Finance 311 Final Exam Review (FML)

The present value interest factor for $1 at 5% compounded annually for 5yrs [ PVIF (5%,5) is: a. 1.204 b. 0.9906 c. 0.7835 d. 0.8921

0.7835 1/(1.05)^5

How long will it take $40 to grow to $240 at an interest rate of 6.53% compounded annually? a. 28.33 years b. 14.16 years c. 48.77 years d. 60.25 years

28.33 years

The conflict of interest between an agent and a principal is called a(n) a. Moral agency b. Moral Hazard Problem c. Agency problem d. Agency relationship

Agency problem

Which of the following are the primary as well as easy way used to perform financial calculations today? a. time value of money tables b. financial calculators c. manual calculations d. spreadsheet functions

financial calculator & spreadsheet functions

Long-term solvency ratios are also known as: a. turnover ratios b. market value ratios c. financial leverage ratios d. profitability ratios

financial leverage ratios

Which of the following are traditional financial ratio categories? a. real options ratios b. competition ratios c. financial leverage ratios d. profitability ratios e. turnover ratios

financial leverage ratios profitability ratios turnover ratios

___________ _____________ are the prime source of information about a firm's financial health. a. historical returns b. stock brokers c. stock prices d. financial statements

financial statements

Good financial decisions will do which of the following? a. increase current dividends per share b. increase cost of capital c. increase the value of the firms existing stock d. increase market value of shareholders' equity

increase the value of the firms existing stock increase market value of shareholders' equity

what will happen to the current ratio if current assets increase, while everything else remains unchanged? a. it will decrease b. it will increase c. it may increase or decrease d. it will not be affected

it will increase

Given an investment amount and a set rate of interest, the _______ the time horizon the _________ the future value. a. shorter; greater b. longer; greater c. longer; smaller

longer; greater

What does it mean when a firm has a days' sales in receivables of 45? a. the firm is able to collect 45% of its credit sales b. the firm collects its credit sales in 320 (365-45) days on average c. the firm collects its credit sales in 45 days on average d. the firm is able to collect 55% percent of its credit sales

the firm collects its credit sales in 45 days on average

why is a dollar received today worth more than a dollar in the future? (click all that apply) a. a dollar will be worth as much as a future dollar today b. today's dollar can be reinvested, yielding a greater amount in the future c. inflation will make a dollar in the future worth less than a dollar today d. a dollar today is not worth more than a dollar in the future

today's dollar can be reinvested, yielding a greater amount in the future inflation will make a dollar in the future worth less than a dollar today

Which of the following is the formula for calculating the future value of $100 invested today for 3 years at 10% per year?

FV= 100 x (1.10)^3

Which of the following is multi-period formula for compounding a present value int a future value?

FV= PVx(1+r)^2

True or false: Future value refers to the amount of money an investment is worth today?

False

which of the following is the correct equation for computing ROA?

Net income/ total assets

You must invest ______ today at 8% to get $2 in one year? a. $1.00 b. $1.85 c. $0.55 d. $3.25

$1.85

If you invest $100 at 10% compounded annually, how much money will you have at the end of 3 years? a. $130.00 b. $121.00 c. $131.00 d. $133.10

$133.10

If you invest $500 for one year at a rate of 8% per year, how much will you earn? a. $20 b. $60 c. $80 d. $40

$40

Last year, Benton Inc. had net income of $3.5 million and paid out $700,000 in cash dividends. If income this year is $4.1 mil and the dividend payout ratio is held constant, how much will be paid in dividends?

$820,000 4.1m (700,000/3.5mil)

If you invest for a single period at an interest rate of r, your money will grow to _______ per dollar invested. a. (1+r) b. (1xr) c. (1-r) d. (1/r)

(1+r)

Which of the following is the correct representation of the cash coverage ratio? a. EBIT/ Interest expense b. (EBIT + depreciation)/ interest expense c. total interest expense/total cash d. total cash/ total interest expense

(EBIT + depreciation)/ interest expense

What is the formula for computing the internal growth rate?

(ROA x b)/(1-ROA x b)

What is the formula for computing a firm's sustainable growth rate?

(ROE x b)/ (1-ROE x b)

Which of the following is an incorrect keystroke in a financial calculator for calculating the fv of $100 today for 2 years at 10%? a. 10 i/y b. 0.10 i/y c. 100 +/- PV d. 2 N

0.10 I/Y

If a company has had negative earnings for several periods for several periods they might choose to use a _____. a. price-earnings ratio b. price-sales ratio c. price-cash flow ratio

price-sales ratio

Return on equity is a measure of _____.

profitability

The profit margin is equal to net income divided by_______. a. sales b. total assets c. net working capital d. operating income

sales

Which of the following represents the receivables turnover ratio? a. COGS/ accounts rec b. sales/acct receivable c. acct receivable/ COGS d. acct receivable/ Sales

sales/acct receivable

Which one of the following equations defines the total asset turnover ratio? a. total assets/ sales b. current assets/sales c. sales/ total assets d. sales/ fixed assets

sales/total assets

When one owner of creditor sells to another, the transaction takes place in the _________ market. a. rudimentary b. primary c. underwriting d. secondary

secondary

The owners of a corporation are called______? a. Gov't Agents b. Shareholders c. Partners d. Bondholders

shareholders

Working capital includes which of the following? a. short-term assets b. cash c. inventory d. equipment

short-term assets cash inventory (easily liquidated assets)

A corporation receives cash from financial markets by selling _______and ________. finished goods land stocks bonds

stocks and bonds

Which of the following create problems with financial statement analysis? a. the firm and its competitors operate under diff. regulatory environments b. the firm and its competitors are approximately the same size c. the firm or its competitors are global companies d. the firm or its competitors are conglomerates

the firm and its competitors operate under diff. regulatory environments the firm or its competitors are global companies the firm or its competitors are conglomerates

The officer responsible for managing the firm's cash flow is the _________. a. treasurer b. auditor c. controller d. info systems manager

treasurer

for a given time period (t) and interest rate (r), the present value factor is _______ the future value factor. a. 1 plus b. 1 divided by c. the reciprocal of d. 1 minus

1 divided by & the reciprocal of

What three questions are the financial managers concerned with? a. Capital structure b. Capital Design c. Designing new products d. Working capital management

1) capital structure 2) capital budgeting 3 )working capital management

A treasurer's responsibilities typically include: a. financial accounting b. making financial plans c. handling cash flows d. managing capital expenditure decisions

1) making financial plans 2) handling cash flows 3) managing capital expenditure decisions

Assume CA is $11,300; long-term liabilities is $45,000 and total debt is $54,800. What is the current ratio?

1.15 11300/(54800-45000)

Using a time value of money table, what is the future value interest factor for 10% for 2 years? a. 1.21 b. 1.10 c. 1.21 d. 2.00

1.21 look under 10% until you get 2 for years. that number is 1.10

BC corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ration if the stock is currently selling at $18 per share? a. 27 times b. 12 times c. 8.3 times d. 10 times

12 times 18/ (2700/1800)

BC corporation had sales of $1,000,000 and COGS $450,000 for the year. Inventory at year end was $180,000. The firm's Days sales in inventory is:

146 450,000/180,000 =2.5 365/2.5 = 146

If a company's balance sheet shows $400 in cash, $100 in inventory and $200 in current liabilities, its cash ratio is_______.

2 400/200

A firm had operating profit (EBIT) of $300,000 on sales of $500,000. Interest expense was $125,000 and taxes were $60,000. The company has a times interest earned ratio of _______?

2.40 TIE= 300000/125000

A firm with a 26% return on equity earned ________ cents in profit for every dollar in shareholders equity?

26

One important question in the area of investments includes the potential risk and rewards associated with investing in ______________________ assets.

financial

A dollar received one year from today has __________ value than a dollar received today.

less

If a company has inventory, the quick ratio will always be ______ the current ratio. less than equal to greater than

less than -quick ratio excludes inventory it will always be less than the current ratio

Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreased from 29 to 25 percent. this indicated the firm has increased its____. a. size b. earnings outlook c. production efficiency d. liquidity

liquidity

Time-trend analysis is an example of a. management by exception b. management by analysis c. management by comparison

management by exception

Whenever ___________ information is available, it should be used instead of accounting data. a. market b. trivial c. any other d. historical

market

How is the market-to-book ratio measured? a. market value of bonds/ book value of bonds b. book value per share/ market value per share c. market value per share/ book value per share d. market value of sales/ book value of costs

market value per share/ book value per share

Based on the DuPont Identity, an increase in sales, all else held equal, _______ ROE. Check all that apply a. may not change b. will always increase c. may increase or decrease e. will always decrease

may not change may increase or decrease

The concept of the time value of money is based on the principle that a dollar today is worth _______ a dollar promised at some point in the future? a. more than b. less than c. same as

more than

Which of the following items is added back to EVIT while calculating the cash coverage ratio, but not while calculating the times interest earned ratio? a. cash expense b. accrued interest expense c. non-cash expense d. cash equivalents

non-cash expense

One of the most important uses of financial statement info within the firm is: a. credit analysis b. performance analysis c. investment analysis d. competitor analysis

performance analysis

With discounting, the resulting value is called the ________ value; while with compounding the result is called the ______ value. a. present; future b. future; present c. current; expected d. discounted; compounded

present; future

which corporate officer is responsible for managing the firm's cash? a. sales manager b. controller c. cost accounting manager d. treasurer

treasurer

True or false: a way to establish a benchmark for ratio analysis to identify a peer group.

true

Which of the following are traditional financial ratio categories? a. turnover ratios b. financial leverage ratios c. Competition ratios d. profitability ratios e. real options ratios

turnover ratios financial leverage ratios profitability ratios

the current value of a future cash flow discounted at the appropriate rate is called the ______ value. a. current b. expected c. simple d. present

present

AD corp. has a return on equity of 20% on total equity of $800,000. AD generated at $1.6 million in sales on $2.7 million in assets. A DuPont decomposition of ROE shows 20% return on equity is from an equity multiplier of ______.

3.38 EM= TA/CE

Alpha Star's net income is $300 on $2,000 of sales. The company has $5,000 in assets and equity of $3,000. the firm paid out $125 in cash dividends. What is the dividend payout ratio?

41.67% 125/300

AD corp. ROA is 14% and the firm retains 40% of all its earnings. AD's internal growth rate is ________%.

5.93 (.14*.40)/(1-.14*.40)

You invest $500 at 10% interest per annum. At the end of 2 years with simple interest you will have ________ and with compound you will have _________. a. 605; 600 b. 550; 605 c. 600; 605 d. 550; 600

600; 605

BC corp had net income of $3.5 million and paid out $700,000 in cash dividends to stockholders. Their retention ratio is _______%

80% (3.5mil - 0.7mil)/3.5mil

Suppose the present value is $1,100, the future value is $1,200, after one year. What is the interest rate? a. 9% b. 8.5% c. 9.5% d. 8%

9%

Which of the following is the correct Excel function to calculate the present value of $300 due in 5yrs at a discount rate of 10%?

=PV(0.10,5,0,300)

Business finance is broadly concerned with which of the following? (select all that apply) a. how to finance long-term investments b. which long-term investment to make c. how to set up an audit committee d. how to manage day-to-day finances of the firm

a. how to finance long-term investments b. which long-term investment to make d. how to manage day-to-day finances of the firm

Corporations in other countries are often called: a. joint stock companies b. autonomous entities c. limited liability company d. public limited companies e. re-calibrated partnerships

a. joint stock companies c. limited liability company d. public limited companies

In an over-the-counter market, which of the following is true a. participants are called dealers b. an OTC market is also called an auction market c. only stocks are bought and sold d. most of the buying and selling is done by the dealer

a. participants are called dealers d. most of the buying and selling is done by the dealer

Which of the following is (are) true of financial ratios? a. always reflect market value b. are developed from a firms financial info c. use only balance sheet data d. are used for comparison purpose e. are computed in the same manner by all firms

are developed from a firms financial info are used for comparison purpose

Which of the following is (are) true of financial ratios? a. are computed in the same manner by all firms b.Always reflect market values c. use only balance sheet data d. are developed from a firm's financial information e. are used for comparison purposes

are developed from a firms financial information are used for comparison purposes

The New York Stock Exchange is a(n)_________. a. auction market b. primary market c. dealers market

auction market

The inventory TO ratios for Proctor and Gamble over the past 3 years are 5.09, 5.72 and 5.92 times respectively. Explaining the upward trend in the inventory TO ratio requires: a. redundant safety measures b. a congressional investigation c. further investigation d. an audit by the CPA e. examination of whether the increase is due to declining inventory or increasing sales

further investigation examination of whether the increase is due to declining inventory or increasing sales

The amount an investment is worth after one or more periods is called the ______ value. a. present b. anticipated c. expected d. future

future

Given an internal growth rate of 3%, a firm can_____? a. repay all of its outstanding debt b. grow by more than 3% without any additional external financing c. grow by 3% or less without any additional external financing d. not grow

grow by 3% or less without any additional external financing

The information needed to compute the profit margin can be found on the ______. a. income statement b. cash flow statement c. balance sheet

income statement

An increase in a firm's total asset turnover will ________ the sustainable growth rate. a. increase b. destabilize c. decrease

increase

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will________. increase remain unchanged decrease

increase

The corporation is a distinct __________ entity and as such can have a name and take advantage of the legal powers of natural persons.

legal

The real world has moved away from using _________ for calculating future and present values. a. spreadsheets b. financial calculators c. mathematical formulas d. time value of money tables

Time value of money tables

In the future value factor for $1 invested for 5years at 10% is 1.611 then the corresponding present value factor for $1 in 5 years with a 10% discount rate is_______.

0.6208 no idea how this was found

Cal's market has return on Equity of 15%. What does this mean?

Cal's generated $.15 in profit for ever $1 of book value of equity

The process of accumulating interest in an investment over time to earn more interest is called__________? a. simple interest b. growth c. compounding d. add-on interest

Compounding

the ________ identity can help to explain why two firms with the same return on equity may not be operating in the same way. a. ratio b. Bourne c. dilution d. DuPont

DuPont

In a shareholder-manager relationship who is the agent? a. Both shareholder and managers b. Neither shareholders nor managers c. Shareholders d. Managers

Managers

The price-earning (PE) ratio is a________ ratio. a. liquidity b. market value c. turnover d. leverage

Market Value

How is ownership transferred in a corporation? a. ownership is transferred only with prior approval from the board of directors b. ownership is transferred by gifting or selling shares of stocks c. ownership can be transferred only if the firm is sold d. ownership in a corporation cannot be transferred

Ownership is transferred by gifting or selling shares of stocks

If FV= PV x (1+r) is the single period formula for future value, which of the following is the single period present value formula?

PV= FV/ (1+r)

True or False: The formula for a present value factor is 1/(1+r)^t

True This is the present value interest factor, not the present value itself. In order to get PV, you need to multiply FV by this factor. Notice how as the denominator becomes larger due to higher interest or longer periods, it reduces the factor

the quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes ______ to sell. a. a long time b. less than a day c. a short time d. the same number of days as raw materials

a long time

Which of the following methods are used to calculate PV? (click all that apply) a. a time value of money table b. a financial calculator c. an algebraic formula d. random number generation

a time value of money table a financial calculator an algebraic formula

Which of the following are included in a firms capital structure? a. Long-term Debt b. Net Sales c. Current Assets d. Equity

a. Long-term Debt b.Equity

Which of the following is (are) true about financial ratios? a. are used for comparison purposes b. are developed from a firms financial info c. are computed in the same manner by all firms d. always reflect market values e. use only balance sheet data

are used for comparison purposes are developed from a firms financial info

_________ budgeting is the process of planning and managing a firm's long-term assets. a. performance based b. optional c. conventional d. capital

capital

Which of the following would help a company take action to improve its ratios? a. comparing a DOW 30 companies b. comparing to peer companies c. comparing to its own historical ratios d. comparing to aspirant companies e. companies to major competitors

comparing to peer companies comparing to its own historical ratios comparing to aspirant companies companies to major competitors

A BAD financial decision is defined as a decision that ________ shareholder wealth a. increase b. decrease c. maximizes

decreases

Which of the following are considered non-owner stakeholders in a company? a. employees b. stockholder c. gov't d. suppliers

employees gov't suppliers