FIN 301 Final- Multiple choice hw. 1-5

Which one of the following is included in the market value of a firm but not in the book value? A) Raw materials B) Partially built inventory C) Long-term debt D) Reputation of the firm E) Value of a partially depreciated machine

D) Reputation of the firm

You want to buy a new sports car from Roy's Cars for $51,800. The contract is in the form of a 48-month annuity due at an APR of 7.8 percent, compounded monthly. What would be your monthly payment? A) $1,251.60 B) $1,109.29 C) $1,245.70 D) $1,152.98 E) $1,084.32

A) $1,251.60

You want to purchase a new condominium that costs $287,500. You plan is to pay 25 percent down in cash and finance the balance over 25 years at 3.75 percent. What will be your monthly mortgage payment including principal and interest? A) $1,568.07 B) $1,333.33 C) $1,708.16 D) $1,221.43 E) $1,406.11

A) $1,568.07

The Embroidery Shoppe had beginning retained earnings of $18,670. During the year , the company reported sales of $83,490, costs of $68,407, depreciation of $8,200, dividends of $950, and interest paid f $478. The tax rate 34 percent. What is the retained earnings balance at the end of the year? A) $21,947.30 B) $22,193.95 C) $22,233.24 D) $23,783.24 E) $21,883.25

A) $21,947.30

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share? A) $25.51 B) $26.08 C) $24.57 D) $26.02 E) $26.84

A) $25.51

Gamma Corp. is expected to pay the following dividends over the next four years: $7.50, $8.25, $15, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return is 14 percent, what is the current share price? A) $35.20 B) $31.06 C) $38.18 D) $32.30 E) $34.90

A) $35.20

Home Supply, Inc. has compiled the following information: 2015 2016 Interest paid $ 10,500 $ 11,400 Long-term debt 287,400 293,500 Sales 614,200 718,900 Common Stock 280,000 294,500 Accounts payable 42,600 58,700 Depreciation 38,400 43,700 Accounts receivable 54,200 59,000 Inventory 121,600 128,300 Other costs 46,800 42,100 Taxes 16,100 20,200 Cash 18,200 9,500 Retained earnings 65,400 89,800 Net fixed assets 481,400 539,700 Cost of Goods sold 471,100 562,300 For 2016, the cash flow from assets is _____ and the cash flow to stockholders is _____. A) $5,600; $300 B) $5,600; $15,100 C) $5,600; $14,500 D) $6,300; $300 E) $6,300; $14,500

A) $5,600; $300

BUsiness Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent? A) $5.01 B) $8.09 C) $8.29 D) $7.03 E) $9.34

A) $5.01

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,00, and a 25 percent dividend payout ratio? A) 5.11 percent B) 4.88 percent C) 6.62 percent D) 7.67 percent E) 8.37 percent

A) 5.11 percent

Which one of these statements is true concerning the price-earnings (PE) ratio? A) A high PE ratio may indicate that a firm is expected to grow significantly B) A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings C) PE ratios are unaffected by the accounting methods employed by a firm D) The PE ratios is classified as a profitability ratio E) The PE ratio is a constant value for each firm

A) A high PE ratio ma indicate that a firm is expected to grow significantly

Which statement is true? A) From a legal perspective, preferred stock is a form of corporate equity B) All classes of stock must have equal voting rights per share C) Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions D) Preferred dividends provide tax-free income to individual investors E) Preferred shareholders prefer noncumulative dividends over cumulative dividends

A) From a legal perspective, preferred stock is a form of corporate equity

Which one of the following statements is correct? A) NASDAQ has more listed stocks than does the NYSE. B) The NYSE is a dealer market C) NASDAQ is an auction market D) NASDAQ has the most stringent listing requirements of any US exchange E) The trading floor for NASDAQ is located in Chicago

A) NASDAQ has more listed stocks than does the NYSE

First Bank offers personal loans at .77 percent compounded monthly. Second Bank offers similar loans at 7.4 percent compounded daily. Which one of the following statements is correct concerning these loans? Assume a 365-day year. A) The First Bank loan has an effective rate of 7.98 percent B) The second Bank loan has an effective rate of 8.01 percent C) The annual percentage rate for the Second bank loans is 7.68 percent D) Borrowers should prefer the loans offered by First Bank E) Both banks offer the same effective rate

A) The First Bank loan has an effective rate of 7.98 percent

A firm's liquidity level decreases when: A) inventory is purchased with cash B) inventory is sold on credit C) inventory is sold for cash D) an account receivable is collected E) process from a long-term loan are received

A) inventory is purchased with cash

Precision Engineering invested $125,000 at a 6 percent interest, compounded annually for 3 years. How much interest on interest did the company earn over this period of time? A) $1,284 B) $1,377 C) $1,317 D) $1,369 E) $2,679

B) $1,377

The Egg House just borrowed $660,000 to build a new restaurant. The loan terms call for equal annual payments at the end of each year. The loan is for 15 years at an APR of 8.35 percent. How much of the first annual payment will be used to reduce the principal balance? A) $21,311.62 B) $23,653.18 C) $18.211.08 D) $48,911.08 E) $51,420.90

B) $23,653.18

Jeffries & Sons is borrowing $95,000 for four years at an APR of 7.05 percent. The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually. Payments will be made at the end of each year. What is the total payment due for Year 3 of this loan? A) $28,224.90 B) $27,098.75 C) $25,424.38 D) $30,447.50 E) $28,773.13

B) $27,098.75

Horseshoe Stables is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. the last annual dividend was $.86 a share but all future dividends will be decreased by 3.5 percent annually. What is a share of this stock worth today at a required return of 17.8 percent? A) $3.06 B) $3.90 C) $3.41 D) $3.59 E) $3.95

B) $3.90

Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan. The original loan amount was $72,000 at an APR of 8.15 percent. How much of the third loan payment is interest? A) $5,868.00 B) $4,725.89 C) $4,896.48 D) $5,009.16 E) $4,687.53

B) $4,725.89

Spiral Staircase is offering preferred stock which is referred to as 10-10 stock. This stock will pay an annual dividend of $10 per share starting 10 years from now. What is this stock worth to you today if you require a rate of return of 9.5 percent? A) $66.70 B) $46.51 C) $49.63 D) $120.52 E) $105.26

B) $46.51

The Plaza Cafe has an operating cash flow of $83,770, depreciation expense of $43,514, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: Beginning Ending Balance Balance Current assets $138,590 $129,204 Net Fixed assets 599,608 597,913 Current liabilities 143,215 139,827 Long-term debt 408,660 402,120 What is the amount of the cash flow from assets? A) $26,359 B) $47,949 C) $61,487 D) $43,909 E) $35,953

B) $47,949

Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A) A decrease in the total assent turnover B) A decrease in the capital intensity ratio C) An increase in days' sales in receivables D) A decrease in the profit margin E) A decrease in the inventory turnover rate

B) A decrease in the capital intensity ratio

Which of the following applies to general partnership? A) the firm's operations must be controlled by a single partner B) Any one of the partners can be help solely liable for all of the partnership's debt C) The profits of the firm are taxed as a separate entity D) each partner's liability for the firm's debts is limited to each partner's investment in the firm E) The profits of a general partnership are taxed the same as those of a corporation

B) Any one of the partners can be help solely liable for all of the partnership's debt

Which one of the following is most apt to align management's priorities with shareholders' interests? A) holding corporate and shareholder meetings at high-end resort-type locations preferred by managers B) Compensating managers with shares of stick that must be held for a minimum of three years C) Paying a special management bonus on every fifth year of employment D) Increasing the number of paid holidays that long-term employees are entitled to receive E) Allowing employees to retire early with full retirement benefits

B) Compensating managers with shares of stock that must be held for a minimum of three years

The market value: A) of accounts receivable is generally higher than the book value of those receivables B) of an asset tends to provide a better guide to the actual worth of that asset than does the book value C) if fixed assets will always exceed the book value of those assets D) of an asset is reflected in the balance sheet E) of an asset is lowered each year by the amount of depreciation expensed for that asset

B) of an asset trends to provide a better guide to the actual worth of that asset than does the book value

A limited liability company (LLC): A) is a hybrid between a sole proprietorship and a partnership B) prefers its profits to be taxed as a personal income to its owners C) that meets the IRS criteria to be an LLC will be taxed like a corporation D) provides limited liability for some, but not for all, of its owners E) cannot be created for professional service firms, such as accountants and attorneys

B) prefers its profits be taxed as personal income to its owners

Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. the depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital? A) -$2,800 B) -$1,400 C) $1,400 D) $2,100 E) $2,800

C) $1,400

The manager of Gloria's Boutique has approved Carla's application for 24 months of credit with maximum monthly payments of $70. If the APR is 14.2 percent, what is the maximum initial purchase that Carla can buy on credit? A) $1,006.90 B) $1,300.00 C) $1,455.08 D) $1,184.75 E) $1,228.46

C) $1,455.08

What is the value today of $3,600 received at the end of each year for eight years if the first payment is paid at the end of Year 4 and the discount rate is 12 percent? A) $11,694.21 B) $12,484.57 C) $12,729.12 D) $15,089.23 E) $14,429.52

C) $12,729.12

A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be paid in four annual payments of $625 each, starting one year after the drawing. How much would this prize be worth to you if you can earn 9 percent on your money? A) $1,848.18 B) $19,34.24 C) $2,024.82 D) $2,450.14 E) $2,545.54

C) $2,024.82

Lacey will receive $135,000 a year for 5 years, starting today. If the rate of return is 8.9 percent, what are these payments worth today? A) $568,346.72 B) $531,019.80 C) $573,323.90 D) $564,009.27 E) $526468.23

C) $573,323.90

Taxable Income Rate $0-50,000 15% $50,001-75,000 25% $75,001-100,000 34% $100,001-335,000 39% $335,001-10,000,000 34% Comfy Inn earned $218,310 in taxable income for the year. How much tax does the company owe? A) $86,311.20 B) $85,140.90 C) $68,390.90 D) $69,998.20 E) $65,240.10

C) $68,390.90

Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a coupon rate of 6 percent and pays interest semiannually. There are two months until the next coupon date. What is the clean price of this bond? A) $947 B) $957 C) $967 D) $977 E) $987

C) $967

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent, paid semiannually, and a face value of $1,000. Today, the market yield on these bonds is 7.2 percent. What is the percentage change in the bond price over the past year? A) 5.94 percent B) 5.38 percent C) -6.11 percent D) -5.87 percent E) The bond price did not change

C) -6.11 percent

Pizza Pie maintains a constant debt-equity ratio of .55. the firm had net income of $14,800 for the year and paid $12,000 in dividends. the firm has total assets of $248,000. What is the sustainable growth rate? A) 3.38 percent B) 2.27 percent C) 1.78 percent D) 3.62 percent E) 4.97 percent

C) 1.78 percent

Mistletoe Gifts has $93,840 in total assets, depreciation of $2,106, and interest of $1,214. The total asset turnover rate is .94. Earnings before interest and taxes are equal to 19 percent of sales. What is the cash converge ratio? A) 6.33 B) 7.51 C) 15.54 D) 10.23 E) 13.98

C) 15.54

Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is .30. What is the internal growth rate? A) 2.32 percent B) 3.57 percent C) 5.60 percent D) 2.87 percent E) 4.94 percent

C) 5.60 percent

KBJ has total assets of $613,00. There are 21,000 shares of stack outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio? A) 6.38 B) 7.99 C) 6.65 D) 5.12 E) 7.41

C) 6.65

Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity? A) 6.77 percent B) 5.93 percent C) 8.95 percent D) 12.21 percent E) 14.09 percent

C) 8.95 percent

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. A) Cash purchase of inventory B) Cash payment on an account receivable C) Cash payment of an account payable D) Credit sale of inventory at cost E) Cash sale of inventory at a loss

C) Cash payment of an account payable

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for the risk? A) Taxability risk premium B) Default risk premium C) Interest rate risk premium D) Real rate of return E) Bond premium

C) Interest rate risk premium

Which of the following forms of business organization offers liability protection to some of its owners but not all of its owners? A) Sole proprietorship B) General partnership C) Limited partnership D) Limited liability company E) Corporation

C) Limited partnership

Which one of the following is an advantage of being a limited partner? A) Nontaxable share of any profits B) Control over the daily operations of the firm C) Losses limited to capital invested D) Unlimited profits without risk of incurring a loss E) Active market for ownership interest

C) Losses limited to capital invested

Companies can list their stock on which one of the following without having to meet listing requirements or filing financial statements with the SEC? A) NASDAQ Capital Market B) Over-the-counter Bulletin Board C) Pink sheets D) NASDAQ Global Market E) NYSE

C) Pink sheets

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? A) To be the perpetuity, the payments must occur on the first day of each monthly period B) The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years C) The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due D) The future value of all three investments must be equal E) The present value of all three investments must be equal

C) 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 statements about a limited partnership is correct? A) All partners have their losses limited to their capital investment in the partnership B) All patterns are treated equally C) There must be at least one general partner D) Equity financing is easy to obtain and unlimited E) Any partner can transfer his or her ownership interest without ending the partnership

C) There must be at least one general partner

A bond trader just purchased and resold a bond. the amount of profit earned by the trader from this purchase and resale is referred to as the: A) market yield B) yield-to-call C) bid-ask spread D) current yield E) bond premium

C) bid-ask spread

One example of a primary market transaction would be the: A) sale of 100 shares of stock by Maria to her best friend B) purchase by Theo of 5,000 shares of stock from his father C) sale of 1,000 shares of newly issued stick by Alt Company to Miquel D) sale by Terry of 50,000 shares of stock to his brother E) sale of 5,000 shares of stock owned by a corporate CEO to his son

C) sale of 1,000 shares of newly issued stock by Alt Company to Miquel

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A) dealer market B) over-the-counter market C) secondary market D) primary market E) tertiary market

C) secondary market

An agency issue is most apt to develop when: A) a firm encounters a period of stagnant growth B) a firm downsizes C) the control of a firm is separated from the firm's ownership D) the firm's owner is also its key manager E) a firm is structured as a general partnership

C) the control of a firm is separated from the firm's ownership

The sustainable growth rate is based on the premise that: A) An additional dollar of debt will be acquired only if an additional dollar in equity shares is issued B) no additional equity will be added to the firm C) the debt-equity ratio will be held constant D) the dividend payout ratio will be zero E) the dividend payout ratio will increase at a steady rate

C) the debt-equity ratio will be held constant

Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets? A) $21,600 B) $18,100 C) $28,900 D) $29,400 E) $6,800

D) $29,400

The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is 8,400. What is the amount of the firm's operating cash flow if the tax rate is 34 percent? A) $87,620 B) $89,540 C) $91,220 D) $93,560 E) $95,240

D) $93,560

Dockside Warehouse has net working capital of $42,400, total assets of $519,300, and net fixed assets of $380,200. What is the value of the current liabilities? A) $61,700 B) $88,40000 (<-lol that what it said) C) $102,900 D) $96,700 E) $111,500

D) $96,700

Which of the following bonds is the most sensitive to changes in market interest rates? A) 5-year, zero coupon B) 5-year, 5 percent coupon C) 5-year, 8 percent coupon D) 10-year, zero coupon E) 10-year, 5 percent coupon

D) 10-year, zero coupon

One advantage of the corporate form of organization is the: A) taxation of the corporate profits B) unlimited liability for its shareholders C) double taxation of profits D) Ability to raise larger sums of equity capital than other organizational forms E) ease of formation compared to other organizational forms

D) Ability to raise larger sums of equity capital than other organizational forms

Which statement is true? A) All else equal, an ordinary annuity is more valuable than an annuity due B) All else equal, a decrease in the number of payments increases the future value of an annuity C) An annuity with payments at the beginning of each period is called an ordinary annuity D) All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity E) All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity

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

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? A) The present value of Annuity A is equal to the present value of Annuity B B) Annuity B will pay one more payment than Annuity A will C) The future value of Annuity A is greater than the future value of Annuity B D) Annuity B has both higher present value and a higher future value than Annuity A E) Annuity A has a higher future value but a lower present value than Annuity B

D) Annuity B has both higher present value and a higher future value than Annuity A

Which one of the following situations is most apt to create an agency conflict? A) Compensating a manager based on his or her division's net income B) Giving all employees a bonus if a certain level of efficiency is maintained C) Hiring an independent consultant to study the operating efficiency of the firm D) Basing management bonuses on the length of employment E) Laying off employees during a slack period

D) Basing management bonuses on the length of employment

Donovan's would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? A) Return on assets B) Net income C) Retention ratio D) Dividend payout ratio E) Return on equity

D) Dividend payout ratio

Outdoor Gear reduced its general and administrative costs this year. The cost improvement will increase which of the following ratios? I. Profit margin II. Return on assets III. Total asset turnover IV. Return on equity A) I and II only B) I and III only C) II, III, and IV only D) I, II, and IV only E) I, II, III, and IV

D) I, II, and IV only

A sole proprietorship: A) provides limited financial liability for its owner B) involves significant legal costs during the formation process C) has an unlimited life D) has its profits taxed as personal income E) can generally raise significant capital from non-owner sources

D) has its profits taxed as personal income

A protective covenant: A) protects the borrower from unscrupulous practices by the lender B) guarantees the interest and principal payments will be paid in full on a timely basis C) prevents a bond from being called D) limits the actions of the borrower E) guarantees the market price of a bond will never be less than par value

D) limits the actions of the borrower

The primary goal of financial management is to maximize: A) current profits B) market share C) current dividends D) the market value of existing stock E) revenue growth

D) the market value of existing stock

The balance sheet of a firm shows beginning next fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $40,080 and the interest expense is $11,460. What is the amount of the net capital spending? A) -$22,360 B) -$4,780 C) $23,720 D) $58,340 E) $69,800

E) $69,800

Anne plans to save $40 a week, starting next week, for ten years and earn a rate of return of 4.6 percent, compounded weekly. After the ten years, she will discontinue saving and invest her account at 6.5 percent, compounded annually. How long from now will it be before she has accumulated a total of $50,000? A) 10.32 years B) 21.14 years C) 15.08 years D) 11.14 years E) 20.32 years

E) 20.32 years

Red's Tractors owes $52,311 in taxes on taxable income of $608,606. The company has determined that it will owe $56,211 in tax if its taxable income rises to $620,424. What is the marginal tax rate at this level of income? A) 39% B) 38% C) 35% D) 34% E) 33%

E) 33%

Which one of the following statements is true? A) The current yield on a par value bond will exceed the bond's yield to maturity B) The yield to maturity on a premium bond exceeds the bond's coupon rate C) The current yield on a premium bond is equal to to the bond's coupon rate D) A premium bond has a current yield that exceeds the bond's coupon rate E) A discount bond has a coupon rate that is less than the bond's yield to maturity

E) A discount bond has a coupon rate that is less than the bond's yield to maturity

Which of the following statements is correct? A) Peer group analysis is easier when a firm is a conglomerate versus when it only has a single line of business B) Peer group analysis is easier when seasonal firms have different fiscal years C) Peer group analysis is easier when seasonal firms have different fiscal years D) Comparing results across geographic locations is easier since all countries now use a common set of accounting standards E) Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory

E) Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory

An increase in which of the following will increase operating cash flow for a profitable, tax-paying firm? A) Fixed expenses B) Marginal tax rate C) Net capital spending D) Inventory E) Depreciation

E) Depreciation

Which one of the following will increase the current value of a stock? A) Decrease in the dividend growth rate B) Increase in the required return C) Increase in the market rate of return D) Decrease in the expected dividend for next year E) Increase in the capital gains yield

E) Increase in the capital gains yield

Which of the following statements is correct? A) All of the major stock exchanges are US based B) The NYSE was created by the National Association of Securities Dealers in the early 1930's C) The Chicago Stick Exchange is a dealer market D) OTC markets have a physical trading floor generally located in either New York City or Chicago E) The primary purpose of the NYSE is to match buyers with sellers

E) The primary purpose of the NYSE is to match buyers with sellers

A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: A) pays cash for its inventory B) has more than half its current assets invested in inventory C) has more cash than inventory D) has more current liabilities than it does current assets E) has positive net working capital

E) has positive net working capital

Net working capital increases when: A) fixed assets are purchased for cash B) inventory is purchased on credit C) inventory is sold at cost D) a credit customer pays for his or her purchase E) inventory is sold at a profit

E) inventory is sold at a profit

A firm has an equity multiplier of 1.5. This means that the firm has a: A) debt-equity ratio of .67 B) debt-equity ratio of .33 C) total debt ratio of .50 D) total debt ratio of .67 E) total debt ratio of .33

E) total debt ratio of .33