Financial Management Quiz Review

If a company has current assets of $100mil, current liabilities of $40mil, and inventory (part of the current assets) of $80mil, then the quick ratio is equal to

.5

What is the Effective Quarterly Rate (EQR) if the APR is 12% compounded Semi-Annually. (make sure to adjust your calculator to 5 decimal places. to do this on TI BA2 Plus, press 2nd and FORMAT, then press 5 and ENTER.)

0.02956

If the net income of XYZ inc. is $50,000, the total assets are $1mil, and the shareholders equity is $500,000. What is the Return on equity for XYZ inc.

10%

What is the return on assets ratio for a firm with total liabilities of 2 million dollars, total equity of 2 million dollars, and NI of 500,000 dollars:

12.5%

What is the future value of a growing annuity of 10 annual payments that start next year with a payment of $1000, and grow at a rate of 3% thereafter until year 10, if the interest rate is 5%?

14248

What is the price of a growing perpetuity that grows at a rate of 4%, and starts by paying 100$, if your personal discount rate is 6%?

5000

You want to finance a new car. The bank offers you a financing plan that involves the following specifications: - The total value for the brand new car is $20,000 - You pay a down payment of $5,000 (before you receive the car) - The financing interest rate is a nominal rate of 15%, compounded monthly. - You will make payments on a monthly basis in the amount of $400 per month. How many months will it take you to payback the car? (Round up your answer to the nearest whole integer, e.g. if answer your calculator displays 40.9, the answer will be 41)

51

If you take out a loan for 5000 dollars today, with an interest rate of 10%, how much will you owe in five years after interest has accumulated, assuming you don't pay anything back.

8052

What is the present value of a growing annuity of 10 yearly payments, that start one year from now with a payment of $1000, and grow by 3% each year, if the going interest rate is 5%?

8747.596

What is the present value of an annuity due that pays monthly payments of $100 for 10 months. If the effective monthly rate was 1.5%. (Rounded to the nearest whole integer)

936

All else equal, in which of the following forms of business would the possibility of an agency problem be the greatest?

A corporation in which individual stockholders own extremely small proportions of the company.

Which of the following functions are performed by an investment bank?

All of these are performed by investment banks

Which of the following offers has the highest value, when the interest rate is 10%

Both offers are the same

Finding the right mix of debt and equity to finance the firm is a task of the financial manager that falls under the following sub field of managerial finance:

Capital Structure

The market value of equity should equal the book value of equity for most firms.

False

For a certain project that requires an initial investment and pays off 5 equivalent cashflows. The future value of this project will be higher if the interest rate is higher.

True

A company that has a higher Price/Earnings ratio than the average firm in its industry is perceived by investors to:

have larger earnings growth potential than the average firm in the industry.

The primary goal of a publicly owned firm interested in serving its stockholders should be to _____.

maximize the stock price

If a firm has plenty of cash on hand, and not enough investment opportunities to invest this cash, then the logical course of action the company should take is

Distribute the excess cash in the form of dividends to the shareholders.

How do investment banks make their money?

Either a fixed or variable fee from the issue

Typically, a lender would like to see one of the following in a firm

High liquidity ratios, and low debt ratios

Which investment would be worth more if the interest rate (EMR) is 2%? - investment A requires an initial investment of 1000$ but pays you 75$ a month for 16 months. -investment B requires an initial investment of 1200$ but pays you 100$ a month for 14 months.

Investment A

Which of the following forms of business offers limited personal liability and also the choice to be taxed as a partnership?

S-Corporation

Compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations?

The owners of a partnership, that is, the partners, have unlimited liability when it comes to business obligations whereas the owners of a corporation have limited liability.

Issuing debt through bonds is considered more risky for a firm

because bondholders have the right to put the firm in bankruptcy