finance exam 1
If Rogers, Inc., has an equity multiplier of 1.43, total asset turnover of 1.87, and a profit margin of 6.05 percent, what is its ROE?
16.18%
you want to purchase a new car and are willing to pay 20,000. If you can invest at 10% per year and you currently have 15,000, how long will it take to have enough money for the car?
3.02 years
Jasmine Manufacturing wishes to maintain a sustainable growth rate of 11 percent a year, a debt-equity ratio of .75, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at .65. What profit margin must the firm achieve?
4.91%
Suppose you begin saving for your retirement by depositing $2,000 per yearin an IRA. If the interest rate is 7.5%, how much will you have in 40 years?
454,513.04
Suppose you want to borrow $20,000 for a new car. You can borrow at 8%per year, compounded monthly. If you take a 4 year loan, what is yourmonthly payment?
488.26
First Simple Bank pays 6.4 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 10 years?
5.07%
You have arranged for a loan on your new car that will require the first payment today. The loan is for $24,500, and the monthly payments are $465. If the loan will be paid off over the next 60 months, what is the APR of the loan?
5.42%
Live Forever Life Insurance Co. is selling a perpetual annuity contract that pays $1,500 monthly. The contract currently sells for $260,000. What is the monthly return on this investment vehicle? What is the APR? The effective annual return?
58%; 6.92%; 7.15%
Which one of these statements is true concerning the price-earnings (PE) ratio? -A high PE ratio may indicate that a firm is expected to grow significantly. -A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. -PE ratios are unaffected by the accounting methods employed by a firm. -The PE ratio is classified as a profitability ratio. -The PE ratio is a constant value for each firm.
A high PE ratio may indicate that a firm is expected to grow significantly.
assets of balance sheet
listed in order of liquidity current+fixed
goal of financial management
maximize shareholder wealth
Income Statement
measures performance over a period of time
bottome line
net income, then pay out dividends and addition to RE
FV definiton
future value -The amount an investment is worth after one or more periods. -"Later" money on a time line
perpetuity
infinite series of equal payments
The equity multiplier is equal to: one plus the debt-equity ratio. one plus the total asset turnover. total debt divided by total equity. total equity divided by total assets. one divided by the total asset turnover.
one plus the debt-equity ratio.
By definition, a bank that pays simple interest on a savings account will pay interest: -only at the beginning of the investment period. -on interest. -only on the principal amount originally invested. -on both the principal amount and the reinvested interest. -only if all previous interest payments are reinvested.
only on the principal amount originally invested.
Paid-in surplus is classified as: owners' equity. net working capital. a current asset. a cash expense. long-term debt.
owners' equity.
Given an interest rate of zero percent, the future value of a lump sum invested today will always: remain constant, regardless of the investment time period. decrease if the investment time period is shortened. decrease if the investment time period is lengthened. be equal to $0. be infinite in value.
remain constant, regardless of the investment time period.
Capital Structure
the mixture of debt and equity maintained by a firm
Nataro, Inc., has sales of $742,000, costs of $316,000, depreciation expense of $39,000, interest expense of $34,000, and a tax rate of 21 percent. Suppose the firm in paid out $125,000 in cash dividends. What is the addition to retained earnings?
$153,870
For each of the following annuities, calculate the annuity payment. 1. FV=25,600, years=8, r=5% 2. FV=1,250,000, years=40, r=7
$2,680.88; $6,261.42;
For each of the following annuities, calculate the annual cash flow. 1. PV=12,000 years=6, r=11% 2. PV=19,700, years=8, r=7%
$2,836.52; $3,299.11
You are to make deposits into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 40 years? suppose you make $5,700 annual deposits into the same retirement account. How large will your account balance be in 40 years?
$2,868,732.50
For each of the following, compute the present value: 1. year=17 r=9% FV=16832 2. year=9 r=7% FV= 48318
$3,889.42; $26,281.79;
You and your sister are planning a large anniversary party 3 years from today for your parents' 50th wedding anniversary. You have estimated that you will need $6,500 for this party. You can earn 2.6 percent compounded annually on your savings. How much would you and your sister have to deposit today in one lump sum to pay for the entire party? $6,076.55 $6,018.26 $6,308.16 $5,934.90 $5,868.81
$6,018.26
Mary is going to receive a 30-year annuity of $11,500 per year. Nancy is going to receive a perpetuity of $11,500 per year. If the appropriate discount rate is 4.3 percent, how much more is Nancy's cash flow worth?
$75,631.05
primary markets
-Market in which securities are sold by the company. -Public and private placements of securities, SEC registration, and underwriters are all part of the primary market. -Key feature: Money raised goes to the issuing company
secondary markets
-Market where securities that have already been issued are traded between investors. -Funds are exchanged between buyer and seller with no participation by the issuing company. -New York Stock Exchange (NYSE) and NASDAQ are part of the secondary market.
Deep Sea Fisheries has current liabilities of $238,620, net working capital of $42,580, inventory of $262,750, and sales of $1,941,840. What is the quick ratio? .79 .34 .08 2.94 12.93
.08
Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio? .33 .67 1.49 1.34 3.07
.33
AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales, and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are $89,500. What is the total asset turnover rate? 1.08 1.38 1.30 1.24 1.28
1.30
Based on the following information, calculate the sustainable growth rate for Kayla's Heavy Equipment: profit margin=7.3% capital intensity=.95 debt-equity ratio-1.05 net income= 84,000 dividends =24,000
12.68%
Nakamura, Inc., has a total debt ratio of .75, total debt of $576,000, and net income of $27,340. What is the company's return on equity?
14.24%
Suppose that the Bethesda Mining Company had sales of $2,751,332 and net income of $86,432 for the year ending December 31, 2022. Calculate the DuPont identity.
15.30%
Suppose you borrow $2,000 at 5% and you are going to make annualpayments of $734.42. How long before you pay off the loan?
3 years
Good Guys will pay you $2,500 a year for 10 years in exchange for $31,300 today. What interest rate will you earn on this annuity? 1.67 percent 3.89 percent 5.50 percent 2.55 percent 2.38 percent
3.89 percent
If Fairlane Co. has an ROA of 8.3 percent and a payout ratio of 35 percent, what is its internal growth rate?
5.70%
Katie's Dinor spent $113,800 to refurbish its current facility. The firm borrowed 65 percent of the refurbishment cost at 6.82 percent interest for six years. What is the amount of each monthly payment? $1,108.91 $1,282.16 $1,333.33 $1,254.73 $1,087.06
$1,254.73
Polska, Inc., is obligated to pay its creditors $10,300 during the year. What is the value of the shareholders' equity if assets equal $11,600? What if assets equal $9,400?
$1,300 $0
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital? $9,800 $10,400 $18,900 $21,300 $23,200
$10,400
Suppose you are still committed to owning a $275,000 Ferrari (see Question 9). If you believe your mutual fund can achieve an annual return of 11.2 percent, and you want to buy the car in nine years on the day you turn 30, how much must you invest today?
$105,776.60
Spartan Credit Bank is offering 8.3 percent compounded daily on its savings accounts. If you deposit $7,500 today, how much will you have in the account in 5 years? In 10 years? In 20 years?
$11,357.24; $17,198.27; $39,437.39
Y3K, Inc., has sales of $5,987, total assets of $2,532, and a debt-equity ratio of .57. If its return on equity is 11 percent, what is its net income?
$117.40
You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for six more years at 6.8 percent per year. How much will you have in eight years?
$14,839.7
You want to have $40,000 for a down payment on a house 4 years from now. If you can earn 5.6 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal? $32,166.54 $34,420.73 $27,880.69 $28,211.17 $30,886.40
$32,166.54
In December 2020, the Milwaukee Bucks signed Giannis Antetokounmpo to a contract reportedly worth $228.2 million. Antetokounmpo's salary was to be paid as $39,344,970 in 2022, $42,492,568 in 2023, $45,640,165 in 2024, $48,787,763 in 2025, and $51,935,360 in 2026. If the appropriate discount rate is 11 percent, what kind of deal did the forward dunk? Assume all payments are paid at the end of each year.
$166,264,654.66
One of your customers has a delinquent accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.8 percent per month interest on the overdue balance. If the current balance is $18,000, how long will it take for the account to be paid off?
58.53 months
Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600. How long on average does it take the firm to sell its inventory? 6.40 days 7.23 days 48.68 days 59.01 days 61.10 days
59.01 days
suppose you need 10,000 in 1 year for the down payment on a new car. If you can earn 7% annually, how much do you need to invest today
9345.79
At 4.3 percent interest, how long does it take to double your money? To quadruple it?
16.46 years; 32.93 years
You can earn .23 percent per month at your bank. If you deposit $2,200, how long must you wait until your account has grown to $3,500?
202.10 months
You can afford $632 per month. If the interest rate is 1% per month for 48months, how much can you borrow?
23,999.54
What is the present value of $500 to be received in 5 years? The discount rate is 10%
310.46
You are saving for a new house and you put $10,000 per year in an accountpaying 8%. The first payment is made today. How much will you have at the end of 3 years?
35061.12
Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700. For this to have been true, what would the annual increase in the value of the certificate have been? 6.22 percent 6.01 percent 7.23 percent 6.49 percent 7.07 percent
6.22 percent
Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money? 6 percent interest for 3 years 12 percent interest for 5 years 7 percent interest for 9 years 8 percent interest for 9 years 6 percent interest for 10 years
8 percent interest for 9 years
Which one of the following parties can sell shares of ABC stock in the primary market? ABC company Any corporation, other than the ABC company Any institutional shareholder Any private individual shareholder Only officers and directors of ABC company
ABC company
Big Dom's Pawn Shop charges an interest rate of 25.5 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is the effective annual rate?
APR = 306.00% EAR = 1,426.60%
You have just purchased a new warehouse. To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2.6 million purchase price. The monthly payment on this loan will be $14,200. What is the APR on this loan? The EAR?
APR = 7.26% EAR = 7.50%
All else held constant, which one of the following will decrease if a firm increases its net income? Return on assets Profit margin Return on equity Price-sales ratio Price-earnings ratio
Price-earnings ratio
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? Sole proprietorship General partnership Limited partnership Limited liability company Corporation
Limited partnership
ways to control agency problem
Managerial Compensation Board of Directors Market Control
Bing, Inc., has current assets of $5,400, net fixed assets of $28,100, current liabilities of $4,100, and long-term debt of $10,600. What is the value of the shareholders' equity account for this firm? How much is net working capital?
Owners' equity = $18,800 NWC = $1,300
Which one of the following is contained in the corporate bylaws? Procedures for electing corporate directors State of incorporation Number of authorized shares Intended life of the corporation Business purpose of the corporation
Procedures for electing corporate directors
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? -The present value of Annuity A is equal to the present value of Annuity B. -Annuity B will pay one more payment than Annuity A will. -The future value of Annuity A is greater than the future value of Annuity B. -Annuity B has both a higher present value and a higher future value than Annuity A. -Annuity A has a higher future value but a lower present value than Annuity B.
Annuity B has both a higher present value and a higher future value than Annuity A.
The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: average tax rate. variable tax rate. marginal tax rate. fixed tax rate. ordinary tax rate.
marginal tax rate.
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due. Current ratio Debt ratio Cash coverage ratio Cash ratio Quick ratio
Quick ratio
Which one of the following is a working capital decision? -How should the firm raise additional capital to fund its expansion? -What debt-equity ratio is best suited to the firm? -What is the cost of debt financing? -Should the firm borrow money for five or for ten years? -How much cash should the firm keep in reserve?
How much cash should the firm keep in reserve?
agency relationship
Stockholders (principals) hire managers (agents) to run the company
Nominal or Annual Percentage Rate (APR)
The annual rate quoted by law APR = periodic rate X number of periods per year
Eric is considering an investment that will pay $8,200 a year for five years, starting one year from today. What is the maximum amount he should pay for this investment if he desires a rate of return of 11.2 percent? $17,899.08 $27,117.36 $20,186.75 $30,154.50 $18,153.55
$30,154.50
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 1.25 percent per year, compounded monthly for the first six months, increasing thereafter to 17.8 percent per year, compounded monthly. Assuming you transfer the $9,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year?
$892.90
Kurt wants to have $835,000 in an investment account six years from now. The account will pay .67 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal? $9,062.07 $9,497.03 $8,838.22 $8,501.03 $8,808.11
$9,062.07
dealer market
-A market with several traders who maintain an inventory in securities they trade and provide prices at which they stand ready to buy (bid) and sell (ask) the securities. -NASDAQ is an example of a dealer market.
Wiley's has total equity of $679,400, long-term debt of $316,900, net working capital of $31,600, and total assets of $1,123,900. What is the total debt ratio? .53 .40 .67 .49 .63
.40
Suppose you borrow $10,000 from your parents to buy a car. You agree topay $207.58 per month for 60 months. What is the monthly interest rate?
0.75%
S&S Furniture is offering a bedroom suite for $3,200. The credit terms are 60 months at $55 per month. What is the interest rate on this offer? 1.22 percent 1.50 percent 1.65 percent 1.15 percent 1.30 percent
1.22 percent
Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate? 1.04 1.08 1.13 1.43 1.28
1.28
A firm wishes to maintain an internal growth rate of 6.4 percent and a dividend payout ratio of 25 percent. The current profit margin is 5.7 percent and the firm uses no external financing sources. What must total asset turnover be?
1.41 times
Isaac only has $1,090 today but needs $1,979 to buy a new computer. How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant. 11.83 years 11.48 years 12.51 years 12.77 years 11.34 years
11.34 years
You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6 percent interest. Approximately how long must you wait for your investment to double in value? 6 years 7 years 8 years 12 years 14 years
12 years
Solve for the unknown number of years in each of the following: 1.PV=610, r=7%, FV=1389 2. PV=940, r=8%, FV=1812
12.16; 8.59
suppose you are offered an investment that will allow you to double your money in 6 years. you have 10,000 to invest. What is the implied interest?
12.25%
Find the APR, or stated rate, in each of the following cases. 1. number times compound=semiannually, EAR=14.2% 2. number times compound=monthly, EAR=18.4%
13.73%; 17.01%
Assume the total cost of a college education will be $325,000 when your child enters college in 16 years. You presently have $40,000 to invest and do not plan to invest anything further. What annual rate of interest must you earn on your investment to cover the entire cost of your child's college education? 12.65 percent 10.40 percent 13.99 percent 14.62 percent 11.08 percent
13.99 percent
You are offered an investment that will pay $200 in year 1, $400 the next year, $600 the following year,and $800 at the end of the 4th year. You can earn 12% on similar investments. What is the most you should pay for this investment?
1432.93
Evergreen Credit Corp. wants to earn an effective annual return on its consumer loans of 18.2 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower.
16.72%
Anne plans to save $40 a week, starting next week,for ten years and earn a rate of return of 4.6 percent, compounded weekly. After the ten years, she will discontinue saving and invest her account at 6.5 percent, compounded annually. How long from now will it be before she has accumulated a total of $50,000? 10.32 years 21.14 years 15.08 years 11.14 years 20.32 years
20.32 years
You're trying to save to buy a new $275,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 4.8 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
36.36 years
PXG Co. has total assets of $6.45 million and a total asset turnover of 1.8 times. If the return on assets is 7.9 percent, what is its profit margin?
4.39%
The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 5.6 percent. suppose a sales associate told you the policy costs $525,000. At what interest rate would this be a fair deal?
5.71%
You're prepared to make monthly payments of $225, beginning at the end of this month, into an account that pays an APR of 6.5 percent compounded monthly. How many payments will you have made when your account balance reaches $15,000?
57.07
Dexter, Inc., had a cost of goods sold of $75,318. At the end of the year, the accounts payable balance was $18,452. How long, on average, did it take the company to pay off its suppliers during the year? What might a large value for this ratio imply?
89.42 days
annuity
finite series of equal payments that occur at regular intervals
cash flow analysis
how cash is generated from utilizing assets and how it is paid tothose who finance the assets
Smolira Golf has 10,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2022 was $73. What is the price-earnings ratio? What is the price-sales ratio? What are the dividends per share? What is the market-to-book ratio at the end of 2022?
PE ratio = 17.19 times P/S ratio = 2.54 times DPS = $1.60 Market-to-book = 6.90 times
Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent. PV = $600 (1 + .06)7 PV = $600 (1 + .07)6 PV = $600 ×(.07 ×6) PV = $600/(1 + .07)6 PV = $600/(1 + 6).07
PV = $600/(1 + .07)6
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $90,000 per year for the next two years, or you can have $77,000 per year for the next two years, along with a $20,000 signing bonus today. The bonus is paid immediately and the salary is paid in equal amounts at the end of each month. If the interest rate is 7 percent compounded monthly, which do you prefer?
PV: $167,513.24; $163,316.89
Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318? Present value Compound value Future value Complex value Factor value
Present value
PV definition
present value -The current value of future cash flows discounted at the appropriate discount rate -Value at t=0 on a time line
Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n): general creditor. debtholder. shareholder. stakeholder. agent.
stakeholder.
where/why is ratio analysis used
used both inernally and externally -Compare financial information year-to-year -Compare companies of different sizes, particularly within the same industry
First City Bank pays 7.5 percent simple interest on its savings account balances, whereas Second City Bank pays 7.5 percent interest compounded annually. If you made a deposit of $8,600 in each bank, how much more money would you earn from your Second City Bank account at the end of eight years?
$1,577.91
You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 9.1 percent?
$1,883.87
you have an investment that will pay you 1.21 percent per month. How much will you have per dollar invested in one year? In two years?
$1.16; $1.33
Dahlia Corp. has a current accounts receivable balance of $513,260. Credit sales for the year just ended were $4,986,340. What is the receivables turnover? The days' sales in receivables? How long did it take, on average, for credit customers to pay off their accounts during the past year?
Receivables turnover = 9.72 times Days' sales in receivables = 37.57 days
All else held constant, the future value of a lump sum investment will decrease if the: amount of the lump sum investment increases. time period is increased. interest is left in the investment. interest rate increases. interest is changed to simple interest from compound interest.
interest is changed to simple interest from compound interest.
r definition
interest rate -Discount rate, Cost of capital, Required return -Discount Rate = ƒ (time, risk)
liquidity, control, taxation, raise capital, liability, life of corporation
liquid, shareholders, double taxation, easy, limited, unlimited
liquidity, control, taxation, raise capital, liability, life of proprietorship
now liquid, owners or partners, personal income, difficult, unlimited, limited
A limited liability company (LLC): is a hybrid between a sole proprietorship and a partnership. prefers its profits be taxed as personal income to its owners. that meets the IRS criteria to be an LLC will be taxed like a corporation. provides limited liability for some, but not all, of its owners. cannot be created for professional service firms, such as accountants and attorneys.
prefers its profits be taxed as personal income to its owners.
You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: dealer market. over-the-counter market. secondary market. primary market. tertiary market.
secondary market.
balance sheet
snapshot in time of firms assets, liab, equity
Operating cash flow is defined as: a firm's net profit over a specified period of time. the cash that a firm generates from its normal business activities. a firm's operating margin. the change in the net working capital over a stated period of time. the cash that is generated and added to retained earnings.
the cash that a firm generates from its normal business activities.
Capital Budgeting
the process of planning and managing a firm's long-term investments
A firm has an equity multiplier of 1.5. This means that the firm has a: debt-equity ratio of .67. debt-equity ratio of .33. total debt ratio of .50. total debt ratio of .67. total debt ratio of .33.
total debt ratio of .33.
average tax rat
total tax bill / taxable income
The December 31, 2021, balance sheet of Chen, Inc., showed $130,000 in the common stock account and $2.34 million in the additional paid-in surplus account. The December 31, 2022, balance sheet showed $147,000 and $2.65 million in the same two accounts, respectively. If the company paid out $168,500 in cash dividends during 2022, what was the cash flow to stockholders for the year?
−$158,500
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2010, Deutscher-Menzies sold Arkie under the Shower, a painting by renowned Australian painter Brett Whiteley, at auction for a price of $1,100,000. Unfortunately for the previous owner, he had purchased it three years earlier at a price of $1,680,000. What was his annual rate of return on this painting?
−13.17%
Your parents spent $7,800 to buy 200 shares of stock in a new company 12 years ago. The stock has appreciated 14.6 percent per year on average. What is the current value of those 200 shares? $36,408.70 $40,023.03 $39,580.92 $40,515.08 $37,449.92
$40,023.03
You have $4,300 to deposit. Regency Bank offers 12 percent per year compounded monthly (1 percent per month), while King Bank offers 12 percent but will only compound annually. How much will your investment be worth in 20 years at each bank?
$46,837.98; $41,479.06
Christie, Inc., has identified an investment project with the following cash flows. If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? What is the future value at an interest rate of 13 percent? At 27 percent? y1 cash flow=1075 y2 cash flow =1210 y3 cash flow=1340 y4 cash flow=1420
$5,480.30; $6,030.36; $7,275.42
You have decided that you want to be a millionaire when you retire in 45 years. If you can earn an annual return of 11.8 percent, how much do you have to invest today? What if you can earn 5.9 percent?
$6,608.74; $75,802.20
marginal tax rate
% tax paid on the next dollar earned
agency problem
-Conflict of interest between principal and agent -Managers may not always act in the best interest of shareholders -Agency costs
auction market
-Generally has a physical location where buyers and sellers are matched by a broker, with little dealer activity. -A stock that trades on an exchange is said to be "listed." -NYSE is an example of a dealer market.
f the appropriate discount rate for the following cash flows is an 8.5 percent APR compounded quarterly, what is the present value of the cash flows? y1 cash flow=815 y2 cash flow =990 y3 cash flow=0 y4 cash flow=1520
$2,671.72
suppose you invest 3 million at 15% interest. How much will your investment grow in 5 years
6.0341 million
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit margin of 4.4 percent. What is the return on equity? 4.21 percent 6.49 percent 7.18 percent 8.68 percent 7.07 percent
7.07 percent
Morimoto, Inc., has a profit margin of 5.9 percent on sales of $11.4 million. If the firm has debt of $6.1 million and total assets of $9.3 million, what is the firm's ROA?
7.23%
A fire has destroyed a large percentage of the financial records of the Inferno Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 12.7 percent. Sales were $1.84 million, the total debt ratio was .43, and total debt was $691,000. What is the return on assets (ROA)?
7.24%
In 1895, the first U.S. Open Golf Championship was held. The winner's prize money was $150. In 2020, the winner's check was $2.2 million. What was the annual percentage increase in the winner's check over this period? If the winner's prize increases at the same rate, what will it be in 2050?
7.98%; $21,995,924.59
A firm has net income of $4,238 and interest expense of $898. The tax rate is 35 percent. What is the firm's times interest earned ratio? 7.33 7.26 5.38 8.26 9.33
8.26
Whipporwill, Inc.'s, net income for the most recent year was $19,382. The tax rate was 21 percent. The firm paid $3,681 in total interest expense and deducted $4,738 in depreciation expense. What was the company's cash coverage ratio for the year?
8.95 times
During the year, Belyk Paving Co. had sales of $1,745,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $880,000, $470,000, and $385,000, respectively. In addition, the company had an interest expense of $195,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provision and assume interest expense is fully deductible.) S uppose Belyk Paving Co. paid out $370,000 in cash dividends. Is this possible? If net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year, what do you know about the firm's long-term debt account?
$170,000
The December 31, 2021, balance sheet of Justin's Golf Shop, Inc., showed current assets of $1,530 and current liabilities of $1,285. The December 31, 2022, balance sheet showed current assets of $1,745 and current liabilities of $1,320. What was the company's 2022 change in net working capital, or NWC?
$180
Mendez Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent? y1 cash flow=470 y2 cash flow =610 y3 cash flow=735 y4 cash flow=920
$2,111.99; $1,758.27; $1,550.39
You plan to save $200 a month for the next 24 years and hope to earn an average rate of return of 10.6 percent. How much more will you have at the end of the 24 years if you invest your money at the beginning rather than the end of each month? $1,911.29 $1,807.70 $2,238.87 $2,317.82 $2,707.27
$2,317.82
Last year, The Pizza Joint added $6,230 to retained earnings from sales of $104,650. The company had costs of $87,300, dividends of $2,500, and interest paid of $1,620. Given a tax rate of 34 percent, what was the amount of the depreciation expense? $2,407 $1,908 $2,503 $3,102 $3,414
$2,503
Graff, Inc., has sales of $49,800, costs of $23,700, depreciation expense of $2,300, and interest expense of $1,800. If the tax rate is 22 percent, what is the operating cash flow, or OCF?
$21,260
Given the following information for Troiano Pizza Co., calculate the depreciation expense: sales = $76,800; costs = $36,900; addition to retained earnings = $6,800; dividends paid = $2,370; interest expense = $5,300; tax rate = 22 percent.
$22,844
Your grandfather started his own business 52 years ago. He opened an investment account at the end of his third month of business and contributed $x. Every three months since then, he faithfully saved another $x. His savings account has earned an average rate of 5.73 percent annually. Today, his account is valued at $289,209.11. How much did your grandfather save every three months assuming he saved the same amount each time? $284.02 $328.67 $331.09 $226.78 $262.25
$226.78
You have just made your first $5,000 contribution to your retirement account. Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing? $26,335.37; $23,011.60 $27,311.20; $29,803.04 $27,311.20; $22,614.08 $27,580.08; $21,609.71 $31,241.90; $32,614.08
$27,580.08; $21,609.71
Wes Motors has total assets of $98,300, net working capital of $11,300, owners' equity of $41,600, and long-term debt of $38,600. What is the value of the current assets? $21,600 $18,100 $28,900 $29,400 $6,800
$29,400
AV Sales has net revenue of $513,000 and costs of $406,800. The depreciation expense is $43,800,interest paid is $11,200, and dividends for the year are$4,500. The tax rate is 33 percent. What is the addition to retained earnings? $38,804 $34,304 $28,120 $29,804 $30,450
$29,804
If you deposit $5,300 at the end of each year for the next 20 years into an account paying 9.8 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years?
$296,748.26; $2,221,767.13
ST Trucking just signed a $3.8 million contract. The contract calls for a payment of $1.1 million today, $1.3 million one year from today, and $1.4 million two years from today. What is this contract worth today at a discount rate of 8.7 percent? $3,783,648.48 $3,480,817.37 $2,108,001.32 $3,202,223.89 $3,202,840.91
$3,480,817.37
what is the value today of $5,100 per year, at a discount rate of 7.9 percent, if the first payment is received six years from today and the last payment is received 20 years from today?
$30,030.78
Which one of the following statements is correct? -Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business. -Peer group analysis is easier when seasonal firms have different fiscal years. -Peer group analysis is simplified when firms use varying methods of depreciation. -Comparing results across geographic locations is easier since all countries now use a common set of accounting standards. -Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.
Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.
Which statement is true? -All else equal, an ordinary annuity is more valuable than an annuity due. -All else equal, a decrease in the number of payments increases the future value of an annuity due. -An annuity with payments at the beginning of each period is called an ordinary annuity. -All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity. -All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.
All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms? Perpetuity Annuity Consol Lump sum Present value
Annuity
Which one of the following statements concerning the balance sheet is correct? -Total assets equal total liabilities minus total equity. -Net working capital is equal total assets minus total liabilities. -Assets are listed in descending order of liquidity. -Current assets are equal to total assets minus net working capital. -Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.
Assets are listed in descending order of liquidity.
Which one of the following qualifies as an annuity payment? Weekly grocery bill Clothing purchases Car repairs Auto loan payment Medical bills
Auto loan payment
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.4 million. Klingon's current balance sheet shows net fixed assets of $3.5 million, current liabilities of $945,000, and net working capital of $275,000. If all the current accounts were liquidated today, the company would receive $1.25 million in cash. What is the book value of Klingon's total assets today? What is the sum of the market value of NWC and the market value of fixed assets?
Book value = $4,720,000 Total NWC and market value = $6,650,000
Which one of the following is a measure of long-term solvency? Price-earnings ratio Profit margin Cash coverage ratio Receivables turnover Quick ratio
Cash coverage ratio
Which one of the following is most apt to align management's priorities with shareholders' interests? -Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers -Compensating managers with shares of stock that must be held for a minimum of three years -Paying a special management bonus on every fifth year of employment -Increasing the number of paid holidays that long-term employees are entitled to receive -Allowing employees to retire early with full retirement benefits
Compensating managers with shares of stock that must be held for a minimum of three years
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? Increased stock market volatility Corporate accounting and financial fraud Increased executive compensation Increased foreign investment in U.S. stock markets Increased use of tax loopholes
Corporate accounting and financial fraud
Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? Limited partnership Corporation Sole proprietorship General partnership Public company
Corporation
SDJ, Inc., has net working capital of $2,630, current liabilities of $5,970, and inventory of $3,860. What is the current ratio? What is the quick ratio?
Current ratio = 1.44 times Quick ratio = .79 time
Mobius, Inc., has a total debt ratio of .57. What is its debt-equity ratio? What is its equity multiplier?
Debt-equity ratio = 1.33 Equity multiplier = 2.33
An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm? Fixed expenses Marginal tax rate Net capital spending Inventory Depreciation
Depreciation
You're trying to choose between two different investments, both of which have up-front costs of $25,000. Investment G returns $60,000 in six years. Investment H returns $92,000 in nine years. Which of these investments has the higher return?
G: 15.71% H: 15.58%
Capital Management
How do we manage the day-to-day finances of the firm?
ordinary annuity
If the first payment occurs at the end of the period
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow? Increase in depreciation Increase in accounts receivable Increase in accounts payable Decrease in cost of goods sold Increase in sales
Increase in accounts payable
compound interest
Interest earned on principal and on interest received "Interest on interest" - interest earned on reinvestment of previous interest payments
simple interest
Interest earned only on the original principal
Capital budgeting includes the evaluation of which of the following? -Size of future cash flows only -Size and timing of future cash flows only -Timing and risk of future cash flows only -Risk and size of future cash flows only -Size, timing, and risk of future cash flows
Size, timing, and risk of future cash flows
You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options? -To be the perpetuity, the payments must occur on the first day of each monthly period. -The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years. -The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due. -The future value of all three investments must be equal. -The present value of all three investments must be equal.
The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due.
Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? The present value of the car is equal to $500 + (36 ×$450). The $500 is the present value of the purchase. The car loan is an annuity due. To compute the initial loan amount, you must use a monthly interest rate. The future value of the loan is equal to 36 ×$450.
To compute the initial loan amount, you must use a monthly interest rate.
Suppose you are looking at the following possible cash flows: Year 1 CF = $100; Years 2 and 3 CFs =$200; Years 4 and 5 CFs = $300. The required discount rate is 7%. What is the value of the CFs at year 5? What is the value of the CFs today?
Year 5=1226.07 Today=874.12
A private placement is most apt to involve: a large number of private investors. only foreign investors. a life-insurance company. several private securities dealers. the U.S. Treasury department.
a life-insurance company.
Effective Annual Rate (EAR)
he interest rate that accounts for the effects of compounding Used to compare two alternative investments with different compounding periods
If you deposit $100 in one year, $200 in two years and $300 in three years. How much will you have in three years at 7 percent interest? How much in five years if you don't add additional amounts?
a. 628.49 b. 719.56
annuity due
an annuity for which the cash flows occur at the beginning of the period
Net working capital includes: a land purchase. an invoice from a supplier. non-cash expenses. fixed asset depreciation. the balance due on a 15-year mortgage.
an invoice from a supplier.
The financial statement that summarizes a firm's accounting value as of a particular date is called the: income statement. cash flow statement. liquidity position. balance sheet. periodic operating statement.
balance sheet.
3 financial management decisions
capital budgeting, capital structure, working capital management
Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of: capital structure management. asset allocation. risk management. capital budgeting. working capital management.
capital structure management.
Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's: capital structure. capital budget. asset allocation. working capital. risk structure.
capital structure.
Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: simple interest. interest on interest. discounted interest. complex interest. compound interest.
compound interest.
Net working capital is defined as: the depreciated book value of a firm's fixed assets. the value of a firm's current assets. available cash minus current liabilities. total assets minus total liabilities. current assets minus current liabilities.
current assets minus current liabilities.
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital: had to increase. had to decrease. remained constant. could have either increased, decreased, or remained constant. was unaffected as the changes occurred in the firm's current accounts.
had to decrease.
An auction market: is an electronic means of exchanging securities. has a physical trading floor. handles primary market transactions exclusively. is also referred to as an OTC market. is dealer-based.
has a physical trading floor.