FIN 365 Connect Problems 1

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

Jordan and Carmen created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? a. Sole proprietorship b. Limited partnership c. General partnership d. Corporation e. Public company

d. Corporation

Which one of the following will increase the profit margin of a firm, all else held constant? a. Increase in interest paid b. Increase in fixed costs c. Increase in depreciation expense d. Decrease in the tax rate e. Decrease in sales

d. Decrease in the tax rate

Which one of these is correct? a. Depreciation has no effect on taxes. b. Interest paid is a noncash item. c. Taxable income must be a positive value. d. Net income is distributed either to dividends or retained earnings. e. Taxable income equals net income multiplied by (1 + Average tax rate).

d. Net income is distributed either to dividends or retained earnings.

A company has a pension liability of $410,000,000 that it must pay in 26 in years. If it can earn an annual interest rate of 3.7 percent, how much must it deposit today to fund this liability? $64,278,729.02 $130,545,018.79 $153,729,577.72 $140,677,021.20 $159,417,572.09

$159,417,572.09

You just purchased two coins at a price of $550 each. Because one of the coins is more collectible, you believe that its value will increase at a rate of 6.9 percent per year, while you believe the second coin will only increase at 6.3 percent per year. If you are correct, how much more will the first coin be worth in 20 years? $522.54 $69.90 $619.90 $144.13 $222.40

$222.40

The winner of the first annual Tom Morris Golf Invitational won $100 in the competition which was held in 1898. In 2015, the winner received $1,450,000. If the winner's purse continues to increase at the same interest rate, how much will the winner receive in 2049? $23,477,639.53 $21,671,667.26 $21,343,308.66 $26,412,344.47 $18,782,111.62

$23,477,639.53

You need to have $34,500 in 7 years. You can earn an annual interest rate of 5 percent for the first 4 years, and 5.6 percent for the next 3 years. How much do you have to deposit today? $24,518.51 $24,102.95 $22,695.07 $23,559.80 $21,837.75

$24,102.95

Five years from today, you plan to invest $3,700 for 7 additional years at 5.8 percent compounded annually. How much will you have in your account 12 years from today? $7,278.30 $5,876.82 $5,189.38 $5,994.05 $5,490.37

$5,490.37

Beatrice invests $1,400 in an account that pays 5 percent simple interest. How much more could she have earned over a 6-year period if the interest had been compounded annually? $56.13 $39.87 $336.80 $23.14 $33.22

$56.13

Efran's Auto Repair has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485. What is the total debt ratio? .50 .37 .64 .46 .60

.37

Mader's Camping Supply reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios? (multiple answers) 1. Profit margin 2. Return on assets 3. Total asset turnover 4. Return on equity

1, 2, and 4 only

You expect to receive a payout from a trust fund in 4 years. The payout will be for $12,000. You plan to invest the money at an annual rate of 6.2 percent until the account is worth $20,500. How many years do you have to wait from today? 12.90 years 11.61 years 11.47 years 9.68 years 8.90 years

12.90 years

A firm has net income of $197,400, a return on assets of 9.7 percent, and a debt-equity ratio of .85. What is the return on equity? 11.67% 18.98% 14.45% 16.22% 17.95%

17.95%

Bob bought some land costing $16,390. Today, that same land is valued at $46,817. How long has Bob owned this land if the price of land has been increasing at 6 percent per year? 17.14 years 18.01 years 16.17 years 20.19 years 19.05 years

18.01 years

Varya's Dance Supply has total assets of $550,000 and total debt of $295,000. What is the equity multiplier? .46 1.0 1.075 1.86 2.16

2.16

Rick deposited $2,600 into an account 8 years ago for an emergency fund. Today, that account is worth $4,025. What annual rate of return did Rick earn on this account assuming no other deposits and no withdrawals? 4.19% 6.18% 5.39% 5.24% 5.61%

5.61%

Raynar Enterprises has total equity of $645,500, sales of $1.15 million, and a profit margin of 3.6 percent. What is the return on equity? 4.16% 6.44% 7.13% 6.41% 7.07%

6.41%

AMC Supply has total assets of $613,000. There are 21,000 shares of stock 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? 6.38 7.99 6.65 5.12 7.41

6.65

You have just deposited $12,000 into an account that promises to pay you an annual interest rate of 6.7 percent each year for the next 8 years. You will leave the money invested in the account and 20 years from today, you need to have $44,950 in the account. What annual interest rate must you earn over the last 12 years to accomplish this goal? 6.91% 6.38% 6.28% 7.77% 5.53%

6.91%

Al's Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity. What is the firm's return on assets? 12.00% 7.27% 15.15% 13.75% 8.33%

7.27%

Alameda Markets would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? Return on assets Net income Retention ratio Dividend payout ratio Return on equity

Dividend payout ratio

Which of the following is true regarding the internal growth rate? It represents the maximum possible growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio. It represents the maximum possible growth rate a firm can achieve without external financing of any kind. It represents the potential growth of the company based only on internal management controls. It represents the potential growth of the company after the addition of fixed assets. It represents the potential growth of the company if more common stock is issued and sold.

It represents the maximum possible growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio.

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 ratio is classified as a profitability ratio. e. The PE ratio is a constant value for each firm.

a. A high PE ratio may indicate that a firm is expected to grow significantly.

The equity multiplier is equal to: a. one plus the debt-equity ratio. b. one plus the total asset turnover. c. total debt divided by total equity. d. total equity divided by total assets. e. one divided by the total asset turnover.

a. one plus the debt-equity ratio.

Security dealers: a. match buyers with sellers. b. buy and sell from their own inventory. c. operate on a physical trading floor. d. operate exclusively in auction markets. e. are limited to trading non-listed stocks.

b. buy and sell from their own inventory.

All else held constant, the book value of owners' equity will decrease when: a. the market value of inventory increases. b. dividends exceed net income for a period. c. cash is used to pay an accounts payable. d. a long-term debt is repaid. e. taxable income increases.

b. dividends exceed net income for a period.

Operating cash flow is defined as: a. a firm's net profit over a specified period. b. the cash that a firm generates from its normal business activities. c. a firm's operating margin. d. the change in the net working capital over a stated period. e. the cash that is generated and added to retained earnings.

b. the cash that a firm generates from its normal business activities.

For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200. What is the amount of the dividends paid? a. $100 b. $7,500 c. $7,600 d. $15,100 e. $16,700

c. $7,600

Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow? a. Increase in depreciation b. Increase in accounts receivable c. Increase in accounts payable d. Decrease in cost of goods sold e. Increase in sales

c. Increase in accounts payable

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

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? a. Indirect cost b. Direct cost c. Noncash item d. Period cost e. Variable cost

c. Noncash item

The term "free cash flow" is another term to describe: a. operating cash flow. b. cash that comes "free" to the company. c. cash flow from assets. d. increases in cash account each year.

c. cash flow from assets.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: a. average tax rate. b. variable tax rate. c. marginal tax rate. d. fixed tax rate. e. ordinary tax rate.

c. marginal tax rate.

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 stock 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.

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.

The shareholders of Qiang's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: a. a corporate takeover. b. a capital structure issue. c. a working capital decision. d. an agency conflict. e. a compensation issue.

d. an agency conflict

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.

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.

Kahlan Opinion Surveys had beginning retained earnings of $24,600. During the year, the company reported sales of $105,700, costs of $78,300, depreciation of $9,000, dividends of $1,200, and interest paid of $635. The tax rate is 21 percent. What is the retained earnings balance at the end of the year? a. $35,835.50 b. $36,082.15 c. $36,121.44 d. $37,671.44 e. $37,434

e. $37,434

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued? a. Positive operating cash flow b. Negative cash flow from assets c. Positive net income d. Negative operating cash flow e. Positive cash flow to stockholders

e. Positive cash flow to stockholders

Scranton Paper Company generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? a. Receivables turnover b. Equity multiplier c. Profit margin d. Return on assets e. Total asset turnover

e. Total asset turnover

Probably the least effective means of aligning management goals with shareholder interests is: a. the potential for a proxy fight by an unhappy segment of shareholders. b. basing all management bonuses on performance goals. c. holding management salaries steady while increasing stock option grants. d. the threat of a takeover of the firm. e. automatically increasing management salaries on an annual basis.

e. automatically increasing management salaries on an annual basis.

Net working capital is defined as: a. available cash minus current liabilities. b. the depreciated book value of a firm's fixed assets. c. total assets minus total liabilities. d. the value of a firm's current assets. e. current assets minus current liabilities.

e. current assets minus current liabilities.

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.

The market value of a firm's fixed assets: a. will always exceed the book value of those assets. b. is more predictable than the book value of those assets. c. in addition to the firm's net working capital reflects the true value of a firm. d. is decreased annually by the depreciation expense. e. is equal to the estimated current cash value of those assets.

e. is equal to the estimated current cash value of those assets.

An income statement prepared according to GAAP: a. reflects the net cash flows of a firm over a stated period. b. reflects the financial position of a firm as of a particular date. c. distinguishes variable costs from fixed costs. d. records revenue when payment for a sale is received. e. records expenses based on the matching principle.

e. records expenses based on the matching principle.

Financial statement analysis: is primarily used to identify account values that meet the normal standards. is limited to internal use by a firm's managers. provides useful information that can serve as a basis for forecasting future performance. provides useful information to shareholders but not to debtholders. is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods.

provides useful information that can serve as a basis for forecasting future performance.