PF Ch.1,2,3,5,6
The decision to issue additional shares of stock is an example of:
a capital structure decision
The book value of a firm is
based on historical transactions
Which one of the following is an unintended result of the Sarbanes-Oxley Act?
Corporations delisting from major exchanges
Which one of the following is a disadvantage of the corporate form of business?
Distributed profits may experience double taxation.
An ordinary annuity is best defined as:
Equal payments paid at the end of regular intervals over a stated time period.
The most common type of medium-term, amortized business loans has which one of these characteristics over its life?
Equal principal payments
Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent?
In today's dollars, Caroline's award is worth more than Jiexin's.
Which one of the following questions is least likely to be addressed by financial managers?
In which region of the country should a new product be launched? How should a product be marketed?
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Which one of the following questions involves a capital budgeting decision?
Should the firm purchase a new machine for the production line?
The interest rate that is most commonly quoted by a lender is referred to as the:
annual percentage rate.
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
balance sheet
The articles of incorporation:
describe the purpose of the firm and set forth the number of shares of stock that can be issued.
Cash flow from assets is also known as the firm's:
free cash flow
A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner
limited
A firm's ______ is the firm's mix of short-term assets and short-term liabilities.
net working capital
Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction
occurred in a secondary market
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios
profitability
A sole proprietorship:
requires the owner to be personally responsible for all of the company's debts.
Financial managers should primarily focus on the interests of:
shareholders
average tax rate
total taxes paid divided by total taxable income
You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while Annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?
Annuity B has a smaller present value than Annuity A.
Bowman's Boats has an interval measure of 53. This means that the firm has sufficient liquid assets to:
cover its operating costs for the next 53 days
Net Working Capital
current assets - current liabilities
A firm's liquidity is measured with
current ratio
Capital structure decisions include determining:
how much debt should be assumed to fund a project.
The growth of both sole proprietorships and partnerships is frequently limited by the firm's:
inability to raise cash
Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you speed up your plans to enable you to graduate two years from now, the present value of the promised gift will:
increase
Abigail, Blake and Camila plan to launch a business. Abigail will fund the venture but wants to limit her liability to her initial investment. She has no interest in the daily operations. Blake will contribute his full efforts on a daily basis but has limited funds to invest in the business. Camila will be involved as a consultant and manager and will also contribute funds. Blake and Camila are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to minimize the initial costs of organizing the business. Which form of business entity should these individuals adopt?
limited partnership
Mortgage lenders probably have the most interest in the ______ ratios.
long-term debt and times interest earned
Which one of the following is a primary market transaction?
sale of a new share of stock to an individual investor
Ratios that measure a firm's liquidity are known as ______ ratios.
short term solvency
Graff, Incorporated, has sales of $52,500, costs of $24,000, depreciation expense of $2,500, and interest expense of $2,250. If the tax rate is 23 percent, what is the operating cash flow, or OCF?
1) 52,500 - 24,000- 2,500 = 26,000 (EBIT) 2) 26,000- 2,250 = 23,750 3) 23,750 * .23 = 5,462.5 Operating Cash Flow = EBIT + Depreciation - Tax =26,000+2,500-5462.5=$23,037.5
Which one of the following is a working capital management decision?
Should the firm require immediate payment from customers or offer credit terms? and What is the maximum level of cash to be kept in the firm's bank account?
The Natural Pet had sales of $763,500 in 2020, and $864,200 in 2021. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?
The net working capital turnover rate increased.
Bing, Incorporated, has current assets of $7,000, net fixed assets of $25,900, current liabilities of $5,450, and long-term debt of $13,000. a.) What is the value of the shareholders' equity account for this firm? (Do not round intermediate calculations.) b.) How much is net working capital?
a.) 7000+25,900=32,900 32,900-5450-13,000=14,450 b.) 7000-5450=1,550
Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called
discounting
A perpetuity is defined as:
unending equal payments paid at equal time intervals
During 2021, Raines Umbrella Corporation had sales of $727,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $450,000, $97,000, and $142,500, respectively. In addition, the company had an interest expense of $71,400 and a tax rate of 25 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) a. What is the company's net income/loss for 2021? (Do not round intermediate calculations and enter your answer as a positive value.) b. What is the company's operating cash flow? (Do not round intermediate calculations.)
(a) 727,000-450,000-97,000-142,500= 37,500 (EBIT) NI/L= 37,500-71,4000= (-33,900) (b) OCF=EBIT+Dep-Taxes(which are 0) OCF=37,500+142,500 OCF=180,000
Nataro, Incorporated, has sales of $676,000, costs of $338,000, depreciation expense of $82,000, interest expense of $51,000, a tax rate of 24 percent, and paid out $42,000 in cash dividends. What is the addition to retained earnings?
676000-338000-82000=256000 (EBIT) 256,000-51000=205,000 205,000*0.24=49200 205,000-49,200=155,800 155,800-42,000=113,800
Nataro, Incorporated, has sales of $679,000, costs of $341,000, depreciation expense of $85,000, interest expense of $52,500, a tax rate of 22 percent, and paid out $40,500 in cash dividends. The firm has 29,600 shares of common stock outstanding. b.) What is the dividends per share figure?
DPS=dividend payout/#shares outstanding 40,500/29600=$1.37
Wallace Driving School's 2020 balance sheet showed net fixed assets of $3.4 million, and the 2021 balance sheet showed net fixed assets of $3.9 million. The company's 2021 income statement showed a depreciation expense of $325,000. What was net capital spending for 2021?
NCS=End NFA-Beg. NFA+Dep. 3,900,000-3,400,000+325,000=825,000
Which one of the following statements concerning net working capital is correct?
Net working capital increases when inventory is sold for cash at a profit.
You are comparing two investment options that each pay 6 percent interest compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.)
Option B has a higher present value at Time 0.
Tobin's Q relates the market value of a firm's assets to which one of the following?
Today's cost to duplicate those assets
The interest earned on both the initial principal and the interest reinvested from prior periods is called:
compound interest
Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from:
compounding
Which form of business would be the best choice if it were necessary to raise large amounts of capital?
corporation
Nirav just opened a savings account paying 2 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this information, Nirav:
could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest.
Assume you are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now?
future value
A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a:
general partnership
Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:
has an equity multiplier of 1.0.
The Sarbanes-Oxley Act of 2002 is a governmental response to:
management greed and abuses
The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes.
marginal
Which one of the following grants an individual the right to vote on behalf of a shareholder?
proxy
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan.
pure discount
Makers Corp. had additions to retained earnings for the year just ended of $192,000. The firm paid out $182,000 in cash dividends, and it has ending total equity of $4.87 million. The company currently has 100,000 shares of common stock outstanding. What are earnings per share? What are dividends per share? What is the book value per share? If the stock currently sells for $65 per share, what is the market-to-book ratio? What is the price-earnings ratio? If the company had sales of $3.18 million, what is the price-sales ratio?
EPS or Earnings per share = Retained earnings + dividend issue /No of shares = 192000+182000/100000 =$3.74 is the earning per share Dividend per share = Total dividend /No of shares = 182000/100000 = $1.82 per share Book value per share = Book value of equity /No of shares Hence = 4870000/100000 =Book value per share = $48.7 Market to book ratio = Market price of the share /Book value per share = 65/48.7 = 1.33 Price-earnings ratio =price per share/EPS 65/3.7 =17.3 price sales ratio=price per share/sales per share 3,180,000/100,000=31.8 65/31.8=2.04
Nataro, Incorporated, has sales of $679,000, costs of $341,000, depreciation expense of $85,000, interest expense of $52,500, a tax rate of 22 percent, and paid out $40,500 in cash dividends. The firm has 29,600 shares of common stock outstanding. a.) What is the earnings per share, or EPS, figure?
NI=679,000-341,000-85,000-52,500=200,500 200,500*0.22=44,110 NI=200,500-44,110=156,390 EPS=NI/Shares =156,390/29,600 EPS=$5.28
Nataro, Incorporated, has sales of $676,000, costs of $338,000, depreciation expense of $82,000, interest expense of $51,000, and a tax rate of 24 percent. What is the net income for this firm?
R=676,000 E=338,000+82,000+51,000=471,000 NI=676,000-471,000=205,000 205,000*0.24=49,200 NI=205,000-49,200 NI=155,800
Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which market?
Secondary, auction market
Which one of the following statements correctly defines a time value of money relationship?
Time and present value are inversely related, all else held constant.
Corporate bylaws:
determine how a corporation regulates itself
The process of determining the present value of future cash flows in order to know their value today is referred to as:
discounted cash flow valuation