introduction to finance

A stock paid $2.64 in dividends at the end of last year and is expected to pay a cash dividend until infinity. Each year the dividends are expected to grow by 6.6%. Investors require a 9% rate of return. What is the value of the common stock?

$117.26

What is the present value of a 10-year $2,000 annuity discounted back to the present at 6 percent?

$14,720.17

A common stock paid a dividend of $4.25 at the end of last year. It is expected to grow at 12% each year for all future years. Investors require a 15% return rate. What is the value of a share of this stock?

$158.67

What is the present value of a $1,000 perpetuity discounted back to the present at 6%?

$16,666.67

Find the value of a stock that is expected to pay a dividend next year of $2.30, assuming your required return is 14%.

$16.43

What is the value of a $2,000 par value (face value) 6% coupon rate bond with 10 years remaining to maturity, assuming the current market rate on similar risk debt is now 9%?

$1614.94

You have a capital budgeting project that has forecasts of cash flows of $3,000 per year for the next three years. The project's level of risk warrants a required return of 14%, whereas the initial outlay, or cost, of this project is $6,800. What is the NPV and should you undertake this project?

$164.90, Yes

What is the future value of an annuity in which you invest $500 per year at 6% for 20 years?

$18,392.80

If we invest $1500 in a bank where it will earn 7 percent interest compounded annually, how much will it be worth at the end of seven years?

$2,408.67

Assume you will receive a $3,000 graduation gift when you graduate in two years. If that money was available to you today, you could invest it and earn 5%. What is the present value of that $3,000?

$2,721.09

A preferred stock pays a 3% dividend on its $90 par (stated or nominal) value, and the required rate of return is 9%. What is the preferred stock worth?

$30

Find the value of a stock that is expected to pay a dividend next year of $2.40, and for which analysts forecast growth rates that will continue to be 6% a year into the foreseeable future. Assuming your required return is 14% to hold that company's stock, what is the current value?

$30.00

Assume Company M expects to pay a dividend next of $4.80. If the required return on Company M stock is 14% and there is no growth rate, how much should Company M stock be worth?

$34.29

A firm wants to maintain a $25,000 cash balance. In their worst month of the year, the net change in cash shows that they will be short $38,640, which will be offset by a beginning cash balance of $11,440. What amount should the firm finance that month?

$52,200

Suppose you want to retire in 30 years with $1,000,000. If you can earn a 10% return on your money, how much do you need to deposit annually to achieve your goal?

$6,079.25

What is the present value of $1000 to be received 10 years from today if our discount rate is 5 percent?

$613.91

What if you win the lottery and are offered $50,000 a year for 20 years, or a lump sum payout? How much would the lump sum payout need to be, assuming you could invest your money at 5%? To put it another way, what is the present value of the annuity?

$623,110.52

A preferred stock pays 3% on its par value of $200, and the required rate of return is 9%. What is the value of the preferred stock?

$67

How much must you deposit in a 7 percent savings account at the end of each year to accumulate $10,000 at the end of 10 years?

$723.78

Assume you bought 500 shares of stock for $37 a share and sold them for $53 a share. What would be your dollar return?

$8,000

Assume we invest $120,000 in a new project that we anticipate will expand sales by 18% over our current level of sales of $550,000. The increase in fixed costs and variable costs are expected to be about 25% of sales. We can depreciate the initial outlay of $120,000 over a five-year period. The company's marginal tax rate is 22%. What is our tax bill on this project?

$8,877

What is the present value of $1,000 to be received five years from today if the discount rate is 4%?

$821.93

What is the value, adjusted for annual payments, of a $1,000 par value (face value) 6% coupon rate bond with 10 years remaining to maturity, assuming the current market rate on similar risk debt is now 8%?

$865.80 Valuing bonds (4) calculation in Module 7 spreadsheet

What is the present value of a $10,000 perpetuity discounted back to the present at 11 percent?

$90,909.09

What is present value of an asset that yields $500 in five years and $1,000 in 10 years if the discount rate is 6%?

$932.02

You might be evaluating several investment options for the firm. The best one is risky. You are aware that if the investment fails, you will likely be fired. You may opt for the safer investment that is less risky for you, even though the investment with more risk is consistent with shareholder wishes. Within the framework of agency theory, what is your decision?

Choose the risky investment even though there is more risk for you.

Which of the following statements is FALSE?

Common stockholders receive their dividends prior to preferred stockholders.

______ are a legally created separate entity that can engage in business as a legal person, with the same rights and responsibilities as an individual.

Corporations

Firm J is paying creditors in 49 days, though the accounts are due in 60 days. Increasing the ______ to 60 would shorten the CCC.

DPO

When a company asks bidders to submit the price they are willing to pay for a certain number of shares and then issues the available stock to the highest bidders, they have used a ______ method.

Dutch auction

______ are long term in nature, such as machinery and equipment, buildings, and land.

Fixed assets

What happens to an investor with 100 shares of stock Y that sells for $40 each in the event of a 25% stock dividend?

He would now own 125 shares of stock Y selling for $40 each.

"______" is the capital structure decision.

How do I pay for what I buy?

______ is an application of the time value of money tools.

Stock valuation

An investor buys a 5-year bond and a 10-year bond. Which statement is TRUE?

The interest rate risk is higher for the 10-year bond.

A(n) ______ is a series of equal dollar payments for a specified number of years.

annuity

Bond ratings are letter grades assigned to a specific bond issue that provide investors with an independent

assessment of risk

The firm's ______ provides a snapshot of the firm's financial position at a specific point in time, presenting its asset holdings, liabilities, and owner-supplied capital

balance sheet

Careful attention to credit sales is important because such sales

become accounts receivable

Creating value for the company's owners directly benefits the shareholders of the company, and provides ______ as scarce resources are directed to their most productive use by business competing to create wealth.

benefits to society

When upper management does decide to pay dividends, their decision must be approved by the company's

board of directors

The difference between the historic cost a firm paid and its going price among current buyers and sellers is the difference between its

book value and market value

A firm that underestimates risk is most likely to

borrow excessively

Net income is commonly referred to as the

bottom line

Firms will deal with both fixed and variable costs during their

business transactions

Many firms limit the size of their ______ to grow the firm strategically.

capital budget

Break-even analysis can help us make a determination about how ______ any new project should be.

capital intensive

When a firm anticipates a poor market, lacks qualified managers, or experiences other concerns, the firm may institute ______ in order to limit investments.

capital rationing

Dividends are important because distributions consume ______ that could be used internally

cash

Financial management principle number 3 says that without exception, investors will not invest if they do not expect to receive a ______ on their investment.

return

The best way to set up a cash budget is to use a simple

spreadsheet

One of the implications of EMH means that every significant decision that managers make is instantly reflected in the ______ as soon as that information becomes public.

stock price

The effects of all financial decisions ultimately affect the firm's

stock price

When an organization pays interest on debt and that interest is expensed, the firm's overall ______ is reduced.

tax liability

Most yield curves have a(n) ______ shape.

upward-sloped

By definition, the beta of the market is equal to one. Any beta greater or lesser than one indicates that the historical returns have been more or less ________ than the overall market returns.

volatile

An expansion project will annually generate additional revenues of $2,500,000. It has fixed and variable costs totaling $1,250,000. It will increase depreciation costs by $620,000. The firm has a marginal tax rate of 34%. What is the projection for the firm's operating cash flow for this expansion project?

$1,035,800

If we invest $800.00 at 7% interest compounded annually, what is our future value at the end of 5 years?

$1,122.04

Calculate the value of a $1,000 bond issued with a maturity date 4 years in the future. Its stated semi-annual coupon rate is 3.88%, and its required return rate is 2.60%.

$1,194.83

You have a capital budgeting project that has forecasts of cash flows of $2,500 per year for the next three years. The project's level of risk warrants a required return of 12%, whereas the initial outlay, or cost, of this project is $7,800. What is the NPV and should you undertake this project?

$1,795.42, No

Assume we invest $160,000 in a new project that we anticipate will expand sales by 22% over our current level of sales of $600,000. The increase in fixed costs and variable costs are expected to be 40% of sales. We can depreciate the initial outlay of $160,000 over a five-year period. The company's marginal tax rate is 25%. What is our tax bill on this project?

$11,800

An income statement shows a depreciation of $3,000 for the current year. If a straight-line method of depreciation is used, the balance sheet should show an accumulated depreciation expense of ______ in the fourth year.

$12,000

A common stock paid a dividend of $3.75 at the end of last year. It is expected to grow at 8% each year for the foreseeable future. Investors require an 11% return rate. What is the value of a share of this stock?

$135.00

A preferred stock has an annual dividend of $8.35, and the required rate of return is 5%. What is the value of the preferred stock?

$167

Assume the $125,000 piece of equipment you purchased can be sold in five years for $25,000. You will have depreciated the equipment to a book value of zero, so if you sell it for $25,000 you have a tax gain. If your marginal tax rate is 25%, what is the terminal value associated with the disposal of the piece of equipment?

$18,750

Find the value of a stock that is expected to pay a dividend next year of $2.20, assuming your required return is 12%.

$18.33 dividend / required return

What is the value of a preferred stock with a $28 par value that pays a 6% of par dividend assuming our required return is 9%?

$18.67 To calculate dividends, multiply the par value by the dividend percentage. To calculate the value, use the no-growth common stock formula. par value x par dividend = dividend dividend / required return

Assume you have evaluated a project and the present value of the project's cash flows is $13,324. The initial outlay required for the project is $11,000. What are the project's NPV and PI?

$2,324, 1.21 Calculated PI as no rate was provided to calculate NPV

Fifty percent of a firm's sales are collected during the first month after the sale; 25% are collected during the second month following the sales; 15% are collected during the third month following the sale; 10% are collected during the fourth month. What cash is collected in September from July's sales, which totaled $80,000?

$20,000

If you bought 1000 shares of stock for $62 a share and sold them for $83 a share, what would be your dollar return?

$21,000 Holding period dollar gain equation: $83,000 - $63,000

What is the value of a preferred stock with a $30 par value that pays a 6% of par dividend assuming our required return is 8%?

$22.50

Assume you have evaluated a project and the present value of the project's cash flows is $11,246, and the initial outlay required for the project is $9,000. What are the project's NPV and PI?

$2246, 1.25

A firm is considering developing a new product, which will cost $60,000. The free cash flows resulting form the project are provided in the table below. The required rate of return is 6%. What is the net present value?

$24,767.96

Assume you have a trust fund that pays $20,000 per year forever, and your required return is 7%. What's the present value of that trust fund?

$285,714.29

If we place $2,000 in a savings account paying 6 percent interest compounded annually, how much will our account accrue to in 10 years?

$3,581.70

Assume we invest $120,000 in a new project that we anticipate will expand sales by 18% over our current level of sales of $550,000. The increase in fixed costs and variable costs are expected to be about 35% of sales. We can depreciate the initial outlay of $120,000 over a five-year period. The company's marginal tax rate is 22%. What is the expected change in net income?

$31,473

Find the value of a stock that is expected to pay a dividend next year of $2.20, and for which analysts forecast growth rates that will continue to be 5% a year into the foreseeable future. Assuming your required return is 12% to hold that company's stock, what is the current value?

$31.43 Dividend Valuation Model calculation in Module 7

If a firm pays a constant dividend of $4.30 a share and investors require an 11% return, what is the value of that firm's stock?

$39.09

You invested $125,000 in a new project which you can depreciate over a five-year period. In evaluating the new project, you find that the expected change in net income is $16,475 per year, but now you can add back the depreciation because it is a noncash charge. When you add the net income and the depreciation, what is the total annual operating cash flow associated with this project?

$41,475

What is the value of a preferred stock that pays a $5.80 dividend if the required return is 14%?

$41.43

What is the value of a preferred stock that pays a $5.50 dividend if the required return is 12%?

$45.83

Calculate the future value of $5,000 that we deposit today for a one-year period that will earn 8% interest compounded quarterly.

$5,412.16

A firm wants to maintain a $20,000 cash balance. In their worst month of the year, the net change in cash shows that they will be short $42,750, which will be offset by a beginning cash balance of $12,650. What amount should the firm finance that month?

$50,100

What is the present value of $1000 to be received 10 years from today if our discount rate is 7 percent?

$508.35

You invested $175,000 in a new project which you can depreciate over a five-year period. In evaluating the new project, you find that the expected change in net income is $20,380 per year, but now you can add back the depreciation because it is a noncash charge. When you add the net income and the depreciation, what is the total annual operating cash flow associated with this project?

$55,380

Calculate the future value of $6,000 that we deposit today for a one-year period that will earn 10% interest compounded semi-annually.

$6,615.00

A common stock expects to pay a dividend of $4.20 next year. It is expected to grow at 5% each year for the foreseeable future. Investors require a 12% return rate. What is the value of a share of this stock?

$60.00

Three years ago, Company XYZ purchased an asset for $250,000. The asset currently has a book value of $150,000, but was sold for $175,000. Assuming the corporate tax rate is 34%, what would the taxes due from the gain be?

$8,500

You are an investor who possesses a $1,000 par value 9% coupon rate bond that will mature in 9 years. What is the value of your bond assuming the current market rate on similar risk debt is now 11%?

$889.26

Five years ago an organic farm bought a small tractor for $150,000. The equipment has reached the end of its useful life, and its purchase price has been fully depreciated. The firm is able to sell the equipment for $15,000. Given that the firm's marginal corporate tax rate is 34%, what is the terminal cash flow for this tractor?

$9,900

If the ratio of the percent change in earnings per share to the corresponding percent change in EBIT were 2, what percent change in earnings per share would you expect to follow a 17% decline in EBIT?

-34%

If XYZ Company has $22,000 in inventory, $32,000 in cash, $22,000 in accounts receivable, and liabilities totaling $28,000, what is the quick ratio?

1.93

Weber's Online Grocery stock is selling for $25. Its net income was $4,827 (expressed in $ million), and its book equity is $33,684. There are 1,878 million shares outstanding. The earnings per share are $2.41. Its equity book value per share is $17.93. What is the price/earnings ratio (P/E)?

10.37X

You have a capital budgeting project that has forecasts of cash flows at $2,000 per year for the next three years. The project's level of risk warrants a required return of 10%, and the initial outlay, or cost, of this project is $7,600. What is the project's IRR?

10.95%

Assume you have $15,000 to invest today. How long will it take that initial investment to grow to be worth $36,000 with 8% compounded annually?

11.38 years

A firm issued $10 million in preferred stock at a price of $60.35 per share. The preferred shares carry an 11% dividend. The firm pays $2.87 per share in flotation costs per share. What is the cost of capital for this issuance of preferred stock?

11.54%

Ridgefield, Inc. needs your help to calculate its WACC to evaluate an upcoming project. Use the following information to calculate the WACC for the company: After-tax cost of debt is 0.0712 Cost of preferred stock is 0.25 Cost of equity using the dividend valuation model is 0.0912 The weight of Ridgefield's debt is 15% The weight of Ridgefield's preferred stock is 20% The weight of Ridgefield's common stock is 65% What is the WACC?

11.99%

After selling the family farm and splitting the proceeds with your siblings, your inheritance is $66,475. You plan to use that money to send your quadruplets to college in 10 years. You estimate that tuition will cost $200,000. What interest rate do you need to earn on your investment to meet your financial goals?

12%

What is the cost of a preferred stock that pays a $5.50 dividend if the market value is $45.83?

12.00%

Assume Company A's stock is currently selling for 16.25 a share and the most recent dividend was $1.34. You intend to continue a policy of increasing the dividend by 4% per year. What is the cost of Company A's equity using this model?

12.58%

The table below shows a firm's capital structure and estimated capital costs. Calculate this firm's weighted average cost of capital.

12.85%

An American firm must pay the equivalent of $2,500 in Euros to a firm in the Netherlands. On the day of the transaction, the U.S. equivalent is 1.3939, and the currency per U.S. dollar is 0.7174. How many Euros will the firm in the Netherlands receive?

1793.50

Assume you have a portfolio of two assets worth a total of $110,000. Asset Y is worth $40,000 and is expected to generate a return of 15%. Asset Z is worth $70,000 and is expected to generate a return of 21%. What is the expected return of the portfolio?

18.8% Expected rate of return equation: $40,000/$110,000 = 36% probability $70,000/$110,000 = 64% probability (.36x.15)+(.64+.21) = (.054) + (.1344) = (.1884 or 18.84%)

Assume you have a portfolio of two assets worth a total of $105,000. Asset Y is worth $35,000 and is expected to generate a return of 14%. Asset Z is worth $70,000 and is expected to generate a return of 22%. The expected return of the portfolio is ________.

19.69% (answer is 19) Expected rate of return equation: $35,000/$105,000 = 33% probability $70,000/$105,000 = 67% probability (.33x.14)+(.67+.22) = (.0462) + (.1474) = (1936. or 19.36%) or Lo1 - Computing CF and ER in Model 6 spreadsheet

You have a capital budgeting project that has forecasts of cash flows of $2,000 each year for the next three years. The project's level of risk warrants a required return of 10%, whereas the initial outlay of this project is $4,200. If our firm has established a maximum payback period of two years, what is the payback period and should you undertake this project?

2.1 years, no

If Company XYZ has on hand assets of $76,000 and liabilities of $28,000, what would be the current ratio?

2.71

You are considering a $7,000 investment. The table below shows the possible outcomes in cash flow next year. What is the standard deviation of the returns?

2.8%

Next year, stockholders will benefit from a 7% increase over the current dividend of $4.86, and every indication points to continued growth at this same pace. This stock is currently trading at $42 per share. Given that it costs $2.88 per share to issue new common stock, what is the cost of new common equity capital?

20.29%

You are producing a product that you sell for $150 and you have variable costs of $100. If your fixed costs are $105,000, what is your break-even level of units and your sales revenue?

2100 units, $315,000

Use the following formula to calculate the standard deviation of the portfolio described in the table below. Assume that the correlation between the two assets is -35%.

23.1%

You are producing a product that you sell for $12 and you have variable costs of $7.50. If your fixed costs are $12,600, what is your break-even level of units and your sales revenue?

2800 units, $33,600

You have a capital budgeting project that has forecasts of cash flows of $2,500 per year for the next three years. The project's level of risk warrants a required return of 12%, whereas the initial outlay, or cost, of this project is $7,800. If our firm has established a maximum payback period of two years, what is the payback period and should you undertake this project?

3.12 years, No

Using the information provided below and assuming the cash flows occur at a constant rate each year, calculate the discounted payback period for Project B.

3.21

Given the following information about Weber's Online Grocery and assuming its sells entirely on credit, what is the total asset turnover?

3.49X

A firm offers a 10-year maturity bond with $1,000 face value and 5.25% coupon rate. The current market price for the bond is $1025. Selling the bonds costs the firm $48 per share. What is the after-tax cost of this debt, assuming a 34% corporate tax?

3.66%

Use the following formula to calculate the standard deviation of the portfolio described in the table below. Assume that the correlation between the two assets is 25%.

32%

You receive an invoice for $12,980 with terms of trade of 2/10, net 30. What is the annual cost of NOT taking this trade discount?

36.73%

Company Z has $2,000 face-value bonds that pay a 6% annual coupon rate and mature in ten years. Those bonds are currently trading on the secondary market for $2,102 each. Assume Company Z has a marginal tax rate of 24%. In this case, the after-tax cost of debt from our market value example would be

4.05%

What return will you have to earn on your investment of $10,000 per year assuming you expect to retire in 40 years and would like to accumulate $1,000,000 by that time?

4.22%

What is the YTM of a $2,000 face value bond, calculated semi-annually, that is currently selling for $2,078.44 if it has a 5% annual coupon rate and ten years to maturity?

4.5084%

What is the current yield of a bond that has 4.25% annual coupon rate, makes semi-annual payments, has a market price of $875, and a face value of $1,000?

4.8%

Company Z has $1,000 face-value bonds that pay a 7% annual coupon rate and mature in ten years. Those bonds are currently trading on the secondary market for $1,060 each. Assume Company Z has a marginal tax rate of 22%. What is the after-tax cost of debt from our market value example?

4.82%

Company X has $2,000 face-value bonds that pay a 6% annual coupon rate semi-annually and mature in ten years. Those bonds are currently trading on the secondary market for $2,102 each. What is the YTM of these bonds?

5.34%

What is the YTM of a $1,000 face value bond that is currently selling for $1,076.24 if it has a 7% annual coupon rate and nine years to maturity?

5.88% calc in module 7

A stock paid $3.17 in dividends at the end of last year and is expected to pay a cash dividend until infinity. No growth is expected. Investors require a 6% rate of return. What is the value of the stock?

52.83

Thomaston, Inc. needs your help to calculate its WACC to evaluate an upcoming project. Use the following information to calculate the WACC for the company: After-tax cost of debt is 0.0532 Cost of preferred stock is 0.30 Cost of equity using the dividend valuation model is 0.0815 The weight of Ridgefield's preferred stock is 10% The weight of Ridgefield's common stock is 70% What is the WACC?

9.76%

______ uses financial ratios to determine a firm's creditworthiness

A credit-rating agency

Which of the following is the BEST example of market risk?

A firm's investments benefit from an upswing in technology stocks.

On April 1, a firm announces that holders of record on May 1 will receive a dividend on June 1. Which of the following statements is FALSE?

A shareholder who bought stock in the firm on May 2 will receive a dividend on June 1.

______ is a method of accounting whereby revenue is recorded when it is earned, whether or not the revenue has been received in cash.

Accrual basis accounting

Which of the following is NOT an explanation for why an increased investment in a project affects net working capital instead of accounting profits?

Additional financing affects the profit margin

______ is one of the most important concepts in finance.

Asset valuation

A company is considering a $2,000 investment in a project with the following predicted cash flows in the subsequent four years: $1,300; $950; $700, and $300. It requires a 12% return. What is the profitability index for this investment, and what does it suggest?

Because the profitability index is 1.30, the company should accept the opportunity

______ is a technique for managing international repatriation risk since the cash outflows will occur in the same foreign currency.

Borrowing money in the foreign currency

The expected rate of return for an investment in a cell phone company is 24%, and the standard deviation is 9%. Another investment opportunity, however, offers a 30% expected rate of return with a standard deviation of 15%. Which of the following statements is LEAST likely?

Both assets may have a 45% return.

Which of the following statements is false?

Both unsecured liabilities and secured liabilities have assets pledged as collateral, but the pledged collateral for an unsecured liability does not equal the borrowed amount.

The formula for break-even analysis is

Break-even number of units = Total fixed costs divided by (Sales price per unit - Variable costs per unit_

The security market line (SML) is the graphical representation of the

CAPM

The cash conversion cycle (CCC) is calculated with which of the following formulas?

CCC = DSO + DSI - DPO

______ involves decisions about long-term investments, research investments, and fixed assets.

Capital budgeting

______ are those financial markets in which securities that exceed one year in duration are bought and sold. This market includes the stock market, bond markets, and long-term loans.

Capital markets

______ markets are where something sells today and are often called ______ markets.

Cash, spot

______ is the percentage of the stated value of the bond that determines the annual coupon payment.

Coupon rate

______ are assets that are relatively liquid, meaning they can be easily converted into cash within 12 months.

Current assets

______ is an accounting concept that allows us to match the expenses associated with long-lived assets to the revenues that those assets helped generate.

Depreciation

______, financial ratios can be used by lenders to decide whether or not to make a loan to the company, by credit-rating agencies to determine the firm's credit worthiness, by investors to decide whether or not to invest in a company, and by major suppliers to decide whether or not to grant credit terms to a company.

Externally

______ are accounting data restated in relative terms in order to help people identify some of the financial strengths and weaknesses of a company

Financial ratios

______ with a foreign company is a method used to expand internationally that provides expertise in the new country's culture.

Forming a partnership

"______" deals with issues related to buying on credit, selling on credit, inventory levels, cyclical cash flows, short-term investing or borrowing, and many other issues.

How do I run my day-to-day business?

The expected rate of return for an investment in a start-up solar energy company is 38%, but the standard deviation is 12%. By contrast, the expected rate of return for an investment in an established cosmetic company with a promising new line is 22% with a standard deviation of 6%. Which of the following statements is FALSE?

Investing with the cosmetic company involves more risk.

Which of the following statements is FALSE?

It is better for a firm to have higher dividends than to have positive NPVs on its investment.

______ inventory techniques reduce inventory levels at many firms to small amounts by receiving product or material immediately prior to sale.

Just-in-time

______ are markets in which funds are borrowed or loaned for periods of time that do not exceed one year.

Money markets

A common stock expects to pay a dividend of $4.90 next year. It is expected to grow at 10% each year for all future years. Investors require a 14% return rate. What is the value of a share of this stock?

NOT $123.76, 124.60

Assume we invest $120,000 in a new project that we anticipate will expand sales by 18% over our current level of sales of $550,000. The increase in fixed costs are variable costs are expected to be about 35% of sales. We can depreciate the initial outlay of $120,000 over a five-year period. The company's marginal tax rate is 22%. Calculate the annual operating cash flows associated with this project.

NOT $53,782, 56210

Firms may pledge ______ as collateral to obtain a loan from a bank or finance company

NOT commercial paper, accrued wages and taxes

The ______ on a bond indicates the percentage of the par value of the bond that will be paid out annually in the form of interest.

NOT maturity rate, yield to maturity

______ are tangible entities that represent the largest volume of publicly traded transactions.

Organized security exchanges

______ are the result of the correct preparation of the income statement and are listed on the bottom line as net income.

Profits

Use the table below to calculate the internal rate of return (IRR) for projects A, B, and C. A firm wants at least a 14% return. Which project meets that criterion?

Project B

An important question for investors is how much return the firm is generating for its shareholders. ______ provides this answer, and is calculated as net income divided by common equity.

Return on equity

______ divide ownership into more or fewer pieces and do not change the firm's investments or future earnings.

Stock splits and stock dividends

______ are costs that have already been incurred and are not relevant incremental costs.

Sunk costs

______ risk is the risk associated with events that impact the entire market.

Systematic

A company considers the three options presented in the table below. Under which circumstance would the company be MOST inclined to select Project A?

The company would choose A if they could invest the $14,100 in an additional project that would (combined with project A) offer a higher net profit value than Projects B or C.

A piece of equipment has depreciated to $3,000, but it sells for $8,000 at an auction. Which of the following consequences is MOST accurate?

The firm must pay taxes on the selling price less the remaining depreciation costs, $5,000.

The cash conversion cycle of a firm is presented below. What conclusion is BEST supported by this information?

The firm's efforts o reduce the days of sales in inventory are paying off.

Which of the following is NOT a reason why the required return on a bond may differ from its par value?

The required rate of return exceeds the coupon rate, so the bond sells at a premium

In the generic formula for valuing any asset, which statement is TRUE?

The symbol n represents the number of periods during which the discounting occurs.

A report indicates that a firm will likely suffer financial penalties because they have failed to meet environmental standards, and their stock price plummets. Which of the following BEST describes the firm's most serious failure?

They failed to maximize shareholder's wealth by making poor decisions.

On the secondary market, bonds with a face value of $1000 are trading at $925. The bonds have a 2.83% coupon rate paid semiannually and mature in 3 years. What is the yield to maturity (expressed at an annual rate) for the bonds if an investor buys them at the $925 market price?

This bond has a yield-to-maturity rate of 5.58% and a current yield of 3.06%.

An old machine we replaced was fully depreciated and can be sold for $12,000. Our tax rate is 26%. What will this sale do to our taxes?

This will be a tax gain of $3,120 and we will net $8,880

______ provides managers with information about whether the firm is improving in efficiency or becoming more inefficient. In either case, it is useful to dig a little deeper and determine the cause of the change.

Trend analysis

_____ costs are correlated with the firm's sales, including labor, materials, energy costs, and sales commissions.

Variable

Which question can financial ratios NOT answer?

What action should follow from a ratio that is lower when compared to its peers'?

The firm's capital budgeting decision is "______?" Capital budgeting entails long-term investment decisions that firms make regarding plant expansion, acquisition or sale of existing business lines, investments in research, and development. These decisions involve the assets that generate cash flows for the firm in the future while creating wealth for the shareholders.

What do I buy

______ involves decisions about cash flows, current assets, and short-term financing.

Working capital management

Identify the false statement about working capital management.

Working capital managements tries to match short-lived assets with long-term financing

Credit that has some asset pledged as collateral in the event the business does not pay is called

a secured loan

The Selina Firm has an accounts receivable balance of $37,000 and annual sales of $421,000. What is The Selina Firm's DSO?

about 32

Firm J has an accounts receivable balance of $58,000 and annual sales of $462,000. What is Firm J's DSO?

about 46

If you ______ one mutually exclusive project, you automatically ______ the others.

accept; reject

Which of the following is NOT a common current asset account?

accounts payable

Credit standards determine which customers receive credit and the length of time we extend this credit. When we make a credit sale, we create a short-term asset known as a(n)

accounts receivable

DSO is simply ______ divided by average daily sales.

accounts receivable

Which of the following is NOT a form of equity?

accrued expenses

If we want to have a more stringent test of a firm's liquidity, we include only the firm's cash and accounts receivable in the numerator of our liquidity measure. This is called the ______. This is calculated by dividing the sum of the cash plus the accounts receivable by the current liabilities.

acid-test or quick ratio

One incremental cash flow often overlooked in capital budgeting is the increase in net working capital requirements needed to support

additional sales

Paying dividends may reduce the threat of ______ because it forces the firm to face the scrutiny of investment bankers, rating agencies, and new investors.

agency

Depreciation is an accounting concept that

allows the matching of expenses associated with long-lived assets to the revenues that those assets helped generate

Managers may use asset utilization ratios as a basis to adjust inventory levels or

alter credit policies

For ______, you should always use cash flows or projections of cash flows.

capital budgeting

Firms need ______ to be able to meet immediate obligations.

cash

______ are tools used by financial managers for planning purposes by identifying points where additional cash is needed and where surplus cash can be invested

cash budgets

Measuring ______ involves analyzing the income statement and balance sheet.

cash flow

The ______ from the sale occurs when the buyer pays you.

cash flow

When assessing the value of a business, ______ is most important.

cash flow

The first principle of financial management is that it is ______ that determine(s) the value of a business.

cash flow, not profits

Times interest earned, or TIE, provides financial managers with a method for quickly evaluating whether the firm's ______ are sufficient to service the current level of debt.

cash flows

At the end of the project's life, the investment in net working capital is recovered. The current asset accounts are converted to cash and the liabilities are paid off, resulting in a ______ of the total net working capital at the project's termination

cash inflow

To create a workable budget, you need to forecast ______ associated with the business operations, in addition to forecasting.

cash outflows; sales

In thinking incrementally, you need to focus only on the ______ in cash flows that can be attributed to a particular project.

change

If you are thinking incrementally, you will focus only on the ______ that can be attributed to a particular project.

change in cash flows

The ________ informs us how much risk we are assuming per unit of return.

coefficient of variation

Which of the following contains both secured and unsecured short-term liabilities?

commercial paper, line of credit, floating lien agreement, pledging accounts receivable

Some bonds are convertible to a fixed number of shares of ______ after a certain period of time. This sweetner feature allows bondholders to receive a consistent return in the form of coupon payments, but also gives them the option to convert to equity at some point.

common stock

Which of the following is not a form of debt?

common stock

The fundamental goal of a business is to create value for the

company's owners

Who is NOT interested in a firm making more money?

competitors

In the second period, interest is earned on the principal as well as on the interest from the first period. The type of interest described in the previous statement is

compound interest

You invest $1000 for three years at a 6% annual interest rate. At the end of the first year you reinvest the 6% interest into the initial investment; you will earn 6% on the initial investment plus 6% interest on the interest that you reinvested. This process is called

compounding

Every additional time value of money tool you learn is an extension of either

compounding or discounting

Financial management principle number 5 pertains to ______ that cause agency problems.

conflicts of interest

Within the framework of agency theory, managers are supposed to make decision

consistent with owner goals

Companies that use a ______ adopt a specific fraction and pay that same percentage of earnings every year.

constant payout policy

Some companies distribute using the ______ every year, which pays a fraction or percentage of earnings.

constant payout policy

Which of the following is NOT included in the initial outlay?

costs incurred to sell old replacement asset

Beta measures an asset's ________ with the overall market. In other words, beta provides some indication of the past relationship between an individual asset's returns and the overall market's returns.

covariability

A good business decision with an organization ______, which is the primary goal.

creates wealth for the firm's owners

Working capital is a firm's investment in ______, which are assets that can be converted into cash in one year or less.

current assets

An investor that needs ______ should invest in stocks that pay high dividends.

current income

The typical corporate bond is unsecured and is known as a

debenture bond

Although leverage does increase risk, it also magnifies returns. The key is to use ______ in a way that maximizes returns, yet doesn't bankrupt the company.

debt

Bond indentures or state law replace restrictions that often limit dividend distribution under certain circumstances, such as low liquidity, to ensure that the cash exists to service the

debt

By diversifying a portfolio, risk

declines so long as the stock returns are not perfectly correlated

In the case of a manager, the asset utilization ratio should first and foremost point to additional areas that need ______ to determine if they are in need of improvement or if they are efficient.

deeper analysis

For tax purposes, the Internal Revenue Service classifies assets and determines the ______ of those asset classes

depreciable years

Although financial statements are prepared according to a strict set of rules and guidelines, there is still room for variation. For example, firms can use several different methods to ______ that will impact peer comparison.

depreciate assets

Lower taxable income and lower tax liability are two ways in which ______ impacts financial decisions that will help managers in other areas of finance, including investing the firm's resources in productive assets.

depreciation

Investing in an asset such as a production facility in another country is a common way to expand internationally. This is known as

direct foreign investment

Which method of issuing common stock does NOT involve an investment banker?

direct sale

One of the three methods of transferring savings is the ______, where the firm seeking cash sells its securities to investors who are willing to purchase them in hopes of earning a large return.

direct transfer of funds

Many of the financial issues you work on involve taking expected future cash flow and determining its equivalent value if you were to receive that money today. This process is known as

discounting

Which of the following is not used to rank proposed projects?

dividend growth model

Investors are conditioned to expect a certain type of

dividend policy

Deducting interest expense from operating income gives us

earnings before taxes

Financial management principle number 4 states that a(n) _______ stock market is characterized by a large number of profit-driven individuals who act very quickly by buying or selling shares of stock in response to the release of new information.

efficient

A firm that expands internationally by buying plants and equipment in another country is

engaging in direct foreign investment

Without question, it is easier to ______ profitable projects or investments in fixed assets, a process referred to as capital budgeting, than it is to ______ them.

evaluate; find

A firm decides to invest in a new technology, even though they will lose money on it for a few years. In the foreseeable future, however, whatever gains they can make now in optimizing the technology will pay off as customer demand increases. This case is an example of a(n) ______ project.

expansion

A firm that expands internationally by selling their products in overseas domestic markets is

exporting

______ is perhaps the easiest and most common initial entry point into international markets.

exporting

Most bonds also have a maturity date at which time the company redeems that debt and pays the bond holders the ______ of the bond.

face value

The par value of a bond is its ______, which is returned to the bondholder at maturity.

face value

The first step in issuing stock is for the firm to approach an investment banker. The investment banker evaluates the ______ and business model of the company that wishes to issue equity, and makes some assessment of value.

financial condition

A hiring decision is a ______; companies will not hire you if they don't believe you will ultimately impact the bottom line.

financial decision

The liquidity of a business is a function of its ability to have cash available when needed to meet its

financial obligations

Managers can use ratios to prepare, at both the firm and division levels, ______, such as those associated with the launch of a new product.

financial projections

Within the firm, managers use ______ to identify deficiencies in the firm's performance and take corrective action, to evaluate employee performance and determine incentive compensation, and to compare the financial performance of the firm's different divisions.

financial ratios

_____ are the one area in which we do not allocate incremental costs.

financing costs

Capital budgeting is the process of decision making with respect to investments made in

fixed assets

Let's assume you contact a real estate agent to sell your home. These agents only receive their pay after the house sells and the deal ultimately closes. In many cases, the representative who lists the home might not be the one who sells the home. When this happens, the listing agent and the selling agent split the commission, and the real estate firm that employs them gets a large fraction of that commission. Ultimately, real estate agents receive a relatively small amount for a typical home sale. This method of compensation makes it apparent how realtors might have some incentive to encourage you to list the house

for less than the home's true value to make the sale occur more rapidly

The most common risk faced by firms with international exposure is related to

foreign exchange risk

The amount of cash remaining from operations after the firm pays for the investments it has made in operating working capital and fixed assets is called

free cash flow

Although it is important to examine old financial statements, the past is not necessarily a good indication of the

future

When expansion of an organization is necessary, the expansion depends on the forecast of ______ growth. Financial managers need to estimate this growth, along with the financial needs necessary to support this growth, and then begin planning to raise these funds.

future sales

The ______ is the amount to which your investment will grow.

future value

You know that an asset earns 8% each quarter for 10 years. What additional information do you need to calculate its present value?

future value

At the time of purchase, depreciable assets such as new computers are added to a balance sheet as

gross fixed assets

Which description BEST fits the role of a treasuer?

handling financial activities such as cash and credit management, making capital expenditure decisions, raising funds, financial planning, and managing foreign currency

A ratio that is ______, relative to our peers, might indicate that our inventory levels are too ______ and we are missing sales

high; low

Book value represents the ______ of an asset rather than its

historical cost, current worth

Important insight, such as where revenue has changed over the years or trends in growth or loss, can be provided by

historical data

Financial managers can make some relatively accurate forecasts about a company's future by referencing the analysis of

historical financial trends

Break-even analysis tells us ______ we need to produce to break even.

how many units

Internally, managers can use ratios to ______ in the firm's performance and take corrective action.

identify deficiencies

A firm borrows $30,000 at 0.925% monthly interest rate in June. In which section of the cash budget should the interest payment be listed?

in July's Net change in Cash for the period

A (n) _______ is an organized presentation of the revenues or income a business generates less the costs associated with making that revenue.

income statement

The phrase the bottom line refers to the last line on the

income statement

Which of the following actions would most directly shorten the cash conversion cycle?

increase payments received in the first month after the sale

A firm has the opportunity to invest in a start-up solar energy company a new cell phone technology, or the latest in television screens. These options are BEST described as ______ projects.

independent

Identify the pair of words that BEST completes this sentence: A firm presented with ______ projects may select one or multiple opportunities; in contrast, a firm presented with ______ projects must select only one.

independent; mutually exclusive

If peer comparisons reveal that other firms in the same industry carry only 40 days sales in inventory, then Firm J could reduce its inventory investment to the ______ and shorten its CCC.

industry average

The most common method of identifying a peer group is through

industry classification

The ______ is the premium expected to compensate for the price change expected due to inflation.

inflation premium

A depreciable asset that is sold will likely NOT recoup its

initial book value

After the value assessment, the investment banking firm may opt to underwrite the issue, which is basically a direct purchase of the stock. The investment banking firm gets the stock issue registered with the SEC, and gets the issue listed on either an organized exchange or the OTC market. At that point, the underwriter begins selling or placing the issue. This transaction is called the

initial public offering

The coupon rate is expressed as a percentage, and then the ______ to the bond holder is determined by multiplying the coupon rate by the face value of the bond.

interest payment

A bond's market value changes when market ______ change.

interest rates

Firms have to carry some minimum level of ______ to support operations and sales.

inventory

Financial managers should carefully evaluate ______ to determine whether the business has the appropriate amount invested and that balance is maintained.

inventory levels

A(n) ______ is a financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds.

investment banker

The capital budgeting process begins with the identification of potential capital projects that fit the firm's

investment strategy

Under the second method of transferring savings, the securities being issued pass through a(n) ______. They are not transformed into a different type of security.

investment-banking firm

Which of the following is an indirect transfer method to raise capital for a business?

investment-banking firm

The poorer the bond rating, the higher the interest rate demanded by

investors

When a firm ______ in the primary market, it is raising equity. Firms can then take this money and use it for their business needs.

issues stock

Which of the following is NOT a primary risk of a partnership with a foreign company?

labor discrimination

Which of the following is NOT a source of risk for international investments?

leading and lagging

When a company issues a bond, it submits information about the company's financial position to the independent bond rating agencies. These agencies then evaluate the company's financial condition and determine the likelihood that the company will be able to make the interest payments on the debt and the likelihood the bond issue will ultimately be repaid. This assessment of creditworthiness or risk then receives a(n) ______ that provides potential investors with information.

letter grade

The OTC market is not one physical location but, instead, a large network of dealers that stand ready to buy and sell the stocks in which it specializes. Normally, this market is not as ______ as the organized exchanges.

liquid

The ______ of a business is a function of its ability to have cash available when needed to meet its financial obligations.

liquidity

The purpose of inventory management is BEST explained as

making sure to maintain enough inventory to support sales and production, but not too much inventory since inventory is costly

Which term structure theory predicts that the interest rate on a short-term investment will be unaffected by changes in the supply or demand for long-term maturities?

market segmentation theory

The _____ of the firm is the sum of the total number of common shares outstanding multiplied by the current price per share.

market value

The ______ of a bond indicates the length of time until the bond issuer returns the par value to the bondholder and terminates or redeems the bond.

maturity date

The primary goal of the firm and the financial manager is to

maximize shareholder wealth

The WACC provides a metric that indicates, according to the market, a project's

minimum acceptable return

Firms are often faced with ethical dilemmas. While the legal system defines some corporate morality, such as child labor laws, it is inadequate in many cases to serve as a(n)

moral compass

A firm that uses real estate, or some other tangible asset, to secure borrowed money has a ______ bond.

mortgage

The ______ rate of return is the stated or quoted rate of interest.

nominal

Capital structure is NOT

non-interest bearing liabilities

Inventory is costly to store and is a

nonearning asset

Historical returns have been more volatile than the overall market returns if any beta is greater tan

one

Unlike the capital market, which involves long-term securities, the money market involves securities that mature

one year or less

The deduction of operating expenses from gross profits give us

operating income

To examine the level of operating profits relative to the firm's total assets, we use the ______ which equals operating profits divided by total assets.

operating return on assets

A small boutique chooses to stock sizeable artwork and sculpture, which consumes a lot of floor and wall space in an already cramped store. The owners turned down candle makers and a specialty stationary company-both of which are compact-in order to stock the artwork and sculpture. The consequences in cash flow following from the rejection of the candles and stationary is called a(n)

opportunity cost

If you decided to open a retail store but you could instead rent that space to someone for $1,000 a month, the $1,000 a month is a(n) ______ that should be included in a cash flow analysis.

opportunity cost

Variable cost varies directly with ______ and is primarily composed of raw materials, direct labor, utilities, and selling costs.

output

For a new project you only use incremental costs, so the only fraction that should be allocated to the new project is the change in ______ you expect to incur if you accept the new project.

overhead costs

Much like bonds, most preferred stock has a

par value

______ is what the firm will pay the bondholder when redeeming the bond at maturity.

par value

The financial ratios from our firm can be compared with those of a ______ of companies or with industry norms

peer group

Firms trading on the organized exchanges have recognizable ______ and are capable of meeting the stricter listing requirements imposed by each exchange.

physical locations

Eliminating firm-specific risk can be accomplished by combining assets into a(n)

portfolio

Agency theory is a theoretical framework that provides a way to look at any relationship in which two parties have

potentially divergent interests

Common stock valuation models essentially view a common stock as a cash flow stream that has a determinable

present value

A market in which securities are offered for the first time for sale to potential investors is called a ______ market.

primary

New financial assets, like an initial public offering (IPO) or a seasoned equity offering (SEO), are initially offered on the

primary market

The bottom line of the income statement shows the firm's ______ for the year.

profit or loss

Although classified as a ______, ROA is also an efficiency ratio.

profitability ratio

You could spend more money on automation and less on labor. This higher fixed cost option also has a higher break-even point. However, after the break-even point is reached, the firm is more ______ because the variable costs per unit are lower than an option with less fixed costs.

profitable

A ______ is a security offering where all investors have the opportunity to acquire a portion of the financial claims being sold.

public offering

Nobel Prizewinning economist Milton Friedman is famous for his position on greed and the free enterprise system. Simply put, he believes that the ______ generates the greatest good for the greatest number.

pursuit of profits

Investors react to good decisions by ______ the price of the stock.

pushing up

Understanding the ______ of a firm's accounts receivable is necessary to completely understand a firm's liquidity.

quality

Even if a project has a positive NPV and the project should be accepted, many firms use other indicators to

ration capital

The ________ is one of the factors that would impact project ranking.

recovery?

A dividend policy that is used to pay a ______ every quarter and then make a ______ based on the firm's earnings that year.

relatively low consistent dividend, one-time annual dividend distribution

______ are a common category of capital budgeting projects.

replacement projects

The capital asset pricing model, or CAPM, is the tool we use to calculate the

required return

When you pick the beta corresponding to the level of risk on the horizontal axis and extend a line until you touch the SML, and then, make a 90-degree angle to the left and extend a line until it intersects the vertical axis, the intersection is the

required return

The ______ is the accounting rate of return earned on the common stockholders' investment. This ratio is calculated by dividing the net income by the common equity.

return on equity ratio

Bond ratings involve a judgment about the future ______ of the bonds.

risk potential

One reason bond values can change after issuance is a change in the firm's

risk profile

When a firm produces a number of different products, it makes more sense to use break-even analysis at the ______ level instead of using units sold.

sales

Liquidity ratios indicate the degree to which firms can

satisfy its creditors in a timely fashion

Financial markets are the conduit through which money flows between

savers and borrowers

A(n) ______ is the sale of additional shares by a company whose shares are already publicly traded

seasoned equity offering

A firm that has assets in place on foreign soil runs the risk of those assets being ______ by the foreign government.

seized

Preferred stock has a ______ claim on firm assets in the event of bankruptcy, meaning that if the firm fails and its assets are sold, preferred stockholders get their money before any money is distributed to common stock shareholders

senior equity

Most would agree that taking on some debt is beneficial for a firm. The business benefits because debt is typically a lower cost than equity. If the company can borrow money at 6% and invest that money to earn 15%, the difference benefits the

shareholders

Whose interests SHOULD have the most influence on decisions at successful firms?

shareholders'

The most commonly used measure of a firm's ______ is the current ratio, which equals the current assets divided by the current liabilities.

short-term solvency

An implication of efficient markets hypothesis (EMH) for firm managers means that every ______ they make is instantly reflected in the stock price as soon as that information becomes public.

significant decision

Which of the following is NOT a characteristic of an efficient portfolio?

simultaneously increase risk and reduce return

The weighted average cost of capital (WACC) is a composite discount rate used for project evaluation that combines the individual component costs of capital into a

single number

A (n) ______ is a business owned by one person, but may have multiple employees

sole proprietorship

The weighted average cost of capital should be used as the appropriate discount rate instead of the cost of financing for a particular project. Financing sources vary from year to year and often depend on the company's ______, in addition to market conditions.

target capital structure

Assume we invest $10,000 in net working capital primarily as a result of increased inventory levels. At the end of the project, we sell the additional inventory and reduce inventory levels back to the previous level. Therefore, we recover that $10,000 investment at the end of the five year period. This $10,000 is a(n)

terminal cash inflow

Which of the following is NOT a key date in the dividend distribution process?

the date the financial statement is finished

Which of the following is NOT a consideration that may affect a firm's dividend payment decision?

the desire of management to maintain control of the company

A firm has fully depreciated its network server, but a buyer is willing to pay $5,000 for it. If the firm sells the depreciated server, which of the following consequences is MOST accurate?

the firm has a tax liability since the server's book value is now zero.

Which of the following is NOT one of the three factors the return on your investment would depend on?

the future value

Which of the following is NOT one of the three components needed to value an asset?

the present value of the cash flows

Book value is an accounting value obtained from the balance sheet. Book value is simply

the sum of all the common equity accounts

The _____ is commonly used when examining a firm's debt position and is computed by dividing the operating profits by the interest expense.

times interest earned ratio

A firm's ______ includes the variance due to unique events affecting single companies as well as widespread events that span multiple industries.

total risk

EMH claims that if markets are efficient, the current market price of any asset represents the ______ of that asset.

true value

A stock dividend is a distribution of ______ of the number of outstanding shares; any distribution not meeting this criterion is a stock split.

up to 25%

One of the ways to combat the implications of agency theory and encourage managers to behave like a shareholder is to

use stock options as part of compensation

To calculate WACC we need to be able to calculate the individual component costs as well as determine the ______ each component represents in our firm's capital structure.

weight

The expected return on a portfolio is the ______ of the expected returns of the individual assets.

weighted average

The expected return on a portfolio is the ________ of the expected returns of the individual assets.

weighted average

Which of the following is NOT considered in determining a firm's operating profits?

when money is received and spent

You have a capital budgeting project that has forecasts of cash flows of $3,000 each year for the next three years. The project's level of risk warrants a required return of 10%, whereas the initial outlay of this project is $7,500. What is the NPV, and should you undertake this project?

-$40, you would not undertake this project NPV calculation

You bought stock for $115.35 per share. One year later, you sold it for $99.70. What is the holding period (historical or realized) rate of return on your investment?

-13.57%

Using the information provided below and assuming the cash flows occur at a constant rate each year, calculate the discounted payback period for Project A.

1.7 years

Assuming Firm J has inventory of $68,640 and the cost of goods sold is $224,860, what is Firm J's DSI?

111.42

Assume the current T-bill rate is 4% and the market return is 12%. What is the expected return on a stock with a beta of 1.2?

13.6% Investor's RRR equation: r = rf + beta *(rm - rf) .04+1.2*(.12-.04) use excel to process correct order of operations

A firm expects to spend $15,000 on Project B. In year 1, it forecasts a cash flow of $9,000; in year 2, $6,000, in year 3, $3,000; and in year 4, $1,000. What is the internal rate of return for this project?

14.58%

Assume you intend to invest $5,000 in your uncle's earthworm farm. He tells you that the investment will be worth $10,000 by the end of five years. What type of annual return is he promising?

14.87%

You have a capital budgeting project that has forecasts of cash flows of $3,000 per year for the next three years. The project's level of risk warrants a required return of 14%, whereas the initial outlay, or cost, of this project is $6,800. What is the project's IRR?

15.44%

Let's assume you bought 500 shares of stock for $37 a share and sold them for $53 a share. What would be your return percentage?

43%

Given the following information about Weber's Online Grocery, what is the debt ratio?

48.3%

Your bank has a savings account that will pay you 5.1% compounded quarterly, while your credit union is paying 5.05% compounded monthly. The effective annual rate at your bank is _______, and the effective annual rate at your credit union is ______

5.198%; 5.169%

Company X has $2,000 face-value bonds that pay a 6% annual coupon rate and mature in ten years. Those bonds are currently trading on the secondary market for $2,102. What is the YTM of these bonds?

5.33%

You bought the 100 shares of stock for $28 a share and later sold them for $44 a share. What is your percentage return?

57%

You are are considering a $3,500 investment. The table below shows the possible outcomes in cash flow next year. What is the standard deviation of the returns?

6.72%

The face value of a bond is $1,000. The bonds have a 4.25% coupon rate paid semi-annually and mature in six years. What is the yield to maturity (expressed at an annual rate) for the bonds if an investor buys them at the $875 market price?

6.86%

Assume your parents deposited $4,000 in an account eight years ago and now that account has grown to be worth $6,872.74, what is the annual return they earned on that initial $4,000 investment?

7%

Given the following information about Weber's Online Grocery, what is the return on assets (ROA)?

7.65%

A supplier offers a firm a 4/10, net 30 discount for early payment on a $1500 bill. What is the cost of forgoing the trade discount, assuming the financial year has 360 days?

75%

Company Z does not anticipate increasing dividends for the foreseeable future. If the company's most recent dividend payment was $3.25 a share and the most recent stock price was $40 a share, what is the cost of common equity for Company Z?

8.125%

You have a capital budgeting project that has forecasts of cash flows of $2,500 per year for the next three years. The project's level of risk warrants a required return of 12%, whereas the initial outlay, or cost, of this project is $6,400. What is the project's IRR?

8.37%

Given the following information about Weber's Online Grocery, what is the times interest earning (TIE)?

8.5X

You bought stock for $25.47 per share. One year later, you sold it for $45.85. What is the holding period (historical or realized) rate of return on your investment?

80.02%

Company Z does not anticipate increasing dividends for the foreseeable future. If the company's most recent dividend payment was $3.85 a share and the most recent stock price was $42 a share, what is the cost of common equity for Company Z?

9.17%

Using the CAPM equation, assume the current T-bill rate is 4.5% and the market return is 10%. What is the expected return on a stock with a beta of 0.86?

9.23%

Assume the current T-bill rate is 4% and the market return is 10%. What is the expected return on a stock with a beta of .88?

9.28%

What is the cost of a preferred stock that pays a $4.60 dividend if the market value is $48.64?

9.45%

What is the cost of a preferred stock that pays a $5.20 dividend if the market value is $52.16?

9.97%

When identifying cash flows, depreciation is

added back to net income