Finance Quiz Chapters 7&8

Tom's Hardware has inventory of $318,000, equity of $421,800, total assets of $647,700, and sales of $687,400. What is the common-size percentage for the inventory account?

49.49

Vegan Delite stock is valued at $124.20 a share. The company pays a constant annual dividend of $8.80 per share. What is the total return on this stock?

7.09 percent

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent. What was the actual nominal rate of return?

7.77 percent

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

A project has expected cash inflows, starting with year 1, of $2,200, $2,900, $3,500, and finally in year 4, $4,000. The profitability index is 1.14 and the discount rate is 12 percent. What is the initial cost of the project?

8,166.19

When you were born, your parents opened an investment account in your name and deposited $500 into the account. The account has earned an average annual rate of return of 4.8 percent. Today, the account is valued at $36,911.22. How old are you?

91.75 years

You want to purchase a new condominium that costs $329,000. Your plan is to pay 20 percent down in cash and finance the balance over 25 years at 6.25 percent. What will be your monthly mortgage payment?

$1,736.25

The Medicine Shoppe has a return on equity of 19.2 percent, a profit margin of 11.6 percent, and total equity of $738,000. What is the net income?

$141,696

Empire Industries is considering adding a new product to its lineup. This product is expected to generate sales for four years after which time the product will be discontinued. What is the project's net present value if the firm wants to earn a 13 percent rate of return?

$4,312.65

The Glass Ceiling paid an annual dividend of $2.20 per share last year. Management just announced that future dividends will increase by 2.8 percent annually. What is the amount of the expected dividend in year 5?

2.53

Isaac only has $690 today but needs $800 to buy a new laptop. How long will he have to wait to buy the laptop if he earns 5.4 percent compounded annually on his savings?

2.81 years

Services United is considering a new project that requires an initial cash investment of $78,000. The project will generate cash inflows of $29,500, $32,700, $18,500, and $10,000 over each of the next four years, respectively. How long will it take to recover the initial investment?

2.85 years

Santa Klaus Toys just paid its annual dividend of $1.40. The required return is 8 percent and the dividend growth rate is 1 percent. What is the expected value of this stock five years from now?

21.23

A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan?

22.22 percent

The Golden Goose is considering a project with an initial cost of $46,700. The project will produce cash inflows of $10,000 a year for the first two years and $12,000 a year for the following three years. What is the payback period?

4.23 years

The net present value of a project's cash inflows is $8,216 at a 14 percent discount rate. The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the initial cost of the project?

$7,976.70

Turner's Store had a profit margin of 6.8 percent, sales of $898,200, and total assets of $798,000. If management set a goal of increasing the total asset turnover to 1.40 times, what would the new sales figure need to be, assuming no increase in total assets?

1,117,200

Which one of the following is the quoted price of a bond?

Clean price

You have agreed to pay a 5 percent commission to your best friend if he can locate a buyer for your car. This arrangement is most similar to the compensation arrangement for which one of these individuals who is involved with the stock market?

Commission broker

Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.

semiannual

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by 1 percent per year?

Dividend yield + capital gains yield

You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain?

Interest-only

Which one of the following can be defined as a benefit-cost ratio?

Profitability index

Which one of the following indicates that a project is definitely acceptable?

Profitability index greater than 1.0

Which one of the following statements is correct?

The payback method is biased toward short-term projects.

Which one of the following statements is correct?.

The payback method is biased toward short-term projects.

Which one of the following features distinguishes an ordinary annuity from an annuity due?

Timing of the annuity payments

The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent rate of return, should the firm purchase this particular machine? Why or why not?

Yes, because the IRR is 12.74 percent

If shareholders are granted a preemptive right they will:

have priority in the purchase of any newly issued shares.

A common-size balance sheet helps financial managers determine:

if changes are occurring in a firm's mix of assets

Given the following partial stock quote, what is the amount of the next annual dividend if yesterday's closing price was $23.60?

$0.81

What is the effective annual rate of 14.9 percent compounded quarterly?

15.75 percent

Your parents spent $6,200 to buy 500 shares of stock in a new company 13 years ago. The stock has appreciated 9 percent per year on average. What is the current value of those 500 shares?

19,007.99

Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a four-year cutoff for projects. The required return is 11 percent. The payback for Project A is ____ while the payback for Project B is ____. The NPV for Project A is _____ while the NPV for Project B is ____. Which project, if any, should the company accept?

3.92 years; 3.79 years; $780.85; -$7,945.93; accept Project A only

Graphic Designs has 120,000 shares of cumulative preferred stock outstanding. Preferred shareholders are supposed to be paid $1.50 per quarter per share in dividends. However, the firm has encountered financial problems and has not paid any dividends for the past three quarters. How much will the firm have to pay per share of preferred next quarter if the firm also wishes to pay a common stock dividend?

6.00

Explain the difference between a bid price and an asked price and also explain why the prices are different.

A bid price is the price a bond dealer is willing to pay to purchase a bond. The asked price is the price at which the bond dealer is willing to sell a bond. The difference, or bid-asked spread, is the profit the bond dealer makes on the trade.

Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting?

Cumulative

Which one of the following terms denotes for certain that a bond is unsecured?

Debenture

Sara is investing $1,000 today. Which one of the following will increase the future value of that amount?

Increasing the interest rate

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Inflation

Which one of the following features applies to NASDAQ but not the NYSE?

Multiple market maker system

An investment has an initial cost of $420,000 and will generate the net income amounts shown below. This investment will be depreciated straight-line to zero over the four-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not?

No, because the AAR is less than 16 percent

The Flour Baker is considering a project with the following cash flows. Should this project be accepted based on its internal rate of return if the required return is 11 percent?

No, because the project's rate of return is 7.78 percent

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?

Perpetuity

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted?

Proxy

A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a:

commission broker.

The net present value of an investment represents the difference between the investment's:

cost and its market value.