FI 320 - Quizzes

Which of the following are current assets? I. patent II. inventory III. accounts payable IV. cash

II and IV only *accounts payable is an asset, but not a current asset

You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price? Assume semiannual periods.

$182.80

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates?

declaration date

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

operating cash flow

A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market?

over- the- counter

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

profitability

You don't particularly like to shop so only go to the mall once a month. To help make the trek more enjoyable, you always have lunch at the restaurant located inside the mall. Since you are such a creature of habit, you always order the same meal. You've noticed that the price of that meal has increased every time you have been there over the past six months. Thus, you expect the meal to increase in price next month. This is an example of which one of the following?

recency bias

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

stock dividend

An indenture is:

the legal agreement between the bond issuer and the bondholders

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

working capital

Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following?

yield to maturity

Winter Time Adventures is going to pay an annual dividend of $2.86 a share on its common stock next year. This year, the company paid a dividend of $2.75 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 11.7 percent?

$45.19

QUIZ ONE HERE

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Which one of the following accounts is the most liquid?

accounts receivable

Shareholders' equity:

represents the residual value of a firm

A business owned by a solitary individual who has unlimited liability for its debt is called a:

sole proprietorship

Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?

$309,076 Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600 Tax= $403,600 x .34 = $137,224 Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076

AB Industries is an all-equity firm that has $10 per share in cash and a book value per share of $12. At which one of the following market prices would you know with absolute certainty that the stock was mispriced?

$9

Dark Day, Inc., has declared a $5.10 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Dark Day sells for $93.85 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

89.52 The aftertax dividend is the pretax dividend times one minus the tax rate, so: Aftertax dividend = $5.10(1 - 0.15) = $4.34 The stock price should drop by the aftertax dividend amount, or: Ex-dividend price = $93.85 - 4.34 = $89.52

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?

Current Assets = $520 + $190 + $70 = $780

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7th. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8th. Fast Deliveries declared a dividend on June 20th to shareholders of record on July 12th and payable on August 1st. Which one of the following statements concerning the dividend paid on August 1st is correct given this information?

Kate is entitled to the dividend but Ted is not

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

agency problem

Bonds issued by the U.S. government:

are considered to be free of default risk.

You want to buy a bond from a dealer. Which one of the following prices will you pay?

asked price

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

Which one of the following rights is never directly granted to all shareholders of a publicly-held corporation?

determining the amount of the dividend to be paid per share

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

income statement

Free Motion Enterprises paid a $2.20 per share annual dividend last week. Dividends are expected to increase by 3.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent?

$20.29

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments. The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000?

$895.43

Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return?

14.60 percent

The ex-dividend date is defined as _____ business day(s) before the date of record.

2

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832. The yield to maturity is 16.28 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until these bonds mature?

2.10 years

Which one of the following statements related to market crashes is correct?

A severe market decline tends to occur over a multi-day period.

A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910. What is the amount of the total liabilities?

Current assets: $6,230 - $3,910 = $2,320 Current liabilities: $2,320 - $640 = $1,680 Total liabilities: $1,680 + $4,180 = $5,860

Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate investors IV. investors with high dividend tax rates but low capital gains tax rates

I, II, and III only

A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond? I. discounted price II. premium price III. yield-to-maturity that exceeds the coupon rate IV. yield-to-maturity that is less than the coupon rate

II and IV only

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

Net income = $1,300 + (-$310) = $990

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?

Net income = $75 + $418 + = $493 Taxable income = $493/(1-.35) = $758.46 Earnings before interest and taxes = $758.46 + $511 = $1,269.46

Chevelle, Inc., has sales of $43,500, costs of $19,900, depreciation expense of $1,600, and interest expense of $1,100. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

OCF = EBIT + Depreciation - Taxes = $22,000 + 1,600 - 7,315 = $16,285

You are given the following information for Calvani Pizza Co.: sales = $52,000; costs = $27,300; addition to retained earnings = $5,300; dividends paid = $1,800; interest expense = $4,900; tax rate = 35 percent. Calculate the depreciation expens

Sales = $52,300 Costs = $27,300 **Depr. = $8,877** EBIT = $15,823 Interest = $4,900 Taxes = $3,823 COGS = $44,900 Retained Earnings = $5,300 Dividends = $1,800 Owner's Equity = $7,100 COGS(expenses) + OE(distributions) = $52,300 = Sales

Your firm currently has taxable income of $81,900. How much additional tax will you owe if you increase your taxable income by $23,100?

Taxes on $81,900 income = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($81,900 - 75,000) = $16,096 New taxable income = $81,900 + $23,100 = $105,000 Taxes on $105,000 income = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($100,000 - 75,000) + 0.39($105,000 - 100,000) = $24,200 Additional tax = $24,200 - $16,096 = $8,104

Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent

The balance sheet for Chevelle Corp. is shown here in market value terms. There are 9,000 shares of stock outstanding. Market Value Balance Sheet Cash $ 43,700 Equity $ 353,700 Fixed assets 310,000 Total $ 353,700 Total $ 353,700 The company has declared a dividend of $1.40 per share. The stock goes ex dividend tomorrow.' Ignoring any tax effects, what is the stock selling for today? Ignoring any tax effects, what will it sell for tomorrow? Ignoring any tax effects, what will the balance sheet look like after the dividends are paid?

The stock price is the total market value of equity divided by the shares outstanding, so: P0 = $353,700 equity/9,000 shares = $39.30 per share Ignoring tax effects, the stock price will drop by the amount of the dividend, so: PX = $39.30 - 1.40 = $37.90 The total dividends paid will be: $1.40 per share(9,000 shares) = $12,600 The equity and cash accounts will both decline by $12,600. Balance Sheet Cash $ 31,100 Equity $341,100 Fixed assets 310,000 Total $ 341,100 Total $ 341,100

Determined the common stock for Bertinelli Corp. based on the following information: cash = $370,000; patents and copyrights = $750,000; accounts payable = $500,000; accounts receivable = $129,000; tangible net fixed assets = $4,000,000; inventory = $275,000; notes payable = $180,000; accumulated retained earnings = $1,215,000; long-term debt = $1,530,000.

Total liabilities and owners' equity is: TL & OE = CL + LTD + Common stock + Retained earnings Solving for this equation for equity gives us: Common stock = $5,524,000 - 1,215,000 - 2,210,000 = $2,099,000