Finance Exam #1

You deposit $1,000 today into an account that pays 4 percent annual compound interest. How much money will you have in your account in 5 years?

$1,217

You decide to save for your dream vacation to Europe (London, Paris, and Rome). You want to be able to travel in 5 years. If you believe your trip will cost $8,000 and you can earn 6 percent annual interest on your savings, how much must you deposit today so you can afford your trip in 5 years?

$5,978

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?

$720

If Drummond Co., Inc. has an ROE = 24.0%, profit margin = 2.0%, and a total asset turnover ratio = 1.0? What is Drummond's equity multiplier (EM)? ENTER YOUR ANSWER TO TWO DECIMAL PLACES (e.g., 3.65).

12.00

Burns Industries has total sales of $250,000 and costs of $95,000 (Note: costs do not include depreciation expense). Depreciation expense is $35,000 and the tax rate is 25 percent. The firm does not have any interest expense. What is the operating cash flow (OCF)? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST DOLLAR.

125,000

You deposit $5,000 today into an account that pays 5 percent annual compound interest. How long will it take for your money to grow to $15,000?

22.5 years

Travis invested $2,000 in an account that pays 4.9 percent simple interest. How much more could he have earned over a 10-year period if the interest had compounded annually? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST DOLLAR.

247

OK Energy had net fixed assets of $1,231 at the end of 2016 and net fixed assets of $1,323 at the end of 2017. Depreciation expense for 2017 was $246. What is the amount of net capital spending? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST DOLLAR.

338

Assume you purchased 100 shares of North Central Positronics (NCP) stock 4 years ago for $48.05. You just sold the stock for $196.95. What was your annual percentage return for your investment in NCP? Enter your answer as a percentage with one decimal place, without the percent sign (e.g., 0.101 is 10.1% - enter as 10.1).

42.3

You bought 100 shares of Netflix (NFLX) three years ago for $87.50 per share. You sold all your shares today for $359.97 per share. What was your annual return?

60.2%

Braden deposited $7,000 today in a guaranteed investment account with a promised rate of 7% compounded annually. He plans to leave it there for 5 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST DOLLAR.

9,818

__________ arise from the divergent objectives between owners and managers.

Agency problems.

The mixture of debt and equity used by a firm to finance its operations is called:

Capital Structure.

Interest earned on both the initial invested principal and the interest earned in prior periods is called:

Compound interest

Net working capital is defined as:

Current assets minus current liabilities.

Which one of the following is a use of cash?

Decrease in accounts payable.

Assets are listed on the balance sheet in order of:

Decreasing Liquidity.

The cash flow of a firm that is available for distribution to the firm's creditors and stockholders is called the:

Free cash flow

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now?

Future value

Which of the following are advantages of the corporate form of business ownership? I. limited liability for firm debt II. double taxation III. ability to raise capital IV. unlimited firm life

I, III, and IV only.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Income statement

All else being equal, an increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?

Inventory.

This financial institution helps companies and state & local governments sell securities.

Investment Bank

A(n) ____ asset is one which can be quickly converted into cash without significant loss in value.

Liquid.

Which of these feature debt securities or instruments with maturities of one year or less?

Money Markets

Kurt won a lottery and will receive $1,000 a year for the next 50 years. The value of his winnings today discounted at his discount rate is called which one of the following?

Present Value.

Piggly Wiggly generates three cents of net income for every $1 in sales. Thus, Piggly Wiggly has a _______ of 3%.

Profit margin

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these?

Secondary Markets

All else equal, which of the following actions will increase the amount of cash on a company's balance sheet?

The company issues new common stock.

The current ratio is measured as:

current assets divided by current liabilities

Depreciation:

is a noncash expense that is recorded on the income statement.

The most widely accepted objective of a firm is to:

maximize shareholder wealth.

The DuPont identity breaks down return on equity (ROE) into the following components:

profit margin, total asset turnover, and equity multiplier