FIN 323- Homework Questions

Which of the following statements is NOT CORRECT? a.The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC. b.When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market. c.When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held." d.It is possible for a firm to go public and yet not raise any additional new capital for the firm itself. e."Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.

"Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares

Charleston Corporation (CC) now operates as a "regular" corporation, but it is considering a switch to S Corporation status. CC is owned by 100 stockholders who each hold 1% of the stock, and each faces a personal tax rate of 35%. The firm earns $4,900,000 per year before taxes, and since it has no need for retained earnings, it pays out all of its earnings as dividends. Assume that the corporate tax rate is 34% and the personal tax rate is 35%. How much more (or less) spendable income would each stockholder have if the firm elected S Corporation status? a. $12,128 b. $8,338 c. $10,829 d. $9,421 e. $12,562

$10,829 Rationale: Business income: $4,900,000 Corporate tax rate (TC): 34% Number of investors (N): 100 Personal tax rate (TP): 35% Corporation: Corporate taxes $1,666,000 Income after corporate tax, paid to investors (stockholders) as dividends 3,234,000 ​ Tax on dividends: 1,131,900 Spendable income, total: $2,102,100 Spendable income, each (100 investors): $ 21,021 S Corporation: Taxes paid by business: $ 0 Income received by investors: 4,900,000 Taxes paid by investors as personal income: 1,715,000 Spendable income, total: $3,185,000 Spendable income, each (100 investors): $ 31,850 The difference in spendable income: gain from being an S Corporation: $ 10,829

Assume that the corporate tax rate is 34% and the personal tax rate is 31%. The founders of a newly formed business are debating between setting up the firm as a partnership versus a corporation. The firm will not need to retain any earnings, so all of its after-tax income will be paid out to its investors, who will have to pay personal taxes on whatever they receive. What is the difference in the percentage of the firm's pre-tax income that investors actually receive and can spend under the corporate and partnership forms of organization? a. 19.24% b. 25.10% c. 22.76% d. 23.46% e. 19.71%

23.46% Rationale: Corporate tax rate (TC): 34% Personal tax rate (TP): 31% Corporation: Corporate net = Business pre-tax income (1 - TC) Investors' net = Corporate net (1 - TP) = Business pre-tax net (1 - TC) (1 - TP) ​ = Business pre-tax net×66%×69% 45.54% Partnership: The business pays no tax, but investors pay tax on business income. Investors' net = Business pre-tax net (1 - TP) = Business pre-tax net (1 - TP) 69% ​ Difference 23.46%

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: a. A money market transaction. b. A futures market transaction. c. A primary market transaction. d. An over-the-counter market transaction. e. A secondary market transaction.

A secondary market transaction

Which of the following statements is CORRECT? a.​Only institutions, and not individuals, can engage in derivative market transactions. b. ​The NYSE is an example of an over-the-counter market. c.​If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction. d.​As they are generally defined, money market transactions involve debt securities with maturities of less than one year. e.​If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.

As they are generally defined, money market transactions involve debt securities with maturities of less than one year

Which of the following statements is CORRECT? a.Because of their size, large corporations face fewer regulations than smaller corporations and proprietorships. b. Corporations are taxed more favorably than proprietorships. c.Reducing the threat of corporate takeover increases the likelihood that managers will act in shareholders' interests. d.Bond covenants are designed to protect bondholders and to reduce potential conflicts between stockholders and bondholders. e. Corporations have unlimited liability.

Bond covenants are designed to protect bondholders and to reduce potential conflicts between stockholders and bondholders

Which of the following statements is CORRECT? a.The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically. b. Capital market instruments include both long-term debt and common stocks. c.While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors. d.An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift. e.If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.

Capital market instruments include both long-term debt and common stocks

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers? a.Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm's stock. b. Beef up the restrictive covenants in the firm's debt agreements. c. Pay managers large cash salaries and give them no stock options. d.Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover. e.For a firm that compensates managers with stock options, reduces the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold.

Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover

Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership? a. Corporations generally face fewer regulations. b. Corporate investors are exposed to unlimited liability. c.Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. d. Less of a corporation's income is generally subject to federal taxes. e. Corporations generally find it easier to raise large amounts of capital.

Corporations generally find it easier to raise large amounts of capital

Which of the following statements is CORRECT? a.Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations. b.Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate one of these forms rather than as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships. c. Corporate stockholders are exposed to unlimited liability. d.Due to legal considerations related to ownership transfers and limited liability, which affect the ability to attract capital, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' less favorable tax treatment. e. Large corporations are taxed more favorably than proprietorships.

Due to legal considerations related to ownership transfers and limited liability, which affect the ability to attract capital, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' less favorable tax treatment

You deposit $500 today in a savings account that pays 6% interest, compounded annually. How much will your account be worth at the end of 30 years? a. $3,503.53 b. $2,871.75 c. $2,670.72 d. $3,331.22 e. $2,756.88

b. $2,871.75

Which of the following is a primary market transaction? a.​You buy 200 shares of IBM stock from your brother. The trade is not made through a broker; you just give him cash and he gives you the stock. b.​IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. c.​IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years. d.​One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. e. ​You sell 200 shares of IBM stock on the NYSE through your broker.

IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker

Which of the following statements is CORRECT? a.It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell. In this situation, the IPO is said to be oversubscribed. b.In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay. c.It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell. In that case, the company will have to issue more shares than it wants to sell. d.IPO prices are generally established by the market, and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public. e.The term "IPO" stands for Introductory Price Offered, and it is the price at which shares of a new company are offered to the public.

In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay

Which of the following actions would be most likely to reduce potential conflicts between stockholders and bondholders? a. A government regulation that banned the use of convertible bonds. b.Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders). c. The passage of laws that make it harder for hostile takeovers to succeed. d.The firm begins to use only long-term debt, e.g., debt that matures in 30 years or more, rather than debt that matures in less than one year. e. Compensating managers with more stock options and less cash income.

Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders)

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders? a.Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries. b. Decrease the use of restrictive covenants in bond agreements. c. Take actions that reduce the possibility of a hostile takeover. d.Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock. e. Elect a board of directors that allows managers greater freedom of action.

Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries

Which of the following statements is CORRECT? a. It is usually easier to transfer ownership in a corporation than in a partnership. b.There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small. c. Corporations generally face fewer regulations than proprietorships. d.Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. e. Corporate shareholders are exposed to unlimited liability.

It is usually easier to transfer ownership in a corporation than in a partnership

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. Minimize the chances of losses. b. Maximize the stock price per share over the long run, which is the stock's intrinsic value. c. Maximize the stock price on a specific target date. d. Maximize its expected total corporate income. e. Maximize its expected EPS.

Maximize the stock price per share over the long run, which is the stock's intrinsic value

Which of the following statements is CORRECT? a.One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. b. Corporations face fewer regulations than proprietorships. c.One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. d.It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. e.If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership

Which of the following statements is CORRECT? a.Bond covenants are an effective way to resolve conflicts between shareholders and managers. b.Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. c.Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. d.One advantage to forming a corporation is that the owners of the firm have limited liability. e.Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations.

One advantage to forming a corporation is that the owners of the firm have limited liability

Which of the following statements is CORRECT? a.The more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation. b.It is generally easier to transfer one's ownership interest in a partnership than in a corporation. c.One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business. d.If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses. e.Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business

Which of the following statements is CORRECT? a.One advantage of forming a corporation is that it subjects the firm's investors to fewer taxes. b.One drawback of forming a corporation is that it generally subjects the firm to additional regulations. c.One drawback of forming a corporation is that it makes it more difficult for the firm to raise capital. d.One drawback of forming a corporation is that it subjects the firm's investors to increased personal liabilities. e.One disadvantage of forming a corporation is that it is more difficult for the firm's investors to transfer their ownership interests.

One drawback of forming a corporation is that it generally subjects the firm to additional regulations

Which of the following statements is CORRECT? a.One of the advantages of the corporate form of organization is that it avoids double taxation. b.One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." c.It is easier to transfer one's ownership interest in a partnership than in a corporation. d. Corporations of all types are subject to the corporate income tax. e.One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability.

One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability

Which of the following statements is CORRECT? a.A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. b.In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business, and the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy. c.In a typical partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. d.A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself. e.Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests.

Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests

Which of the following is an example of a capital market instrument? a. Banker's acceptances. b. Preferred stock. c. Money market mutual funds. d. Commercial paper. e. U.S. Treasury bills.

Preferred stock

Which of the following statements is CORRECT? a. Proprietorships are subject to more regulations than corporations. b.One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy. c. Proprietorships and partnerships generally have a tax advantage over corporations. d. In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner. e. Corporations of all types are subject to the corporate income tax.

Proprietorships and partnerships generally have a tax advantage over corporations

Which of the following statements is CORRECT? a. Money markets are markets for long-term debt and common stocks. b.A liquid security is a security whose value is derived from the price of some other "underlying" asset. c.Money market mutual funds usually invest their money in a well-diversified portfolio of liquid common stocks. d.The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market. e.While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market

Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT? a. The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. b. The firm will find it more difficult to raise additional capital to support its growth. c. The company will probably be subject to fewer regulations and required disclosures. d. Assuming the firm is profitable, none of its income will be subject to federal income taxes. e. Relaxant's shareholders (the ex-partners) will now be exposed to less liability.

Relaxant's shareholders (the ex-partners) will now be exposed to less liability

Money markets are markets for a. Long-term bonds. b. Consumer automobile loans. c.Short-term debt securities such as Treasury bills and commercial paper. d. Foreign currencies. e. Common stocks.

Short-term debt securities such as Treasury bills and commercial paper

Which of the following statements is CORRECT? a.Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock. b.One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership. c.One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor. d.Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects. e.Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However, they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects.

Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However, they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects

Which of the following statements is CORRECT? a.One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners. b.Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. c.Relative to proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital. d.There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests. e.Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns

Which of the following statements is CORRECT? a.The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person. b.The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility. c. By law in most states, the chairman of the board must also be the CEO. d. In most corporations, the CFO ranks above the CEO. e.The CFO generally reports to the firm's chief accounting officer, who is normally the controller.

The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person

Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers? a.The company changes the way executive stock options are handled, with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period. b.The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company. c.The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash. d. Congress passes a law that severely restricts hostile takeovers. e.A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock.

The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash

Which of the following actions would be likely to encourage a firm's managers to make decisions that are in the best interests of shareholders? a. The firm's founder, who is also president and chairman of the board, sells 90% of her shares. b.The percentage of executive compensation that comes in the form of cash is increased and the percentage coming from long-term stock options is reduced. c.The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover. d.The percentage of the firm's stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%. e.The firm's board of directors gives the firm's managers greater freedom to take whatever actions they think best without obtaining board approval.

The percentage of the firm's stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%

Which of the following statements is CORRECT? a.The threat of takeovers tends to reduce potential conflicts between stockholders and managers. b.Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. c.The creation of the Securities and Exchange Commission (SEC) has eliminated conflicts between managers and stockholders. d.The threat of takeover generally increases potential conflicts between stockholders and managers. e.One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the firm's capital structure.

The threat of takeovers tends to reduce potential conflicts between stockholders and managers

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. The threat of hostile takeovers. b.The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. c. Compensating managers with stock options. d. Financing risky projects with additional debt. e. Abolishing the Security and Exchange Commission.

The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? a. This is an example of an exchange of physical assets. b. This is an example of a derivative market transaction. c. This is an example of a primary market transaction. d. This is an example of a direct transfer of capital. e. This is an example of a money market transaction.

This is an example of a direct transfer of capital

Pace Co. borrowed $25,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year. How much interest would Pace have to pay in a 30-day month? a. $151.04 b. $172.19 c. $182.76 d. $135.94 e. $138.96

a. $151.04

Beranek Corp has $625,000 of assets (which equal total invested capital), and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to raise the total debt to total capital ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? a. $250,000 b. $202,500 c. $262,500 d. $195,000 e. $212,500

a. $250,000

What's the future value of $4,500 after 5 years if the appropriate interest rate is 6%, compounded semiannually? a. $6,047.62 b. $4,959.05 c. $4,656.67 d. $5,321.91 e. $4,777.62

a. $6,047.62

You have a chance to buy an annuity that pays $3,300 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? a. $9,392.86 b. $7,420.36 c. $10,801.78 d. $7,138.57 e. $10,426.07

a. $9,392.86

You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $2,100 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today? a. $9,667.20 b. $10,633.92 c. $10,730.59 d. $8,700.48 e. $8,507.13

a. $9,667.20

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's current ratio? Do not round your intermediate calculations. a. 0.98 b. 1.04 c. 1.10 d. 0.85 e. 0.80

a. 0.98

Exhibit 4.1The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's P/E ratio? Do not round your intermediate calculations. a. 12.0 b. 14.6 c. 13.2 d. 12.6 e. 13.9

a. 12.0

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 47.5%. The firm finances using only debt and common equity, and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE? Do not round your intermediate calculations. a. 14.48% b. 17.08% c. 13.03% d. 14.91% e. 11.29%

a. 14.48%

Exhibit 4.1The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's equity multiplier? Do not round your intermediate calculations. a. 4.35 b. 3.91 c. 5.43 d. 4.87 e. 5.09

a. 4.35

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's operating margin? Do not round your intermediate calculations. a. 5.00% b. 3.80% c. 3.90% d. 5.60% e. 4.65%

a. 5.00%

Suppose the U.S. Treasury offers to sell you a bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,600. What interest rate would you earn if you bought this bond at the offer price? a. 6.44% b. 6.25% c. 5.41% d. 7.92% e. 7.47%

a. 6.44%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's BEP? Do not round your intermediate calculations. a. 7.50% b. 7.20% c. 7.58% d. 9.30% e. 6.45%

a. 7.50%

Which of the following investments would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. a. Investment D pays $2,500 at the end of 10 years (just one payment). b.Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments). c.Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). d.Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). e.Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments)

a. Investment D pays $2,500 at the end of 10 years (just one payment).

Your grandmother just died and left you $40,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginningof each of the next 3 years and end up with zero in the account? a. $13,594.72 b. $10,963.48 c. $8,770.79 d. $10,415.31 e. $10,744.21

b. $10,963.48

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? a. The discount rate increases. b. The riskiness of the investment's cash flows decreases. c. The discount rate decreases. d.The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years. e.The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.

a. the discount rate increases

You plan to invest in bonds that pay 6.0%, compounded annually. If you invest $10,000 today, how many years will it take for your investment to grow to $40,000? a. 23.79 b. 24.27 c. 18.80 d. 23.08 e. 28.31

a.23.79

Walter Industries' current ratio is 0.5. Considered alone, which of the following actions would increase the company's current ratio? a.Borrow using short-term notes payable and use the cash to increase inventories. b. Use cash to reduce accounts payable. c. Use cash to reduce accruals. d. Use cash to reduce long-term bonds outstanding. e. Use cash to reduce short-term notes payable.

a.Borrow using short-term notes payable and use the cash to increase inventories.

You just deposited $8,000 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now? a. $20,232.41 b. $22,233.41 c. $26,457.76 d. $23,789.75 e. $19,565.40

b. $22,233.41

Suppose a U.S. treasury bond will pay $4,475 five years from now. If the going interest rate on 5-year treasury bonds is 4.25%, how much is the bond worth today? a. $3,561.55 b. $3,634.23 c. $4,361.08 d. $3,452.52 e. $3,488.86

b. $3,634.23

What is the PV of an ordinary annuity with 10 payments of $4,400 if the appropriate interest rate is 5.5%? a. $34,492.18 b. $33,165.55 c. $38,472.04 d. $27,527.41 e. $34,160.52

b. $33,165.55

Jose now has $500. How much would he have after 6 years if he leaves it invested at 5.1 % with annual compounding? a. $667.15 b. $673.89 c. $512.15 d. $808.66 e. $828.88

b. $673.89

Your uncle is about to retire, and he wants to buy an annuity that will provide him with $53,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost him to buy the annuity today? a. $558,149.79 b. $680,670.48 c. $769,157.64 d. $714,704.01 e. $775,964.35

b. $680,670.48

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's quick ratio? Do not round your intermediate calculations. a. 0.48 b. 0.51 c. 0.46 d. 0.47 e. 0.38

b. 0.51

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's total assets turnover? Do not round your intermediate calculations. a. 1.46 b. 1.50 c. 1.13 d. 1.47 e. 1.77

b. 1.50

You are offered a chance to buy an asset for $5,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn if you bought this asset? a. 15.56% b. 16.91% c. 13.36% d. 16.75% e. 18.61%

b. 16.91%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's ROA? Do not round your intermediate calculations. a. 2.90% b. 3.63% c .4.17% d. 3.08% e. 2.83%

b. 3.63%

Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,500 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan? a. 6.50% b. 6.25% c. 5.44% d. 5.00% e. 7.13%

b. 6.25%

Suppose the U.S. Treasury offers to sell you a bond for $687.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price? a. 8.80% b. 7.79% c. 6.93% d. 7.48% e. 6.70%

b. 7.79%

Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $11,500 at the end of the 5th year. What is the expected rate of return on this investment? a. 10.42% b. 9.96% c. 10.86% d. 5.19% e. 12.11%

b. 9.96%

Jordan Inc has the following balance sheet and income statement data: The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? Do not round your intermediate calculations. a. 13.50% b. 13.75% c. 12.50% d. 11.63% e. 15.25%

c. 12.50%

Zero Corp's total common equity at the end of last year was $510,000 and its net income was $70,000. What was its ROE? a. 16.33% b. 16.61% c. 13.73% d. 16.06% e. 11.39%

c. 13.73%

Song Corp's stock price at the end of last year was $28.50 and its earnings per share for the year were $1.30. What was its P/E ratio? a. 20.39 b. 21.48 c. 21.92 d. 22.58 e. 18.85

c. 21.92

You are considering investing in a bank account that pays a nominal annual rate of 7%, compounded monthly. If you invest $3,000 at the end of each month, how many months will it take for your account to grow to $205,000? a. 65.18 b. 68.64 c. 57.68 d. 66.91 e. 49.60

c. 57.68

Amram Company's current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio? a. Use cash to reduce short-term notes payable. b.Borrow using short-term notes payable and use the proceeds to reduce long-term debt. c.Borrow using short-term notes payable and use the proceeds to reduce accruals. d. Use cash to reduce accounts payable. e. Use cash to reduce accruals.

b.Borrow using short-term notes payable and use the proceeds to reduce long-term debt.

What's the present value of $1,375 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly? a. $886.87 b. $1,029.58 c. $1,019.39 d. $958.22 e. $1,009.19

c. $1,019.39

After graduation, you plan to work for Dynamo Corporation for 12 years and then start your own business. You expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6) and $15,000 annually for the following 6 years (t = 7 through t = 12). The first deposit will be made a year from today. In addition, your grandfather just gave you a $37,500 graduation gift which you will deposit immediately (t = 0). If the account earns 9% compounded annually, how much will you have when you start your business 12 years from now? a. $309,826 b. $334,862 c. $312,955 d. $359,899 e. $372,417

c. $312,955

Suppose you borrowed $50,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment? a. $41,146.10 b. $45,302.27 c. $41,561.71 d. $31,171.28 e. $40,730.48

c. $41,561.71

Your sister turned 35 today, and she is planning to save $50,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year. a. $570,475.84 b. $542,647.75 c. $463,801.49 d. $384,955.24 e. $459,163.48

c. $462,801.49

Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 13.6% interest, compounded annually. How much will you have when the CD matures? a. $6,156.19 b. $6,585.69 c. $7,158.36 d. $5,440.35 e. $7,945.78

c. $7,158.36

What's the present value of a perpetuity that pays $3,900 per year if the appropriate interest rate is 5%? a. $95,940.00 b. $96,720.00 c. $78,000.00 d. $86,580.00 e. $83,460.00

c. $78,000.00

What is the present value of the following cash flow stream at a rate of 11.5%? Years: 0 1 2 3 CFs: $750 $2,450 $3,175 $4,400 a. $9,109.07 b. $8,328.29 c. $8,675.31 d. $9,369.33 e. $9,282.58

c. $8,675.31

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make the company financially stronger? a. Increase notes payable while holding sales constant. b. Increase accounts payable while holding sales constant. c. Increase EBIT while holding sales and assets constant. d. Increase accounts receivable while holding sales constant. e. Increase inventories while holding sales constant.

c. Increase EBIT while holding sales and assets constant.

You observe that a firm's ROE is above the industry average, but both its profit margin and equity multiplier are below the industry average. Which of the following statements is CORRECT? a. Its return on assets must equal the industry average. b. Its TIE ratio must be below the industry average. c. Its total assets turnover must be above the industry average. d. Its total assets turnover must equal the industry average. e. Its total assets turnover must be below the industry average.

c. Its total assets turnover must be above the industry average.

Which of the following would indicate an improvement in a company's financial position, holding other things constant? a. The times-interest-earned ratio declines. b. The profit margin declines. c. The current and quick ratios both increase. d. The total debt to total capital ratio increases. e. The inventory and total assets turnover ratios both decline.

c. The current and quick ratios both increase.

Which of the following would generally indicate an improvement in a company's financial position, holding other things constant? a. The TIE declines. b. The DSO increases. c. The quick ratio increases. d. The current ratio declines. e. The total assets turnover decreases.

c. The quick ratio increases.

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's TIE? Do not round your intermediate calculations. a. 3.91 b. 4.58 c. 5.15 d. 5.04 e. 6.28

c.5.15

Suppose you borrowed $6,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be? a. $1,629.77 b. $1,926.09 c. $2,166.85 d. $1,852.01 e. $1,833.49

d. $1,852.01

Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 5.70%, how much is the bond worth today? a. $2,533.31 b. $2,016.31 c. $2,559.16 d. $2,585.01 e. $2,791.81

d. $2,585.01

You just inherited some money, and a broker offers to sell you an annuity that pays $16,800 at the end of each year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity? a. $244,957.21 b. $255,425.46 c. $180,054.02 d. $209,365.13 e. $236,582.60

d. $209,365.13

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's EPS? Do not round your intermediate calculations. a. $6.29 b. $6.24 c. $4.37 d. $5.08 e. $5.13

d. $5.08

At a rate of 5.0%, what is the future value of the following cash flow stream? Years: 0. 1 2 3 4 CFs: $0 $75 $225 $0 $300 a. $616 b. $749 c. $514 d. $635 e. $679

d. $635

Your bank offers to lend you $90,100 at an 8.5% annual interest rate to start your new business. The terms require you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying in Year 2? a. $5,713.81 b. $8,213.60 c. $6,428.03 d. $7,142.26 e. $6,785.15

d. $7,142.26

Suppose a State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 3.1%, how much is the bond worth today? a. $840.08 b. $817.97 c. $869.55 d. $736.91 e. $714.80

d. $736.91

Hoagland Corp's stock price at the end of last year was $24.00, and its book value per share was $25.00. What was its market/book ratio? a. 0.97 b. 0.77 c. 0.93 d. 0.96 e. 0.88

d. 0.96

Suppose you are buying your first condo for $180,000, and you will make a $15,000 down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be? a. $1,251.49 b. $855.19 c. $886.48 d. $1,042.91 e. $792.61

d. 1,042.91

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's profit margin? Do not round your intermediate calculation a. 2.88% b. 2.37% c. 2.68% d. 2.42% e. 2.30%

d. 2.42%

What's the rate of return you would earn if you paid $2,880 for a perpetuity that pays $85 per year? a. 2.42% b. 3.04% c. 3.48% d. 2.95% e. 3.19%

d. 2.95%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's total debt to total capital ratio? Do not round your intermediate calculations. a. 43.14% b. 58.04% c. 53.93% d. 51.36% e. 47.76%

d. 51.36%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's days sales outstanding? Assume a 365-day year for this calculation. Do not round your intermediate calculations. a. 74.83 b. 69.96 c. 56.58 d. 60.83 e. 68.13

d. 60.83

Your girlfriend just won the Florida lottery. She has the choice of $10,800,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. a. 8.71% b. 7.60% c. 5.69% d. 7.38% e. 6.57%

d. 7.38%

A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? a. Use cash to repurchase some of the company's own stock. b.Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. c. Use cash to increase inventory holdings. d.Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. e.Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase a new plant and equipment.

d. Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash.

Last year Dania Corporation's sales were $525 million. If sales grow at 10.5% per year, how large (in millions) will they be 8 years later? a. $1,225.31 b. $1,015.26 c. $1,073.61 d. $1,295.33 e. $1,166.96

e. $1,166.96

Suppose you have $1,375 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures? a. $1,731.05 b. $1,502.42 c. $1,404.44 d. $1,535.08 e. $1,633.07

e. $1,633.07

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's dividends per share? Do not round your intermediate calculations. a. $1.94 b. $2.20 c. $2.04 d. $1.63 e. $1.78

e. $1.78

What is the PV of an annuity due with 5 payments of $4,200 at an interest rate of 5.5%? a. $22,138.31 b. $16,651.03 c. $21,570.66 d. $19,110.85 e. $18,921.63

e. $18,921.63

You want to buy a new sports car 3 years from now, and you plan to save $6,700 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the 3rd deposit, 3 years from now? a. $26,454.15 b. $22,221.48 c. $17,565.55 d. $24,761.08 e. $21,163.32

e. $21,163.32

How much would $10,000 due in 50 years be worth today if the discount rate were 7.5%? a. $204.36 b. $266.20 c. $285.02 d. $217.80 e. $268.89

e. $268.89

Your uncle has $485,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account? a. $35,617.22 b. $47,759.46 c. $50,592.65 d. $39,259.89 e. $40,474.12

e. $40,474.12

Suppose you inherited $575,000 and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years? a. $56,079.24 b. $48,323.60 c. $61,448.53 d. $69,800.75 e. $59,658.76

e. $59,658.76

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's market-to-book ratio? Do not round your intermediate calculations. a. 1.55 b. 1.42 c. 1.72 d. 1.82 e. 1.89

e. 1.89

Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $550,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would the firm need in order to achieve the 15% ROE, holding everything else constant? Do not round your intermediate calculations. a. 10.02% b. 12.58% c. 9.51% d. 8.59% e. 10.23%

e. 10.23%

River Corp's total assets at the end of last year were $320,000 and its net income was $32,750. What was its return on total assets? a. 7.68% b. 9.72% c. 8.70% d. 8.90% e. 10.23%

e. 10.23%

Janice has $5,000 invested in a bank that pays 11.0% annually. How long will it take for her funds to triple? a. 10.11 years b. 10.42 years c. 10.32 years d. 9.68 years e. 10.53 years

e. 10.53 years

Your subscription to Investing Wisely Weekly is about to expire. You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $850, also payable immediately. Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant, how many years must you live to make the lifetime subscription the better buy? a. 14.76 b. 15.47 c. 17.77 d. 14.18 e. 14.33

e. 14.33

Your uncle has $310,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end? a. 13.76 b. 17.20 c. 15.19 d. 11.46 e. 14.33

e. 14.33

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's ROE? Do not round your intermediate calculations. a. 16.39% b. 14.35% c. 16.55% d. 16.24% e. 15.76%

e. 15.76%

Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 19.25%, with interest paid monthly, what is the card's EFF%? a. 17.68% b. 19.57% c. 23.15% d. 20.20% e. 21.04%

e. 21.04%

Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year were $3.60. What was the growth rate in earnings per share (EPS) over the 10-year period? a. 23.35% b. 18.99% c. 24.44% d. 19.64% e. 21.82%

e. 21.82%

Garcia Industries has sales of $207,500 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed up by this change, how would that affect its net income, assuming other things are held constant? Assume all sales to be on credit. Do not round your intermediate calculations. a. $236.93 b. $189.04 c. $199.12 d. $201.64 e. $252.05

e. 252.05

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $300,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit Period = Days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments. Assume all sales to be on credit. Do not round your intermediate calculations. a. 27.16 b. 22.12 c. 26.60 d. 25.48 e. 28.00

e. 28.00

new firm is developing its business plan. It will require $715,000 of assets (which equals total invested capital), and it projects $450,000 of sales and $355,000 of operating costs for the first year. Management is reasonably sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. The firm will use only debt and common equity for financing. What is the maximum debt to capital ratio (measured as debt/total invested capital) the firm can use? (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt to capital ratio.) Do not round your intermediate calculations. a. 39.86% b. 34.10% c. 38.53% d. 51.38% e. 44.29%

e. 44.29%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's inventory turnover ratio? Do not round your intermediate calculations. a. 4.50 b. 5.38 c. 5.33 d. 6.36 e. 5.17

e. 5.17

You plan to invest in securities that pay 11.6%, compounded annually. If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20? a. 4.73 b. 6.10 c. 6.43 d. 4.18 e. 5.50

e. 5.50

You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th month, you will have $12,800 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning? a. 4.86% b. 7.20% c. 6.09% d. 5.41% e. 6.15%

e. 6.15%

Last year Kruse Corp had $440,000 of assets (which is equal to its total invested capital), $403,000 of sales, $28,250 of net income, and a debt-to-total-capital ratio of 39%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total invested capital to $252,500. The firm finances using only debt and common equity. Sales, costs, and net income would not be affected, and the firm would maintain the same capital structure (but with less total debt). By how much would the reduction in assets improve the ROE? Do not round your intermediate calculations. a. 7.97% b. 8.21% c. 8.91% d. 7.35% e. 7.82%

e. 7.82%

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Refer to Exhibit 4.1. What is the firm's return on invested capital? a. 7.71% b. 7.23% c. 7.33% d. 7.61% e. 9.52%

e. 9.52%

Considered alone, which of the following would increase a company's current ratio? a. An increase in net fixed assets. b. An increase in accrued liabilities. c. An increase in notes payable. d. An increase in accounts payable. e. An increase in accounts receivable.

e. An increase in accounts receivable.

Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT? a. Company E must pay a lower dividend. b. Company E is probably judged by investors to be riskier. c. Company E must have a higher market-to-book ratio. d. Company E probably has fewer growth opportunities. e. Company E trades at a higher P/E ratio.

e. Company E trades at a higher P/E ration

A firm wants to strengthen its financial position. Which of the following actions would increase its quick ratio? a.Speed up the collection of receivables and use the cash generated to increase inventories. b. Use some of its cash to purchase additional inventories. c. Issue new common stock and use the proceeds to increase inventories. d.Issue new common stock and use the proceeds to acquire additional fixed assets. e.Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable.

e. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable