C708 Last Minute

What does the balance sheet report? Expenses and revenue Assets and liabilities Cash flow and equity Profits and loss

Assets and liabilities

What are the obligations of a company that are accumulated automatically as a result of the firm's day-to-day business?

Spontaneous liabilities

Which answer is not a factor that influences market interest rates? Alternative investments Deferred consumption Stock market activity Inflationary expectations

Stock market activity

Which is better getting $100 today or getting it in the future?

today

Finance generally operates with a lot of what?

uncertainty

What does the income statement report? Expenses and profits Assets and liabilities Cash flow and equity Profits and loss

expenses and profits

A company had $1 million in sales last year, $1.5 million in sales this year, and projected net income of $250,000. Last year, it had $5 million of its assets tied to sales, $3 million in sales-affected liabilities, and a retention ratio of 0.3. What is its AFN? $9,992,500 $92,500 $925,000 $23,425,000

formula to calculate AFN is: Projected increase in assets - spontaneous increase in liabilities - any increase in retained earnings. $925,000

Finance is the study of what?

fund management and asset allocation over time

The cost of not having money for one period, or the amount paid on an investment per year is known as what?

interest rate

What type of financing do companies obtain for long-term sources of equity?

issuing common and preferred stocks

A firm has projected current assets to be $205 million, fixed assets to be $605 million, current liabilities to be $188 million, long-term debt to be $461 million, and owner's equity to be $106 million. Given this information, what is the discretionary financing need? $38 million $94 million $55 million $9 million

$55 million

If money today is worth 10% more in one year what is the interest rate?

10%

A company has assets of $2,000,000, net sales of $3,000,000, and $1,500,000 in equity. Its net income is $10,000,000. What is its return on equity? 3.333 6.667 5 0.15

5

A company has $450,000 in cash, $300,000 in marketable securities, and $500,000 worth of inventory. Its current assets are worth $1,750,000 and its current liabilities are $1,250,000. What is the company's acid test ratio? 1 1.04 0.8 1.16

Acid test ratio = (CA - Inv)/CL = ($1,750,000-$500,000)/$1,250,000 = 1 1

What kind of stocks are these? 1. shares of ownership and corporate equity 2. limited liability 3. junior to preferred stock and liabilities 4. known as voting share

Common Stock

Which answer is not a cost to the investor that is included in the calculation of an investment's interest rate? Opportunity Cost Inflation Risk of a bad investment Brokerage commissions and fees

Brokerage commissions and fees

A company needs funds to expand its business by purchasing new equipment. Which financial market should the company use to raise money? Capital market Money market Derivative market

Capital market

What do the financial statements of a company report? Expenses and revenue Assets and liabilities Cash flow and equity Profits and loss

Cash flow and equity

Which type of interest is paid on the total amount in the account, which may include interest earned in previous periods?

Compound Interest

What type of bonds are these? 1. have a normal par value of $1,000 2. lesser value than government bonds 3. bond used to raise money to expand the business 4. higher value than municipal bonds that are generally $500

Corporate Bonds:

What are the three types of forecasting? Cross-sectional, Longitudinal data, and Intuitive Judgements Cross-sectional, Longitudinal data, and Judgemental Longitudinal data, Intuitive Judgements and Judgemental Cross-sectional, Longitiy data, and Intuitive Judgements

Cross-sectional, Longitudinal data, and Judgemental

What is the difference between cumulative preferred stock and non-cumulative?

Cumulative stock will accumulate for future payment if the dividend is not paid

Which method shows how 30 large publicly-owned companies based in the United States have traded during a standard trading session in the stock market. Probability sample Dow Jones Index Nonprobability sample

Dow Jones Index

An investment portfolio has a 30% chance of earning $125,000 in a year, a 40% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000. What is its expected return? $50,000 $38,750 $62,000 $54,500

Expected return = (30% × $125,000) + (40% × $50,000) + (15% × 0) + (15% × -$20,000) = $54,500 $54,500

A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio? 7.3% 7.5% 7% 8.1%

Expected return = (30% × 10%) + (20% × 5%) + (50% × 7%) = 7.5% 7.5%

Which forecasting method incorporates intuitive judgements, opinions and subjective probability estimates. Time series Cross-sectional Longitudinal Judgemental Intuitive

Judgmental forecasting methods

You plan to invest $100,000 in a 3 year Certificate of Deposit that has a simple interest rate of 5%. What is its future value? $115,763 $105,000 $115,000 $115,927

FV = $100,000 + (3 × 5% × $100,000) = $115,000 $115,000

What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% simple interest rate every year (rounded up to the nearest dollar)? $134,785 More than $134,785 $30,000 $130,000

FV = $100,000 + (30 × 1% × $100,000) = $130,000 $130,000

What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% compound interest rate every year (rounded up to the nearest dollar)? $30,000 More than $134785 $134,785 $130,000

FV = $100,000 × 1.0130 = $134,785 Using Calculator: N = 30, I/Y = 1, PV = 100,000. [CPT] FV = $134,785 $134,785

You plan to invest $100,000 in a 3 year Certificate of Deposit that has a 5% compound interest rate. What is its future value? $115,763 $115,927 $115,000 $105,000

FV = $100,000 × 1.053 = $115,763 Using Calculator: N = 3, I/Y = 5, PV = 100,000. [CPT] FV = $115,763 $115,763

You have $300,000 that you want to invest in a one year Certificate of Deposit (CD) with a 4% annual interest rate. What will be the value of that CD in a year? $315,000 $301,200 $420,000 $312,000

FV = $300,000 × 1.04 = $312,000 Using Calculator: N = 1, I/Y = 4, PV = 300,000. [CPT] FV = $312,000 $312,000

controllers treasurers credit managers cash managers risk managers insurance managers Are all Types of what?

Financial managers

Composite forecasts, Delphi method, Forecast by analogy, Scenario building, Statistical surveys, and Technology forecasting are all examples of what?

Judgmental methods

What type of business would this describe? 1. Two or more owners 2. partners are taxed individually 3. owners can be personally liable for business losses 4. filing taxes can be simple

General Partnership

During a fiscal year, a company had $25,000,000 in total sales. It had a cost of goods sold (COGS) of $18,000,000, and $4,000,000 in additional expenses. What is the company's gross profit margin? 12% 16% 33.33% 28%

Gross Profit Margin = Gross Profit / Sales. Gross Profit = Sales - COGS = $25,000,000 - $18,000,000 = $7,000,000. Hence, GP Margin = $7,000,000/$25,000,000 = 0.28 or 28% 28%

Does GAAP required companies to report cost using the fair market value or historical vaule?

Historical

Which financial document reports the expenses for the company?

Income Statement

Which financial document reports the revenue for the company?

Income Statement

Which of the following is not a statistical forecasting method? Cross-sectional Judgmental Time Series Longitudinal data

Judgmental

In the percent-of-sales forecasting method, which balance sheet items are not assumed to increase proportionately with sales? Long-term debt Inventories Accounts Receivable Accounts Payable

Long-term debt

Which forecasting method involves repeated observations of the same variables over long periods of time—often many decades? Time series Cross-sectional Longitudinal Judgemental Intuitive

Longitudinal

Using the DuPont System Determine the ROA for the year. Sales = 30,000 Total Assets = 9,900 Net Income = 1,000

Net Profit Margin = 1,000/30,000 = 3.33% Total Asset Turnover = 30,000/9,900 = 3.03 ROA = 3.33 x 3.03 = 10.089 10.09% is the ROA

Using the DuPont System Determine the ROA for the year. Sales = 28,000 Total Assets = 9,000 Net Income = 750

Net Profit Margin = 750/28,000 = 2.68% Total Asset Turnover = 28,000/9,000 = 3.11 ROA = 2.68 x 3.11 = 8.33 8.33% is the ROA

What items are directly controlled by the volume of sales or production; Spontaneous Assets or Spontaneous Liabilities?

Spontaneous Liabilities

Which method is a subset of the population that may be calculated, but cannot be used to represent the whole population? Probability sample Dow Jones Index Nonprobability sample

Nonprobability sample

During a fiscal year, a company has $20,000,000 in revenue. Its operating expenses are $17,000,000. What is the company's operating margin? 0.13 0.73 0.15 0.85

Operating margin = EBIT/Revenue. We calculate EBIT = Revenue - Operating expenses = $20,000,000 - $17,000,000 = $3,000,000. Hence, Operating Margin = $3,000,000/$20,000,000 = 0.15 0.15

How does the cash flow statement breakdown the flow of cash for the company? Operating, Investing and Financing Investing, Assets and Liabilities Financing, Inventory and Sales Sales, Inventory and Investing

Operating, Investing and Financing

What is the present value of $100,000 that will be received 5 years from today if you face a 10% compound interest rate every year (rounded up to the nearest dollar)? $52,092 $62,092 $82,092 $72,092

PV = $100,000/(1.105) = $62,092 Using Calculator: N = 5, I/Y = 10, FV = 100,000. [CPT] PV = $62,092 $62,092

You own a perpetuity that pays $1000 in the first year. It has a 5% annual interest rate and a 2% annual growth rate. What is the present value of the perpetuity? $33,333 $50,000 $14,286 $20,000

PVGP = A1/(i - g) = $1000/(0.05 - 0.02) = $33,333 $33,333

What is a disadvantage of a partnership? a. Filing taxes is overly complicated. b. Making business decisions involves a board. c. Owners must publish financial statements. d. Personal assets of owners are not protected.

Personal assets of owners are not protected.

What are the three central components of business ethics? a. Personal, managerial, and organizational b. Moral, mission, and strategy c. Practical, tangible, and intangible d. Personal, professional, and corporate

Personal, professional, and corporate

What kind of stocks are these? 1. stock with dividends 2. usually fixed dividends 3. paid out of profits 4. has priority to common stock in liquidation 5. form of equity security 6. commonly referred to as shares 7. equity security with both equity and debt 8. considered to be a hybrid instrument

Preferred Stock

What items typically increase when the cost of good solds increases; Spontaneous Assets or Spontaneous Liabilities?

Spontaneous Liabilities

What are the assets of a company that are accumulated automatically as a result of the firm's day-to-day business?

Spontaneous assets

A company issues a bond with the provision that it may pay off the debt early. Which type of risk is this bond subject to? Asset-backed risk Prepayment risk. Model risk. Foreign investment risk

Prepayment risk.

What is this list? 1. conflicts between managers, shareholders and bondholders 2. managers control the corporation while share and bondholders are creditors 3. Shareholders take on riskier projects than bondholders do 4. Share and bondholders want more dividends payout 5. managers prefer risk-averse and empire building projects

Principal-Agent Problems

What is the technique of studying a population subset in which the likelihood of getting any particular subset may be calculated? Probability sample Dow Jones Index Nonprobability sample

Probability sampling

A company has $750,000 in cash, $200,000 in marketable securities and $300,000 worth of accounts receivable. Its current assets are worth $1,500,000 and its current liabilities are $1,000,000. What is the company's quick ratio? 1.3 1.25 1.05 1.5

Quick ratio = (CA - Inv)/CL. Since we are given all the current assets except for the Inventory, then (CA - Inv) = $750,000 + $200,000 + $300,000 = $1,250,000 and Quick Ratio = $1,250,000/$1,000,000 = 1.25 1.25

A company had $5,000,000 in total revenues for its fiscal year. Its expenses for the year were $3,500,000. Its total assets were $12,500,000. What is the company's return on assets for the fiscal year? 0.12 0.4 0.7 0.28

ROA = NI/TA. NI = $5,000,000 - $3,500,000 = $1,500,000. Hence, ROA = $1,500,000/$12,500,000 = 0.12 0.12

Last year T&J Inc. reported total assets of $250 million, equity of $120 million, net income of $50 million, dividends of $15 million, and retained earnings of $35 million. What is T&J Inc.'s sustainable growth rate? 12.50% 41.67% 29.17% 20.00%

SGR = ROE (1-b) = (50/120) x [1- (15/50)] = 29.17% 29.17%

Suppose a firm has a net profit margin of 15%, sales of $155 million, assets of $312 million, and owner's equity of $223 million. If the dividend payout ratio is 10%, what is the firm's sustainable growth rate? 10.43% 13.5% 7.45% 9.38%

SGR = ROE (1-b) = [0.15 x (155/312) x (312/223)] x (1-0.1) = 9.38% 9.38%

What can help provide financing for a company?

Selling shares of stock

Which type of interest means that you earn interest only on the principal?

Simple interest

What type of funds are these? 1. callable bonds 2. a cost to creditors

Sinking Funds

What type of business would this describe? 1. does not require filing of articales of incorporation 2. does not require election of board 3. files taxes as personal income 4. no separation between owner and business 5. personally liable for losses 6. business ceases to exist when owner dies

Sole proprietorship

What items typically grow in proportion to sales such as AR and Inventory; Spontaneous Assets or Spontaneous Liabilities?

Spontaneous Assets

Which regulation's primary purpose is to ensure that buyers of securities receive complete and accurate information before they invest? Rule 144 Regulation S The Securities Exchange Act of 1934 The Securities Act of 1933

The Securities Act of 1933

How does GAAP require companies to account and report costs?

Using Historical Cost Principle

1. perfrom data analysis 2. advise senior managers on profit maximizing ideas 3. ensure the financial health of company 4. direct investment acitivites 5. advise on long-term financie strategies and goals 6. produce financial reports 7. produce forecasts 8. monitor financial details to ensure legal requirments are met 9. seek ways to reduce costs 10. analyze market trends to find opportunitites for expansion Are all roles of what?

The role of Financial managers

A portfolio has $70,000 of bonds and $30,000 of stock. The bonds are 80% likely to have a 10% return and 20% likely to have a 0% return. The stock is 50% likely to have a 20% return and 50% likely to have a 10% loss. What is the expected return? 5.9% 7.1% 13% 2.9%

The steps to calculate expected return are: Expected return on bonds = (80% × 10%) + (20% × 0) = 8% Expected return on stock = (50% × 20%) + (50% × -10%) = 5% Overall expected return = ( 70/100 × 8%) + (30/100 × 5%) = 7.1% 7.1%

According to the Insider Trading Act of 1988, the SEC is allowed to order a penalty of up to how much of the profit of the guilty parties? Four times the profit Five times the profit Three times the profit Six times the profit

Three times the profit

Of the options between which one is an example of the daily closing value of the Dow Jones index? Time series Cross-sectional Longitudinal Judgemental Intuitive

Time Series

An analysis comprises methods for analyzing this data in order to extract meaningful statistics and other characteristics of the data.

Time series

What type of risk can an investor reduce through the process of diversification? Unsystematic risk Uncertainty All risk can be reduced Systematic risk only

Unsystematic risk

Which answer best defines financial statements in general? a. A collection of reports that describes a company's financial activities to a third party b. An analysis of the flow of cash into and out of a business c. A detailed report of a company's income and expenses d. A listing of a company's assets and liabilities

a. A collection of reports that describes a company's financial activities to a third party

Which answer gives the best example of a factor that can be determined through an analysis of a company's financial statements? a. All of these answers b. The company's creditworthiness c. The company's profitability d. The accuracy of the company's tax returns

a. All of these answers

Which of the following is the correct order of how assets should be presented on a balance sheet? a. Cash; accounts receivable; inventory; property, plant, and equipment (PPE). b. Accounts receivable; cash; inventory property, plant, and equipment (PPE). c. Cash; inventory; accounts receivable; property, plant, and equipment (PPE). d. Cash; inventory; property, plant, and equipment (PPE); accounts receivable.

a. Cash; accounts receivable; inventory; property, plant, and equipment (PPE).

Financial Ratios help to identify some of the financial strengths and weaknesses of a company. What are two ways that the ratios provide for making meaningful comparisons of a firm's financial data? a. Examining ratios across time to identify trends and comparing the firm's ratios with those of other firms. b. Determining how long it takes to collect the firm's receivables and how long it takes to pay it accounts payables. c. Identifying year over year changes in balance sheet and income statement items. d. Smoothing out differences when comparing firms that use different accounting practices and restating accounting data in relative terms.

a. Examining ratios across time to identify trends and comparing the firm's ratios with those of other firms.

Which answer best summarizes why there may be a difference between a company's pretax income and taxable income? a. Pretax income is based on revenue recognition; taxable income is based on the company's cash flow. b. GAAP requires that companies use historical costs, while the tax code does not. c. The tax code requires full disclosure, GAAP does not. d. All of these answers are correct.

a. Pretax income is based on revenue recognition; taxable income is based on the company's cash flow.

Which statement accurately describes systematic risk? a. Systematic risk is what provides a stock's "risk premium." b. Systematic risk is uncertainty associated with a company or industry in which you invest. c. An example of a systematic risk is if you own stock in a company that has liquidity problems. d. By diversifying your stock portfolio, you can minimize systematic risk.

a. Systematic risk is what provides a stock's "risk premium."

Which of the following describes the relationship between present value and future value? a. When one increases, the other increases, assuming all variables are constant. b. The higher the interest rate, the higher the present value and the lower the future value. c. The more time that passes, the higher the present value and the lower the future value. d. When present value increases, the future value decreases, assuming all variables are constant.

a. When one increases, the other increases, assuming all variables are constant A higher cash flow today would result in a higher amount in the future and vice versa.

What are the stages of Ratio Analysis? a. gather data, calculate ratios, interpret results, take action b. gather data, take action, calculate ratios, interpret results c. gather data, calculate rations, take action, interpret results

a. gather data, caluclate ratios, interpret results and take action

Which option is an adequate method to reduce an investor's risk through diversification? a. Invest in the common stocks of the two companies that have performed the best in the last 5 years. b. Invest in a broad pool of US and international stocks and bonds. c. Invest in a small pool of stocks from companies in the same industry. d. Invest in a start-up business that has a broad ownership among a large number of investors.

b. Invest in a broad pool of US and international stocks and bonds.

Which of the following is an example of trend analysis? a. The company's current gross profit margin is compared with its gross profit margin from past years. b. The company's gross profit margin is compared with its industry's average profit margins. c. The company compares its current assets to its current liabilities.

b. The company's gross profit margin is compared with its industry's average profit margins.

Which answer gives a definition of finance? a. The process of evaluating financial risk b. The study of fund management and asset allocation over time c. A means for evaluating the time value of money d. Recording of all the financial transactions of the company

b. The study of fund management and asset allocation over time

What are the four basic components of a financial statement?

balance sheet, income statement, cash flow statement, and statement of changes in equity.

What is the process of determining how much a future cash flow is worth today?

discounting

Which statement regarding financial forecasting is correct? a. Forecasting is straightforward and does not require making many assumptions. b. Only a cash budget is needed to prepare a financial forecast. c. The most difficult aspect of preparing a financial forecast is predicting revenue. d. Strategic planners do not rely on financial forecasts to understand the possible outcomes from different investment options.

c. The most difficult aspect of preparing a financial forecast is predicting revenue.

Which financial document is useful in determining the short-term viability of a company?

cash flow statement

Which type of interest is preferred simple or compound?

compound

1. controlling bad debt and expenses 2. maintinaing strong cash flows through efficient collections. Are the roles of what?

credit managers:

Which forecasting method refers to data collected by observing many subjects at the same point of time, or without regard to differences in time? Time series Cross-sectional Longitudinal Judgemental Intuitive

cross-sectional data

Which prediction based on a description of the yield curve is not correct? a. A normal yield curve suggests that interest rates will be raised in the future. b. An inverted yield curve suggests that interest rates will be dramatically cut. c. A flat yield curve suggests that interest rates will be cut. d. A normal yield curve suggests that interest rates will remain the same in the future.

d. A normal yield curve suggests that interest rates will remain the same in the future.

Which description accurately describes a primary market? a. A primary market is often referred to as a "stock market". b. Securities start trading in primary market venues including the New York Stock Exchange and Nasdaq. c. A primary market is where investors purchase assets from other investors. d. A primary market refers to the market where securities are created.

d. A primary market refers to the market where securities are created.

Which answer does not describe a step in constructing a multi-step income statement? a. Subtract operating expenses from gross profit to determine income from operations. b. Subtract non-operating expenses from income from operations. c. Subtract income tax expense from income before taxes. d. Add all revenues, then subtract all expenses.

d. Add all revenues, then subtract all expenses.

You are considering investing in the common stock of a major US Corporation. Which answer is an example of systematic risk? a. Risk related to an impending lawsuit against the company b. Risk related to the possibility of foreign expropriation of the company's property c. Risk resulting from general unrest in the company's labor force d. Risk resulting from a general decline in the US stock markets

d. Risk resulting from a general decline in the US stock markets

A company has $100,000 in cash, $300,000 in accounts receivable, $50,000 in inventory and a $300,000 office building. Its current liabilities are $250,000. What is the company's current ratio, and does that ratio show good short-term financial strength? a. The current ratio is 3, and the ratio indicates good short-term financial strength. b. The current ratio is 3, and the ratio indicates poor short-term financial strength. c. The current ratio is 1.8, and the ratio indicates poor short-term financial strength. d. The current ratio is 1.8, and the ratio indicates good short-term financial strength.

d. The current ratio is 1.8, and the ratio indicates good short-term financial strength. Current ratio = CA/CL. CA = $100,000 + $300,000 + $50,000 = $450,000. (Note: office building is a Fixed Asset). Current ratio = $450,000/$250,000 = 1.8. The firm has $1.80 in current assets for every $1 it owes in current liability so this reflects good short-term financial strength.

Which concept describes the underlying driver behind all finance? a. Profit b. Fund management and asset allocation c. Risk d. Time

d. time

You earn 5% of your principal each year, or $5 a year. Your balance will go up linearly each year. Which type of interest is this an example of?

simple

Your total balance will go up each period, but the interest is paid only on the amount you originally borrowed/deposited. Which type of interest is this an example of?

simple