Fin ch 4-6

You just paid $750,000 for an annuity that will pay you and your heirs $36,000 a year forever. What rate of return are you earning on this policy? A. 4.75 percent B. 5.10 percent C. 5.33 percent D. 4.80 percent E. 4.72 percent

D. 4.80 percent

DLM preferred stock has a 5.8 percent dividend yield. The stock is currently priced at $36.20 per share. What is the amount of the annual dividend? A. $2.30 B. $2.35 C. $2.40 D. $2.10 E. $1.90

D. $2.10

30. This morning, DJ's invested $238,000 to help fund a company expansion project planned for three years from now. How much additional money will the firm have three years from now if it can earn 4 percent rather than 3.5 percent on its savings? A. $3,940.09 B. $3,842.78 C. $4,008.17 D. $4,219.68 E. $3,711.08

$3,842.78

Suppose the first comic book of a classic series was sold in 1954. In 2015, the estimated price for this comic book in good condition was about $310,000. This represented a return of 22 percent per year. For this to be true, what was the original price of the comic book in 1954? A. $.75 B. $.50 C. $1.33 D. $1.67 E. $1.40

1.67

A Canadian consol is best categorized as: A. An ordinary annuity. B. An amortized cash flow. C. An annuity due. D. A discounted loan. E. A perpetuity.

A perpetuity

On the day you entered college, you borrowed $25,000 on an interest-only, four-year loan at 4.75 percent from your local bank. Payments are to be paid annually. What is the amount of your loan payment in year 2? A. $1,187.50 B. $1,890.00 C. $7,009.40 D. $5,106.67 E. $6,250.00

A. $1,187.50

You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings? Today's deposit is the only deposit you will make to this savings account. A. $1,256.43 B. $891.18 C. $1,124.60 D. $945.11 E. $1,219.02

A. $1,256.43

Theresa adds $1,500 to her savings account on the first day of each year. Marcus adds $1,500 to his savings account on the last day of each year. They both earn 6.5 percent annual interest. What is the difference in their savings account balances at the end of 35 years? A. $12,093 B. $12,113 C. $12,127 D. $12,211 E. $12,219

A. $12,093

Island News purchased a piece of property for $1.36 million. The firm paid a down payment of 12 percent in cash and financed the balance. The loan terms require monthly payments for 10 years at an annual percentage rate of 4.75 percent, compounded monthly. What is the amount of each mortgage payment? A. $12,548.18 B. $13,419.97 C. $13,607.11 D. $14,878.15 E. $12,301.16

A. $12,548.18

You just signed a consulting contract that will pay you $38,000, $52,000, and $85,000 annually at the end of the next three years, respectively. What is the present value of these cash flows given a discount rate of 10.5? A. $139,975 B. $148,307 C. $154,880 D. $157,131 E. $162,910

A. $139,975

Trish receives $450 on the first of each month. Josh receives $450 on the last day of each month. Both Trish and Josh will receive payments for next four years. At a discount rate of 9.5 percent, what is the difference in the present value of these two sets of payments? A. $141.80 B. $151.06 C. $154.30 D. $159.08 E. $162.50

A. $141.80

This morning, you borrowed $13,400 at a 6.9 percent annual interest rate. You are to repay the loan principal plus all of the loan interest in one lump sum three years from today. How much will you have to repay? A. $16,369.59 B. $17,808.13 C. $15,313.00 D. $15,324.60 E. $16,441.20

A. $16,369.59

You collect old coins. Today, you have two coins each of which is valued at $100. One coin is expected to increase in value by 5.2 percent annually while the other coin is expected to increase in value by 5 percent annually. What will be the difference in the value of the two coins 25 years from now? A. $16.50 B. $18.04 C. $41.79 D. $54.24 E. $30.15

A. $16.50

You are scheduled to receive annual payments of $3,600 for each of the next 12 years. The discount rate is 8 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year? A. $2,170.39 B. $2,511.07 C. $2,021.18 D. $2,027.94 E. $2,304.96

A. $2,170.39

What is the present value of $42,000 to be received 22 years from today if the discount rate is 14 percent? A. $2,351.49 B. $3,147.07 C. $2,841.41 D. $1,806.18 E. $2,291.06

A. $2,351.49

You would like to establish a trust fund to provide $140,000 a year forever for your heirs. The expected rate of return is 5.45 percent. How much money must you deposit today to fund this gift? A. $2,568,807 B. $2,521,212 C. $2,600,000 D. $2,458,122 E. $2,500,000

A. $2,568,807

Your grandfather left you an inheritance that will provide an annual income for the next 20 years. You will receive the first payment one year from now in the amount of $16,500. Every year after that, the payment amount will increase by 5 percent. What is your inheritance worth to you today if you can earn 7.5 percent on your investments? A. $247,750 B. $286,667 C. $231,211 D. $354,612 E. $308,974

A. $247,750

You are buying a pre-owned car today at a price of $8,500. You are paying $300 down in cash and financing the balance for 36 months at 7.75 percent. What is the amount of each monthly loan payment? A. $256.01 B. $312.23 C. $318.47 D. $265.37 E. $284.40

A. $256.01

Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses. The account pays .45 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next four years? A. $26,187.10 B. $26,847.15 C. $25,068.00 D. $27,319.54 E. $26,069.79

A. $26,187.10

Baked at Home Cookies expects sales of $672,500 next year. The profit margin is 4.6 percent and the firm has a 15 percent dividend payout ratio. What is the projected increase in retained earnings? A. $26,294.75 B. $17,500.50 C. $4,640.25 D. $20,640.25 E. $30,935.00

A. $26,294.75

Your parents have made you two offers. The first offer includes annual gifts of $10,000, $11,000, and $12,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 8 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? A. $28,216 B. $29,407 C. $29,367 D. $30,439 E. $30,691

A. $28,216

Your employer contributes $60 a week to your retirement plan. Assume you work for your employer for another 20 years and the applicable discount rate is 9 percent. Given these assumptions, what is this employee benefit worth to you today? A. $28,927.38 B. $27,618.46 C. $29,211.11 D. $25,306.16 E. $25,987.74

A. $28,927.38

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 Assume this firm is operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent? A. $33,600 B. $33,412 C. $38,101 D. $37,968 E. $42,148

A. $33,600

Today, you earn a salary of $28,000. What will be your annual salary 12 years from now if you earn annual raises of 2.6 percent? A. $38,100.12 B. $37,414.06 C. $38,235.24 D. $37,122.08 E. $36,736.00

A. $38,100.12

Racing Engines wants to save $750,000 to buy some new equipment four years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. The firm can earn 4.75 percent on its savings. How much does the firm have to save each quarter to achieve its goal? A. $42,337.00 B. $42,969.70 C. $43,192.05 D. $43,419.29 E. $43,911.08

A. $42,337.00

Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 13.5 percent, what is the maximum Southern Tours should pay today to acquire Holiday Vacations? A. $503,098 B. $538,615 C. $545,920 D. $601,226 E. $638,407

A. $503,098

On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 5.25 percent. The loan is to be repaid in equal monthly payments over 15 years. All taxes and insurance premiums are to be paid separately. The first payment is due on July 1. How much of the first payment applies to the principal balance? A. $714.43 B. $721.14 C. $658.56 D. $743.38 E. $756.70

A. $714.43

Your broker is offering 1.2 percent compounded daily on its money market account. If you deposit $7,500 today, how much will you have in your account 15 years from now? A. $8,979.10 B. $9,714.06 C. $8,204.50 D. $9,336.81 E. $9,414.14

A. $8,979.10

You just won the grand prize in a national writing contest! As your prize, you will receive $1,000 a month for 10 years. If you can earn 7 percent on your money, what is this prize worth to you today? A. $86,126.35 B. $78,411.06 C. $81,338.40 D. $85,333.33 E. $90,450.25

A. $86,126.35

What is the present value of $1,400 a year at a discount rate of 8 percent if the first payment is received 7 years from now and you receive a total of 23 annual payments? A. $9,149.74 B. $9,238.87 C. $9,333.33 D. $9,420.12 E. $9,881.72

A. $9,149.74

You are planning a special wedding three years from today. You don't know who your spouse will be but you do know that you are saving $25,000 today and $35,000 one year from today for this purpose. You also plan to pay the final $45,000 of costs on your wedding day. At a discount rate of 7 percent, what is the current cost of your special wedding? A. $94,444 B. $88, 800 C. $105,000 D. $85,711 E. $101,667

A. $94,444

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 Assume net working capital and all of this firm's costs increase directly with sales. Also assume the tax rate and the dividend payout ratios are constant. The firm is currently operating at full capacity. What is the external financing need if sales increase by 4 percent? A. -$1,908 B. -$804 C. -$397 D. $1,201 E. $1,344

A. -$1,908

The most recent financial data for Ocean Movers, Inc. is: Sales $19,700 Costs 15,250 Taxes 1,513 Net income 2,937 Current assets 3,018 Fixed assets 18,282 Current liabilities 2,940 Long-term debt 7,600 Equity 10,760 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. Next year's sales are projected to increase by 7 percent. What is the external financing need if the firm is currently operating at full capacity? A. -$286 B. -$141 C. $583 D. $912 E. $1,285

A. -$286

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 This firm is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent? A. -$323 B. -$467 C. $0 D. $108 E. $367

A. -$323

Urban's, which is currently operating at full capacity, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 3 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year? A. -$908.50 B. -$722.50 C. $967.30 D. $1,698.00 E. $1,512.00

A. -$908.50

Which one of the following capital intensity ratios indicates the smallest need for fixed assets per dollar of sales? A. .07 B. .86 C. .39 D. 1.00 E. 1.15

A. .07

What is the annual percentage rate on a loan with a stated rate of 2.75 percent per quarter? A. 11.00 percent B. 11.09 percent C. 11.18 percent D. 11.27 percent E. 11.31 percent

A. 11.00 percent

You are paying an effective annual rate of 15.33 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? A. 14.35 percent B. 13.90 percent C. 14.10 percent D. 13.75 percent E. 14.00 percent

A. 14.35 percent

Your father helped you start saving $20 a month beginning on your fifth birthday. He always made you deposit the money into your savings account on the first day of each month just to "start the month out right." Today completes your 17th year of saving and you now have $6,528.91 in this account. What is the rate of return on your savings? A. 5.15 percent B. 5.30 percent C. 5.47 percent D. 5.98 percent E. 6.12 percent

A. 5.15 percent

(Income Statement) For the Year Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 The firm does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm's maximum rate of growth? A. 5.81 percent B. 6.18 percent C. 5.49 percent D. 6.03 percent E. 5.97 percent

A. 5.81 percent

You have just purchased a new warehouse. To finance the purchase, you arranged for a 30-year mortgage loan for 65 percent of the $2.5 million purchase price. The monthly payment on this loan will be $10,400. What is the effective annual rate on this loan? A. 6.82 percent B. 6.25 percent C. 6.46 percent D. 7.01 percent E. 7.27 percent

A. 6.82 percent

First City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.65 percent annual percentage rate on its loans. What is the maximum rate the bank can actually earn based on the quoted rate? A. 7.95 percent B. 8.14 percent C. 8.21 percent D. 7.78 percent E. 7.87 percent

A. 7.95 percent

You have been investing $250 a month for the last 13 years. Today, your investment account is worth $73,262. What is your average rate of return on your investments? A. 8.94 percent B. 9.23 percent C. 9.36 percent D. 9.41 percent E. 9.78 percent

A. 8.94 percent

You want to borrow $38,400 and can afford monthly payments of $960 for 48 months, but no more. Assume monthly compounding. What is the highest APR rate you can afford? A. 9.24 percent B. 8.67 percent C. 8.82 percent D. 9.01 percent E. 9.18 percent

A. 9.24 percent

Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at year 5 and an annual percentage rate of 10 percent? A. Annual. B. Semiannual. C. Monthly. D. Daily. E. Continuous.

A. Annual

The interest rate that is most commonly quoted by a lender is referred to as which one of the following? A. Annual percentage rate. B. Compound rate. C. Effective annual rate. D. Simple rate. E. Common rate.

A. Annual percentage rate.

Amortized loans must have which one of these characteristics? A. Either equal or unequal principal payments over the life of the loan. B. One lump-sum principal payment. C. Increasing payments over the life of the loan. D. Equal interest payments over the life of the loan. E. Declining periodic payments.

A. Either equal or unequal principal payments over the life of the loan.

Which one of the following terms is applied to the financial planning method that uses the projected sales level as the basis for determining changes in balance sheet and inc statement account values? A. Percentage of sales method B. Sales dilution method C. Sales reconciliation method D. Common-size method E. Trend method

A. Percentage of sales method

Which one of the following terms can be defined as the net income that a firm reinvests in itself? A. Retention ratio B. Dividend yield C. Dividend payout ratio D. Internal growth rate E. Cash plowback

A. Retention ratio

The external financing need: A. Will limit growth if unfunded. B. Is unaffected by the dividend payout ratio. C. Must be funded by long-term debt. D. Ignores any changes in retained earnings. E. Considers only the required increase in fixed assets.

A. Will limit growth if unfunded.

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? A. Future value. B. Present value. C. Principal amounts. D. Discounted value. E. Invested principal.

A. future value

You are going to loan a friend $6,000 for one year at an interest rate of 4.5 percent, compounded annually. How much additional interest could you have earned if you had compounded the rate continuously rather than annually? A. $5.84 B. $.6.17 C. $6.10 D. $5.93 E. $6.28

B. $.6.17

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 11 percent. What is the external financing needed? A. $896 B. $1,646 C. $972 D. -$145 E. -$768

B. $1,646

Sue plans to save $4,500, $0, and $5,500 at the end of each of the next three years, respectively. What will her investment account be worth at the end of the third year if she earns an annual rate of 4.15 percent? A. $10,528.12 B. $10,381.25 C. $9,907.11 D. $11,526.50 E. $10,812.07

B. $10,381.25

Suppose you are committed to owning a $195,000 Ferrari. You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years. How much must you invest today to fund this purchase assuming the price of the car remains constant? A. $124,208.16 B. $113,780.63 C. $87,911.08 D. $98,019.82 E. $109,446.60

B. $113,780.63

You have your choice of two investment accounts. Investment A is a five-year annuity that features end-of-month $2,500 payments and has an interest rate of 11.5 percent compounded monthly. Investment B is a 10.5 percent continuously compounded lump sum investment, also good for five years. How much would you need to invest in B today for it to be worth as much as investment A five years from now? A. $108,206.67 B. $119,176.06 C. $124,318.08 D. $129,407.17 E. $131,008.15

B. $119,176.06

Western Bank offers you a $10,000, 6-year term loan at 7 percent annual interest. What is the amount of your annual loan payment? A. $1,883.33 B. $2,097.96 C. $2,066.67 D. $1,901.18 E. $1,811.07

B. $2,097.96

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is currently operating at 88 percent of capacity. The profit margin and the dividend payout ratio are projected to remain constant. Sales are projected to increase by 6 percent next year. What is the projected addition to retained earnings for next year? A. $2,309 B. $2,152 C. $1,890 D. $2,705 E. $3,074

B. $2,152

You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments? A. $18,388.19 B. $20,270.17 C. $28,417.67 D. $29,311.13 E. $32,488.37

B. $20,270.17

Travis invested $8,250 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? A. $341.41 B. $296.44 C. $302.16 D. $266.67 E. $258.09

B. $296.44

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 Assume this firm is currently operating at 98 percent of capacity and that sales are projected to increase to $35,000. What is the projected addition to fixed assets? A. $0 B. $3,511 C. $2,629 D. $580 E. $1,688

B. $3,511

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 Assume this firm is operating at full capacity. Also assume that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma accounts payable value for next year if sales are projected to increase by 7.5 percent? A. $3,650 B. $3,924 C. $4,121 D. $4,248 E. $4,810

B. $3,924

You just settled an insurance claim. The settlement calls for increasing payments over a five-year period. The first payment will be paid one year from now in the amount of $7,000. The following payments will increase by 3.5 percent annually. What is the value of this settlement to you today if you can earn 6.5 percent on your investments? A. $36,408.28 B. $31,063.79 C. $42,023.05 D. $34,141.14 E. $28,008.16

B. $31,063.79

You are the recipient of a gift that will pay you $25,000 one year from now and every year thereafter for the following 24 years. The payments will increase in value by 2.5 percent each year. If the appropriate discount rate is 8.5 percent, what is the present value of this gift? A. $416,667 B. $316,172 C. $409,613 D. $311,406 E. $386,101

B. $316,172

You estimate that you will owe $39,950 in student loans by the time you graduate. The interest rate is 3.75 percent. If you want to have this debt paid in full within 10 years, how much must you pay each month? A. $411.09 B. $399.74 C. $414.28 D. $436.05 E. $442.50

B. $399.74

This morning, you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The loan is to be repaid in equal monthly payments over 20 years with the first payment due one month from today. Assume each month is equal to 1/12 of a year and all taxes and insurance premiums are paid separately. How much of the second payment applies to the principal balance? A. $568.84 B. $426.11 C. $424.57 D. $587.25 E. $585.71

B. $426.11

The most recent financial data for Porter's Corner is: Sales $4,650 Costs 4,160 Net income 490 Assets 5,820 Debt 2,760 Equity 3,060 Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $5,487. What is the amount of the external financing needed? A. -$28 B. $469 C. $611 D. $1,048 E. $823

B. $469

You are considering a project that will provide annual cash inflows of $16,500, $25,700, and $18,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a discount rate of 12.5 percent? A. $54,877 B. $47,615 C. $55,429 D. $46,388 E. $53,567

B. $47,615

Your older sister deposited $2,000 today at 6.5 percent interest for five years. You would like to have just as much money at the end of the next five years as your sister will have. However, you can only earn 6 percent interest. How much more money must you deposit today than your sister did if you are to have the same amount at the end of the five years? A. $32.19 B. $47.62 C. $38.78 D. $40.21 E. $53.39

B. $47.62

Your car dealer is willing to lease you a new car for $190 a month for 36 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 6.5 percent, what is the current value of the lease? A. $10,331.03 B. $6,232.80 C. $9,197.74 D. $7,203.14 E. $11,008.31

B. $6,232.80

Your grandmother is gifting you $150 a month for four years while you attend college to earn your bachelor's degree. At a 4.8 percent discount rate, what are these payments worth to you on the day you enter college? A. $6,201.16 B. $6,539.14 C. $5,589.19 D. $6,608.87 E. $6,870.23

B. $6,539.14

The Distribution Point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5 percent compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years? A. $70,459.07 B. $67,485.97 C. $69,068.18 D. $69,333.33 E. $67,233.84

B. $67,485.97

Travis International has a one-time expense of $2.86 million that must be paid three years from now. Since the firm cannot raise that amount in one day, it wants to save an equal amount each month over the next three years to fund this expense. If the firm can earn 2.1 percent on its savings, how much must it save each month? A. $78,416.20 B. $77,037.69 C. $91,300.05 D. $87,411.08 E. $73,901.15

B. $77,037.69

What is the future value of $12,000 a year for 40 years at 11.5 percent interest? A. $8,278,406 B. $8,014,195 C. $7,711,414 D. $7,989,476 E. $8,021,223

B. $8,014,195

At 6 percent interest, how long would it take to quadruple your money? A. 26.55 years B. 16.64 years C. 18.87 years D. 23.79 years E. 20.01 years

D. 23.79 years

You have just received notification that you have won the $1.25 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 76 years from now. The appropriate discount rate is 6.8 percent. What is the present value of your winnings? A. $11,288.16 B. $8,423.54 C. $5,309.91 D. $13,333.33 E. $12,500.00

B. $8,423.54

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 This firm is currently operating at 84 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent? A. -$810 B. -$912 C. -$642 D. $264 E. $358

B. -$912

Leon's has a total asset turnover of 1.46 percent, a profit margin of 8 percent, an equity multiplier of 1.2, and a dividend payout ratio of 32 percent. What is the sustainable growth rate? A. 10.30 percent B. 10.53 percent C. 10.67 percent D. 10.89 percent E. 11.01 percent

B. 10.53 percent

Jogging Gear is considering a project with an initial cash requirement of $238,400. The project will yield cash flows of $4,930 monthly for 65 months. What is the rate of return on this project? A. 9.97 percent B. 11.38 percent C. 14.28 percent D. 13.41 percent E. 10.56 percent

B. 11.38 percent

What is the effective annual rate of 11.9 percent compounded continuously? A. 12.72 percent B. 12.64 percent C. 13.43 percent D. 12.89 percent E. 12.68 percent

B. 12.64 percent

Your credit card company charges you 1.65 percent interest per month. What is the annual percentage rate on your account? A. 18.95 percent B. 19.80 percent C. 20.90 percent D. 21.25 percent E. 21.70 percent

B. 19.80 percent

When planning for the long run, the planning horizon is usually a period of: A. 5 to 10 years. B. 2 to 5 years. C. 1 to 3 years. D. 3 to 7 years. E. 5 years or more.

B. 2 to 5 years.

Your local pawn shop loans money at an annual rate of 23 percent and compounds interest weekly. What is the actual rate being charged on these loans? A. 25.16 percent B. 25.80 percent C. 26.49 percent D. 26.56 percent E. 26.64 percent

B. 25.80 percent

You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 5.9 percent. You plan to make payments of $250 a month on this debt. How many fewer payments will you have to make to pay off this debt if you transfer the balance to the new card? A. 2.36 payments B. 3.05 payments C. 3.10 payments D. 2.79 payments E. 2.86 payments

B. 3.05 payments

You grandfather invested $20,000 years ago to provide annual payments of $750 a year to his heirs forever. What is the rate of return? A. 4.75 percent B. 3.75 percent C. 4.10 percent D. 4.25 percent E. 4.33 percent

B. 3.75 percent

MBM estimates its expansion cost at $18.63 million and wants it fully funded upfront. Management has decided to save $1.1 million a quarter for this purpose. The firm earns 6.25 percent, compounded quarterly, on its savings. How long does the firm have to wait before expanding its operations? A. 3.09 years B. 3.79 years C. 4.46 years D. 4.82 years E. 4.91 years

B. 3.79 years

Basic Motors has a profit margin of 5.6 percent, a total asset turnover of 1.76, a total debt ratio of .2, and a dividend payout ratio of .7. What is the sustainable growth rate? A. 4.68 percent B. 3.84 percent C. 2.12 percent D. 3.49 percent E. 4.41 percent

B. 3.84 percent

Assume the average vehicle selling price in the United States last year was $35,996. The average price 4 years earlier was $29,208. What was the annual increase in the selling price over this time period? A. 3.89 percent B. 5.36 percent C. 4.56 percent D. 6.01 percent E. 5.40 percent

B. 5.36 percent

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm maintains a constant payout ratio and is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing? A. 4.74 percent B. 5.43 percent C. 3.06 percent D. 5.58 percent E. 5.16 percent

B. 5.43 percent

Today, you turn 23. Your birthday wish is that you will be a millionaire by your 40th birthday. In an attempt to reach this goal, you decide to save $75 a day, every day, until you turn 40. You open an investment account and deposit your first $75 today. What rate of return must you earn to achieve your goal? A. 7.67 percent B. 8.09 percent C. 9.90 percent D. 10.06 percent E. 10.54 percent

B. 8.09 percent

On this date last year, you borrowed $3,400. You have to repay the loan principal plus all of the interest six years from today. The payment that is required at that time is $6,000. What is the interest rate on this loan? A. 8.01 percent B. 8.45 percent C. 8.78 percent D. 9.47 percent E. 9.93 percent

B. 8.45 percent

Ten years ago, Jackson Supply set aside $130,000 in case of a financial emergency. Today, that account has increased in value to $330,592. What rate of interest is the firm earning on this money? A. 8.80 percent B. 9.78 percent C. 10.75 percent D. 11.28 percent E. 11.53 percent

B. 9.78 percent

Wood Refinishers currently has $298,900 in sales and is operating at 86 percent of the firm's capacity. The dividend payout ratio is 40 percent and cost of goods sold is $211,300. What is the full capacity level of sales? A. $245,697.67 B. $208,534.88 C. $347,558.14 D. $211,300.00 E. $254,500.00

C. $347,558.14

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

B. A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments given equal discount rates.

On your ninth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today? A. Age 29 B. Age 30 C. Age 31 D. Age 32 E. Age 21

B. Age 30

Atlas Industries combines the smaller investment proposals from each operational unit into a single project for planning purposes. This process is referred to as which one of the following? A. Conjoining B. Aggregation C. Conglomeration D. Appropriation E. Summation

B. Aggregation

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis. A. Interest-only loan. B. Amortized loan with equal principal payments. C. Amortized loan with equal loan payments. D. Discount loan. E. Balloon loan where 50 percent of the principal is repaid as a balloon payment.

B. Amortized loan with equal principal payments.

Your credit card charges you 1.5 percent interest per month. This rate when multiplied by 12 is called the: A. Effective annual rate. B. Annual percentage rate. C. Periodic interest rate. D. Compound interest rate. E. Period interest rate.

B. Annual percentage rate.

Christina invested $3,000 five years ago and earns 2 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following? A. Simplifying. B. Compounding. C. Aggregation. D. Accumulation. E. Discounting.

B. Compounding.

40. A Procrustes approach to financial planning is based on: A. A policy of producing a financial plan once every five years. B. Developing a plan around the goals of senior managers. C. A proactive approach to the economic outlook. D. A flexible capital budget. E. A flexible capital structure.

B. Developing a plan around the goals of senior managers.

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: A. Growth analysis. B. Discounting. C. Accumulating. D. Compounding. E. Reducing.

B. Discounting.

Which one of the following statements concerning financial planning for a firm is correct? A. Financial planning for fixed assets is done on a segregated basis within each division. B. Financial plans often contain alternative options based on economic developments. C. Financial plans frequently contain conflicting goals. D. Financial plans assume that firms obtain no additional external financing. E. The financial planning process is based on a single set of economic assumptions.

B. Financial plans often contain alternative options based on economic developments.

Phillippe invested $1,000 10 years ago and expected to have $1,800 today. He has not added or withdrawn any money from this account since his initial investment. All interest was reinvested in the account. As it turns out, he only has $1,680 in his account today. Which one of the following must be true? A. He earned simple interest rather than compound interest. B. He earned a lower interest rate than he expected. C. He did not earn any interest on interest as he expected. D. He ignored the Rule of 72 which caused his account to decrease in value. E. The future value interest factor turned out to be higher than he expected.

B. He earned a lower interest rate than he expected.

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by one year and graduate two years from now? A. Remains constant. B. Increases. C. Decreases. D. Becomes negative. E. Cannot be determined from the information provided.

B. Increases.

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by: A. Accounts payable. B. Long-term debt. C. Fixed assets. D. Retained earnings. E. Common stock.

B. Long-term debt.

An amortized loan: A. Requires the principal amount to be repaid in even increments over the life of the loan. B. May have equal or increasing amounts applied to the principal from each loan payment. C. Requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term. D. Requires that all payments be equal in amount and include both principal and interest. E. Repays both the principal and the interest in one lump sum at the end of the loan term.

B. May have equal or increasing amounts applied to the principal from each loan payment.

Four years ago, Seegee invested $500. Three years ago, Trek invested $600. Today, these two investments are each worth $800. Assume each account continues to earn its respective rate of return. Which one of the following statements is correct concerning these investments? A. Three years from today, Trek's investment will be worth more than Seegee's. B. One year ago, Seegee's investment was worth less than Trek's investment. C. Trek earns a higher rate of return than Seegee. D. Trek has earned an average annual interest rate of 9.86 percent. E. Seegee has earned an average annual interest rate of 12.64 percent.

B. One year ago, Seegee's investment was worth less than Trek's investment.

Which one of the following statements is correct? A. Pro forma statements must assume that no new equity is issued. B. Pro forma statements are projections, not guarantees. C. Pro forma statements are limited to a balance sheet and income statement. D. Pro forma financial statements must assume that no dividends will be paid. E. Net working capital needs are excluded from pro forma computations.

B. Pro forma statements are projections, not guarantees.

The plowback ratio is: A. Equal to net income divided by the change in total equity. B. The percentage of net income available to the firm to fund future growth. C. Equal to one minus the retention ratio. D. The change in retained earnings divided by the dividends paid. E. The dollar increase in net income divided by the dollar increase in sales.

B. The percentage of net income available to the firm to fund future growth.

Which one of these is a requirement if the sustainable growth rate is to exceed the internal growth rate? A. Net working capital must be > $0. B. Total debt > $0. C. Dividend ratio = 0. D. Retention ratio = 0. E. Sales > Total assets.

B. Total debt > $0.

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

B. When comparing loans you should compare the effective annual rates.

You are preparing to make monthly payments of $75, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $10,000? A. 97 B. 102 C. 89 D. 102 E. 91

B/D 102

You want to buy a new sports car for $55,000. The contract is in the form of a 60-month annuity due at an APR of 6 percent, compounded monthly. What will be your monthly payment? A. $1,047.90 B. $1,053.87 C. $1,058.01 D. $1,063.30 E. $1,072.11

C. $1,058.01

You are borrowing money today at 8.48 percent, compounded annually. You will repay the principal plus all the interest in one lump sum of $12,800 two years from today. How much are you borrowing? A. $9,900.00 B. $10,211.16 C. $10,877.04 D. $11,401.16 E. $11,250.00

C. $10,877.04

Phil can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, how much can he afford to borrow to purchase a car? A. $11,750.00 B. $12,348.03 C. $11,697.88 D. $10,266.67 E. $10,400.00

C. $11,697.88

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 All of this firm's costs, net working capital, and fixed assets vary directly with sales. Sales are projected to increase by 4.8 percent. What is the pro forma net working capital for next year? A. $15,988 B. $16,684 C. $12,209 D. $17,878 E. $11,800

C. $12,209

Alex invested $10,500 in an account that pays 6 percent simple interest. How much money will he have at the end of four years? A. $12,650 B. $12,967 C. $13,020 D. $13,256 E. $13,500

C. $13,020

Your father invested a lump sum 33 years ago at 4.25 percent interest. Today, he gave you the proceeds of that investment which totaled $51,480.79. How much did your father originally invest? A. $5,929.47 B. $6,500.00 C. $13,035.72 D. $15,500.00 E. $11,999.45

C. $13,035.72

Imprudential, Inc. has an unfunded pension liability of $627 million that must be paid in 21 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. The relevant discount rate is 7.38 percent. What is the present value of this liability? A. $159,803,162 B. $171,438,907 C. $140,564,661 D. $154,519,484 E. $181,511,367

C. $140,564,661

You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay? A. $160,408 B. $147,027 C. $153,524 D. $164,319 E. $141,406

C. $153,524

What is the future value of $1,400 a year for 35 years at 6 percent interest? Assume annual compounding. A. $164,200 B. $138,714 C. $156,009 D. $142,908 E. $147,267

C. $156,009

Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,400 on the first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 6.75 percent? A. $24,890.88 B. $26,311.16 C. $27,677.34 D. $28,909.29 E. $29,333.33

C. $27,677.34

The government has imposed a fine on JJ's Place. The fine calls for annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter. The government will earn 5.5 percent on the funds held. How much will the community shelter receive four years from today? A. $263,025 B. $236,875 C. $277,491 D. $328,572 E. $285,737

C. $277,491

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is expecting sales to decrease by 3 percent next year while the profit margin remains constant. The firm wants to increase the dividend payout ratio by 2.5 percent. What is the projected increase in retained earnings for next year? A. $1,711 B. $1,867 C. $3,334 D. $1,969 E. $3,438

C. $3,334

Troy will receive $7,500 at the end of year 2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash flows at the end of year 5 if the interest rate is 8 percent? A. $38,418 B. $32,907 C. $33,445 D. $36,411 E. $35,255

C. $33,445

You will receive $25,000 in two years when you graduate. When you receive it, you will invest it for 6 more years at 7.5 percent per year. How much money will you have 8 years from now? A. $38,909.19 B. $39,381.16 C. $38,582.54 D. $41,209.19 E. $40,414.73

C. $38,582.54

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is currently operating at 93 percent of capacity. What is the full-capacity level of sales? A. $33,666 B. $37,740 C. $38,925 D. $34,141 E. $35,301

C. $38,925

You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent? A. $350,000 B. $348,409 C. $398,148 D. $291,006 E. $346,900

C. $398,148

Fresno Salads has current sales of $6,000 and a profit margin of 6.5 percent. The firm estimates that sales will increase by 4 percent next year and that all costs will vary in direct relationship to sales. What is the pro forma net income? A. $303.33 B. $327.18 C. $405.60 D. $438.70 E. $441.10

C. $405.60

A preferred stock pays an annual dividend of $4.10. What is one share of this stock worth today if the rate of return is 9.68 percent? A. $41.48 B. $41.18 C. $42.36 D. $39.87 E. $42.90

C. $42.36

You want to start your own consulting business and believe it could produce cash flows of $5,600, $48,200, and $125,000 at the end of each of the next three years, respectively. At the end of three years you think you can sell the business for $450,000. At a 14 percent discount rate, what is this business idea worth today? A. $311,406 B. $514,545 C. $430,109 D. $345,738 E. $478,901

C. $430,109

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, what is the most you are willing to pay as a lump sum today to buy this annuity? A. $32,008.24 B. $34,208.16 C. $44,591.11 D. $43,008.80 E. $38,927.59

C. $44,591.11

Seaweed Mfg., Inc. is currently operating at only 86 percent of fixed asset capacity. Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to $664,000. What amount must be spent on new fixed assets to support this growth in sales? A. $0 B. $22,654 C. $46,319 D. $79,408 E. $93,608

C. $46,319

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 Assume the profit margin and the payout ratio for this firm are constant. If sales increase by 6 percent, what is the pro forma retained earnings? A. $5,450 B. $5,721 C. $5,531 D. $5,648 E. $5,028

C. $5,531

You hope to buy your dream car four years from now. Today, that car costs $54,500. You expect the price to increase by an average of 3.1 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it? A. $58,340.00 B. $58,666.67 C. $61,578.79 D. $61,818.02 E. $61,023.16

C. $61,578.79

On the day you entered college, you borrowed $30,000 from your local bank. The terms of the loan include an interest rate of 4.75 percent. The terms stipulate that the principal is due in full one year after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete college in four years. How much total interest will you pay on this loan assuming you paid as agreed? A. $7,267 B. $7,400 C. $7,125 D. $1,500 E. $1,425

C. $7,125

You just acquired a 30-year mortgage in the amount of $179,500 at 4.75 percent interest, compounded monthly. Payments will be equal over the life of the loan with the first payment due one month after the date of the loan. How much of the first payment will be interest? A. $925.20 B. $806.16 C. $710.52 D. $936.36 E. $548.60

C. $710.52

22. Al invested $7,200 in an account that pays 4 percent simple interest. How much money will he have at the end of five years? A. $8,710 B. $8,056 C. $8,640 D. $8,678 E. $8,299

C. $8,640

Theo needs $40,000 as a down payment for a house six years from now. He earns 2.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today? A. $778.98 B. $811.13 C. $862.30 D. $948.03 E. $1,020.18

C. $862.30

Rural Market's has $878,000 of sales and $913,000 of total assets. The firm is operating at 93 percent of capacity. What is the capital intensity ratio at full capacity? A. .62 B. .88 C. .97 D. 1.03 E. 1.14

C. .97

Your insurance agent is trying to sell you an annuity that costs $50,000 today. By buying this annuity, your agent promises that you will receive payments of $250 a month for the next 20 years. What is the rate of return on this investment? A. 3.75 percent B. 2.47 percent C. 1.88 percent D. 2.45 percent E. 3.67 percent

C. 1.88 percent

The most recent financial information for Ben's Co. is: Sales $19,700 Costs 15,250 Taxes 1,513 Net income 2,937 Current assets 3,018 Fixed assets 18,282 Debt 7,600 Equity 10,760 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible. What is the internal growth rate? A. 12.91 percent B. 13.44 percent C. 10.68 percent D. 14.02 percent E. 14.14 percent

C. 10.68 percent

Towne Station is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today, that account is worth $31,406. What rate of interest is Towne Station earning on this investment? A. 8.39 percent B. 9.47 percent C. 10.94 percent D. 8.23 percent E. 9.01 percent

C. 10.94 percent

The Friendly Bank wants to earn an effective annual return on its consumer loans of 12 percent per year. The bank uses daily compounding. What rate is the bank most apt to quote on these loans? A. 11.76 percent B. 11.38 percent C. 11.33 percent D. 12.12 percent E. 12.00 percent

C. 11.33 percent

Fix-It Co. wishes to maintain a growth rate of 9.89 percent a year, a constant debt-equity ratio of .42, and a dividend payout ratio of 40 percent. The ratio of total assets to sales is constant at 1.3. What profit margin must the firm achieve? A. 8.13 percent B. 13.46 percent C. 13.73 percent D. 14.33 percent E. 14.74 percent

C. 13.73 percent

The Dog House has net income of $3,450 and total equity of $8,600. The debt-equity ratio is .60 and the payout ratio is 30 percent. What is the internal growth rate? A. 14.47 percent B. 17.78 percent C. 21.29 percent D. 29.40 percent E. 33.33 percent

C. 21.29 percent

Your credit card company quotes you an interest rate of 21.9 percent based on annual compounding. Interest is billed monthly. What is the actual rate of interest you are paying? A. 21.90 percent B. 19.21 percent C. 24.24 percent D. 22.57 percent E. 23.72 percent

C. 24.24 percent

You expect to receive $5,000 at graduation in 2 years. You plan on investing this money at 9 percent until you have $75,000. How many years from today will it be until this occurs? A. 31.42 years B. 29.08 years C. 33.42 years D. 31.08 years E. 32.16 years

C. 33.42 years

You're trying to save to buy a new $72,000 sports car You have $38,000 today that can be invested at your bank. The bank pays 1.26 percent annual interest on its accounts. How many years will it be before you have enough to buy the car assuming the price of the car remains constant? A. 46.67 years B. 47.18 years C. 51.04 years D. 46.91 years E. 55.84 years

C. 51.04 years

The Art Gallery is notoriously known as a slow-payer. The firm currently needs to borrow $25,000 and only one company will loan to them. The terms of the loan call for weekly payments of $500 at a weekly interest rate of .45 percent. What is the loan term? A. 42.5 weeks B. 45.00 weeks C. 56.77 weeks D. 31.65 weeks E. 43.33 weeks

C. 56.77 weeks

Today, you borrowed $6,200 on your credit card to purchase some furniture. The interest rate is 14.9 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $120? A. 5.87 years B. 6.40 years C. 6.93 years D. 7.23 years E. 7.31 years

C. 6.93 years

Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment? A. 6.67 percent B. 11.71 percent C. 7.90 percent D. 10.40 percent E. 12.02 percent

C. 7.90 percent

Christina's has a profit margin of 7.5 percent, a capital intensity ratio of .8, a debt-equity ratio of .6, net income of $31,000, and dividends paid of $15,810. What is the sustainable rate of growth? A. 4.94 percent B. 5.29 percent C. 7.93 percent D. 6.42 percent E. 3.58 percent

C. 7.93 percent

Assume the total cost of a college education will be $220,000 when your child enters college in 17 years. You presently have $60,000 to invest. What rate of interest must you earn on your investment to cover the cost of your child's college education? A. 9.22 percent B. 8.50 percent C. 7.94 percent D. 8.25 percent E. 6.81 percent

C. 7.94 percent

Al's obtained a discount loan of $71,000 today that requires a repayment of $90,000, 3 years from today. What is the APR on this loan? A. 7.87 percent B. 8.01 percent C. 8.23 percent D. 8.57 percent E. 8.90 percent

C. 8.23 percent

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent. The capital intensity ratio is 1.2 and the debt-equity ratio is .64. What is the profit margin? A. 6.28 percent B. 7.67 percent C. 9.49 percent D. 12.38 percent E. 14.63 percent

C. 9.49 percent

Some time ago, Tracie purchased 11 acres of land costing $77,900. Today, that land is valued at $54,800. How long has she owned this land if the price of the land has been decreasing by 3.5 percent per year? A. 11.33 years B. 9.08 years C. 9.87 years D. 10.29 years E. 12.08 years

C. 9.87 years

The Outlet has a capital intensity ratio of .87 at full capacity. Currently, total assets are $48,900 and current sales are $53,600. At what level of capacity is the firm currently operating? A. 87.00 percent B. 91.67 percent C. 95.36 percent D. 96.08 percent E. 98.21 percent

C. 95.36 percent

Sales can often increase without increasing which one of the following? A. Accounts receivable. B. Cost of goods sold. C. Accounts payable. D. Fixed assets. E. Inventory.

C. Accounts payable

The sustainable growth rate: A. Assumes there is no external financing of any kind. B. Assumes no additional long-term debt is available. C. Assumes the debt-equity ratio is constant. D. Assumes the debt-equity ratio is 1.0. E. Assumes all income is retained by the firm.

C. Assumes the debt-equity ratio is constant.

Which one of the following terms is defined as a loan wherein the regular payments, including both interest and principal amounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum? A. Amortized loan. B. Continuing loan. C. Balloon loan. D. Pure discount loan. E. Interest-only loan.

C. Balloon loan.

Jones Stoneware has a $65,000 liability it must pay four years from today. The company is opening a savings account so that the entire amount will be available when this debt comes due. The plan is to make an initial deposit today and then deposit an additional $10,000 at the end of each of the four years. The account pays a 4.5 percent rate of return. How much does the firm need to deposit today? A. $18,299.95 B. $19,469.64 C. $21,400.33 D. $18,631.23 E. $22,218.09

D. $18,631.23

Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true? A. Barb will earn more interest the first year than Andy will. B. Andy will earn more interest in year three than Barb will. C. Barb will earn more interest the second year than Andy. D. After five years, Andy and Barb will both have earned the same amount of interest. E. Andy will earn compound interest.

C. Barb will earn more interest the second year than Andy.

The process of determining the present value of future cash flows in order to know their worth today is referred to as: A. Compound interest valuation. B. Interest on interest computation. C. Discounted cash flow valuation. D. Present value interest factoring. E. Complex factoring.

C. Discounted cash flow valuation.

Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement? A. Net working capital policy. B. Capital structure policy. C. Dividend policy. D. Capital budgeting policy. E. Capacity utilization policy.

C. Dividend policy.

According to the Rule of 72, you can do which one of the following? A. Double your money in five years at 7.2 percent interest. B. Double your money in 7.2 years at 8 percent interest. .. C. Double your money in 5 years at 14.4 percent interest. D. Triple your money in 7.2 years at 5 percent interest. E. Triple your money at 10 percent interest in 7.2 years.

C. Double your money in 5 years at 14.4 percent interest.

An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates? A. Stated rate. B. Discounted annual rate. C. Effective annual rate. D. Periodic monthly rate. E. Consolidated monthly rate.

C. Effective annual rate.

An ordinary annuity is best defined by which one of the following? A. Increasing payments paid for a definitive period of time. B. Increasing payments paid forever. C. Equal payments paid at the end of regular intervals over a stated time period. D. Equal payments paid at the beginning of regular intervals for a limited time period. E. Equal payments that occur at set intervals for an unlimited period of time.

C. Equal payments paid at the end of regular intervals over a stated time period.

17. You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You will earn 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I. Invest in a different account paying a higher rate of interest. II. Invest in a different account paying a lower rate of interest. III. Retire later. IV. Retire sooner. A. I only. B. II only. C. I and III only. D. I and IV only. E. II and III only.

C. I and III only.

Which of the following are needed to determine the amount of fixed assets required to support each dollar of sales? I. Current amount of fixed assets. II. Current sales. III. Current level of operating capacity. IV. Projected growth rate of sales. 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.

The financial planning process: I. Involves internal negotiations among divisions. II. Quantifies senior manager's goals. III. Considers only internal factors. IV. Reconciles company activities across divisions. A. III and IV only. B. II and III only. C. I, II, and IV only. D. II, III, and IV only. E. I, II, III, and IV.

C. I, II, and IV only.

When utilizing the percentage of sales approach, managers: I. Estimate company sales based on a desired level of net income and the current profit margin. II. Consider only those assets that vary directly with sales. III. Consider the current production capacity level. IV. Can project both net income and net cash flows. A. I and II only. B. II and III only. C. III and IV only. D. I, III, and IV only. E. II, III, and IV only.

C. III and IV only.

Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts? A. The present values of Luis and Soo Lee's money are equal. B. In future dollars, Soo Lee's money is worth more than Luis's money. C. In today's dollars, Luis's money is worth more than Soo Lee's. D. Twenty years from now, the value of Luis's money will be equal to the value of Soo Lee's money. E. Soo Lee's money is worth more than Luis's money given the 7 percent discount rate.

C. In today's dollars, Luis's money is worth more than Soo Lee's.

Which one of the following will increase the maximum rate of growth a corporation can achieve? A. Avoidance of external equity financing. B. Increase in corporate tax rates. C. Increase in the retention ratio. D. Increase in the dividend payout ratio. E. increase in sales forecast.

C. Increase in the retention ratio.

Buster's Market has a dividend payout ratio of 30 percent. The firm does not want to issue additional equity shares nor increase its debt at this time. The firm is profitable. Which one of the following defines the maximum rate at which this firm can currently grow? A. Internal growth rate (1 - .30). B. Sustainable growth rate (1 - .30). C. Internal growth rate. D. Sustainable growth rate. E. Zero percent.

C. Internal growth rate.

The financial planning process tends to place the least emphasis on which one of the following? A. Growth limitations. B. Capacity utilization. C. Market value of a firm . D. Capital structure of a firm. E. Dividend policy.

C. Market value of a firm .

The internal growth rate of a firm is best described as A. Minimum growth rate achievable assuming a 100 percent retention ratio. B. Minimum growth rate achievable if the firm maintains a constant equity multiplier. C. Maximum growth rate achievable excluding external financing of any kind. D. Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio. E. Maximum growth rate achievable with unlimited debt financing.

C. Maximum growth rate achievable excluding external financing of any kind

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. A. Both options are of equal value since they both provide $12,000 of income. B. Option A has the higher future value at the end of year three. C. Option B has a higher present value at time zero. D. Option B is a perpetuity. E. Option A is an annuity.

C. Option B has a higher present value at time zero.

Kurt won a lottery and will receive $1,000 a year for the next 50 years. The value of his winnings today discounted at his discount rate is called which one of the following? A. Single amount. B. Future value. C. Present value. D. Simple amount. E. Compounded value.

C. Present value.

37. Financial plans generally tend to ignore which one of the following? A. Dividend policy. B. Manager's goals and objectives. C. Risks associated with cash flows. D. Operating capacity levels. E. Capital structure policy.

C. Risks associated with cash flows.

Samantha opened a savings account this morning. Her money will earn 3.5 percent interest, compounded annually. After four years, her savings account will be worth $5,000. Assume she will not make any withdrawals. Given this, which one of the following statements is true? A. Samantha deposited more than $5,000 this morning. B. Samantha is earning simple interest on her savings. C. Samantha could have deposited less money today and still had $5,000 in four years if she could have earned a higher rate of interest. D. The present value of Samantha's account is $5,000. E. Samantha could earn more interest on this account if she withdrew her interest earnings each year.

C. Samantha could have deposited less money today and still had $5,000 in four years if she could have earned a higher rate of interest.

Renee invested $2,000 six years ago at 4.5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? A. Free interest. B. Complex interest. C. Simple interest. D. Interest on interest. E. Compound interest.

C. Simple interest.

Which one of the following is correct in relation to pro forma statements? A. Fixed assets must increase if sales are projected to increase. B. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity. C. The addition to retained earnings is equal to net income less cash dividends. D. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity. E. Inventory changes are not proportional to sales changes.

C. The addition to retained earnings is equal to net income less cash dividends.

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

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

A firm's net working capital and all of its expenses vary directly with sales. The firm is operating currently at 96 percent of capacity. The firm wants no additional external financing of any kind. The tax rate is 34 percent and the dividend payout ratio is fixed at 25 percent. Which one of the following statements related to the firm's pro forma statements for next year must be correct? A. Total equity will remain constant at this year's ending value. B. The maximum rate of sales increase is 4percent. C. The firm cannot exceed its internal rate of growth. D. Accounts payable will increase at the same rate as fixed assets. E. Inventory will remain constant at the current level.

C. The firm cannot exceed its internal rate of growth.

How is the principal amount of an interest-only loan repaid? A. The principal is forgiven over the loan period; thus it does not have to be repaid. B. The principal is repaid in decreasing increments and included in each loan payment. C. The principal is repaid in one lump sum at the end of the loan period. D. The principal is repaid in equal annual payments. E. The principal is repaid in increasing increments through regular monthly payments.

C. The principal is repaid in one lump sum at the end of the loan period.

Martin Aerospace is currently operating at full capacity based on its current level of assets. Sales are expected to increase by 4.5 percent next year, which is the firm's internal rate of growth. Net working capital and operating costs are expected to increase directly with sales. The interest expense will remain constant at its current level. The tax rate and the dividend payout ratio will be held constant. Current and projected net income is positive. Which one of the following statements is correct regarding the pro forma statement for next year? A. The pro forma profit margin is equal to the current profit margin. B. Retained earnings will increase at the same rate as sales. C. Total assets will increase at the same rate as sales. D. Long-term debt will increase in direct relation to sales. E. Owners' equity will remain constant.

C. Total assets will increase at the same rate as sales

You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process? A. Need for additional fixed assets. B. Current fixed costs. C. Projected sales. D. Desired net income. E. Desired dividend payments.

C. projected sales

In 1884, the winner of a competition was paid $100. In 2015, the winner's prize was $375,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate? (Round your answer to the nearest $500.) A. $1,980,000 B. $2,006,500 C. $1,750,000 D. $,1,803,500 E. $1,788,000

D. $,1,803,500

Goods Guys Foods established a trust fund that provides $125,000 in scholarships each year for needy students. The trust fund earns a fixed 7.25 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed? A. $1,687,450 B. $1,478,023 C. $1,333,333 D. $1,724,138 E. $1,600,000

D. $1,724,138

You need a 30-year, fixed-rate mortgage to buy a new home for $225,000. Your bank will lend you the money at an APR of 5.5 percent with monthly compounding. You can only afford monthly payments of $1,000 for principal and interest, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment? A. $232,191 B. $213,316 C. $254,480 D. $253,550 E. $226,315

D. $253,550

You are planning to save for retirement over the next 15 years. To do this, you will invest $1,100 a month in a stock account and $500 a month in a bond account. The return on the stock account is expected to be 7 percent, and the bond account will pay 4 percent. When you retire, you will combine your money into an account with a 5 percent return. How much can you withdraw each month during retirement assuming a 20-year withdrawal period? A. $2,636.19 B. $2,904.11 C. $3,008.21 D. $3,113.04 E. $3,406.97

D. $3,113.04

The most recent financial statements for RPJ Co. are shown here: Sales $19,700 Costs 15,250 Taxes 1,513 Net income 2,937 Current assets 3,018 Fixed assets 18,282 Current liabilities 2,940 Long-term debt 7,600 Equity 10,760 Assets and costs are proportional to sales. The company maintains a constant 40 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales that can be sustained next year assuming no new equity is issued? A. $2,151 B. $3,211 C. $5,804 D. $3,858 E. $5,667

D. $3,858

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 The profit margin, the debt-equity ratio, and the dividend payout ratio for this firm are constant. Sales are expected to increase by $5,000 next year. What is the projected addition to retained earnings for next year? A. $3,575 B. $1,885 C. $1,909 D. $3,994 E. $2,386

D. $3,994

When you retire 35 years from now, you want to have $1.2 million. You think you can earn an average of 9 percent 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 5 years from today. How much more will you have to deposit as a lump sum if you wait for 5 years before making the deposit? A. $27,414.14 B. $26,319.47 C. $29,891.11 D. $31,662.08 E. $33,406.78

D. $31,662.08

You just received $25,000 from an insurance settlement and have decided to invest it for your retirement. Currently, your goal is to retire 40 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 8.2 percent rather than just 8 percent? A. $41,137.07 B. $38,509.16 C. $40,423.33 D. $41,718.03 E. $38,342.91

D. $41,718.03

A wealthy benefactor just contributed to your college's scholarship program. This gift will provide $20,000 in scholarships next year with that amount increasing by 2 percent annually thereafter.. If the discount rate is 6.5 percent, what is the current value of this perpetual gift? A. $307,700 B. $350,000 C. $525,000 D. $444,444 E. $550,750

D. $444,444

You are considering two savings options. Both options offer a rate of return of 11 percent. The first option is to save $2,500, $1,500, and $3,000 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? A. $5,405.41 B. $6,289.74 C. $6,660.00 D. $5,663.26 E. $4,784.20

D. $5,663.26

One year ago, JK Mfg. deposited $20,500 in an investment account for the purpose of buying new equipment four years from today. 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. How much will be available when it is ready to buy the equipment, assuming the account pays 3.5 interest? A. $53,408 B. $53,919 C. $56,211 D. $52,648 E. $58,021

D. $52,648

Rosina plans on saving $2,000 a year and expects to earn an annual rate of 8.8 percent. How much will she have in her account at the end of 43 years? A. $806,429 B. $838,369 C. $997,407 D. $831,532 E. $908,316

D. $831,532

You own a classic car that is currently valued at $64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now? A. $94,035.00 B. $86,008.17 C. $80,013.38 D. $92,691.08 E. $91,480.18

D. $92,691.08

Robotics desires a sustainable growth rate of 9.5 percent while maintaining a 30 percent dividend payout ratio and a 12 percent profit margin. The company has a capital intensity ratio of .95. What equity multiplier is required to achieve the company's desired rate of growth? A. .84 B. .98 C. 1.02 D. 1.19 E. 1.11

D. 1.19

You are considering a one-year discount loan of $16,000. The interest rate is quoted as 7 percent plus 4 points. What is the actual rate you are paying on this loan? A. 11.00 percent B. 11.67 percent C. 12.55 percent D. 11.46 percent E. 10.84 percent

D. 11.46 percent

Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until you run out of money? A. 29.97 years B. 8.56 years C. 22.03 years D. 12.71 years E. 18.99 years

D. 12.71 years

You are considering an annuity that costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.5 percent. What is the length of the annuity time period? A. 13 years B. 14 years C. 15 years D. 16 years E. 17 years

D. 16 years

The Two Sisters has a 9 percent return on assets and a 75 percent dividend payout ratio. What is the internal growth rate? A. 3.24 percent B. 4.05 percent C. 3.97 percent D. 2.30 percent E. 2.25 percent

D. 2.30 percent

The Parodies Corp. has a 22 percent return on equity and a 23 percent payout ratio. What is its sustainable growth rate? A. 18.68 percent B. 19.25 percent C. 19.49 percent D. 20.39 percent E. 22.00 percent

D. 20.39 percent

Monika's Dinor is operating at 94 percent of its fixed asset capacity and has current sales of $611,000. How much can the firm grow before any new fixed assets are needed? A. 4.99 percent. B. 5.78 percent. C. 6.02 percent. D. 6.38 percent. E. 6.79 percent.

D. 6.38 percent.

One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn? A. 6.59 percent B. 6.67 percent C. 6.88 percent D. 6.92 percent E. 7.01 percent

D. 6.92 percent

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 What was the retention ratio? A. 33 percent B. 40 percent C. 50 percent D. 60 percent E. 67 percent

D. 60%

What is the effective annual rate if a bank charges you an APR of 8.25 percent, compounded quarterly? A. 8.32 percent B. 8.38 percent C. 8.42 percent D. 8.51 percent E. 8.61 percent

D. 8.51 percent

Twelve years ago, your parents set aside $8,000 to help fund your college education. Today, that fund is valued at $23,902. What rate of interest is being earned on this account? A. 8.99 percent B. 9.42 percent C. 9.67 percent D. 9.55 percent E. 9.06 percent

D. 9.55 percent

The banks in your area offer the following rates of interest on their savings accounts. If you want to open one of these accounts, which bank should you select? Bank A: .75 percent APR with daily compounding. Bank B: .85 percent APR with monthly compounding. Bank C: .8725 percent APR with annual compounding. Bank D: .87 percent APR with quarterly compounding. Bank E: .775 percent APR with semiannual compounding. A. Bank A B. Bank B C. Bank C D. Bank D E. Bank E

D. Bank D

Which one of the following ratios identifies the amount of total assets a firm needs in order to generate $1 in sales? A. Return on assets B. Equity multiplier C. Retention ratio D. Capital intensity ratio E. Fixed asset turnover ratio

D. Capital intensity ratio

28. A firm's external financing need is financed by which of the following? A. Retained earnings. B. Net working capital and retained earnings. C. Net income and retained earnings. D. Debt or equity. E. Owners' equity, including retained earnings.

D. Debt or equity.

Which of these will increase the present value of an amount to be received sometime in the future? A. Increase in the time until the amount is received. B. Increase in the discount rate. C. Decrease in the future value. D. Decrease in the interest rate. E. Decrease in both the future value and the number of time periods.

D. Decrease in the interest rate.

All else constant, which one of the following will increase the internal rate of growth? A. Decrease in the retention ratio. B. Decrease in net income. C. Increase in the dividend payout ratio. D. Decrease in total assets. E. Increase in cost of goods sold.

D. Decrease in total assets.

A firm is operating at 90 percent of capacity. This information is primarily needed to project which one of the following account values when compiling pro forma statements? A. Sales. B. Cost of goods sold. C. Accounts receivable. D. Fixed assets. E. Long-term debt.

D. Fixed assets.

Blasco Industries is currently at full-capacity sales. Which one of the following is limiting sales to this level? A. Net working capital. B. Long-term debt. C. Inventory. D. Fixed assets. E. Debt-equity ratio.

D. Fixed assets.

Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: A. Free interest. B. Bonus income. C. Simple interest. D. Interest on interest. E. Present value interest.

D. Interest on interest.

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm: A. Is projected to grow at the internal rate of growth. B. Is projected to grow at the sustainable rate of growth. C. Currently has excess capacity. D. Is currently operating at full capacity. E. Retains all of its net income.

D. Is currently operating at full capacity.

The sustainable growth rate of a firm is best described as the: A. Minimum growth rate achievable assuming a 100 percent retention ratio. B. Minimum growth rate achievable if the firm maintains a constant equity multiplier. C. Maximum growth rate achievable excluding external financing of any kind. D. Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio. E. Maximum growth rate achievable with unlimited debt financing.

D. Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio.

Which one of the following variables is the exponent in the present value formula? A. Present value B. Future value C. Interest rate D. Number of time periods E. There is no exponent in the present value formula.

D. Number of time periods

7. A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan. A. Amortized. B. Continuous. C. Balloon. D. Pure discount. E. Interest-only.

D. Pure discount.

If a firm equates its pro forma sales growth to the rate of sustainable growth and has positive net income and excess capacity, then the: A. Maximum capacity level will have to increase at the same rate as sales growth. B. Total assets will have to increase at the same rate as sales growth. C. Debt-equity ratio will increase. D. Retained earnings will increase. E. Number of common shares outstanding will increase.

D. Retained earnings will increase.

The present value of the following cash flow stream is $5,933.86 when discounted at 11 percent annually. What is the value of the missing cash flow? Year Cash Flow 1 $2,000 2 ? 3 1,750 4 1,250 A. $1,500 B. $1,750 C. $2,250 D. $2,250 E. $2,500

E. $2,500

What is the relationship between present value and future value interest factors? A. The present value and future value factors are equal to each other. B. The present value factor is the exponent of the future value factor. C. The future value factor is the exponent of the present value factor. D. The factors are reciprocals of each other. E. There is no relationship between these two factors.

D. The factors are reciprocals of each other.

This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in 40 years. Which one of the following statements is correct? A. The interest you earn 6 years from now will equal the interest you earn t10 years from now. B. The interest amount you earn will double in value every year. C. The total amount of interest you will earn will equal $1,000 x.06 x40. D. The present value of this investment is equal to $1,000. E. The future value of this amount is equal to $1,000 x(1 + 40).06.

D. The present value of this investment is equal to $1,000.

You are comparing the current financial statements of a firm to the pro forma statement for next year. The pro forma is based on a 4 percent increase in sales. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, which one of the following statements must be true? A. Projected dividends equal the current cash dividend amount. B. Depreciation will decrease by 4 percent. C. Retained earnings will increase by 85 percent of projected net income. D. Total assets will increase by less than 4 percent. E. Total liabilities and owners' equity will increase by 4 percent.

D. Total assets will increase by less than 4 percent.

Which one of the following accurately defines a perpetuity? A. A limited number of equal payments paid in even time increments. B. Payments of equal amounts that are paid irregularly but indefinitely. C. Varying amounts that are paid at even intervals forever. D. Unending equal payments paid at equal time intervals. E. Unending equal payments paid at either equal or unequal time intervals.

D. Unending equal payments paid at equal time intervals.

You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional guaranteed $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why? A. You should accept the $89,500 today because it has the higher net present value. B. You should accept the $89,500 today because it has the lower future value. C. You should accept the first offer as it is a lump sum payment. D. You should accept the second offer because it has the larger net present value. E. It does not matter which offer you accept as they are equally valuable.

D. You should accept the second offer because it has the larger net present value.

Financial planning: A. Focuses solely on the short-term outlook for a firm. B. Is a process that firms employ only when major changes to a firm's operations are anticipated. C. Is a process that firms undergo once every five years. D. Considers multiple options and scenarios. E. Provides minimal benefits for firms that are highly responsive to economic changes.

D. considers multiple options and scenarios

Waldo expects to receive the following payments: year 1 = $50,000; year 2 = $28,000; year 3 = $12,000. All of this money will be saved for his retirement. If he can earn an average annual return of 10.5 percent, how much will he have in his account 25 years after making the first deposit? A. $1,172,373 B. $935,334 C. $806,311 D. $947,509 E. $1,033,545

E. $1,033,545

Nadine is retiring today at age 66 and expects to live to age 82. She has $136,000 in her retirement savings account. She is somewhat conservative with her money and expects to earn 6 percent during her retirement years. How much can she withdraw from her retirement savings each month if she plans to spend her last penny on the morning of her death? A. $909.92 B. $847.78 C. $919.46 D. $1,416.08 E. $1,103.56

E. $1,103.56

You invested $6,500 in an account that pays 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually? A. $1,049.22 B. $930.11 C. $1,182.19 D. $1,201.15 E. $1,240.51

E. $1,240.51

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 What are the pro forma retained earnings for next year if this firm grows at a rate of 3.6 percent and both the profit margin and the dividend payout ratio remain constant? A. $3704 B. $3771 C. $3592 D. $15921 E. $15854

E. $15,854

You need some money today and the only friend you have that has any is your miserly friend. He agrees to loan you the money you need, if you make payments of $30 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 2 percent interest per month. How much money are you borrowing? A. $164.09 B. $168.22 C. $169.50 D. $170.68 E. $171.40

E. $171.40

Ed's Market is operating at full capacity with a sales level of $547,200 and fixed assets of $471,000. The profit margin is 5.4 percent. What is the required addition to fixed assets if sales are to increase by 4 percent? A. $10,709 B. $14,680 C. $22,400 D. $16,760 E. $18,840

E. $18,840

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 Assume this firm is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. What is the external financing need if sales increase by 14 percent? A. -$1,816 B. -$1,268 C. $1,031 D. $3,504 E. $2,260

E. $2,260

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is currently operating at 96 percent of capacity. What is the required increase in fixed assets if sales are projected to increase by 14 percent? A. $4,205 B. $3,400 C. $6,833 D. $0 E. $2,605

E. $2,605

You are comparing two annuities with equal present values. The applicable discount rate is 7.25 percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year? A. $2,331.00 B. $2,266.67 C. $2,500.00 D. $2,390.50 E. $2,681.25

E. $2,681.25

Stephanie is going to contribute $250 on the first of each month, starting today, to her retirement account. Her employer will provide a 50 percent match. In other words, her employer will add $125 to the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly interest rate of .5 percent, how much will she have in her retirement account 25 years from now? A. $336,264 B. $204,286 C. $199,312 D. $268,418 E. $261,172

E. $261,172

You just purchased an annuity that will pay you $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8.5 percent? A. $241,309 B. $245,621 C. $251,409 D. $258,319 E. $266,498

E. $266,498

The Atlantic Co. has sales of $21,600, total costs of $16,780 and taxes of $1,750. The dividend payout ratio is 12 percent. Sales are expected to increase by 22 percent next year. What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales? A. $2,899 B. $3,745 C. $3,892 D. $2,011 E. $3,296

E. $3,296

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually? A. $32,483.60 B. $27,890.87 C. $38,991.07 D. $41,009.13 E. $38,125.20

E. $38,125.20

You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 7.5 percent instead of just 7 percent on your savings? A. $39,318.09 B. $39,464.79 C. $38,211.16 D. $37,811.99 E. $38,663.60

E. $38,663.60

You have just made a $1,500 contribution to your individual retirement account. Assume you earn a rate of return of 8.7 percent and make no additional contributions. How much more will your account be worth when you retire in 25 years than it would be if you waited another 5 years before making this contribution? A. $6,306.16 B. $4,658.77 C. $3,311.18 D. $6,907.17 E. $4,117.64

E. $4,117.64

You want to be a millionaire when you retire in 40 years and can earn an annual return of 12.5 percent. How much more will you have to save each month if you wait 15 years to start saving versus if you start saving at the end of this month? A. $489.22 B. $354.13 C. $308.47 D. $441.15 E. $414.34

E. $414.34

You are borrowing $21,800 to buy a car. The terms of the loan call for monthly payments for five years at 8.25 percent interest. What is the amount of each payment? A. $387.71 B. $391.40 C. $401.12 D. $439.76 E. $444.64

E. $444.64

John's Auto Repair just took out a $52,000, 10-year, 8 percent, interest-only loan from the bank. Payments are made annually. What is the amount of the loan payment in year 10? A. $7,750 B. $41,600 C. $4,160 D. $52,000 E. $56,160

E. $56,160

Cross Town Express has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000. The firm paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity. At the sustainable rate of growth, how much new total debt must the firm acquire? A. $0 B. $6,311 C. $6,989 D. $7,207 E. $8,852

E. $8,852

Your coin collection contains 50 1949 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 7.6 percent annual rate. How much will your collection be worth when you retire in 2020? A. $3,611.18 B. $8,987.56 C. $14,122.01 D. $11,218.27 E. $9,070.71

E. $9,070.71

A year ago, you deposited $30,000 into a retirement savings account at a fixed rate of 5.5 percent. Today, you could earn a fixed rate of 6.5 percent on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 6.5 percent and still have the same amount as you currently will when you retire 38 years from today? A. $10,118.42 less B. $10,333.33 less C. $11,417.09 less D. $11,274.12 less E. $9,234.97 less

E. $9,234.97 less

The most recent financial information for Last in Line is: Sales $9,800 Costs 8,740 Net income 1,060 Assets 8,950 Debt 4,760 Equity 4,190 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $371 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $10,584. What is the amount of the external financing need? A. $716 B. $1,333 C. -$1,574 D. -$382 E. -$28

E. -$28

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 This firm is currently operating at 84 percent of capacity. What is the capital intensity ratio at full capacity? A. 1.09 B. 1.04 C. .96 D. .84 E. .91

E. .91

The entire repayment of which one of the following loans is computed simply by computing one single future value? A. Interest-only loan. B. Balloon loan. C. Amortized loan. D. Pure discount loan. E. Bullet loan.

Pure discount loan

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep these ratios constant? A. .05 B. .40 C. .55 D. .60 E. .95

E. .95

You have been purchasing $9,000 worth of stock annually for the past 5 years and now have a portfolio valued at $45,881. What is your annual rate of return? A. 13.13 percent B. 6.24 percent C. 1.29 percent D. 9.32 percent E. .97 percent

E. .97 percent

Which one of these is a correct method of computing the retention ratio? A. 1 - Plowback ratio . B. Change in retained earnings / Cash dividends. C. 1 + Dividend payout ratio. D. (Change in retained earnings + Cash dividends) / Net income. E. 1 - (Cash dividends / Net income).

E. 1 - (Cash dividends / Net income).

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent. The current profit margin is 7 percent and the firm uses no external financing sources. What must the total asset turnover rate be? A. 0.87 times B. 0.90 times C. 1.01 times D. 1.15 times E. 1.86 times

E. 1.86 times

Country Comfort, Inc. had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equity. Net income for the year was $63,000 and dividends were $44,500. What is the sustainable growth rate? A. 10.3 percent B. 10.7 percent C. 11.6 percent D. 12.7 percent E. 12.3 percent

E. 12.3 percent

What is the effective annual rate of 14.9 percent compounded continuously? A. 15.59 percent B. 15.62 percent C. 15.69 percent D. 15.84 percent E. 16.07 percent

E. 16.07 percent

Seaweed Mfg., Inc. is currently operating at only 84 percent of fixed asset capacity. Current sales are $550,000. What is the maximum rate at which sales can grow before any new fixed assets are needed? A. 17.23 percent B. 17.47 percent C. 18.03 percent D. 18.87 percent E. 19.05 percent

E. 19.05 percent

The Soccer Shoppe has a 9 percent return on assets and a 25 percent payout ratio. What is its internal growth rate? A. 4.72 percent B. 5.08 percent C. 5.49 percent D. 6.23 percent E. 7.24 percent

E. 7.24 percent

You want to buy a new sports coupe for $41,750 and the finance office at the dealership has quoted you an APR of 7.6, compounded monthly for 48 months. What is the effective interest rate on this loan? A. 8.28 percent B. 8.41 percent C. 7.94 percent D. 8.13 percent E. 7.87 percent

E. 7.87 percent

(Income Statement) Sales $42,700 Cost of goods sold 29,250 Depreciation 3,750 Earnings before interest and taxes $ 9,700 Interest paid 1,360 Taxable income $ 8,340 Taxes 2,840 Net income $ 5,500 Dividends $1,925 (Balance Sheet) Cash $1,320 Accounts receivable 3,780 Inventory 10,200 Total current assets $15,300 Net fixed assets 33,600 Total assets $48,900 Accounts payable $ 3,650 Long-term debt 18,100 Common stock ($1 par value) 15,000 Retained earnings 12,150 Total Liab. & Equity $48,900 What is the internal growth rate for this firm assuming the payout ratio remains constant? A. 6.70 percent B. 6.87percent C. 7.31 percent D. 7.49 percent E. 7.89 percent

E. 7.89 percent

Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .55, a total asset turnover ratio of 1.30, and a profit margin of 9 percent. What must the dividend payout ratio be? A. 26.26 percent B. 38.87 percent C. 49.29 percent D. 61.13 percent E. 73.74 percent

E. 73.74 percent

Which one of the following will produce the lowest present value interest factor? A. 6 percent interest for 5years . B. 8 percent interest for 5 years. C. 6 percent interest for 10 years. D. 8 percent interest for 5 years. E. 8 percent interest for 10 years.

E. 8 percent interest for 10 years.

Bill's has a 5 percent profit margin and a dividend payout ratio of 20 percent. The total asset turnover is 1.6 and the debt-equity ratio is .4. What is the sustainable rate of growth? A. 11.20 percent. B. 9.60 percent. C. 10.89 percent. D. 9.26 percent. E. 9.84 percent.

E. 9.84 percent.

You are comparing two annuities that offer quarterly payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities? A. These annuities have equal present values but unequal future values. B. These two annuities have both equal present and future values. C. Annuity B is an annuity due. D. Annuity A has a smaller future value than annuity B. E. Annuity B has a smaller present value than annuity A.

E. Annuity B has a smaller present value than annuity A.

Interest earned on both the initial principal and the interest reinvested from prior periods is called: A. Free interest. B. Dual interest. C. Simple interest. D. Interest on interest. E. Compound interest.

E. Compound interest.

Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following? A. Current yield. B. Effective rate. C. Compound rate. D. Simple rate. . E. Discount rate.

E. Discount rate.

Financial planning accomplishes which of the following for a firm? I. Determination of asset requirements. II. Development of contingency plans. III. Establishment of priorities. IV. Analysis of funding options. A. I and III only. B. II and IV only. C. I, III, and IV only. D. I, II, and III only. E. I, II, III, and IV.

E. I, II, III, and IV.

Which of the following can affect a firm's sustainable rate of growth? I. Capital intensity ratio. II. Profit margin. III. Dividend policy. IV. Debt-equity ratio. A. III only. B. I and III only. C. II, III, and IV only. D. I, II, and IV only. E. I, II, III, and IV.

E. I, II, III, and IV.

Which of the following questions are appropriate to address during the financial planning process? I. Should the firm merge with a competitor? II. Should additional shares of stock be sold? III. Should a particular division be sold? IV. Should a new product be introduced? A. I, II, and III only. B. I, II, and IV only. C. I, III, and IV only. D. II, III, and IV only. E. I, II, III, and IV.

E. I, II, III, and IV.

You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan? I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained? A. I and IV only. B. II and III only. C. I, III, and IV only. D. II, III, and IV only. E. I, II, III, and IV.

E. I, II, III, and IV.

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment? A. Amortized loan. B. Modified loan. C. Balloon loan. D. Pure discount loan. E. Interest-only loan.

E. Interest-only loan.

You are considering five loan offers. The only significant difference between them is their interest rates. Given the following information, which offer should you accept? (Assume a 365-day year.) Offer A: 6.75 percent APR with daily compounding. Offer B: 6.8 percent APR with monthly compounding. Offer C: 7 percent APR with annual compounding. Offer D: 6.825 percent APR with quarterly compounding. Offer E: 6.85 percent APR with semiannual compounding. A. Offer A B. Offer B C. Offer C D. Offer D E. Offer E

E. Offer E

You just received an insurance settlement offer related to an accident you had three years ago. The offer provides you with three choices: Option A: $1,500 a month for 6 years Option B: $1,025 a month for 10 years Option C: $85,000 as a lump sum payment today You can earn 7.5 percent on your investments and do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified? A. Option A: It provides the largest monthly payment. B. Option B: It pays the largest total amount. C. Option C: It is all paid today. D. Option B: It pays the greatest number of payments. E. Option A: It has the greatest value today.

E. Option A: It has the greatest value today.

Which one of the following statements is correct given the following two sets of project cash flows? Assume a positive discount rate. Project A Project B Year 1 $4,000 $2,000 Year 2 3,000 3,000 Year 3 0 2,000 Year 4 3,000 3,000 A. The cash flows for Project B are an annuity, but those of Project A are not. B. Both sets of cash flows have equal present values as of time zero. C. The present value at time zero of the final cash flow for Project A will be discounted using an exponent of three. D. Both projects have equal values at any point in time since they both pay the same amount in total. E. Project B is worth less today than Project A.

E. Project B is worth less today than Project A.

You are considering two projects with the following cash flows: Project X Project Y Year 1 $8,500 $7,000 Year 2 8,000 7,500 Year 3 7,500 8,000 Year 4 7,000 8,500 Which one of the following statements is true concerning these two projects given a positive discount rate? A. Both projects have the same future value at the end of Year 4. B. Both projects have the same value at Time 0. C. Both projects are ordinary annuities. D. Project Y has a higher present value than Project X. E. Project X has both a higher present and a higher future value than Project Y.

E. Project X has both a higher present and a higher future value than Project Y.

Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming neither Sue nor Neal withdraw any money from their accounts prior to retiring? A. Sue will have less money when she retires than Neal. B. Neal will earn more interest on interest than Sue. C. Neal will earn more compound interest than Sue. D. If both Sue and Neal wait to age 70 to retire, they will have equal amounts of savings. E. Sue will have more money than Neal at age 60.

E. Sue will have more money than Neal at age 60.

Which one of these statements related to growing annuities and perpetuities is correct? A. You can compute the present value of a growing annuity but not a growing perpetuity. B. In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate. C. The future value of an annuity will decrease if the growth rate is increased. D. An increase in the rate of growth will decrease the present value of an annuity. E. The present value of a growing perpetuity will decrease if the discount rate is increased.

E. The present value of a growing perpetuity will decrease if the discount rate is increased.

19. Which one of the following statements correctly defines a time value of money relationship? A. Time and future values are inversely related, all else held constant. B. Interest rates and time are positively related, all else held constant. C. An increase in a positive discount rate increases the present value. D. An increase in time increases the future value given a zero rate of interest. E. Time and present value are inversely related, all else held constant.

E. Time and present value are inversely related, all else held constant.

When constructing a pro forma statement, net working capital generally: A. Remains fixed. B. Varies only if the firm is currently producing at full capacity. C. Varies only if the firm maintains a fixed debt-equity ratio. D. Varies only if the firm is producing at less than full capacity. E. Varies proportionally with sales.

E. Varies proportionally with sales.

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? A. You should accept the payments because they are worth $209,414 to you today. B. You should accept the payments because they are worth $247,800 to you today. C. You should accept the payments because they are worth $336,000 to you today. D. You should accept the $200,000 because the payments are only worth $189,311 to you today. E. You should accept the $200,000 because the payments are only worth $195,413 to you today.

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

(Income Statement) Sales $28,400 Cost of goods sold 21,200 Depreciation 2,700 Earnings before interest and taxes $ 4,500 Interest paid 850 Taxable income $ 3,650 Taxes 1,400 Net income $ 2,250 Dividends $900 (Balance Sheet) Cash $ 550 Accounts receivable 2,450 Inventory 4,700 Total current assets $ 7,700 Net fixed assets 16,900 Total assets $24,600 Accounts payable $ 2,700 Long-term debt 9,800 Common stock ($1 par value) 8,000 Retained earnings 4,100 Total Liab. & Equity $24,600 If this firm decides to maintain a constant debt-equity ratio, what rate of growth can it maintain, assuming that no additional external equity financing is available. A. 11.16 percent B. 12.27 percent C. 12.56 percent D. 13.27 percent E. 11.82 percent

c. 12.56%