FIN 300 Exam 1
Which one of the following functions should be the responsibility of the controller rather than the treasurer?
Processing cost reports
Which one of the following is a primary market transaction?
Sale of a new share of stock to an individual investor
The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $5.4 million, and the 2018 balance sheet showed long-term debt of $5.8 million. The 2018 income statement showed an interest expense of $130,000. What was the firm's cash flow to creditors during 2018?
$-270,000 Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $130,000 - ($5,800,000 - 5,400,000) Cash flow to creditors = -$270,000
The 2017 balance sheet of Dream, Inc., showed current assets of $3,180 and current liabilities of $1,455. The 2018 balance sheet showed current assets of $3,030 and current liabilities of $1,700. What was the company's 2018 change in net working capital, or NWC?
$-395 Change in NWC = NWC^end - NWC^beg Change in NWC = (CA^end - CL^end) - (CA^beg - CL^beg) Change in NWC = ($3,030 - 1,700) - ($3,180 - 1,455) Change in NWC = $1,330 - 1,725 Change in NWC = -$395
For the past year, Kayla, Inc., has sales of $46,967, interest expense of $4,088, cost of goods sold of $17,184, selling and administrative expense of $12,051, and depreciation of $6,850. If the tax rate is 35 percent, what is the operating cash flow?
$15,354 EBIT = $46,967 − 17,184 − 12,051 − 6,850 = $10,882 EBT = $10,882 − 4,088 = $6,794 Taxes = $6,794(.35) = $2,378 OCF = $10,882 + 6,850 − 2,378 = $15,354
Imprudential, Inc., has an unfunded pension liability of $583 million that must be paid in 15 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7.6 percent, what is the present value of this liability?
$194,305,227.49 PV = FV/(1 + r)t PV = $583,000,000/(1.076)15 PV = $194,305,227.49
You want to have $79,000 in your savings account 13 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.30 percent interest, what amount must you deposit each year?
$3,846.79 FVA = C{[(1 + r)^t − 1]/r} $79,000 = $C[(1.0730^13 − 1)/.0730] C = $79,000/20.53662 C = $3,846.79
The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 5.8 percent, how much will you pay for the policy?
$431,034.48 PV = C/r PV = $25,000/.0580 PV = $431,034.48
If you put up $48,000 today in exchange for a 6.25 percent, 15-year annuity, what will the annual cash flow be?
$5,023.26 PVA = C({1 − [1/(1 + r)^t]}/r) PVA = $48,000 = $C{[1 − (1/1.0625^15)]/.0625} C = $48,000/9.555549 C = $5,023.26
Red Barchetta Co. paid $27,815 in dividends and $28,752 in interest over the past year. During the year, net working capital increased from $13,674 to $18,394. The company purchased $42,770 in fixed assets and had a depreciation expense of $17,120. During the year, the company issued $25,175 in new equity and paid off $21,245 in long-term debt. What was the company's cash flow from assets?
$52,637 Cash flow from assets = ($28,752 + 21,245) + ($27,815 − 25,175) = $52,637
At 5.5 percent interest, how long does it take to double your money?
12.95 years FV = $2 = $1(1.055)t t = ln(2)/ln(1.055) t = 12.95 years
Find the EAR with 15% continuous compounding
16.18% EAR = e^q - 1 EAR = e.^15 - 1 EAR = .1618, or 16.18%
Find the EAR with 16% compounded quarterly
16.99% EAR = [1 + (APR/m)]^m - 1 EAR = [1 + (.16/4)]^4 - 1 EAR = .1699, or 16.99%
Find the EAR with 16% compounded monthly
17.23% EAR = [1 + (APR/m)]^m - 1 EAR = [1 + (.16/12)]^12 - 1 EAR = .1723, or 17.23%
Find the EAR with 16% compounded daily
17.35% EAR = [1 + (APR/m)]^m - 1 EAR = [1 + (.16/365)]^365 - 1 EAR = .1735, or 17.35%
Assume that in January 2017, the average house price in a particular area was $313,200. In January 2001, the average price was $197,300. What was the annual increase in selling price?
2.93% r = (FV/PV)1/t - 1 r = ($313,200/$197,300)1/16 - 1 r = .0293, or 2.93%
At 5.5 percent interest, how long does it take to quadruple it?
25.89 years FV = $4 = $1(1.055)t t = ln(4)/ln(1.055) t = 25.89 years
Which one of the following statements is correct?
A) A general partnership is legally the same as a corporation B) Income from both sole proprietorships and partnerships that is taxable is treated as individual income C) Partnerships are the most complicated type of businesses to form D) All business organizations have bylaws E) Only firms organized as sole proprietorships have limited laws
Which one of the following statements is correct?
A) Corporations can have an unlimited life B) The majority of firms in the U.S. are structured as corporations C) Corporate profits are taxable income to the shareholders when earned D) Shareholders are protected from all potential losses E) Shareholders directl elect the corporate president Answer: A
The following best illustrates that the management of a firm is adhering to the goal of financial management
An increase in the market value per share
Financial managers should strive to maximize the current value per share of the existing stock to:
Best represent the interest of the current shareholders
Which one of the following terms is defined as the management of a firm's long-term investments?
Capital Budgeting
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
Capital Structure
The articles of incorporation:
Describe the purpose of the firm and set forth the number of shares of stock that can be issued
Corporate bylaws:
Determine how a corporatin regulates itself
One disadvantage of the corporate form of business ownership is the:
Double taxation of distributed profits
To find the FV of a lump sum, we use:
FV = PV(1 + r)^t
A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
General Partnership
Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?
Limited Liability Company
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Which one of the following best states the primary goal of financial management?
Maximize the current value per share or Maximize the market value per share
Public offerings of debt and equity must be registered with the:
Securities and exchange commission
Which one of the following is a working capital management decision?
Should the firm pay cash for a purchase or use the credit offered by the supplier?
A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:
Sole Proprietorship
Which one of the following statements is correct concerning the NYSE?
The listing requirements for the NYSE are more stingent than those of NASDAQ
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
Was facilitated in the secondary market
The decision to issue additional shares of stock is an example of:
a capital structure decision
Financial managers should strive to maximize the current value per share of the existing stock to:
best represent the interest of the current shareholders
Decisions made by financial managers should primarily focus on increasing the:
market value per share of outstanding stock
Which one of the following parties has ultimate control of a corporation?
shareholders
An example of a capital budgeting decision is deciding:
whether or not to purchae a new machine for the production line
