FIN 303 CSULA QUIZ #1

The Smith hamily wishes to buy a new house. The home costs $500,000, and they have saved $75,000 for the down payment. If they wanted to finance the rest with a 15-year fully amortized loan at an APR of 9.6%, what should be the monthly payment if the first payment is due one month from now? Select one: a. $4,240.80 b. $4,463.64 c. $5,251.34 d. $5,342.74

Feedback APV = 500,000 - 75,000 = 425,000 t=15*12=180 r=.096/12=.008 C=4,463.64 The correct answer is: $4,463.64

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? a. 121.07 days b. 138.46 days c. 84.76 days d. 74.19 days

Inventory turnover = $628,300/$208,400 = 3.014875 Days in inventory = 365/3.014875 = 121.07 days The correct answer is: 121.07 days

You would like to establish a trust fund that will provide $120,000 a year forever for your heirs. The trust fund is going to be invested very conservatively so the expected rate of return is only 5.75 percent. How much money must you deposit today to fund this gift for your heirs? Select one: a. $2,458,122 b. $2,086,957 c. $2,121,212 d. $2,300,000

PV = 120,000 / 0.0575 = $2,086,957

Which of the following would result in a decrease in the net working capital of Smith, Inc? Select one: a. Smith, Inc. pays one of its accounts payable with cash b. Smith, Inc. buys inventory using cash c. Smith, Inc. obtains cash by taking out a bank loan due five years from now d. Smith, Inc. uses cash to purchase fixed assets

Using cash to purchasing fixed assets decreases net working capital because of reduction in current assets, and no change in current liabilities. The correct answer is: Smith, Inc. uses cash to purchase fixed assets

Which of the following individuals have unlimited liability based on their ownership interest? I. general partner II. sole proprietor III. stockholder IV. limited partner

a. I and II only

Which of the following should be the best description of the goal of a financial manager of a corporation? Select one: a. To maximize net income on the income statement b. To maximize current market value of the stock c. To maximize earnings per share d. To maximize market share while maintaining steady earnings growth

a. To maximize net income on the income statement

You want to start saving money to pay for your son's college tuition. Your son will go to a college 16 years from now and he will need $35,000 per year for 4 years starting at year 16. If the interest rate is 9% per year, how much should you save each year starting next year for the next 15 years? Select one: a. $2,506.47 b. $3,861.95 c. $7,559.35 d. $9,333.33

b. $3,861.95 First calculate the APV at year 15 that is equivalent to the four withdrawals of $35,000. That is 113,390.20 And then consider that amount to be the AFV, and solve for C with t=15 and r=9%. C=3,861.95 The correct answer is: $3,861.95

Which one of the following statements concerning interest rates is correct? Select one: a. Savers would prefer annual compounding over monthly compounding. b. For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate. c. The effective annual rate equals the annual percentage rate when interest is compounded annually. d. The effective annual rate decreases as the number of compounding periods per year increases.

c. The effective annual rate equals the annual percentage rate when interest is compounded annually.

Which of the following ratios is the most useful one in assessing a firm's ability to service debts? Select one: a. Fixed asset turnover b. Times interest earned ratio c. Gross profit margin d. Return on equity

b. Times interest earned ratio

The principal advantages of the corporate form of organization do not include: Select one: a. ease of transferability of ownership b. accumulation of earnings for retention in the business c. limited liability of shareholders d. greater accessibility of capital

b. accumulation of earnings for retention in the business