Finance 3200
Waldo expects to save the following amounts: Year 1 = $50,000; Year 2 = $28,000; Year 3 = $12,000. If he can earn an average annual return of 10.5 percent, how much will he have saved in this account exactly 25 years from the time of the first deposit? $1,172,373 $935,334 $806,311 $947,509 $1,033,545
$1,033,545
Sue plans to save $4,500, $0, and $5,500 at the end of Years 1 to 3, respectively. What will her investment account be worth at the end of the Year 3 if she earns an annual rate of 4.15 percent? $10,583.82 $10,381.25 $10,609.50 $11,526.50 $10,812.07
$10,381.25 find fv of 4500 n=2 add 5500
which one of the following represents the most liquid asset? -$100 account receivable that is discounted and collected for $96 today -$100 of inventory that is sold today on credit for $103 -$100 of inventory that is discounted and sold for $97 cash today -$100 of inventory that is sold today for $100 cash -$100 of accounts receivable that will be collected in full next week
$100 of inventory that is sold today for $100 cash
Roadside Markets has 8.45 percent coupon bonds outstanding that mature in 10.5 years. The bonds pay interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent? $1,199.80 $999.85 $903.42 $1,091.00 $1,007.52
$1091.00 i/y = 3.6; 7.2/2 N = 21; 10.5 x 2 pmt = 42.25; .0845/2 x 1000
Friendly Companies has an unfunded pension liability of $327 million that must be paid in 16 years. What is the present value of this liability at a discount rate of 6.24 percent? $129,803,162.22 $111,438,907.11 $124,147,723.50 $134,519,484.14 $121,511,366.67
$124,147,723.50 compute pv
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? $59,818.92 $98,509.16 $140,423.33 $155,986.70 $138,342.91
$155,986.70 difference of two fvs make sure pv is negative
You would like to give your child $100,000 to start a career 25 years from now. How much money must you set aside today for this purpose if you can earn 7.5 percent on your investments? $15,388.19 $16,397.91 $16,817.67 $15,911.13 $17,488.37
$16,397.91 compute pv
When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit? $17,414.14 $21,319.47 $19,891.11 $20,468.85 $13,406.78
$20,468.85 difference of pvs make fv negative
You just won the grand prize in a national writing contest! As your prize, you will receive $500 a month for 50 months. If you can earn 7 percent on your money, what is this prize worth to you today? $21,629.93 $18,411.06 $21,338.40 $20,333.33 $19,450.25
$21,629.93 compute pv i/y=7/12
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? $24,824.94 $19,381.16 $21,887.13 $23,209.19 $20,414.73
$21,887.13 compute fv in calc N=6
A project has an initial cash outflow of $42,600 and produces cash inflows of $17,680, $19,920, and $15,670 for Years 1 through 3, respectively. What is the NPV at a discount rate of 12 percent? $186.95 -$108.19 $219.41 $229.09 $311.16
$219.41 Make sure cash outflow is negative
Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? $291.41 $287.45 $302.16 $266.67 $258.09
$287.45
You are the recipient of a gift that will pay you $25,000 one year from now and every year thereafter for the following 24 years. The payments will increase in value by 2.5 percent each year. If the appropriate discount rate is 8.5 percent, what is the present value of this gift? $416,667 $316,172 $409,613 $311,406 $386,101
$316,172
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 $37,414.06 $38,235.24 $37,122.08 $36,736.00
$38,536.36 compute fv in calc
What is the future value of $8,500 a year for 40 years at 10.8 percent interest, compounded annually? $3,278,406.16 $4,681,062.12 $2,711,414.14 $3,989,476.67 $4,021,223.33
$4,681,062.12
You are considering two savings options. Both options offer a rate of return of 7.6 percent. The first option is to save $2,500, $2,500, and $3,000 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? $7,414.59 $6,289.74 $6,660.00 $6,890.89 $6,784.20
$6,890.89 add each year together i/y = 7.6 N =1, fv = 2500 N=2, fv = 2500 N=3, fv = 3000 answer is sum of those values
A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? $970 $720 $640 $3,110 $2,860
$720 inventory + AR + cash - AP 680 + 210 + 80 - 250
A project has a required return of 12.6 percent, an initial cash outflow of $42,100, and cash inflows of $16,500 in Year 1, $11,700 in Year 2, and $10,400 in Year 4. What is the net present value? −$11,748.69 −$10,933.52 −$11,208.62 −$10,457.09 −$12,006.13
-11,748.69
Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? $11.23 $10.82 $10.68 $9.68 $11.57
10.82 First, find expected dividend 1.42(1 + .013) = 1.44 Second, find stock value 1.44/(.146-.013) = 10.82
World Travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature? 12.26 years 12.53 years 18.49 years 24.37 years 25.05 years
12.53 years i/y = 3.36; 6.72/2 pmt = 35; .07/2 x 1000 divide value by 2
The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent? $13.89 $14.01 $14.56 $13.79 $13.28
13.89 2.25/.162
The Shoe Outlet has paid annual dividends of $.58, $.66, $.72, and $.75 per share over the last four years, respectively. The stock is currently selling for $10.08 a share. What is the cost of equity? 18.74 percent 17.13 percent 10.38 percent 19.53 percent 11.79 percent
17.13 percent (0.66 - 0.58)/0.58 = 0.137931034 (0.72 - 0.66)/0.66 = 0. 0909090909 (0.75 - 0.72)/0.72 = 0.0416666667 g = (0.137931034 + 0. 0909090909 + 0.0416666667)/3 = 0.0901689305 = {(0.75 * 1.0901689305)/10.08} + 0.0901689305 = 0.17128269
It will cost $9,600 to acquire an ice cream cart that is expected to produce cash inflows of $3,600 a year for three years. After the three years, the cart is expected to be worthless. What is the payback period? 1.82 years 1.67 years 2.82 years 2.67 years 1.79 years
2.67 years 9600/3600
At 5 percent interest, how long would it take to triple your money? 26.55 years 25.64 years 24.87 years 22.52 years 20.01 years
22.52 years compute N pv = -1 fv = 3 i/y = 5
Phil purchased a car today at a price of $8,500. He paid $300 down in cash and financed the balance for 36 months at 5.75 percent, compounded monthly. What is the amount of each monthly loan payment? $248.53 $270.23 $318.47 $305.37 $257.62
248.53 PV = -8200
You want to start a business that you believe can produce cash flows of $5,600, $48,200, and $125,000 at the end of each of the next three years, respectively. At the end of three years you think you can sell the business for $250,000. At a discount rate of 16 percent, what is this business worth today? $258,803.02 $314,011.33 $280,894.67 $325,837.81 $297,077.17
280,894.67 sum of pv of 250,000 and the cash flows pvs
GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share? $2.85 $3.68 $2.43 $3.09 $3.18
3.68 .53/.144
The next dividend payment by HG Enterprises will be $1.82 per share with future increases of 2.8 percent annually. The stock currently sells for $38.70 per share. What is the dividend yield? 4.20 percent 4.70 percent 4.81 percent 4.56 percent 4.41 percent
4.70 percent 1.82/38.70
Fashion Wear has bonds outstanding that mature in 11 years, pay interest annually, and have a coupon rate of 6.45 percent. These bonds have a face value of $1,000 and a current market price of $994. What is the company's aftertax cost of debt if its tax rate is 21 percent? 4.86 percent 4.28 percent 5.16 percent 5.21 percent 4.53 percent
5.16 percent n = 11 fv = 1000 pv = -994 pmt = 64.5 answer is 6.52 after tax cost = 6.52 x (1-.21)
You will receive $4,000 at graduation 3 years from now. You plan on investing this money at 5 percent annual interest until you have accumulated $50,000. How many years from today will it be when this occurs? 51.42 years 49.08 years 54.77 years 48.42 years 51.77 years
54.77 years compute N + 3 for graduating in 3 years
The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? 4.84 percent 6.41 percent 9.92 percent 6.14 percent 7.28 percent
6.41 percent 2.28 /47.92 answer + .0165
The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $987. What is the yield to maturity? 6.97 percent 6.92 percent 6.88 percent 7.22 percent 7.43 percent
7.22 percent compute rate pmt = .07/2 x 1000 = 35 n = 8 x 2 multiply i/y x 2
Your broker is offering 1.2 percent compounded daily on its money market account. If you deposit $7,500 today, how much will you have in your account 15 years from now? $8,979.10 $9,714.06 $8,204.50 $9,336.81 $9,414.14
8,979.19 I/Y = 1.2/365 N = 15*365
Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for $87 per share. What is the bank's cost of preferred? 7.00 percent 7.64 percent 8.39 percent 8.05 percent 7.54 percent
8.05 percent 7/.87
Ten years ago, Jackson Supply set aside $125,000 in case of a financial emergency. Today, that account has increased in value to $278,592. What rate of interest is the firm earning on this money? 8.80 percent 8.34 percent 7.75 percent 8.01 percent 7.87 percent
8.34 percent compute rate make sure pv is negative
Bonner Metals wants to issue new 20-year bonds. The company currently has 8.5 percent bonds on the market that sell for $994, make semiannual payments, and mature in 7 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par? 8.75 percent 9.23 percent 8.41 percent 8.62 percent 8.87 percent
8.62 percent compute i/y pmt = 42.5; .085/2 x 1000
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? 8.99 percent 9.42 percent 9.67 percent 9.55 percent 9.06 percent
9.55 percent compute rate make sure pv is negative
A project's average net income divided by its average book value is referred to as the project's average: net present value. internal rate of return. accounting return. profitability index. payback period.
Accounting return
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? An increase in the amount of the quarterly dividend A decrease in the per unit production costs An increase in the number of shares outstanding A decrease in the net working capital An increase in the market value per share
An increase in the market value per share
According to the Rule of 72, you can do which one of the following? -Approximately double your money in five years at 7.24 percent interest -Double your money in 7.2 years at 8 percent interest -Approximately double your money in 11 years at 6.55 percent interest -Triple your money in 7.2 years at 7.2 percent interest -Approximately triple your money in 7.2 years at 10 percent interest
Approximately double your money in 11 years at 6.55 percent interest 72/11 = 6.55
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? Income statement Creditor's statement Balance sheet Statement of cash flows Dividend statement
Balance sheet
Mutually exclusive projects are best defined as competing projects that: would need to commence on the same day. have the same initial start-up costs. both require the total use of the same limited resource. both have negative cash outflows at time zero. have the same life span.
Both require the total use of the same limited resource
A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? Par value Callable Senior Subordinated Unsecured
Callable
Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Working capital management Cash management Cost analysis Capital budgeting Capital structure
Capital Structure
Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? Reduction in the cash outflow at Time 0 Cash inflow prorated over the life of the project Cash inflow for the year following the final year of the project Cash inflow in the final year of the project Excluded from the net present value calculation
Cash inflow in the final year of the project
You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value? A sudden and unexpected increase in inflation The replacement of old inventory items with more desirable products Improvements to the surrounding area by other store owners Construction of a new restricted access highway located between the store and the surrounding residential areas Addition of a stop light at the main entrance to the store's parking lot
Construction of a new restricted access highway located between the store and the surrounding residential areas
Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? Electing the board of directors Receiving a distribution of company profits Voting either for or against a proposed merger or acquisition Determining the amount of the dividend to be paid per share Having first chance to purchase any new equity shares that may be offered
Determining the amount of the dividend to be paid per share
The internal rate of return is defined as the: maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project is financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. discount rate that causes the profitability index for a project to equal zero.
Discount rate which causes the net present value of a project to equal zero
Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows? Constant dividend growth model Discounted cash flow valuation Average accounting return Expected earnings model Internal rate of return
Discounted cash flow valuation
Kelley's Baskets makes handmade baskets and is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project? Storing supplies in the same space currently used for materials storage Utilizing the basket manager to oversee wreath production Hiring additional employees to handle the increased workload should the firm accept the wreath project Researching the market to determine if wreath sales might be profitable before deciding to proceed Planning on lower interest expense by assuming the proceeds of the wreath sales will be used to reduce the firm's currently outstanding debt
Hiring additional employees to handle the increased workload should the firm accept the wreath project
All of the following are related to a proposed project. Which one of these should be included in the cash flow at Time 0? Loan obtained to finance the project Initial investment in inventory to support the project Annual depreciation tax shield Aftertax salvage value Net working capital recovery
Initial investment in inventory to support the project
In actual practice, managers most frequently use which two types of investment criteria? Net present value and payback Average accounting return and internal rate of return Net present value and profitability index Internal rate of return and payback Internal rate of return and net present value
Internal rate of return and net present value
The current yield is defined as the annual interest on a bond divided by the: coupon rate. face value. market price. call price. par value.
Market Price
If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: independent. interdependent. mutually exclusive. economically scaled. operationally distinct.
Mutually exclusive
The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following? Salvage value Wasted value Sunk cost Opportunity cost Erosion
Opportunity Cost
The length of time a firm must wait to recoup the money it has invested in a project is called the: payback period. internal return period. profitability period. discounted cash period. valuation period.
Payback period
Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.9 years and a net present value of $4,200. Project B has an expected payback period of 3.1 years with a net present value of $26,400. Which project(s) should be accepted based on the payback decision rule? Project A only Project B only Both A and B Neither A nor B Either, but not both projects
Project A only
Two mutually exclusive projects have an initial cost of $47,500 each. Project A produces cash inflows of $25,300, $37,100, and $22,000 for Years 1 through 3, respectively. Project B produces cash inflows of $43,600, $19,800 and $10,400 for Years 1 through 3, respectively. The required rate of return is 14.7 percent for Project A and 14.9 percent for Project B. Which project(s) should be accepted and why? Project A, because it has the higher required rate of return. Project A, because it has the larger NPV. Project B, because it has the largest cash inflow in Year 1. Project B, because it has the higher required rate of return. Project B, because it has the larger NPV
Project A, because it has the larger NPV
Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Right to share in company profits prior to other shareholders Right to elect the corporate directors Right to vote on proposed mergers Right to all residual income after the common dividends have been paid Right to a permanent seat on the board of directors
Right to share in company profits prior to other shareholders
Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? Providing both ketchup and mustard for customers' use Repairing the roof of the hot dog stand because of water damage Selling fewer hot dogs because hamburgers were added to the menu Offering french fries but not onion rings Losing sales due to bad weather
Selling fewer hot dogs because hamburgers were added to the menu
Pro forma financial statements can best be described as financial statements: showing projected values for future time periods. where the assets are expressed as a percentage of total assets and costs are expressed as a percentage of sales. expressed in a foreign currency. expressed in real dollars, given a stated base year. where all accounts are expressed as a percentage of last year's values.
Showing projected values for future time periods
GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost? Opportunity Fixed Incremental Erosion Sunk
Sunk
Which one of the following costs was incurred in the past and cannot be recouped? Incremental Side Sunk Opportunity Erosion
Sunk
Which one of the following best describes the concept of erosion? Expenses that have already been incurred and cannot be recovered Change in net working capital related to implementing a new project The cash flows of a new project that come at the expense of a firm's existing cash flows The alternative that is forfeited when a fixed asset is utilized by a project The differences in a firm's cash flows with and without a particular project
The cash flows of a new project that come at the expense of a firm's existing cash flows
A project has a net present value of zero. Which one of the following best describes this project? The project has a zero percent rate of return. The project requires no initial cash investment. The project has no cash flows. The summation of all of the project's cash flows is zero. The project's cash inflows equal its cash outflows in current dollar terms.
The project's cash inflows equal its cash outflows in current dollar terms
A proposed project has an initial cost of $38,000 and cash inflows of $12,300, $24,200, and $16,100 for Years 1 through 3, respectively. The required rate of return is 16.8 percent. Based on IRR, should this project be accepted? Why or why not? No; The IRR exceeds the required return. No; The IRR is less than the required return. Yes; The IRR exceeds the required return. Yes; The IRR equals the required return. No; The IRR equals the required return.
Yes; the IRR exceeds the required return
As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why? You should accept the payments because they are worth $202,414 to you today. You should accept the payments because they are worth $201,846 to you today. You should accept the payments because they are worth $201,210 to you today. You should accept the $200,000 because the payments are only worth $189,311 to you today. You should accept the $200,000 because the payments are only worth $195,413 to you today.
You should accept the $200,000 because the payments are only worth $195,413 to you today.
the decision to issue additional shares of stock is an example of: -working capital management -a net working capital decision -capital budgeting -a controller's duties -a capital structure decision
a capital structure decision
All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity. a premium; less than a premium; equal to a discount; less than a discount; higher than par; less than
a discount; less than
Which one of the following is a current liability? -note payable to a supplier in 13 months -amount due from a customer in two weeks -account payable to a supplier that is due next week -loan payable to the bank in 18 months -amount due from a customer that is past due
account payable to a supplier that is due next week
The capital structure weights used in computing a company's weighted average cost of capital: are based on the book values of debt and equity. are based on the market values of the outstanding securities. depend upon the financing obtained to fund each specific project. remain constant over time unless new securities are issued or outstanding securities are redeemed. are restricted to debt and common stock.
are based on the market values of the outstanding securities
The book value of a firm is: -equivalent to the firm's market value provided that the firm has some fixed assets -based on historical cost -generally greater than the market value when fixed assets are included -more of a financial than an accounting valuation -adjusted to the market value whenever the market value exceeds the stated book value
based on historical cost
A company's current cost of capital is based on: only the return required by the company's current shareholders. the current market rate of return on equity shares. the weighted costs of all future funding sources. both the returns currently required by its debtholders and stockholders. the company's original debt-equity ratio.
both the returns currently required by its debtholders and stockholders
Which one of the following terms is defined as the mixture of a firm's debt and equity financing? -working capital management -cash management -cost analysis -capital budgeting -capital structure
capital structure
agency problems are most associated with: -sole proprietorships -general partnerships -limited partnerships -corporations -limited liability companies
corporations
Net working capital is defined as: -total liabilities minus shareholders' equity -current liabilities minus shareholders' equity -fixed assets minus long-term liabilities -total assets minus total liabilities -current assets minus current liabilities
current assets minus current liabilities
One disadvantage of the corporate form of business ownership is the: -limited liability of its shareholders for the firm's debts -double taxation of distributed profits -firm's greater ability to raise capital than other forms of ownership -firm's potential for an unlimited life -firm's ability to issue additional shares of stock
double taxation of distributed profits
One disadvantage of the corporate form of business ownership is the: limited liability of its shareholders for the firm's debts. double taxation of distributed profits. firm's greater ability to raise capital than other forms of ownership. firm's potential for an unlimited life. firm's ability to issue additional shares of stock.
double taxation of distributed profits
Relationships determined from a company's financial information and used for comparison purposes are known as: -financial ratios -identities -dimensional analysis -scenario analysis -solvency analysis
financial ratios
cash flow from assets is also known as the firm's: -capital structure -equity structure -hidden cash flow -free cash flow -historical cash flow
free cash flow
Which one of the following questions is least likely to be addressed by financial managers? -how should a product be marketed? -should customers be given 30 or 45 days to pay for their credit purchases? -should the firm borrow more money? -should the firm acquire new equipment? -how much cash should the firm keep on hand?
how should a product be marketed?
Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: at par. in registered form. in street form. as debentures. as callable bonds.
in registered form
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? -income statement -balance sheet -statement of cash flows -tax reconciliation statement -market value report
income statement
The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's: incremental cash flows. internal cash flows. external cash flows. erosion effects. financing cash flows.
incremental cash flows
A company's weighted average cost of capital: is equivalent to the aftertax cost of the outstanding liabilities. should be used as the required return when analyzing any new project. is the return investors require on the total assets of the firm. remains constant when the debt-equity ratio changes. is unaffected by changes in corporate tax rates.
is the return investors require on the total assets of the firm
which one of the following best states the primary goal of financial management? -maximize current dividends per share -maximize the current value per share -increase cash flow and avoid financial distress -minimize operational costs while maximizing firm efficiency -maintain steady growth while increasing current profits
maximize the current value per share
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ________ ratios. -asset management -long-term solvency -short-term solvency -profitability -turnover
profitability
Which of the following ratios is a measure of a firm's liquidity? -cash coverage ratio -profit margin -debt-equity ratio -quick ratio -NWC turnover
quick ratio
The cost of preferred stock is computed the same as the: pretax cost of debt. rate of return on an annuity. aftertax cost of debt. rate of return on a perpetuity. cost of an irregular growth common stock.
rate of return on a perpetuity
The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? Underlying value principle Stand-alone principle Equivalent cost principle Salvage principle Fundamental principle
stand-alone principle
Which one of the following statements concerning corporate income taxes is correct for 2021? -all corporations are exempt from federal taxation -corporations pay no tax on their first $50,000 of income -the federal income tax on corporations is a flat-rate tax with the same rate applying to all levels of taxable income -the marginal tax rate will always be lower than the average tax rate -the first 25 percent of corporate income is exempt from taxation
the federal income tax on corporations is a flat-rate tax with the same rate applying to all levels of taxable income
If a project has a net present value equal to zero, then: the total of the cash inflows must equal the initial cost of the project. the project earns a return exactly equal to the discount rate. a decrease in the project's initial cost will cause the project to have a negative NPV. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. the project's PI must also be equal to zero.
the project earns a return exactly equal to the discount rate
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: -took place in the primary market -occurred in a dealer market -was facilitated in the secondary market -involved a proxy -was a private placement
was facilitated in the secondary market
An example of a capital budgeting decision is deciding: -how many shares of stock to issue -whether or not to purchase a new machine for the production line -how to refinance a debt issue that is maturing -how much inventory to keep on hand - how much money should be kept in the checking account
whether or not to purchase a new machine for the production line
A firm's short-term assets and its short-term liabilities are referred to as the firm's: -working capital -debt -investment capital -net capital -capital structure
working capital
A firm's short-term assets and its short-term liabilities are referred to as the firm's: working capital. debt. investment capital. net capital. capital structure.
working capital
