midterm 1 fin mgmt

When developing a common-size balance sheet to evaluate last year's performance, all accounts are expressed as a percentage of: - the base year's total assets. - last year's sales. - last year's total assets. - the base year's sales. - the base year's total equity

last year's total assets.

The cash flow that results from a company's ongoing, normal business activities is called: cash flow to creditor. net working capital. cash flow from assets. operating cash flow. capital spending.

operating cash flow.

You just obtained a loan of $17,200 with monthly payments for three years at 5.5 percent interest compounded monthly. What is the amount of each payment?

519.37

Financial managers should primarily focus on the interests of: the board of directors. their immediate supervisor. shareholders. the vice president of finance. themselves.

shareholders

Suppose the first comic book of a classic series was sold in 1954. In 2020, the estimated price for this comic book was $310,000, which is an annually compounded return of 22 percent. For this to be true, what was the original price of the comic book in 1954?

$.62

Cookies by Casey has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

$123,240

Claire's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much is the collection expected to be worth in 2025?

$14,077.16

You borrowed $185,000 for 30 years to buy a house. The interest rate is 4.35 percent compounded monthly. If you pay all of your monthly payments as agreed, how much total interest will you pay on this mortgage? (Round the monthly payment to the nearest whole cent.)

$146,542

You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than 7.1 percent? (Assume annual compounding.)

$155,986.70

Twenty-five years from now, you would like to give your child $100,000. How much money must you set aside today if you can earn 7.5 percent per year, compounded annually, on your investment?

$16,397.91

When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent, compounded annually, on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit?

$20,468.85

Howell Corporation deposited $12,000 in an investment account one year ago for the purpose of buying new equipment. Today, it is adding another $15,000 to this account. The company plans on making a final deposit of $10,000 to the account one year from today and plans to purchase the equipment four years from today. Assuming an interest rate of 5.5 percent, how much cash will be available when the company is ready to buy the equipment?

$46,008.30

The balance sheet of Perez Printing shows $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. How much net working capital does the company have?

$720

Barre Dance has sales of $30,600, costs of $15,350, addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense?

$8,013.29

Your bank pays 1.2 percent compounded daily on its savings accounts. If you deposit $7,500 today, how much will you have in your account 15 years from now?

$8,979.10

Island News purchased a piece of property for $2 million. The firm paid a down payment of 20 percent in cash and financed the balance. The loan terms require monthly payments for 25 years at an APR of 5.5 percent compounded monthly. What is the amount of each mortgage payment?

$9,825.40

Kasturi Safe & Lock generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

$959

Which one of the following statements related to annuities and perpetuities is correct? -The present value of a perpetuity cannot be computed but the future value can. -A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal. -An ordinary annuity is worth more than an annuity due given equal annual cash flows for 10 years at 7 percent interest compounded annually. -Perpetuities are finite but annuities are not. -Most loans are a form of a perpetuity.

-A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.

Which one of the following statements concerning interest rates is correct? -Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate. -The effective annual rate equals the annual percentage rate when interest is compounded annually. -For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate. -The effective annual rate decreases as the number of compounding periods per year increases. -Savers would prefer annual compounding over monthly compounding given the same annual percentage rate.

-The effective annual rate equals the annual percentage rate when interest is compounded annually.

Morgan Corporation has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?

11.01%

You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annually compounded interest. How many years will it be before you purchase the car, assuming the price of the car remains constant?

12.81 years

Wommack Interiors had beginning long-term debt of $51,207 and ending long-term debt of $36,714. The beginning and ending total debt balances were $59,513 and $42,612, respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors?

17,301

Wood Recovery has sales of $397,000, total assets of $225,000, and total debt of $101,700 million. The net profit margin is 6.2 percent. What is the return on equity?

19.96%

Anytime Coffee 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

A credit card company quotes you an APR of 18.9 percent. What is the actual rate of interest you are paying if interest is computed monthly?

20.63%

Thakur Industries has sales of $465,000, interest paid of $2,450, costs of 150,000, and depreciation of $20,400. What is the operating cash flow if the tax rate is 21 percent?

253,649

Your local pawn shop lends money at an annual rate of 24 percent compounded weekly. What is the effective annual rate being charged on these loans?

27.05%

Jonathan invested $6,220 in an account that pays 11 percent simple interest. How much money will he have at the end of 40 years?

33,588

Barnett Saddlery had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

33,763

You grandfather invested $16,600 years ago to provide annual payments of $700 a year to his heirs forever. What is the rate of return?

4.22%

AdVentures has sales of $528,700, costs of goods sold of $252,100, inventory of $43,900, accounts receivable of $78,900, and accounts payable of $32,400. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

63.56 days

You are considering two savings options. Both options offer a rate of return of 8.3 percent. The first option is to save $1,500, $1,250, and $6,400 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today?

7,489

Sixty years ago, your grandmother invested $4,500. Today, that investment is worth $430,065.11. What is the average annually compounded rate of return she earned on this investment?

7.90%

Fifteen years ago, you invested $5,000. Today, it is worth $18,250. What annually compounded rate of interest did you earn?

9.01%

The Somerville Corporation has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?

906.33

On a common-base year financial statement, inventory for the current year will be expressed relative to which one of the following? Base-year total assets Current year total assets Base-year inventory Base-year sales Current year sales

Base-year inventory

Which one of the following is a disadvantage of the corporate form of business? The firm may have unlimited life. The firm may issue additional shares of stock. Shareholders may experience limited liability. Distributed profits may experience double taxation. Raising capital may be more difficult than for other forms of business.

Distributed profits may experience double taxation.

Which one of the following is an agency cost? Investing in a new project that creates firm value Increasing the quarterly dividend Hiring outside accountants to audit the company's financial statements Closing a division of the firm that is operating at a loss Accepting an investment opportunity that will add value to the firm

Hiring outside accountants to audit the company's financial statements

Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent? -In future dollars, Jiexin's award is worth more than Caroline's award. -Jiexin's award is worth more today than Caroline's award. -The present values of Caroline's and Jiexin's awards are equal. -Twenty years from now, the value of Caroline's award will equal the value of Jiexin's award. -In today's dollars, Caroline's award is worth more than Jiexin's.

In today's dollars, Caroline's award is worth more than Jiexin's.

Which one of the following is true according to Generally Accepted Accounting Principles? Costs of goods sold are recorded based on the recognition principle. Depreciation is recorded based on the market value principle. Income is recorded based on the realization principle. Costs are recorded based on the realization principle. Depreciation is recorded based on the recognition principle.

Income is recorded based on the realization principle.

At the beginning of the year, Scoopers Ice Cream had cash of $183, accounts receivable of $392, accounts payable of $463, and inventory of $714. At year end, cash was $167, accounts payable was $447, inventory was $682, and accounts receivable was $409. What is the amount of the net source or use of cash by working capital accounts for the year?

Net source of $15 cash

You are comparing two investment options that each pay 6 percent interest compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.) Option B has a higher present value at Time 0. Both options are of equal value since they both provide $12,000 of income. Option B is a perpetuity. Option A is an annuity. Option A has the higher future value at the end of Year 3.

Option B has a higher present value at Time 0.

Which of the following actions would be most likely to decrease agency costs for the firm? Prohibit employees from becoming shareholders of the firm Increase employees' salaries to exceed the salaries paid by competitors Pay all employees based on the amount of revenue generated by the firm Reward high performing employees with shares of stock Pay bonuses to employees only if profits increase from one year to the next

Reward high performing employees with shares of stock

Which one of the following questions involves a capital budgeting decision? How much inventory should the firm keep on hand? Should the firm borrow money to acquire new equipment? How many shares of stock should the firm issue? Should the firm purchase a new machine for the production line? How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

Sophia and Mallory are the same age. At age 25, Sophia invests $6,000 at 7 percent, compounded annually. At age 30, Mallory invests $6,000 at 7 percent, compounded annually. All else constant, when they both reach age 60: -Sophia will have less money when she retires than Mallory. -Sophia will have more money than Mallory. they must wait 10 more years to have equal amounts of savings. -Mallory will earn more compound interest than Sophia. -Mallory will earn more interest on interest than Sophia.

Sophia will have more money than Mallory.

Which one of the following statements related to loan interest rates is correct? -When comparing loans you should compare the effective annual rates. -The annual percentage rate considers the compounding of interest. -The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate. -Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate. -Lenders are most apt to quote the effective annual rate.

When comparing loans you should compare the effective annual rates.

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why? You should accept the payments because they are worth $201,846 to you today. You should accept the payments because they are worth $201,210 to you today. You should accept the $200,000 because the payments are only worth $189,311 to you today. You should accept the payments because they are worth $202,414 to you today. You should accept the $200,000 because the payments are only worth $195,413 to you today.

You should accept the $200,000 because the payments are only worth $195,413 to you today.

The sources and uses of cash over a stated period of time are reflected on the: statement of cash flows. income statement. tax reconciliation statement. statement of operating position. balance sheet.

statement of cash flows.

Deciding which long-term investment a firm should make is a ______ decision. working capital management cost of capital capital structure capital budgeting capital constraints

capital budgeting

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the: - operating cash flow. - cash flow to stockholders. - net capital spending. - net working capital. - cash flow from assets.

cash flow from assets.

The interest earned on both the initial principal and the interest reinvested from prior periods is called: free interest. interest on interest. compound interest. dual interest. simple interest.

compound interest.

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

discount rate.

Nielsen Paint had interest expense of $38,400, depreciation of $28,100, and taxes of $19,600 for the year. At the start of the year, the firm had total assets of $879,400 and current assets of $289,600. By year's end total assets had increased to $911,900 while current assets decreased to $279,300. What is the amount of the cash flow from investment activity for the year?

−$70,900