FIN 4220 Exam 1

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

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

Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What annually compounded rate of interest must you earn to cover the cost of your child's college education?

5.61%

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes?

Interest expense

The controller, rather than the treasurer, is typically responsible for which function?

Processing cost reports

The controller, rather than the treasurer, is typically responsible for which one of the following functions?

Processing cost reports

When preparing pro forma statements, which one of the following is an analyst most likely to estimate first?

Projected sales

Shareholders can replace company management by implementing:

A proxy fight

Which one of the following is a source of cash for a tax-exempt firm?

Increase in common stock

Which one of the following is excluded from a firm's accounting value, but included in its market value?

Recognition of the firm's brand

Graham Auto Parts has current sales of $42,700, EBIT of $9,700, net income of $6,600, interest expense of $1,360, and dividends paid of $1,925. Assume the net profit margin, debt-equity ratio, and dividend payout ratio are held constant. Sales are expected to increase by $8,000 next year. What is the projected change to retained earnings for next year?

$5,551

Assume a supplier requires payment within 15 days. When granting credit, the supplier should be most concerned with which one of the following ratios? A) Cash B) Current C) Debt-equity D) Net profit margin E) Return on assets

A) Cash

Selio Home Services combines the investment proposals from each operational unit into one single project for planning purposes. This process is referred to as:

Aggregation

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

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

Which one of the following statements is correct? A) A general partnership is a legal person. B) Taxable income earned by a partnership is treated as individual income. C) Partnerships are the most complicated type of business to form. D) All partnerships are required to have at least one limited partner. E) Only firms organized as partnerships have limited lives.

B) Taxable income earned by a partnership is treated as individual income.

The book value of a firm is:

Based on historical transactions

The DuPont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generated per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner? A) I and III only B) II and IV only C) I, II, and III only D) II, III and IV only E) I, II, III, and IV

C) I, II, and III only

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

Common base-year statement

Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from:

Compounding

Agency problems are most likely to be associated with:

Corporations

Bowman's Boats has an interval measure of 53. This means that the firm has sufficient liquid assets to :

Cover its operating costs for the next 53 days.

What is the formula for Net Working Capital?

Current Assets - Current Liabilities

Which one of the following is excluded from a firm's accounting value, but included in its market value? A) Real estate purchased by the firm B) Equipment owned by the firm C) Money due from a customer D) Recognition of the firm's brand E) An item held by the firm for future sale

D) Recognition of the firm's brand

On the statement of cash flows, which one of the following is considered an operating activity?

Decrease in accounts payable

Assuming a firm earns taxable income, an increase in ______ will cause the cash flow from assets to increase.

Depreciation expense

The articles of incorporation:

Describe the purpose of the firm and set forth the number of shares of stock that can be issued.

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:

Discount rate

When compiling a pro forma statement, which policy most directly affects the projection of the retained earnings account balance?

Dividend policy

On the statement of cash flows, which one of the following is considered a financing activity? A) Increase in inventory B) Decrease in accounts payable C) Increase in net working capital D) Dividends paid E) Decrease in fixed assets

Dividends paid

Parsa's Organics currently has $56 in debt for every $100 in equity. If the company were to use some of its cash to decrease its debt, while maintaining its current equity and net income, which one of the following would decrease?

Equity multiplier

Barker Fabricating is operating at 79 percent capacity and earning a substantial profit. An increase in sales is least likely to increase the firm's:

Fixed assets

Which one of the following determines the standards and procedures with which audited financial statements are prepared? A) Generally Accepted Accounting Principles (GAAP) B) Matching principle C) Cash Flow Identity D) Financial Accounting Reporting Principles E) Standard Accounting Value Guidelines

Generally Accepted Accounting Principles (GAAP)

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

Has an equity multiplier of 1.0

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

Which one of the following statements related to an income statement is correct? A) Interest expense increases the amount of tax due. B) Depreciation does not affect taxes since it is a noncash expense. C) Net income is distributed to dividends and paid-in surplus. D) Income taxes reduce both net income and operating cash flow. E) Interest expense is included in operating cash flow.

Income taxes reduce both net income and operating cash flow.

Which one of the following is a source of cash for a tax-exempt firm? A) Increase in accounts receivable B) Increase in depreciation C) Decrease in accounts payable D) Increase in common stock E) Increase in inventory

Increase in common stock

Net capital spending:

Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

Both Archer's and Burger Bar have price-earnings ratios of 16.2. However, Archer's has a higher PEG ratio than Burger Bar. It must be true that Archer's ______ than Burger Bar.

Is increasing its earnings at a slower rate

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Management greed and abuses.

A limited partnership:

Must have at least one general partner

A firm's ______ is the firm's mix of short-term assets and short-term liabilities.

Net Working Capital

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction:

Occurred in the secondary market

Shareholders' equity:

Represents the residual value of a firm.

A firm owned by a single person who has unlimited liability for the firm's debt is called a:

Sole proprietorship

The coding system established by the U.S. government to classify companies by the nature of their business operations is known as the:

Standard Industrial Classification codes.

When evaluating the timing of a project's projected cash flows, a financial manager is analyzing:

When each cash flow is expected to occur.