Finance test 1

You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it? $69,023.16 $73,340.00 $66,818.02 Correct! $72,103.59 FV = $62,500(1.0295)FV = $72,103.59 $68,666.67

$72,103.59 FV = $62,500(1.0295)FV = $72,103.59

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually? $41,009.13 $32,483.60 Correct Answer $38,125.20 $27,890.87 You Answered $38,991.07

$38,125.20 FV = $11,600(1 + .0725)17FV = $38,125.20

Al invested $3,630 in an account that pays 6 percent simple interest. How much money will he have at the end of five years? Correct! $4,719 FV = $3,630 + ($3,630)(.06)(5)FV = $4,719 $5,299 $5,056 $4,678 $4,910

$4,719 FV = $3,630 + ($3,630)(.06)(5)FV = $4,719

At the beginning of the year, Trees Galore had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year? −$2,062 Correct Answer $5,630 −$2,480 You Answered $3,568

$5,630 Net new borrowing = ($72,415 − 13,870) − ($68,847 − 15,932)Net new borrowing = $5,630 $4,677

Jensen Enterprises paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6,800 and retained earnings decreased by $180. What is the net income for the year? $1,020 $880 $180 $1,200 Correct! $520 Net income = $700 − 180Net income = $520

$520 Net income = $700 − 180Net income = $520

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? $4,130 $2,050 $7,950 $2,920 Correct! $6,890 Current assets = $7,390 − 3,910Current assets = $3,480Current liabilities = $3,480 − 560Current liabilities = $2,920Total liabilities = $2,920 + 3,970Total liabilities = $6,890

$6,890 Current assets = $7,390 − 3,910Current assets = $3,480Current liabilities = $3,480 − 560Current liabilities = $2,920Total liabilities = $2,920 + 3,970Total liabilities = $6,890

One year ago, you invested $1,750. Today it is worth $1,815.48. What rate of interest did you earn? Correct! 3.74 percent $1,815.48 = $1,750(1 + r)r = .0374, or 3.74% 3.88 percent 4.01 percent 4.33 percent 3.59 percent

3.74 percent $1,815.48 = $1,750(1 + r)r = .0374, or 3.74%

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? $970 $2,860 $720 $640 $3,110

720 NWC = $680 + 210 + 80 − 250NWC = $720

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A)An item held by the firm for future sale B)Money due from a customer C)Real estate investment D) Equipment owned by the firm E) Good reputation of the company

Good reputation of the company

An example of a capital budgeting decision is deciding: how much inventory to keep on hand. Correct! whether or not to purchase a new machine for the production line. how many shares of stock to issue. how much money should be kept in the checking account. how to refinance a debt issue that is maturing.

whether or not to purchase a new machine for the production line.

A firm's short-term assets and its short-term liabilities are referred to as the firm's: investment capital. Correct! working capital. capital structure. net capital. debt.

working capital

Last year, Kaylor Equipment had $15,900 of sales, $500 of net new equity, dividend payments of $75, an addition to retained earnings of $418, depreciation of $680, and $511 of interest expense. What are the earnings before interest and taxes at a tax rate of 21 percent? $589.46 $949.46 $1,331.54 $1,560.85 Correct! $1,135.05 Net income = $75 + 418Net income = $493Taxable income = $493/(1 − .21)Taxable income = $624.05EBIT = $624.05 + 511EBIT = $1,135.05

$1,135.05 Net income = $75 + 418Net income = $493Taxable income = $493/(1 − .21)Taxable income = $624.05EBIT = $624.05 + 511EBIT = $1,135.05

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually? Correct! $1,240.51 FVSimple = $6,500 + ($6,500)(.06)(10)FVSimple = $10,400FVCompound = $6,500(1.0610)FVCompound = $11,640.51Difference = $11,640.51 − 10,400Difference = $1,240.51 B) $1,182.19 C) $1,201.15 D) $1,049.22 E) $930.11

$1,240.51 FVSimple = $6,500 + ($6,500)(.06)(10)FVSimple = $10,400FVCompound = $6,500(1.0610)FVCompound = $11,640.51Difference = $11,640.51 − 10,400Difference = $1,240.51

In 1903, the winner of a competition was paid $50. In 2017, the winner's prize was $235,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate? (Do not round intermediate calculations. Round your answer to the nearest $500.) $1,188,500 $1,080,000 $1,250,000 Correct! $1,294,000 $235,000 = $50[(1 + r)114]r = .0770, or 7.70%FV = $235,000(1.07723)FV = $1,294,000 (rounded to nearest $500) $1,176,500

$1,294,000 $235,000 = $50[(1 + r)114]r = .0770, or 7.70%FV = $235,000(1.07723)FV = $1,294,000 (rounded to nearest $500)

Friendly Companies has an unfunded pension liability of $327 million that must be paid in 16 years. What is the present value of this liability at a discount rate of 6.24 percent? $134,519,484.14 $121,511,366.67 Correct! $124,147,723.50 PV = $327,000,000/1.062416PV = $124,147,723.50 $111,438,907.11 $129,803,162.22

$124,147,723.50 PV = $327,000,000/1.062416PV = $124,147,723.50

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity? $23,700 $15,300 $35,500 Correct! $18,700 Shareholders' equity = $5,900 + 21,200 − 8,400Shareholders' equity = $18,700The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer. $6,900

$18,700 Shareholders' equity = $5,900 + 21,200 − 8,400 Shareholders' equity = $18,700 The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.

You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent. How much money will you have 8 years from now? $19,381.16 Correct! $21,887.13 FV = $15,000(1.065(8 − 2))FV = $21,887.13 $24,824.94 $20,414.73 $23,209.19

$21,887.13 FV = $15,000(1.065(8 − 2))FV = $21,887.13

This morning, DJ's invested $225,000 to help fund future projects. How much additional money will the firm have three years from now if it can earn an annual interest rate of 4 percent rather than 3.5 percent? $3,008.17 $3,711.08 $4,219.68 Correct! $3,632.88 FV = $225,000(1.043)FV = $253,094.40FV = $225,000(1.0353)FV = $249,461.52Difference = $253,094.40 − 249,461.52Difference = $3,632.88 $3,391.90

.$3,632.88 FV = $225,000(1.043)FV = $253,094.40FV = $225,000(1.0353)FV = $249,461.52Difference = $253,094.40 − 249,461.52Difference = $3,632.88

Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest? All stockholders Only general partners Both limited and general partners Correct! Both general partners and sole proprietors Only sole proprietors

Both general partners and sole proprietors

corporate dividends are: A) tax free since the corporation pays tax on that income when its earned B) tax free because the income is taxed at the personal level when earned by the firm C) taxable income of the recipient even though that income was previously taxed. D)taxed at both the corporate and the personal level when the dividends are paid to shareholders. E) tax-free because they are distributions of aftertax income.

C) Taxable income of the recipient even though that income was previously taxed.

Which one of the following terms is defined as the management of a firm's long-term investments? Agency cost analysis Capital structure Correct! Capital budgeting Working capital management Financial allocation

Capital Budgeting

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A) Market value report B) Tax reconciliation statement C) Balance sheet D) Statement of cash flows E) Correct Answer Income statement

E) income statement

Which one of the following is an agency cost? Correct Answer Hiring outside accountants to audit the company's financial statements You Answered Closing a division of the firm that is operating at a loss Investing in a new project that creates firm value Increasing the quarterly dividend Accepting an investment opportunity that will add value to the firm

Hiring outside accountants to audit the company's financial statements

Which one of the following questions is least likely to be addressed by financial managers? Should customers be given 30 or 45 days to pay for their credit purchases? Should the firm borrow more money? Should the firm acquire new equipment? Correct! How should a product be produced? How much cash should the firm keep on hand?

How should a product be produced?

Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than ________ and earn a ________ rate of interest, then you can deposit a smaller lump sum today. Correct! later; sooner; high later; sooner; low today; later; high sooner; later; high sooner; later; low

Later; sooner; high

Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct? Nan will have less money when she retires than Neal. Correct! Nan will have more money than Neal at any age. Neal will earn more compound interest than Nan. Neal will earn more interest on interest than Nan. If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings.

Nan will have more money than Neal at any age.

Which one of the following statements concerning net working capital is correct? Total assets must increase if net working capital increases. Net working capital excludes inventory. Net working capital is the amount of cash a firm currently has available for spending. Net working capital increases when inventory is purchased with cash. Correct! Net working capital may be a negative value.

Net working capital may be a negative value.

Which one of the following represents a cash outflow from a corporation? Issuance of new securities You Answered Initial sale of common stock Correct Answer Payment of dividends Receipt of tax refund New loan proceeds

Payment of dividends

Which one of the following will decrease the value of a firm's net working capital? Depreciating an asset Correct! Selling inventory at a loss Using cash to pay a supplier Collecting an accounts receivable Purchasing inventory on credit

Selling inventory at a loss

Which one of the following is a working capital management decision? What amount of long-term debt is required to complete a project? How many shares of stock should the firm issue to fund an acquisition? What type(s) of equipment is (are) needed to complete a current project? Should a project should be accepted? Should the firm pay cash for a purchase or use the credit offered by the supplier?

Should the firm pay cash for a purchase or use the credit offered by the supplier?

Which one of the following statements concerning stock exchanges is correct? The NYSE is a dealer market. NASDAQ is a broker market. The exchange with the strictest listing requirements is NASDAQ. Correct! Some large companies are listed on NASDAQ. Most debt securities are traded on the NYSE.

Some large companies are listed on NASDAQ.

Which one of the following statements is correct concerning the NYSE? The publicly traded shares of a NYSE-listed firm must be worth at least $250 million. Any corporation desiring to be listed on the NYSE can do so for a fee. Correct! The listing requirements for the NYSE are more stringent than those of NASDAQ. The NYSE is an OTC market functioning as both a primary and a secondary market. The NYSE is the largest dealer market for listed securities in the United States.

The listing requirements for the NYSE are more stringent than those of NASDAQ.

Which one of the following statements concerning a sole proprietorship is correct? Correct Answer The owner of a sole proprietorship is personally responsible for all of the company's debts. A sole proprietorship is designed to protect the personal assets of the owner. You Answered There are very few sole proprietorships remaining in the U.S. today. The profits of a sole proprietorship are subject to double taxation. A sole proprietorship is structured the same as a limited liability company

The owner of a sole proprietorship is personally responsible for all of the company's debts.

Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as: aggregating. discounting. accumulating. Correct! compounding. simplifying.

compounding.

Agency problems are most associated with: sole proprietorships. Correct! corporations. general partnerships. limited liability companies. limited partnerships.

corporations

Depreciation for a tax-paying firm: A) is a noncash expense that increases the net income. B) reduces both the net fixed assets and the costs of a firm. C) decreases net fixed assets, net income, and operating cash flows. D) increases expenses and lowers taxes. E) increases the net fixed assets as shown on the balance sheet.

increases expenses and lowers taxes.