Business Finance 310 Exam 1

Which one of the following statements related to corporate taxes is correct?

The marginal tax rate for a company can be either higher than or equal to the average tax rate.

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

Utilizing its total assets more efficiently than Sam's

Quick Ratio for 2017?

.87 Current assets-inventory/ current liabilities Current liabilities DO NOT include long term debt, common stock, or retained earnings

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Income statement

Your parents are giving you $240 a month for 4 years while you are in college. At an interest rate of .55 percent per month, what are these payments worth to you when you first start college?

$10,100.54

Your parents have made you two offers. The first offer includes annual gifts of $5,000, $6,000, and $8,000 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 6.2 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer?

$16,707.06

Red Sun Rising Corp. has just signed a lease for its new manufacturing facility. The lease agreement calls for annual payments of $1,600,000 for 20 years with the first payment due today. If the interest rate is 3.45 percent, what is the value of this liability today?

$23,631,155.52

A company has net working capital of $1,888. If all its current assets were liquidated, the company would receive $5,819. What are the company's current liabilities?

$3931 1,888= 5819- X

Your firm has net income of $315 on total sales of $1,260. Costs are $700 and depreciation is $110. The tax rate is 30 percent. The firm does not have interest expenses. What is the operating cash flow?

$425

Teddy's Pillows had beginning net fixed assets of $463 and ending net fixed assets of $534. Assets valued at $311 were sold during the year. Depreciation was $26. What is the amount of net capital spending?

$97 534-463+ 26

Marginal tax rate

% tax paid on the next dollar earned

Your credit card company charges you 1.38 percent per month. What is the APR on your credit card?

%16.56

You expect to receive $3,700 upon your graduation and will invest your windfall at an interest rate of .55 percent compounded quarterly until the account is worth $5,200. How many years do you have to wait until you reach your target account value?

15.51 years

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

Taxes reduce both net income and operating cash flow.

Jupiter Explorers has $9,200 in sales. The profit margin is 3 percent. There are 4,400 shares of stock outstanding, with a price of $1.50 per share. What is the company's price-earnings ratio?

23.91 9200/4400= 2.0909 2.0909*.03=.0627 1.50/.0627= 23.91

Five years from today, you plan to invest $2,800 for 7 additional years at 5.2 percent compounded annually. How much will you have in your account 12 years from today?

3,992.71 Use N=7

Thom owes $6,800 on his credit card. The credit card carries an APR of 18.2 percent compounded monthly. If Thom makes monthly payments of $215 per month, how long will it take for him to pay off the credit card assuming that he makes no additional charges?

43.40 months 18.2/12= 1.516 for I/Y

You are going to deposit $4,300 in an account that pays .69 percent interest per quarter. How much will you have in 6 years?

5,071.55

The decision to issue additional shares of stock is an example of:

A capital structure decision

Book value and market value

Book- what you paid for it Market- what it's worth

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital Structure

Process of planning and managing a firm's long term investments

Capital budgeting

The cash flow related to interest payments less any net new borrowing is called the:

Cash flow to creditors

Christina invested $3,000 five years ago and earns 2 percent annual interest. 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:

Compounding

DL Farms currently has $600 in debt for every $1,000 in equity. Assume the company uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?

Equity multiplier

If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:

Has an equity multiplier equal to 1

Capital structure decisions include determining:

How much debt to be assumed to fund a project

Balance sheet structure Left side is... Right side is...

Left- assets of the firm Right- equity and liabilities

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

Marginal

Decisions made by financial managers should primarily focus on increasing the:

Market value per share of outstanding stock

All-State Moving had sales of $899,000 in 2017 and $967,000 in 2018. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?

Net working capital turnover rate increased

Which term relates to the cash flow that results from a company's ongoing, normal business activities?

Operating cash flow

Is networking capital positive or negative for a healthy firm?

Positive

Project A has cash flows of $4,000, $3,000, $0, and $3,000 for Years 1 to 4, respectively. Project B has cash flows of $2,000, $3,000, $2,000, and $3,000 for Years 1 to 4, respectively. Which one of the following statements is correct assuming the discount rate is positive? (No calculations needed)

Project B is worth less today than Project A.

Shareholders' equity:

Represents the residual value of a firm

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

Renee invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?

Simple interest

Cash flow to stockholders is defined as:

dividend payments less net new equity raised.

Which one of the following is an agency cost?

hiring outside accountants to audit the company's financial statements

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 can deposit a smaller lump sum today.

later; sooner; high

Assets=

liabilities + stockholders equity