Finance Exam

What is the relationship between present value and future value interest factors?

The factors are reciprocals of each other

You invested $6,500 at 6% simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?

$1,240.51 6,500+6,500(.06)(10) =10,400 6,500(1.06^10) =11,640.51 11,640.51-10,400 = 1,240.51

The Daily News has projected annual net income of $272,600 of which 28% will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21%

$1,328 (.28(272600)-75,000=1328)

You have just leased a car that has monthly payments of $330 for the next 3 years with the first payment due today. If the APR is 6% compounded monthly, what is the value of the payments today?

$10,901.67

For the past year, Kayla, Inc., has sales of 47,162, interest expense of 4,166, costs of goods sold of 17,359, selling and administrative expense of 12,146, and depreciation of 6,995. If the tax rate is 38% what is the Operating Cash Flow?

$15,189 EBIT= 47,162-17,359-12,146-6,995 EBT= EBIT-4166 Taxes= .38(12,146) OCF=EBIT+6995-Taxes

ArchE invested a certain amount of money 12 years ago. In return, he will receive $389,000 at the end of the 12th year. If the APR is 6.5% with monthly compounding, how much did the firm invest?

$178,695.68 TVM: N=144, PV=389,000, I/Y=6.5/12; solve for PV

Trey will receive $7,500 at the end of year2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash at the end of year 6 if the interest rate is 8%?

$36,121.08 7,500(1.08^4)+9000(1.08^3)+12,500(1.08^2)

A balance sheet has total assets of $1,968, fixed assets of $1,356, long-term debt of $718, and short-term debt of $247. What is the net working capital?

$365

Nick has an investment that will pay $250 to him next year and increase that amount by 1.25% annually thereafter. The payments are expected to go on forever and the discount rate is 6.5%, compounded annually. What is the value of this investment today?

$4,761.90 PV of growing perpetuity = 250/(.065-.0125)= 4761.90

You have just won the lottery and will receive 640,000 in one year. you will receive payments for a total of 17 years which will increase 5% per year. The discount rate is 10%. What is the percent value of your winnings?

$6,995,666

You have just received notification that you have won the lottery of $1.25 million first prize. However, the prize will be awarded on your 100th birthday, 79 years from now. The annual interest rate is 6.4%. What is the value of your winnings today?

$9,300.82 PV= 1,250,00/(1.064^79) = 9,300.82 or TVM: N=79, I%=6.4, FV= 1,250,000; solve for PV

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $2.9 million, and the 2018 balance sheet showed long-term debt of $3.2 million. The 2018 income statement showed an interest expense of $100,000.What was the firm's cash flow to creditors during 2018?

-200,000 100000-(3200000-2900000)=-200000

You're prepared to make monthly payments of $460, beginning at the end of this month, into an account that pays APR of 6.5% of monthly compounding. How many payments will you have made when your account balance reaches $25,000?

47.77

Today, your uncle is retiring. He has a total of $289,416 in his retirement savings. He wants to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until he runs out of money?

12.71 years TVM: Set PMT to Begin rather than End I% = 4.6/12, PMT = - 2,500, PV = 289,416, solve for N, N = 152.52 Number of years = 152.52/12 = 12.71 years

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

123,240 487,000-263,000-42,000*(1-.21)=123,240

At 8% annual interest rate, how long would it take to quadruple your money?

18.01 years

What is the EAR of 18.9% compounded continuously?

20.80% = (e^.189) - 1= 20.80%

You will receive $15,000 in 2 years when you graduate. You plan to invest this at an annual interest rate of 6.5%. How much money will you have 8 years from now?

21,887.13

Dream Ltd. invested $16,200 in a project 2 years ago. Today, the company sold the project for $23,800. What annual rate of return did the firm earn on this project.

21.21% TVM: N=2, PV=-16200, FV=23800; solve for I%

Your local pawn shop loans money at an annual rate of 24 percent and compounds interest weekly. What is the actual annual interest rate being charged on these loans?

27.05% EAR=1+(24%/365)^365 - 1 = 27.05

Mr. Walker invested $20,000 years ago to provide annual payments of $750 a year to his heirs forever. What is the rate of return?

3.75%

Today, you earn a salary of $31,000. What will be your annual salary 10 years from now if you receive annual raises of 2.2%?

38,536.36

Noel invested $16,600 years ago to provide annual payments of $700 a year to her heirs forever. What is the annual rate of return?

4.22%

Red Barchetta Co. paid $27,860 in dividends and $28,815 in interest over the past year. During the year, net working capital increased from $13,698 to $18,419. The company purchased $42,880 in fixed assets and had a depreciation expense of $17,165. During the year, the company issued $25,200 in new equity and paid off $21,280 in long-term debt. What was the Company's cash flow from assets?

52,755 (Paid Interest 28,815+Long-term debt 21,280) + (Paid Dividends 27,860 - Equity 25,200) = 52,755

Which one of the following will produce the lowest present value interest factor?

8% for 10 years. TVM Function

Berkshire obtained a discount loan of $71,000 today that requires a repayment of 90,000, 3 years from today. What is APR of this loan?

8.23%

The 2017 balance sheet of Dream, Inc., showed current assets of $3,135 and current liabilities of $1,545. The 2018 balance sheet showed current assets of $3,100 and current liabilities of $1,545. What was the company's 2018 change in net working capital, or NWC?

A decrease of $35 NWC= (3,100-1545)-(3135-1545)=-35

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital Structure

Which one of the following terms is defined as the mixture of a firms debt and equity financing?

Capital Structure

A business formed by 2 or more individuals who each have unlimited liability for all of the firm's business debts is called a

General partnership

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by one year and graduate two years from now?

Increases

Depreciation for a tax-paying firm ____:

Increases expenses and lower taxes

Which one of the following best states the primary goal of financial management?

Maximize the current market value per share

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Processing cost reports

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

Which one of these statements related to growing annuities and perpetuities is most CORRECT?

The Present Value of a growing perpetuity will increase if the discount rate is decreased

Corporate bylaws___

determines how a corporation regulates itself

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

discounted cash flow valuation

One disadvantage of the corporate form of business ownership is the...

double taxation of distributed profits

An ordinary annuity is best defined as ___

equal payments paid at the end of regular intervals over a stated time period.

Which of the following are correct assumptions and conditions of the growing perpetuity present value formula?

g needs to be less than r and The first periodic cash flow occurs one period from today.