Finance 311 Exam 1 Clickers

Delmont Movers has a profit margin of 7.1 percent and net income of $63,700. What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?

58.25

Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?

The period of time she has to wait decreases as the amount she invests increases

equity multiplier is equal to

1 + debt equity ratio

A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72. What is the return on equity?

14.45

Wes Motors has total assets of $98,300, net working capital of $11,300, owner's equity of $41,600, and long-term debt of $38,600. What is the value of the current assets?

29400

Dellf's has a profit margin of 3.8 percent on sales of $287,200. The firm currently has 5,000 shares of stock outstanding at a market price of $7.11 per share. What is the price-earnings ratio?

3.26

Jane is a 20 year-old college student who invests $10,000 today and expects to earn 8% per year. Approximately how much money will Jane have from this investment when she retires at the age of 65? (rule of 72)

320,000

You want to have $40,000 for a down payment on a house 4 years from now. If you can earn 5.6 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?

32166.54

Andersen's Nursey has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35%. The firm paid out $23,400 in dividends. What is the addition to retained earnings?

34654

During the past year, Yard Services paid $36,800 in interest along with $2,000 in dividends. The company issued $3,000 of stock and $16,000 of new debt. The company reduced the balance due on its old debt by $18,400. What is the amount of the cash flow to creditors?

39200

Leisure Products has sales of $738,800, cost of goods sold of $598,200, and accounts receivable of $86,700. How long on average does it take the firm's customers to pay for their purchases? Assume a 365-day year.

42.83 days

Moonlight Industries just signed a sales contract with a new customer. JK will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings?

424786.07

Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest. How much interest will you earn over the next 5 years?

450

Goshen Industrial Sales has sales of $487,600, total equity of $367,700, a profit margin of 5.1 percent, and a debt-equity ratio of .34. What is the return on assets

5.05%

Roberto just deposited $11,500 into his savings account at Security Savings Bank. The bank will pay .55 percent interest, compounded annually, on this account. How much interest on interest will he earn over the next 6 years?

5.26

If Blue Hen Brewery purchased equipment for $75K on 1/1/17, what is the book value as of 12/31/17? (Assume straight-line depreciation over 5 years with no salvage value.)

60 K

A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600. What is the common-size percentage of the equity?

66.87 %

Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end of Year 1, $32,000 in Year 2, and $45,000 in Year 3. What is the present value of these cash inflows at a discount rate of 9 percent?

78195.78

A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets?

8 percent Debt-equity ratio = .42/(1 − .42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent

Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?

80,485.65

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?

Annuity B has both a higher PV and higher FV than A

You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future:

Cash coverage ratio = 2.6; debt-equity ratio = .3

compare firms costs and sales over the past three years to determine if any trends are present, you should look at

Common-Size income statement

All else held constant, the future value of a lump sum investment will decrease if the:

Interest is changed to simple interest from compound interest.

Goal of Financial Management

Maximize shareholder's value - eliminates failings of other potential goals

Cash flows occuring in different periods should not be compared unless

The flows have been discounted to a common date

All else held constant, the present value of an annuity will decrease if you:

decrease the annuity payment

You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options?

The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due.

Which one of the following will increase the present value of a lump sum future amount to be received in 15 years?

a decrease in the interest rate

networking capital decreases when

a dividend is paid to current shareholders

the present value of an annuity will decrease if you

decrease the annuity payment

which is true concenrning annuities

all else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity

Which of the following concerning annuities is correct?

an annuity due has payments that occur at the beginning of each time period

operating cash flow for a profitable, tax paying form will increase with

an increase in depreciation

Net Working Capital includes

an invoice from a supplier

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?

annuity

For a given time period, what happens to the present value as the interest rate gets higher?

as r increases, PV decreases

For a given interest rate, what happens to the present value as the time period gets longer?

as t increases, PV decreases

total tax paid divided by the total taxable income

average tax rate

the book value of owner's equity will decrease when

dividends exceed net income for a period

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:

compound interest

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

corporation

Which of the following will increase profit margin

decrease in the tax rate

Anna pays .85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the:

effective annual rate

Which one of the following can be classified as an annuity but not as a perpetuity?

equal annual payments for life

perpetuities have

equal payments and an infinite life

current assets does not include

equipment

Assume all else is equal. When comparing savings accounts, you should select the account that has the:

highest effective annual rate

a common size balance sheet helps financial managers determine

if changes are occuring in a firm's mix of assets

the future value of an annuity will increase if you

increase the time period

Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called:

interest on interest

A firm's liquidity level decreases when:

inventory is purchased with cash

Net Working Capital increases when

inventory is sold at a profit

Given a profitable firm, depreciation:

lowers taxes

the amount of tax that will be due on the next dollar of taxable income earned

marginal tax rate

By definition, a bank that pays simple interest on a savings account will pay interest:

only on the principle amount originally invested

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships are:

perpetuity

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?

positive cash flow to stockholders

if a firm increases net income

price earnings ratio will decrease

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

quick ratio

a negative cash flow to stockholders indicates that a firm

received more selling stock than it paid out to shareholders

Inventory Turnover of 15

sells its entire inventory on average 15 times per year

what is correct concerning EAR and APR

the EAR should be used to compare both investment and loan options, as opposed to APR

Matching Principle

the costs of producing an item should be recorded when the sale of that item is recorded as revenue

shareholder's equity

the residual value of a firm.

Common-size financial statements present all balance sheet account values as a percentage of:

total assets

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today:

will be greater if you invest in Northern bank