month annuity due at an APR of 6.9 percent. What will your monthly payment be?

$1,200.17

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?

$1,240.51

The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

$1,328

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

$1,611

Smashed Pumpkins Co. paid $176 in dividends and $603 in interest over the past year. The company increased retained earnings by $504 and had accounts payable of $654. Sales for the year were $16,440 and depreciation was $740. The tax rate was 38 percent. What was the company's EBIT?

$1,700

Williamsburg Markets has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year?

$1,732

Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. For this to be true, what was the original price of the comic book in 1954?

$1.12

At the beginning of the year, Vendors, Inc., had owners' equity of $48,290. During the year, net income was $4,750 and the company paid dividends of $3,490. The company also repurchased $7,190 in equity. What was the cash flow to stockholders for the year?

$10,680

You have just leased a car that has monthly payments of $330 for the next 3 years with the first payment due today. If the APR is 6 percent compounded monthly, what is the value of the payments today?

$10,901.67

If you put up $39,000 today in exchange for a 6.5 percent, 16-year annuity, what will the annual cash flow be?

$3,992.73

You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent. How much money will you have 8 years from now?

$21,887.13

Red Sun Rising Corp. has just signed a lease for its new manufacturing facility. The lease agreement calls for annual payments of $1,200,000 for 30 years with the first payment due today. If the interest rate is 3.29 percent, what is the value of this liability today?

$23,408,391.34

Griffin's Goat Farm, Inc., has sales of $724,000, costs of $265,000, depreciation expense of $51,000, interest expense of $26,000, and a tax rate of 22 percent. What is the net income for this firm?

$297,960

Today, you earn a salary of $31,000. What will be your annual salary ten years from now if you receive annual raises of 2.2 percent?

$38,536.36

Your grandparents would like to establish a trust fund that will pay you and your heirs $115,000 per year forever with the first payment 8 years from today. If the trust fund earns an annual return of 2.2 percent, how much must your grandparents deposit today?

$4,488,682.52

You want to have $84,000 in your savings account 12 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.80 percent interest, what amount must you deposit each year?

$4,751.32

What is the EAR if a bank charges you an APR of 7.65 percent, compounded quarterly?

7.87%

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $26,000 per year forever. If the required return on this investment is 5.3 percent, how much will you pay for the policy?

$490,566.04

Your employer contributes $85 at the end of each week to your retirement account. The account will earn a weekly interest rate of .11 percent. How much will the account be worth when you retire in 35 years?

$494,213.73

At the beginning of the year, Trees Galore had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year?

$5,630

Red Barchetta Co. paid $27,905 in dividends and $28,878 in interest over the past year. During the year, net working capital increased from $13,722 to $18,444. The company purchased $42,990 in fixed assets and had a depreciation expense of $17,210. During the year, the company issued $25,225 in new equity and paid off $21,315 in long-term debt. What was the company's cash flow from assets?

$52,873

Gerritt wants to buy a car that costs $31,000. The interest rate on his loan is 5.67 percent compounded monthly and the loan is for 5 years. What are his monthly payments?

$594.57

Webster World has sales of $13,800, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 23 percent?

$6,574

Rousey, Inc., had a cash flow to creditors of $17,145 and a cash flow to stockholders of $7,811 over the past year. The company also had net fixed assets of $49,805 at the beginning of the year and $57,250 at the end of the year. Additionally, the company had a depreciation expense of $12,348 and an operating cash flow of $51,404. What was the change in net working capital during the year?

$6,655

Assume that in January 2017, the average house price in a particular area was $308,700. In January 2002, the average price was $205,300. What was the annual increase in selling price?

2.76%

What is the EAR of 18.9 percent compounded continuously?

20.80%

Your local pawn shop loans money at an annual rate of 24 percent and compounds interest weekly. What is the actual rate being charged on these loans?

27.05%

Assume the average vehicle selling price in the United States last year was $36,420. The average price five years earlier was $31,208. What was the annual increase in the selling price over this time period?

3.14%

You feel that you will need $2.5 million in your retirement account and when you reach that amount, you plan to retire. You feel you can earn an APR of 10.5 percent compounded monthly and plan to save $350 per month until you reach your goal. How many years will it be until you reach your goal and retire?

39.71 years

You grandfather invested $16,600 years ago to provide annual payments of $700 a year to his heirs forever. What is the rate of return?

4.22%

One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.65 percent per month interest on the overdue balance. If the current balance is $15,500, how long will it take for the account to be paid off?

43.78 months

You have just received an offer in the mail from Friendly Loans. The company is offering to loan you $5,000 with low monthly payments of $150 per month. If the interest rate on the loan is an APR of 16.1 percent compounded monthly, how long will it take for you to pay off the loan?

44.48 months

What is an example of a firm's long-term investments?

Capital budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

What is a true statement about corporations?

Corporations can have an unlimited life

The articles of incorporation:

Describe the purpose of the firm and set forth the number of shares of stock that can be issued

Corporate bylaws:

Determine how a corporation regulates itself

The process of determining the present value of future cash flows in order to know their value today is referred to as:

Discounted cash flow valuation

One disadvantage of the corporate form of business ownership is the:

Double taxation of distributed profits

An ordinary annuity is best defined as:

Equal payments paid at the end of regular intervals over a stated time period

Noncash items refer to:

Expenses that do not directly affect cash flows

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

General partnership

What is a true statement about sole proprietorships and partnerships?

Income from both sole proprietorships and partnerships that is taxable is treated as individual income

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

Increase

Depreciation for a tax-paying firm:

Increases expenses and lowers taxes.

What is an expense for accounting purposes but is not an operating cash flow for financial purposes?

Interest expense

Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?

Limited liability company

Decisions made by financial managers should primarily focus on increasing the:

Market value per share of outstanding stock

What is the primary goal of financial management?

Maximize the current value per share

What is an example of a primary market transaction?

Sale of a new share of stock to an individual investor

Public offerings of debt and equity must be registered with the:

Securities and Exchange Commission

What is a responsibility of the controller not the treasurer

Processing cost reports

An example of a capital budgeting decision is deciding:

Whether or not to purchase a new machine for the production line

The interest earned on both the initial principal and the interest reinvested from prior periods is called:

compound interest.

Net working capital is defined as:

current assets minus current liabilities