Finance Midterm Review

Market value is an estimate of a stock's "true" value based on accurate risk and return data. a. True b. False

False (intrinsic value)

Market equilibrium is when a stock's actual market price is equal to its intrinsic value. a. True b. False

True

ABC Inc. recently reported operating income of $2.75 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.6 million. How much was its free cash flow, in millions? a. $2.20 b. $2.25 c. $2.45 d. $2.50

b. $2.25

During 2014, Bascom Bakery paid out $20,525 of common dividends. It ended the year with $155,500 of retained earnings versus the prior year's retained earnings of $151,600. How much net income did the firm earn during the year? a. $24,050 b. $24,425 c. $25,500 d. $26,225

b. $24,425

The Tried and True Corporation had earnings of $0.20 per share in 1978. By 1995, a period of 17 years, its earnings had grown to $1.01 per share. What was the compound annual rate of growth in the company's earnings? a. 11% b. 10% c. 12% d. 11.5%

b. 10%

Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is: a. 40 days b. 45 days c. 50 days d. 60 days

b. 45 days

At year end, ABC Corp had 50,000 shares outstanding and a market price per share of $24.42. They had $5.5M in sales, a 12% Operating Margin, and a 1.5% net profit margin. What was their EPS? a. $1.42 b. $1.51 c. $1.65 d. $1.74

c. $1.65

WWW Works has a current ratio of 1.33, current liabilities of $540,000, and inventory of $400,000. What is its quick ratio? a. 1.84 b. .99 c. .59 d. .16

c. .59

Current Liabilities are expected to be paid within: a. 1 month b. 6 months c. 1 year d. 5 years

c. 1 year

What annual interest rate would you need in order to have an ordinary annuity of $7,500 per year accumulate to $279,600 in 15 years? a. 8.75% b. 10.2% c. 12% d. 14%

c. 12%

How long does it take for $5,000 to grow into $6,724.44 at 10% compounded quarterly? a. 18 months b. 2 years c. 3 years d. 4 years

c. 3 years

XYZ Corp had negative free cash flow in 2014, however their Statement of Cash flows shows an increase in cash during 2014. Which of the following would explain that? a. The company paid dividends b. The company had positive EBIT c. The company sold shares of its own stock (Secondary Equity Offering) d. The company had a 0% tax rate

c. The company sold shares of its own stock (Secondary Equity Offering)

Which of the following is not a part of Current Assets? a. Cash b. Accounts Receivables c. Inventories d. Accruals

d. Accruals

An investor expects to receive the following cash flow stream: $500 in year 1, $650 in year 2, and $1000 in year 3. Using a discount rate of 8%, what should be the maximum amount the investor would pay for the cash flow stream? a. $1,814 b. $1,851 c. $2,150 d. $2,450

a. $1,814

Given an annual opportunity cost of 10%, what is the future value of a $1,000 ordinary annuity for 10 years? a. $15,937 b. $15,739 c. $10,000 d. $12,000

a. $15,937

DEF Company has sales of $613,000 with costs of $479,000. Interest expense is $26,000, dividends paid are $10,000 and depreciation is $42,000. The tax rate is 25%. What is the net income? a. $49,500 b. $52,525 c. $60,400 d. $72,000

a. $49,500

Brown Office Supplies recently reported $15,000 of sales, $7,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $5,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)? a. $5,650 b. $6,020 c. $5,025 d. $4,950

a. $5,650

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? a. $720 b. $840 c. $900 d. $960

a. $720

What will a deposit of $4,500 at 7% annual interest be worth if left in the bank for nine years? a. $8,273.25 b. $8,385.78 c. $8,279.23 d. $7,723.25

a. $8,273.25

Which of the following P/E ratios demonstrates investors expect lower and less risky growth prospects in the future? a. 1.09 b. 14.03 c. 30.0 d. P/E ratio suggests nothing about growth prospects in the future

a. 1.09

22. GAAP, Inc. has total assets of $2,575,000, sales of $5,950,000, total liabilities of $1,855,062, and a net profit margin of 2.9%. What is GAAP's return on equity? a. 24% b. 25% c. 32% d. 33%

a. 24%

For the following items, decide whether the action would result in an increase or decrease in cash. a. Accounts Receivable Increase b. Accounts Payable Decrease c. Taxes Payable Increase d. Inventories Decrease e. Accruals Decrease f. CAPEX of $10M g. Dividends Paid h. Interest Received i. Long Term Debt Increased

a. Decrease b. Decrease c. Increase d. Increase e. Decrease f. Decrease g. Decrease h. Increase i. Increase

The stock value based on perceived but possibly incorrect information as seen by the marginal investor is known as _________. a. Market Price b. Intrinsic value c. Perceived price d. None of the above

a. Market Price

The long-run objective of financial management is to: a. Maximize earnings per share b. Maximize the value of the firm's common stock c. Maximize return on investment d. Maximize market share

b. Maximize the value of the firm's common stock

How does maximizing shareholders wealth affect a company's stock price? a. Minimizes the stock price b. Maximizes the stock price c. Has no effect on the stock price d. It is unclear what effect it will have on the stock price

b. Maximizes the stock price

Which of the following changes would be shown in the Investing portion of the Statement of Cash Flows? a. Increase in inventories b. Decrease in Accounts Payable c. Increase in Property, Plant, Equipment d. Dividends Paid

c. Increase in Property, Plant, Equipment

The primary financial goal of management is: a. Minimizing the company's debt b. Maximizing the company's accounts receivable c. Maximizing shareholders wealth d. Maximizing the amount of cash on hand

c. Maximizing shareholders wealth

Joe Ferro's uncle is going to give him $250 a month for the next two years starting today. If Joe deposits every payment in an account paying a nominal annual interest rate of 6% compounded monthly, how much will he have at the end of three years? a. $6,976.25 b. $6,837.28 c. $6,389.79 d. $6,796.23

d. $6,796.23

A higher number indicates a stronger company for all of the ratios EXCEPT: a. ROE b. Operating Margin c. Times Interest Earned d. Days Sales Outstanding

d. Days Sales Outstanding

An increase in cash will impact every ratio EXCEPT: a. Current ratio b. Total Assets Turnover c. ROA d. Inventory Turnover

d. Inventory Turnover

"Shareholder wealth" in a firm is represented by: a. The number of people employed in the firm b. The book value of the firm's assets less the book value of its liabilities c. The amount of salary paid to its employees d. The market price per share of the firm's common stock

d. The market price per share of the firm's common stock

A credit analyst is reviewing a new company's financial statements in order to determine whether his company can offer the business a 10-year loan. Which ratio will be most helpful to the analyst? a. P/E ratio b. Operating Margin c. Inventory Turnover d. Total Debt: Total Capital

d. Total Debt: Total Capital