Practice Quizzes - FINA 3770

During 2008, Townson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisitionn by $109,455 and had marketable securities of $14,215 mature. What is the net cash provided by (used in) investing activities?

$(132,085)

Dynoxo Textiles has a cash inflow of $1 million, which it needs for a long-term investment, at the end of one year. It plans to deposit the money in a bank CD that pays daily interest at an annual rate of 4.50 percent. What will be the value of the investment at the end of the year?

$1,046,025

Manufic, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years?

$1,381,071

Juan and Rachel Burpo plan to buy a time-share in six years of $16,860. In order to have adequate funds to do so, the Burpo want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Rachel need to deposit today to achieve their goal?

$12,055

If you want to have $150,000 in 2 years, how much do you need to put in savings account today that pays 5% compounded annually?

$136,054.42

You are interested in investing $15,000, a gift from your grandparents, for the next four years in a mutual fund that will earn an annual return of 8 percent. What will your investment be worth at the end of four years?

$20,407

Wildhorse Construction had long-term assets before depreciation of $984,700 on December 31, 2016 and $1,227,000 on December 31, 2017. How much cash flow was invested in long-term assets by Wildhorse during 2017?

$242,300

Sandhill Chemicals management identified the following cash flows as significant in its year-end meeting with analysts: During the year Sandhill had repaid existing debt of $312,100 and raised additional debt capital of $652,000. It also repurchased stock in the open market for a total fo $45,170. What is the net cash provided by the financing activities?

$294,730

Bovic Inc. is a growing company with sales of $1.25 million this year. The company expects to grow at an annual rate of 25 percent for the next three years, followed by 20 percent per year for the next two years. What will be Bovic's sales at the end of five years?

$3,515,625

Leory Diaz plans to invest some money today so that he will have $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

$6,722

Centernnial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after taxes? Round your final answer to the nearest dollar.

$79,292

Carlos Lopes is looking to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years?

$8,870

According to the Fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of inflation is forecast to be approximately

2.8%

Winstono Baker will invest $25,000 in a spa that his sister is starting. He will triple his investment in six years. What is the rate of return that Winston is being promised?

20%

Hesterberg is a weightlifter whose maximum lift is 220 pounds. He believes he can increase his maximum by 5% per month for the next four months. If Hesterberg achieves his goal, his maximum lift will increase to approximately:

267 pounds.

Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which will have the highest future value if she plans to invest for three years?

3.75% compounded annually

Transent Foods announced that its current sales is $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million?

6 years

If your investment increased 12% this year and inflation for that period was 4%, what was your real rate of return?

8%

Which of the following statements about the time value of money concepts is true?

A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return.

If you are a borrower, which would you prefer to occur during the life of your loan?

A level of inflation that is higher than the anticipated at the outset of the loan.

Why do earnings from compounding drive much of the return earned on a long-term investment?

A longer investment period will result in a greater proportion of total earnings from interest earned on interest.

In a public corporation, which of the following reports directly to the owners of a firm?

Board of directors

Which of the following business organizational forms create(s) a tax liability on income at the personal income tax rate?

Both sole proprietorship and partnership

Which of the following best represents cash flows to investors?

Cash flow from operating activity minus cash flow invested in net working capital minus cash flow invested in long-term assets.

Which of the following is NOT a cash flow from investing activities?

Cash payments of dividends to shareholders. (Buying and selling bonds of other firms, Buying and selling stocks of other firms, Buying or selling of land, buildings, and plant and equipment)

Which of the following is NOT a cash flow from operating activities?

Cash payments on the principal of long-term debt (Payments to purchase raw materials, Cash receipts from selling goods and services, Payments for utilities and rent)

Which of the following is a financial institution involved in indirect financing in a financial system?

Commercial banks

Which of the following would appear as a part of equity on a company's balance sheet?

Common stock

Which form(s) of business organization generate(s) the majority of business revenues and profits in the United States?

Corporation

You have 2 investment opportunities: (1) an investment in the US with a guaranteed return of 5% or (2) an investment in Vietnam with a guaranteed return of 8%. Which investment would you take? Why?

Depends. 5% in the US and 8% in Vietnam are both nominal rates of return. You need to know the inflation levels in the US and in Vietnam to calculate the real rates of return. All else equal, an investment with a higher real rate of return is better.

Which of the following is NOT one of the goals of the Sarbanes-Oxley Act of 2002?

Dictate maximum compensation levels

Cullumber Systems had net income of $4.154 billion and, at year end, 6.700 billion shares outstanding. Calculate the earnings per share for the company.

Earnings per share $0.62 per share.

Sheridan Jewelers management announced that the company had net earnings of $3,208,000 for this year. The company has 3,372,000 shares outstanding, and the year-end stock price is $51,97. What are Sheridan's earnings per share and P/E ratio?

Earnings per share $0.95 P/E ratio 54.75 times

Which of the following is responsible for performing an independent audit of a firm's financial statements?

External auditor

Assets that are claims on the cash flows from other assets, business loans, stocks, and bonds, are real assets.

False

Companies receive funds when their securities are sold by an investor in a secondary market.

False

For a given share price of a firm's stock, the lower the EPS the lower the price-earnings ratio.

False

The present value of $3,000 to be received in two years at a discount rate of 10 percent is $3,630.

False ($3,060)

Which of the following transactions is categorized as direct financing?

Geico Insurance Company bought 100,000 shares of XYZ.Inc when the company issued stock

Which pf the following does NOT belong to an income statement?

Goodwill (Amortization expense, Depreciation expense, Extraordinary items)

Which of the following would generally NOT increase shareholders' wealth?

Increased government regulation

_________________occur(s) when one party in a business transaction has information that is unavailable to the other parties in the transaction.

Information asymmetry

Which of the following statements is true of the rule of 72?

It can be used to determine the amoun of time it takes to double an investment.

Which of the following transactions is a secondary market transaction?

Johnny Appleseed buying 1,000 shares of Dell through NYSE

Which of the following equations describes a firm's net cash flow from operating activities?

Net cash flow = Net income - Non-cash revenues + Non-cash expenses

Bank of America is offering 0.05% interest rate on 25-month certificate of deposits (CDs) of less than $10,000. The 0.05% interest rate is

Nominal rate

Which of the following would appear as a liability on a company's balance sheet?

Notes payable

Which organizational form best enables the owners of a firm to monitor the professional conduct of each other owners of the firm?

Partnership

Which of the following ratios is an indicator of market value?

Price-earnings ratio

Which of the following is an income statement item?

Selling and administative expenses

Who among the following is the "agent" in the agency relationship of a corporation?

The CEO of the firm

Which of the following statements is true?

The longer the time period that funds are invested, the greater the future value.

Which of the following statements is incorrect?

The retail individual investor is a common direct participant in the direct financial markets

Which of the following presents a summary of the changes in a firm's balance sheet from the beginning of an accounting period to the end of an accounting period?

The statement of cash flows.

Which of the following statements is correct?

Time lines are useful for visualizing complex problems prior to doing actual calculations.

Cash raised by issuing common stock is an example of financing activities.

True

Direct financial markets could be broadly labeled as wholesale markets for funding.

True

Major buyers and sellers of securities in direct financial markets include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals.

True

Most companies use indirect market funding from financial institutions to obtain financing.

True

Since population can change over time one can replace the interest rate with a growth rate in the future value formula to determine how much people there are in a city in five years' time.

True

Suppose Randy plans to invest $1,000. He can earn an annual rate of 5% on Security A, while Security B has an effective annual rate of 10%. After 11 years, the compounded value of Security B should be somewhat less than double the compounded value of Security A.

True

The higher the rate of interest, the more likely you will elect to invest your funds and forego current consumption.

True

The present value is simply the current value of a future cash flow that has been discounted at the relevant discount rate.

True

The role of the financial system is to gather money from people, businesses and government that have funds to invest and to channel that money to those who need it.

True

Which of the following transactions occur in the money market?

U.S. government issued $1 million 3-month T0bills

If inflation is anticipated to be 6 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan? (use BOTH the full and simplified Fisher's equations)

Use the full Fisher's equation, nominal rate is 11.3% (=5%+6%+5%*6%) Use the simplified Fisher's equation, nominal rate is approximately 11% (=5%+6%)

Direct financing occurs when:

a borrower-spenders borrows directly from a lender-savers.

If a firm has had an agency conflict which is reflected by a poor performing stock for a long period of time, then the firm may become a target of:

a corporate raider

An example of an agency cost is:

a manager expensing a lavish dinner on the company expense report.

The major disadvantage of market-value accounting include:

all of the above are disadvantages of market-value accounting.

The golden rule is an example of:

an ethical norm

A mutual fund is an example of:

an investment fund.

The generally accepted accounting principles (GAAP) are riles

and procedures that define how companies are to maintain financial records and prepare financial statements.

Your uncle is planning to sell his second home in Bethany Beach, Delaware in the next few weeks. You are interested in buying this beachside property, so your agent negotiates a price for the house with your uncle's agent. This transaction is an example of the:

assumption of arm's-length transactions.

Interest is a tax-deductible expense. This causes firms to have a preference for financing with:

bonds.

The nominal rate of interest is comprised of:

both the real rate of interest and compensation for inflation.

The average tax rate is:

calculated by dividing the total taxes paid by the taxable income.

A primary market is a market for

companies to sell new securities directly to investors.

When the discount rate:

decreases, the present value of any future cash flow increases.

The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called:

financial intermediation.

Underwriting is the process by which an investment banker

helps a company sell its new security issue.

Savings by _____ in small dollar amounts is the origin of much of the money that funds business loans in an economy.

households

You loaned $100 to a friend for one year at a nominal rate of interest of 3 percent. Inflation during that year was 2 percent. How much did the purchasing power of your money change (an increase is positive and a decrease is negative)?

increased by 1 percent.

The present value of future cash flows:

increases as the discount rate decreases.

A financial system's primary function is funneling money from:

lender-savers to borrower-spenders.

The ease with which a security can be sold and converted into cash is called:

marketability.

Which of the following should be the goal of the firm?

maximizing market price of the share

A good capital budgeting decision is:

one in which the perceived benefits of the project are more than the cost of the asset.

Common stockholders are:

owners of a firm.

Casualty insurance companies sell:

protection against loss of property from fire, theft, accidents, and other predictable causes.

Annual reports are prepared by a firm's management to:

provide a broad overview of the firm's financial and operating performance.

Money markets are markets where

short-term financial instruments are traded

A stakeholder is:

someone who has a claim on the cash flows of the firm.

Generally, the future value of an investment will be greater if:

the investment is compounded at a higher rate of return.

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is:

the marginal tax rate.

An important function of the financial system is:

to direct money to the best investment opportunities in the economy.