Finance exam 2

Hayley won a lottery and will receive $1,000 each year for the next 30 years. The current value of these winnings is called the:

Present Value

When preparing pro forma statements, which one of the following is an analyst most likely to estimate first?

Projected sales

Which one of the following has the least effect on a firm's sustainable rate of growth?

Quick Ratio

When planning for the long run, the planning horizon is usually a period of:

2-5 years

All else constant, a(n) ______ will increase the internal rate of growth.

decrease in total assets

An ordinary annuity is best defined as:

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

The sustainable growth rate of a firm is best described as the ______ growth rate achievable ______.

maximum; excluding any external equity financing, while maintaining a constant debt-equity ratio

An amortized loan:

may have equal or increasing amounts applied to the principal from each loan payment.

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

annual percentage rate.

A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ____ loan.

interest-only

Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you speed up your plans to enable you to graduate two years from now, the present value of the promised gift will:

Increase

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

The compound interest

Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?

Simple Interest

Which one of the following actions will increase the present value of an amount to be received sometime in the future?

Decrease in the interest rate

Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation is referred to as the:

Discount rate

A firm is operating at less than 100 percent of capacity. When preparing pro forma statements, this information is primarily needed to project which one of the following account values?

Fixed Assets

Moreno Refurbishing is currently operating at full-capacity sales. Accordingly, sales are currently being limited by the firm's level of:

Fixed Assets

Four years ago, Lucas invested $500. Three years ago, Matt invested $600. Today, these two investments are each worth $800. Assume each account continues to earn its respective rate of return and interest is compounded annually. Which one of the following statements is correct concerning these investments?

One year ago, Lucas's investment was worth less than Matt's investment.

Percentage of sales method

The financial planning method that uses the projected sales level as the basis for determining changes in balance sheet and income statement account values

Retention ratio

The portion of net income that a firm reinvests in itself is measured with the:

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.

Which one of the following must be true if the sustainable growth rate will be greater than the internal growth rate?

Total debt > $0

The entire repayment of a(n) _____ loan is calculated by computing one single future value.

pure discount

A perpetuity is defined as:

unending equal payments paid at equal time intervals.