Finance exam

Capital structure decisions include determining:

how much debt should be assumed to fund a project.

Net capital spending:

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

A general partner:

is personally responsible for all partnership debts.

Disturbed, Inc., had the following operating results for the past year: sales = $22,548; depreciation = $1,330; interest expense = $1,072; costs = $16,500. The tax rate for the year was 30 percent. What was the company's operating cash flow?

$4,954 Operating cash flow=Net profit+Interest+depreciation =sales-cost-depreciation-interest-tax+interest+depreciation 22548-16500-1330-1072-tax+1072+1330 =6048-tax Tax calculation= (sales-cost-depreciation-interest)(tax%) (22548-16500-1330-1072)(30%)=1093.8 6048-1093.8=$4954.2

When your father was born 43 years ago, his grandparents deposited $300 in an account for him. Today, that account is worth $38,300. What was the annual rate of return on this account?

We use the formula:A=P(1+r/100)^n where A=future value P=present value r=rate of interest n=time period. 38,300=300*(1+r/100)^43 (38,300/300)^(1/43)=(1+r/100) (1+r/100)=1.1193 r=1.1193-1 =11.93%(Approx).

A firm's short-term assets and its short-term liabilities are referred to as the firm's:

Working capital

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

a capital structure decision.

You expect to receive $3,600 upon your graduation and will invest your windfall at an interest rate of 0.53 percent per quarter until the account is worth $5,125. How many years do you have to wait until you reach your target account value?

16.7 years https://www.chegg.com/homework-help/questions-and-answers/expect-receive-3-500-upon-graduation-invest-windfall-interest-rate-51-percent-per-quarter--q53794589?trackid=fd73ea7ab114&strackid=b368bc8627d3

Which one of the following statements related to the cash flow to creditors must be correct?

A positive cash flow to creditors represents a net cash outflow from the firm.

You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?

Annuity B has a smaller present value than annuity A. Annuity A will started to pay today. That means it is a annuity due. Similarly Annuity B will started to pay one month from today. That means it is an ordinary annuity. Its both present value and future value are different. Other things remaining the same, annuity due has higher present and future value when compared to ordinary annuity.

Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

As the number of periods decreases, the present value is increased. So, here, when the graduation period is reduced by one year, the present value will be increased. Increase

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

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

Days sales in inventory = (Inventory/cost of goods sold)*365 If sales are increasing, then cost of goods sold will also increase. Inventory is constant. This will lead to decrease in days sales inventory. For example, cost of goods sold increased to $10,000 from earlier $8,000 as a result of increase in sales. Inventory is constant at $5,000. Earlier days sales inventory = (5000/8000)*365 = 228 days After the increase it is (5000/10000)*365 = 183 days. Hence there is a decrease in days sales inventory. View comments (1)

A firm has total debt of $1,360 and a debt-equity ratio of .21. What is the value of the total assets?

Debt Equity Ratio = Debt/Equity .21 = 1360/Equity Equity = 1360/.21=6476.19 Total Assets = Total Liabilities = Debt = Equity = 1360+6476.19 Answer is 7836.19

Peggy Grey's Cookies has net income of $410. The firm pays out 37 percent of the net income to its shareholders as dividends. During the year, the company sold $86 worth of common stock. What is the cash flow to stockholders?

Dividends Paid = Net Income * Payout Ratio = $ 410 * 37% = $ 151.70 Cash flow to stockholders = Dividends Paid - Common stock raised = $ 151.70 - $ 86 = $ 65.70 Answer = $ 65.70

You want to buy a house and will need to borrow $280,000. The interest rate on your loan is 6.19 percent compounded monthly and the loan is for 20 years. What are your monthly mortgage payments?

EMI = [P * I * (1+I)^N]/[(1+I)^N-1] P =loan amount or Principal = 280,000 I = Interest rate per month = 6.19/12 % [To calculate rate per month: if the interest rate per annum is 14%, the per month rate would be 14/(12 x 100)] N = the number of installments = 20*12 = 240 EMI = [280000 * (.0619/12) * (1+(.0619/12))^240]/[(1+(.0619/12))^240 -1] = (1444.33333333*3.4377525513)/(3.4377525513-1) = 4965.26060158/2.4377525513 = 2036.82

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 will decrease Let us illustrate with some example Equity Multiplier=Total Assets/Total Stock holder's Equity Total Assets=$12000 Stock holder's Equity=$2,000 Hence Equity Multiplier =12,000/2,000=6 If we pay debt by cash Lets say =$2,000 Total Asset will become=$10,000 Hence Equity Multiplier =10,000/2,000=5

Bob has been investing $6,500 in stock at the end of every year for the past 15 years. If the account is currently worth $198,700, what was his annual return on this investment?

FVOrdinary Annuity = C*(((1 + i )^n -1)/i) C = Cash flow per period i = interest rate n = number of payments 198700= 6500*(((1+ Interest rate/100)^15-1)/(Interest rate/100)) Interest rate% = 9.51

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements

Which one of the following questions is a working capital management decision?

How much inventory should be on hand for immediate sale?

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the company's equity

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

Marginal

Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?

Nan will have more money than Neal at any age.

Which one of the following statements concerning net working capital is correct?

Net working capital may be a negative value.

Your parents are giving you $225 a month for 4 years while you are in college. At an interest rate of .52 percent per month, what are these payments worth to you when you first start college?

Number of periods = 4 * 12 = 48 Present value = Monthly payments * [1 - 1 / (1 + r)n] / r Present value = 225 * [1 - 1 / (1 + 0.0052)48] / 0.0051 Present value = 225 * [1 - 0.779616] / 0.0052 Present value = 225 * 42.381462 Present value = $9,535.83 Payments will be worth $9,535.83

Your firm has net income of $343 on total sales of $1,360. Costs are $750 and depreciation is $120. The tax rate is 30 percent. The firm does not have interest expenses. What is the operating cash flow?

Operating cash flow would be=Net income+Depreciation =343+120 which is equal to =$463

What is the present value of $12,450 to be received 2 years from today if the discount rate is 6 percent?

PV = $12,450 / (1+0.06)2 = $11,080.46

George Jefferson established a trust fund that will provide $176,500 per year in scholarships. The trust fund earns an annual return of 2.3 percent. How much money did Mr. Jefferson contribute to the fund assuming that only income is distributed?

Present value of perpetuity=Annual cash flows/annual return =176500/0.023 which is equal to =$7673913.04(Approx).

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. https://www.chegg.com/homework-help/questions-and-answers/project-cash-flows-4-000-3-000-0-3-000-years-1-4-respectively-project-b-cash-flows-2-000-3-q35131342?trackid=fb5e0366fa49&strackid=025f7357fd0f

Which one of the following ratios is a measure of a firm's liquidity?

Quick Ratio

A firm has a return on equity of 17 percent. The total asset turnover is 1.6 and the profit margin is 5 percent. The total equity is $5,200. What is the net income?

Return on equity (ROE) = net income / total equity 17% = net income / 5,200 net income = 5,200*17% net income = $884

Use the following information to answer this question. Bayside, Inc.2017 Income Statement($ in thousands)Net sales$5,840 Cost of goods sold 4,250 Depreciation 335 Earnings before interest and taxes$1,255 Interest paid 31 Taxable income$1,224 Taxes 367 Net income$857 Bayside, Inc.2016 and 2017 Balance Sheets($ in thousands) 2016 2017 2016 2017 Cash$90 $195 Accounts payable$1,435 $1,405 Accounts rec. 960 800 Long-term debt 760 560 Inventory 1,605 1,990 Common stock 3,230 3,230 Total$2,655 $2,985 Retained earnings 830 1,080 Net fixed assets 3,600 3,290 Total assets$6,255 $6,275 Total liab. & equity$6,255 $6,275 What is the return on equity for 2017?

Return on equity=net income/equity 857/3320+1080=19.88

Which one of the following parties has ultimate control of a corporation?

Shareholders

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Which one of the following statements concerning a sole proprietorship is correct?

The owner of a sole proprietorship is personally responsible for all of the company's debts.

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

cash flow to creditors.

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 Because if he will retire later there will be good time to keep the money in investments which will result in high interest rate. Let me know in case any question.

Mortgage lenders probably have the most interest in the ______ ratios.

long-term debt and times interest earned

As the degree of financial leverage increases, the:

probability a firm will encounter financial distress increases.

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:

sole proprietorship.

Corporate dividends are:

taxable income of the recipient even though that income was previously taxed.

Working capital management decisions include determining:

the minimum level of cash to be kept in a checking account.

An example of a capital budgeting decision is deciding:

whether or not to purchase a new machine for the production line.