Finance Exam 1

Which one of these transactions will increase the liquidity of a firm?

Credit sale of inventory at cost

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

Depreciation

The DuPont identity can be accurately defined as:

Equity multiplier × Return on assets.

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?

Increasing the interest rate

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

Internal growth rate

Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:

Kurt will have a larger account value than Stacey will.

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

No new external equity and a constant debt-equity ratio

You are due to receive a lump-sum payment of $1,750 in three years and an additional lump-sum payment of $1,850 in five years. Assuming a discount rate of 3.0 percent interest, what would be the value of the payments today?

$3,197.32

Turner's Store had a profit margin of 6.8 percent, sales of $498,200, and total assets of $542,000. If management set a goal of increasing the total asset turnover to 1.10 times, what would the new sales figure need to be, assuming no increase in total assets?

$596,200

Stacey's Fabrics, a sole proprietorship earned $260,000 in taxable income for the year. How much tax does the company owe?

$66,690

What are the values of the three components of the DuPont identity? Use ending balance sheet values.

.1153; 1.01; 1.9080 net profit margin/total sales asset turnover ratio assets/total equity

Joie's Fashions has current liabilities of $45,600 and accounts receivable of $59,700. The firm has total assets of $275,000 and net fixed assets of $205,500. The owners' equity has a book value of $107,500. What is the amount of the net working capital?

23,900

You have $300 today and want to triple your money in 5 years. What interest rate must you earn if the interest is compounded annually?

24.57 percent

Jaminda's Holistic Healing has sales of $980,000, cost of goods sold of $765,250, and accounts receivable of $88,640. How long on average does it take the firm's customers to pay for their purchases? Assume a 365-day year.

33.01 days days sales outstanding avg. receivable/net sales times 365

Donegal's Industrial Products wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of .45, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25. What profit margin must the firm achieve?

6.97 percent

A firm has common stock of $93, paid-in surplus of $300, total liabilities of $425, current assets of $420, and net fixed assets of $630. What is the amount of the shareholders' equity?

625

Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity?

71,600

Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?

8 percent interest for 9 years

Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years?

A decrease in the interest rate

You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 30 years?

$151,018.51

Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?

The period of time she has to wait decreases as the amount she invests increases.

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

balance sheet.

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.

Which one of the following is a measure of long-term solvency?

cash-coverage ratio

Tomas earned $89 in interest on his savings account last year and has decided to leave the $89 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called:

compounding

TB MC Qu. 01 Net working capital is defined...

current assets minus current liabilities.

Cash flow to stockholders is defined as:

dividends paid minus net new equity raised.

The future value of a lump-sum investment will increase if you:

increase the time period.

TB MC Qu. 06 The tax rate that determines the... The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

marginal tax rate.

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size.

The equity multiplier is equal to:

one plus the debt-equity ratio.

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending.

One example of a primary market transaction would be the:

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

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:

secondary market.

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

stakeholders

The primary goal of financial management is to maximize:

the market value of existing stock.