BCOR 340 Study Set
You are due to receive a lump-sum payment of $1,675 in two years. If you could invest that money at 5.3 percent interest for four years, how much would it be worth six years from now? Multiple Choice $1,857.26 $1,955.69 $2,059.34 $2.168.49 $2,283.42
$2,059.34 4 N 5.3 I/Y -1,675.00 PMT FV $2,059.34
What is the future value of $8,000 invested today and held for 15 years at 8.5 percent compounded annually? Multiple Choice $25,377.35 $27,197.94 $29,139.86 $29,509.77 $27,179.49
$27,197.94 Future value = $8,000 × (1.085)15 = $27,197.94
You have just made your first $5,000 contribution to your retirement account. Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing? Multiple Choice $26,335.37; $23,011.60 $27,311.20; $29,803.04 $27,311.20; $22,614.08 $27,580.08; $21,609.71 $31,241.90; $32,614.08
$27,580.08; $21,609.71 Future value 35 years = $5,000 × (1 + .05)35 = $27,580.08 Future value 30 years = $5,000 × (1 + .05)30 = $21,609.71
A preferred stock pays an annual dividend of $2.95. What is one share of this stock worth to you today if you require a rate of return of 8.2 percent? Multiple Choice $51.21 $33.03 $38.00 $35.98 $33.49
$35.98 P = $2.95 / .082 = $35.98
Oakville Trucking just signed a $5.0 million contract. The contract calls for a payment of $1.25 million today, $1.75 million one year from today, and $2.0 million two years from today. What is this contract worth today at a discount rate of 7.25 percent? Multiple Choice $4,923,275.74 $4,620,444.63 $3,247,628.58 $4.341,851.15 $4,342,468.17
$4,620,444.63 PV = $1.25m + ($1.75m / 1.0725) + ($2.0m / 1.07252) = $4,620,444.63
Assume your university earns an average rate of return of 5.65 percent on its endowment funds. If a new gift permanently increases annual scholarships by $32,000, what was the amount of the gift? Multiple Choice $784,090.91 $485,293.05 $615,384.62 $658,929.38 $566,371.68
$566,371.68 P = $32,000 / .0565 = $566,371.68
Today, you are purchasing a 10-year, 4.8 percent annuity at a cost of $50,000. The annuity will pay annual payments starting one year from today. What is the amount of each payment? Multiple Choice $13,619.19 $6,412.49 $13,189.57 $6,679.71 $6,874.70
$6,412.49 10 N 4.8 I/Y −50,000.00 PMT FV 6,412.49
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? Multiple Choice $36,900 $66,700 $71,600 $89,400 $106,300
$71,600 Owners' equity = $29,800 + 64,800 − 23,000 = $71,600
Taylor Industries has current liabilities of $54,900 and accounts receivable of $88,700. The firm has total assets of $395,000 and net fixed assets of $265,100. The owners' equity has a book value of $147,500. What is the amount of the net working capital? Multiple Choice $77,400 $75,000 $33,800 −$8,500 −$2,400
$75,000 Net working capital = $395,000 − 265,100 − 54,900 = $75,000
The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34 percent? Multiple Choice $87,620 $89,540 $91,220 $93,560 $95,240
$93,560 EBIT = $821,300 − 698,500 − 28,400 = $94,400Tax = ($94,400 − 8,400) × .34 = $29,240OCF = $94,400 + 28,400 − 29,240 = $93,560
EAR =
(1 + APR/m)^m - 1 APR = the quoted rate m = number of compounds per year
You are due to receive a lump-sum payment of $1,350 in five years. If you could invest that money at 4.5 percent interest for three years, how much would it be worth eight years from now? Multiple Choice $1,410.75 $1,474.23 $1,540.57 $1,682.35 $1,919.84
$1,540.57 3 N 4.5 I/Y -1350 PMT FV $1,540.57
Ten years ago, you deposited $5,500 into an account. Five years ago, you added an additional $2,500 to this account. You earned 6.5 percent, compounded annually, for the first 5 years and 5.0 percent, compounded annually, for the last 5 years. How much money do you have in your account today? Multiple Choice $8,666.67 $11,391.09 $12,149.62 $12,808.09 $13,042.61
$12,808.09 Future value = {[$5,500 ×(1 + .065)5] + $2,500} ×(1 + .05)5 = $12,808.09
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? rev: 09_11_2019_QC_CS-179394 Multiple Choice $101,516.38 $119,874.49 $151,018.51 $190,253.91 $209,092.54
$151,018.51 Future value = $12,500 × (1 + .07)10 × (1 + .095)20 = $151,018.51
Janice plans to save $80 a month, starting today, for 20 years. Kate plans to save $80 a month for 20 years, starting one month from today. Both Janice and Kate expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Janice will have approximately _____ more than Janice. Multiple Choice $159.73 $66.67 $0 $78.14 $189.12
$159.73 FVJ = $80 × {[1 + (.055 / 12)]240 − 1} / (.055 / 12) × [1 + (.055 / 12)] = $35,009.92 FVK = $80 × {[1 + (.055 / 12)]240 − 1} / (.055 / 12) = $34,850.19
Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money? Multiple Choice 6 percent interest for 3 years 12 percent interest for 5 years 7 percent interest for 9 years 8 percent interest for 9 years 6 percent interest for 10 years
8 percent interest for 9 years
You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 9 percent interest. Approximately how long must you wait for your investment to double in value? Multiple Choice 6 years 7 years 8 years 12 years 14 years
8 years Approximate time period = 72/9 = 8 years
What is the effective annual rate of 8.25 percent compounded quarterly? Multiple Choice 8.25 percent 8.49 percent 8.38 percent 8.51 percent 8.56 percent
8.51 percent
What is the effective annual rate of 9.6 percent compounded semiannually? Multiple Choice 9.71 percent 9.83 percent 9.79 percent 9.68 percent 9.92 percent
9.83 percent EAR = [1 + (.096 / 2)]2 − 1 = .0983, or 9.83 percent
Business owner - Shareholders Owner's Liability - Limited Easy Access to capital market - Yes Is Management and ownership separate? - Yes Are business owners exposed to double taxation - Yes
Corporation
Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? Multiple Choice Limited partnership Corporation Sole proprietorship General partnership Public company
Corporation
Which one of the following can be classified as an annuity but not as a perpetuity? Multiple Choice Increasing monthly payments forever Increasing quarterly payments for six years Unequal payments each year for nine years Equal annual payments for life Equal weekly payments forever
Equal annual payments for life
Business owner - Single Owner Owner's Liability - Unlimited Easy Access to capital market - No Is Management and ownership separate? - No Are business owners exposed to double taxation - No
Sole proprietorship
Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? Multiple Choice Sole proprietorship Limited partnership Corporation Joint stock company General partnership
Sole proprietorship
Which one of the following statements is correct? Multiple Choice The APR is equal to the EAR for a loan that charges interest monthly. The EAR is always greater than the APR. The APR on a monthly loan is equal to (1 + monthly interest rate)12 − 1. The APR is the best measure of the actual rate you are paying on a loan. The EAR, rather than the APR, should be used to compare both investment and loan options.
The EAR, rather than the APR, should be used to compare both investment and loan options.
Which one of these is a perpetuity? Multiple Choice Trust income of $1,200 a year forever Retirement pay of $2,200 a month for 20 years Lottery winnings of $1,000 a month for life Car payment of $260 a month for 60 months Rental payment of $800 a month for one year
Trust income of $1,200 a year forever
Highly liquid assets: Multiple Choice increase the probability a firm will face financial distress. appear on the right side of a balance sheet. generally produce a high rate of return. can be sold quickly at close to full value. include all intangible assets.
can be sold quickly at close to full value
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: Multiple Choice capital structure. capital budget. asset allocation. working capital. risk structure.
capital structure
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: Multiple Choice discounting. compounding. duplicating. multiplying. indexing.
compounding.
Net working capital is defined as: Multiple Choice the depreciated book value of a firm's fixed assets. the value of a firm's current assets. available cash minus current liabilities. total assets minus total liabilities. current assets minus current liabilities.
current assets minus current liabilities.
The goal of financial management is to increase the: future value of the firm's total equity. book value of equity. dividends paid per share. current market value per share. number of shares outstanding.
current market value per share.
Calculating the present value of a future cash flow to determine its worth today is commonly called: Multiple Choice present value. discounting. discounting cash flow valuation. evaluating investments. compounding.
discounting cash flow valuation.
Anna pays .85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the: Multiple Choice annual percentage rate. simplified rate. quoted rate. stated rate. effective annual rate.
effective annual rate.
First Bank offers personal loans at 7.7 percent compounded monthly. Second Bank offers similar loans at 7.4 percent compounded daily. Which one of the following statements is correct concerning these loans? Assume a 365-day year. (a) The First Bank loan has an effective rate of 7.98 percent. (b) The Second Bank loan has an effective rate of 8.01 percent. (c) The annual percentage rate for the Second Bank loans is 7.68 percent. (d) Borrowers should prefer the loans offered by First Bank. (e) Both banks offer the same effective rate.
(a) The First Bank loan has an effective rate of 7.98 percent.
The present value of a lump-sum future amount: (a) increases as the interest rate decreases. (b) decreases as the time period decreases. (c) is inversely related to the future value. (d) is directly related to the interest rate. (e) is directly related to the time period.
(a) increases as the interest rate decreases.
Precision Engineering invested $95,000 at 5.5 percent interest, compounded annually for 2 years. How much interest did the company earn over this period of time? (a) $95,000 (b) $10,737.38 (c) $10,450.00 (d) $2,612.50 (e) $10,931.36
(b) $10,737.38
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? (a) Increased stock market volatility (b) Corporate accounting and financial fraud (c) Increased executive compensation (d) Increased foreign investment in U.S. stock markets (e) Increased use of tax loopholes
(b) Corporate accounting and financial fraud
Which one of the following is an intangible fixed asset? (a) Inventory (b) Machinery (c) Copyright (d) Account receivable (e) Building
(c) Copyright
Which one of the following terms is defined as the total tax paid divided by the total taxable income? (a) Average tax rate (b) Variable tax rate (c) Marginal tax rate (d) Absolute tax rate (e) Contingent tax rate
(c) Marginal tax rate
Cash flow from assets is defined as: (a) the cash flow to shareholders minus the cash flow to creditors. (b) operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. (c) operating cash flow minus the change in net working capital minus net capital spending. (d) operating cash flow plus net capital spending plus the change in net working capital. (e) cash flow to shareholders minus net capital spending plus the change in net working capital.
(c) operating cash flow minus the change in net working capital minus net capital spending.
Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money? (a) 6 percent interest for 3 years (b) 12 percent interest for 5 years (c) 7 percent interest for 9 years (d) 8 percent interest for 9 years (e) 6 percent interest for 10 years
(d) 8 percent interest for 9 years
Which statement is true? (a) All else equal, an ordinary annuity is more valuable than an annuity due. (b) All else equal, a decrease in the number of payments increases the future value of an annuity due. (c) An annuity with payments at the beginning of each period is called an ordinary annuity. (d) All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity. (e) All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity
(d) All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
Which one of these is correct? (a) Depreciation has no effect on taxes. (b) Interest paid is a noncash item. (c) Taxable income must be a positive value. (d) Net income is distributed either to dividends or retained earnings. (e) Taxable income equals net income × (1 + Average tax rate).
(d) Net income is distributed either to dividends or retained earnings.
Julie is borrowing $14,950 to purchase a car. The loan terms are 48 months at 6.95 percent interest, compounded monthly. How much interest, rounded to the nearest dollar, will she pay on this loan if she pays the loan as agreed? (a) $2,338 (b) $2,414 (c) $1,959 (d) $1,806 (e) $2,217
(e) $2,217
The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: (a) a corporate takeover. (b) a capital structure issue. (c) a working capital decision. (d) an agency conflict. (e) a compensation issue.
(e) a compensation issue.
Assume all else is equal. When comparing savings accounts, you should select the account that has the: (a) lowest annual percentage rate. (b) highest annual percent rate. (c) highest stated rate. (d) lowest effective annual rate. (e) highest effective annual rate.
(e) highest effective annual rate.
How long will it take to double your savings if you earn 6.4 percent interest, compounded annually? Multiple Choice 11.89 years 12.02 years 11.39 years 11.17 years 10.58 years
11.17 years $2 = $1 × (1 + .064)tt = 11.17 years
Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value? Multiple Choice 3 percent simple interest 3 percent interest, compounded annually 2 percent interest, compounded annually 4 percent simple interest 4 percent interest, compounded annually
4 percent interest, compounded annually
Which one of the following has the highest effective annual rate? Multiple Choice 6 percent compounded annually 6 percent compounded semiannually 6 percent compounded quarterly 6 percent compounded daily 6 percent compounded every 2 years
6 percent compounded daily (Shortest amount of time)
When you were born, your parents opened an investment account in your name and deposited $1,500 into the account. The account has earned an average annual rate of return of 5.3percent. Today, the account is valued at $42,856. How old are you? Multiple Choice 71.47 years 70.67 years 61.08 years 67.33 years 64.91 years
64.91 years $42,856 = $1,500 × (1 + .053)t t = 64.91 years
Which one of the following parties can sell shares of ABC stock in the primary market? Multiple Choice ABC company Any corporation, other than the ABC Company Any institutional shareholder Any private individual shareholder Only officers and directors of ABC Company
ABC Company
The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? Organizational Structural Formative Agency Territorial
Agency
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? Multiple Choice The present value of Annuity A is equal to the present value of Annuity B. Annuity B will pay one more payment than Annuity A will. The future value of Annuity A is greater than the future value of Annuity B. Annuity B has both a higher present value and a higher future value than Annuity A. Annuity A has a higher future value but a lower present value than Annuity B.
Annuity B has both a higher present value and a higher future value than Annuity A.
Which one of the following is most apt to align management's priorities with shareholders' interests? Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers Compensating managers with shares of stock that must be held for a minimum of three years Paying a special management bonus on every fifth year of employment Increasing the number of paid holidays that long-term employees are entitled to receive Allowing employees to retire early with full retirement benefits
Compensating managers with shares of stock that must be held for a minimum of three years
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? (a) $101,516.38 (b) $119,874.49 (c) $151,018.51 (d) $190,253.91 (e) $209,092.54
FV = 12, 500(1 + .07)10(1 + .095)20 = 151, 018.51
Ten years ago, you deposited $5,500 into an account. Five years ago, you added an additional $2,500 to this account. You earned 6.5 percent, compounded annually, for the first 5 years and 5.0 percent, compounded annually, for the last 5 years. How much money do you have in your account today? (a) $8,666.67 (b) $11,391.09 (c) $12,149.62 (d) $12,808.09 (e) $13,042.61
FV = [5, 500(1 + .065)5 + 2, 500](1 + .05)5 = 12, 808.09
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts? Multiple Choice Sole proprietorship Limited partnership Corporation Joint stock company General partnership
General Partnership
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? Decrease the number of corporations that can be publicly traded Increase the protections against corporate fraud Limit secondary issues of corporate securities Increase the dividends paid to shareholders Increase the number of firms that "go dark"
Increase the protections against corporate fraud
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: Multiple Choice Both Stacey and Kurt will have accounts of equal value. Kurt will have twice the money saved that Stacey does. Kurt will earn exactly twice the amount of interest that Stacey earns. Kurt will have a larger account value than Stacey will. Stacey will have more money saved than Kurt.
Kurt will have a larger account value than Stacey will.
What is the primary goal of financial management for a sole proprietorship? Multiple Choice Maximize net income given the current resources of the firm Decrease long-term debt to reduce the risk to the owner Minimize the tax impact on the proprietor Maximize the market value of the equity Minimize the reliance on fixed costs
Maximize the market value of the equity
Which one of these is correct? Multiple Choice Depreciation has no effect on taxes. Interest paid is a noncash item. Taxable income must be a positive value. Net income is distributed either to dividends or retained earnings. Taxable income equals net income divided by (1 + Average tax rate)
Net income is distributed either to dividends or retained earnings.
Business owner - Partners Owner's Liability - Unlimited Easy Access to capital market - No Is Management and ownership separate? - No Are business owners exposed to double taxation - No
Partnership
companies sell new stocks and bonds to the public for the first time, such as with an initial public offering (IPO)
Primary Market
One example of a primary market transaction would be the: Multiple Choice sale of 100 shares of stock by Maria to her best friend. purchase by Theo of 5,000 shares of stock from his father. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. sale by Terry of 50,000 shares of stock to his brother. sale of 5,000 shares of stock owned by a corporate CEO to his son.
Sale of 1,000 shares of newly issued stock by Alt Company to Miquel.
Driven by corporate scandals (Enron) Intended to strengthen Protection against accounting fraud and financial malpractice Compliance very costly Firms driven to: Go public outside the U.S. Go private ("go dark")
Sarbanes-Oxley Act (SarBox, 2002)
where securities are traded from investor to investor
Secondary Market
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? Multiple Choice The period of time she has to wait until she reaches her goal is unaffected by the compounding of interest. The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal. She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple interest. The length of time she has to wait to reach her goal is directly related to the interest rate she earns. The period of time she has to wait decreases as the amount she invests increases.
The period of time she has to wait decreases as the amount she invests increases.
The Sarbanes-Oxley Act of 2002 has: reduced the annual compliance costs of all publicly traded firms in the U.S. decreased senior management's involvement in the corporate annual report. greatly increased the number of U.S. firms that are going public for the first time. decreased the number of U.S. firms going public on foreign exchanges. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the: Multiple Choice statement of cash flows. income statement. GAAP statement. balance sheet. net working capital schedule.
income statement.
All else held constant, the future value of a lump-sum investment will decrease if the: Multiple Choice amount of the lump-sum investment increases. time period is increased. interest is left in the investment. interest rate increases. interest is changed to simple interest from compound interest.
interest is changed to simple interest from compound interest.
Cash flow to creditors is defined as: Multiple Choice interest paid minus net new borrowing. interest paid plus net new borrowing. operating cash flow minus net capital spending minus the change in net working capital. dividends paid plus net new borrowing. cash flow from assets plus net new equity.
interest paid minus net new borrowing.
A corporation: Multiple Choice is ultimately controlled by its board of directors. is a legal entity separate from its owners. is prohibited from entering into contractual agreements. has its identity defined by its bylaws. has its existence regulated by the rules set forth in its charter.
is a legal entity separate from its owners.
Cash flow to creditors increases when: interest rates on debt decline. accounts payables decrease. long-term debt is repaid. current liabilities are repaid. new long-term loans are acquired.
long-term debt is repaid.
The Sarbanes-Oxley Act: Multiple Choice require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results. requires all corporations to fully disclose its financial dealings to the general public. places the responsibility for a firm's financial statements solely on the chief financial officer. requires that the board of directors be solely responsible for the firm's financial dealings. places total responsibility for the financial statements of a firm on the auditor who certifies the statements.
require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results
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: dealer market. over-the-counter market. secondary market. primary market. tertiary market.
secondary market.
An agency issue is most apt to develop when: Multiple Choice a firm encounters a period of stagnant growth. a firm downsizes. the control of a firm is separated from the firm's ownership. the firm's owner is also its key manager. a firm is structured as a general partnership.
the control of a firm is separated from the firm's ownership
Matching Principle states that costs should be recorded on the income statement whenever those costs can be reliably determined. costs should be recorded when paid. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. sales should be recorded when the payment for that sale is received. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
