Financial Management Final Spring 18

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?

zero coupon

Union Local School District has bonds outstanding with a coupon rate of 3.8 percent paid semiannually and 29 years to maturity. The yield to maturity on these bonds is 2.9 percent and the bonds have a par value of $10,000. What is the price of the bond?

$11,748.88

Papa Roach Exterminators, Inc., has sales of $694,000, costs of $355,000, depreciation expense of $51,000, interest expense of $34,000, and a tax rate of 35 percent. What is the net income for firm?

$165,100

What is the present value of $42,000 to be received 22 years from today if the discount rate is 14 percent?

$2351.49 (FV=PV(1+r)^t)

Yan Yan Corp. has a $3,000 par value bond outstanding with a coupon rate of 5 percent paid semiannually and 14 years to maturity. The yield to maturity on this bond is 3.9 percent. What is the price of the bond?

$3,350.88

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $21,000 per year forever. If the required return on this investment is 6.3 percent, how much will you pay for the policy?

$333,333.33

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?

$38,125.20

Caan Corporation will pay a $2.62 per share dividend next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today?

$47.64

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 32 percent?

$6,016 (EBIT + Depreciation - Taxes)

Staind, Inc., has 6 percent coupon bonds on the market that have 12 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10 percent, what is the current bond price?

$727.45

Penguin Pucks, Inc., has current assets of $4,100, net fixed assets of $18,500, current liabilities of $3,600, and long-term debt of $6,600. (a.) What is the value of the shareholders' equity account for this firm? (b.) How much is net working capital?

(a.) $12,400 (Assets - Liabilities) (b.) $500 (Current Assets - Current Liabilities)

Wakers, Inc., has sales of $32 million, total assets of $27 million, and total debt of $6 million (a.) If the profit margin is 8 percent, what is the net income? (b.) What is the ROA? (c.) What is the ROE?

(a.) $2,560,000 (Net income/Sales) (b.) 9.48% (Net Income/Total assets) (c.) 12.19% (Net income/Total Equity) (total equity = assets-liabilities)

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6.3 million. The machinery can be sold to the Romulans today for $4.15 million. Klingon's current balance sheet shows net fixed assets of $2.8 million, current liabilities of $1.6 million, and net working capital of $410,000. If all the current assets were liquidated today, the company would receive $2 million cash (a.) What is the book value of Klingon's assets today? (b.) What is the market value?

(a.) $4,810,000 (b.) $6,150,000

Jetson Spacecraft Corp. shows the following information on its 2009 income statement: sales = $208,000; costs = $96,000; other expenses = $5,500; depreciation expense = $9,000; interest expense = $14,700; taxes = $28,980; dividends = $10,400. In addition, you're told that the firm issued $7,300 in new equity during 2009 and redeemed $8,900 in outstanding long-term debt. (a.) What is operating cash flow? (b.) What is cash flow to creditors? (c.) What is cash flow to stock holders? (d.) If net fixed assets increased by $23,000 during the year, what was the addition to NWC?

(a.) $77,520 (b.) $23,600 (c.) $3,100 (d.) $18,820

Crystal Lake, Inc., has a total debt ratio of 0.32 (a.) What is the debt-equity ratio? (b.) What is the equity multiplier?

(a.) .47 times (total debt/total equity) (b.) 1.47 times (total assets/total equity)

SDJ, Inc., has net working capital of $1,670, current liabilities of $4,490, and inventory of $1,835. (a.) What is the current ratio? (b.) What is the quick ratio?

(a.) 1.37 times (Current assets/Current Liabilities) (b.) .96 times ([Current assets-inventory]/Current liabilities)

Ortiz Lumber Yard has a current accounts receivable balance of $327,615. Credit sales for the year just ended were $2,949,600 (a.) What is the receivables turnover? (b.) What is the days' sales in receivables?

(a.) 9.00 times (sales/accounts receivable) (b.) 40.54 times (365 days/receivables turnover)

A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

2.12 (PE ratio=Price per share/earnings per share) (Market-to-book=market value per share/book value per share)

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $289,740? Taxable Income ($): Tax Rate (%): 0-50,000 15 50,001-75,000 25 75,001-100,000 34 100,001-355,000 39

33.22%

Which one of the following accurately describes the three parts of the DuPont identity?

Equity multiplier, profit margin, and total asset turnover

You're trying to save to buy a new $72,000 sports car You have $38,000 today that can be invested at your bank. The bank pays 1.26 percent annual interest on its accounts. How many years will it be before you have enough to buy the car assuming the price of the car remains constant?

51.04 years

Kiss the Sky Enterprises has bonds on the market making annual payments, with 6 years to maturity, and selling for $810. At this price, the bonds yield 11.0 percent. What must the coupon rate be on the bonds?

6.51%

Assume the total cost of a college education will be $220,000 when your child enters college in 17 years. You presently have $60,000 to invest. What rate of interest must you earn on your investment to cover the cost of your child's college education?

7.94%

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient Capital Market

High Mountain Foods has an equity multiplier of 1.72, a total asset turnover of 1.16, and a profit margin of 4.5 percent. What is the return on equity?

8.98% (Profit margin x total asset turnover x equity multiplier)

Which one of the following accounts is the most liquid?

Accounts Receivable

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency Problem

The interest rate that is most commonly quoted by a lender is referred to as which one of the following?

Annual percentage rate

The _____ tax rate is equal to total taxes divided by total taxable income

Average

Amortized loans must have which one of these characteristics?

Either equal or unequal principal payments over the life of the loan

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

Cash flow from assets

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

Compound interest

Which one of the following business types is best suited to raising large amounts of capital?

Corporation

Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment?

Coupon

Net working capital is defined as:

Current assets minus current liabilities

The internal rate of return is defined as the:

Discount rate which causes the the net present value of a project to equal zero

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called

Discounting

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

Dividend yield

What are the distributions of either cash or stock to shareholders by a corporation called?

Dividends

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Face Value

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

Face value

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 represent cash outflows from a corporation? I. Issuance of securities. II. Payment of dividends. III. New loan proceeds. IV. Payment of government taxes

II 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

Real rates are defined as nominal rates that have been adjusted for which of the following?

Inflation

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment?

Interest-only loan

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate

Marginal

The bond principal is repaid on which one of these dates?

Maturity Date

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?

Maximum loss limited to capital invested

Which one of the following is defined by its mean and its standard deviation?

Normal Distribution

Standard deviation is a measure of which one of the following?

Volatility

The length of time a firm must wait to recoup the money it has invested in a project is called the:

Payback Period

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

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 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule?

Project A only

Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

Public

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

Financial managers should primarily focus on the interests of

Shareholders

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole Proprietorship

Which one of the following accurately defines a perpetuity?

Unending equal payments at equal time intervals

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following?

Yield to Maturity

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond?

Yield to maturity less than coupon rate

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity

a discount; less than

Your credit card charges you 1.5 percent interest per month. This rate when multiplied by 12 is called the:

annual percentage rate

An agent who maintains an inventory from which he or she buys and sells securities is called a

dealer

An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates?

effective annual rate

A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan.

pure discount