Finance Test 1

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

.5

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?

Annual

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance Sheet

The interest earned on both the initial principal and the interest reinvested from prior periods is called:

compound interest

Which one of the following actions will increase the present value of an amount to be received sometime in the future?

decrease in the interest rate

Noncash items refer to

expenses that do not directly affect cash flows

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

increase.

A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan.

balloon

Under the current U.S corporate tax code, which of the following statements is correct?

A corporation's marginal tax rate is equal to its average tax rate.

Which one of the following statements related to the cash flow to creditors must be correct?

A positive cash flow to creditors represents a net cash outflow from the firm.

Which one of the following accurately lists the three components of the DuPont identity?

Equity multiplier, net profit margin, and total asset turnover

Which one of the following statements related to an income statement is correct?

Taxes reduce both net income and operating cash flow.

Which one of the following statements concerning interest rates is correct?

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

Which one of the following statements related to loan interest rates is correct?

When comparing loans you should compare the effective annual rates.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios.

profitability

Ratios that measure a firm's liquidity are known as ______ ratios.

short-term solvency

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than ________ and earn a ________ rate of interest, then you have deposit a larger lump sum today.

sooner; later; low

A perpetuity is defined as:

unending equal payments paid at equal time intervals.

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

I, II, and III only

Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent?

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

Which one of the following statements concerning liquidity measure is NOT correct?

Quick ratio is always greater than current ratio.

Which one of the following statements concerning net working capital is correct?

Selling inventory at a loss decreases the value of a firm's net working capital.

Cash flow to stockholders is equal to

cash flow from assets minus the cash flow to creditors.

An annuity due is best defined as:

equal payments paid at the beginning of regular intervals for a limited time period.