Fin 325 ( WSU ) Exam one

Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. For this to be true, what was the original price of the comic book in 1954?

$1.12

Marti's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much will the collection be worth in 2025?

$14,077.16

Imprudential, Inc. has an unfunded pension liability of $627 million that must be paid in 21 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. The relevant discount rate is 7.38 percent. What is the present value of this liability? A) $181,511,367 B) $159,803,162 C) $171,438,907 D) $154,519,484 E) $140,564,661

$140,564,661

Your father invested a lump sum 28 years ago at 4.05 percent annual interest. Today, he gave you the proceeds of that investment, totalling $48,613.24. How much did your father originally invest?

$15,994.70

Up Towne Cleaners has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year?

$18,431

Canine Supply has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

$190

When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit

$20,468.85

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?

$21,887.13

Ausel's Cabinets has $27,600 in net fixed assets and is operating at 96 percent of capacity. Sales are $36,200 currently. What is the required increase in fixed assets if sales are projected to increase by 14 percent?

$2605

You just purchased an annuity that will pay you $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8.5 percent? A) $266,498 B) $241,309 C) $258,319 D) $245,621 E) $251,409

$266,498

Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually?

$287.45

The Atlantic Co. has sales of $21,600, total costs of $16,780 and taxes of $1,750. The dividend payout ratio is 12 percent. Sales are expected to increase by 22 percent next year. What is the pro forma addition to retained earnings assuming all costs vary proportionately with sales?

$3,296

Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?

$3,381.39 less

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?

$300

Carlisle Carpets has cost of goods sold of $92,511, interest expense of $4,608, dividends paid of $3,200, depreciation of $14,568, an increase in retained earnings of $11,920, and a tax rate of 21 percent. What is the operating cash flow?

$34,296.00

This morning, DJ's invested $238,000 to help fund a company expansion project planned for three years from now. How much additional money will the firm have three years from now if it can earn 4 percent rather than 3.5 percent on its savings? A) $4,008.17 B) $3,940.09 C) $4,219.68 D) $3,711.08 E) $3,842.78

$3842.78

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? A) $3,110 B) $2,860 C) $720 D) $970 E) $640

$720

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?

$720

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year? A) -$210 B) $2,190 C) $1,910 D) $1,610 E) $990

$990

The Sarbanes-Oxley Act of 2002 is a governmental response to: 1) A) A weakening economy. B) Management greed and abuses. C) Decreasing corporate profits. D) Deregulation of the stock exchanges. E) The terrorists attacks on 9/11/2001.

) Management greed and abuses.

Carlisle Express paid $1,282 in interest and $975 in dividends last year. Current assets increased by $2,700, current liabilities decreased by $420, and long-term debt increased by $2,200. What was the cash flow to creditors?

-$918

A firm has a debt-equity ratio of .57. What is the total debt ratio? A) .36 B) .30 C) 2.75 D) .44 E) 2.27

.36

The retention ratio can be computed as:

1-(cash dividends/Net income)

Coulter Supply has a total debt ratio of .46. What is the equity multiplier?

1.85

You are paying an effective annual rate of 15.33 percent on your credit card. The interest is compounded monthly. What is the annual percentage rate on this account? A) 14.10 percent B) 14.00 percent C) 14.35 percent D) 13.90 percent E) 13.75 percent

14.35 percent

The Two Sisters has a return on assets of 9 percent and a dividend payout ratio of 75 percent. What is the internal growth rate?

2.3 percent

Assume the average vehicle selling price in the United States last year was $36,420. The average price five years earlier was $31,208. What was the annual increase in the selling price over this time period?

3.14 percent

Parodies Corp. has a return on assets of 10.9 percent, a return on equity of 16.7 percent, and a retention ratio of 40 percent. What is its sustainable growth rate?

7.16

Which one of the following statements related to annuities and perpetuities is correct? A) Most loans are a form of a perpetuity. B) Perpetuities are finite but annuities are not. C) A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments; given equal discount rates. D) The present value of a perpetuity cannot be computed but the future value can. E) An ordinary annuity is worth more than an annuity due given equal annual cash flows for 10 years at 7 percent interest, compounded annually

A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments; given equal discount rates.

According to the Rule of 72, you can do which one of the following? 1)Approximately double your money in five years at 7.24 percent interest 2)Double your money in 7.2 years at 8 percent interest 3) Approximately double your money in 11 years at 6.55 percent interest 4)Triple your money in 7.2 years at 7.2 percent interest

Approximately double your money in 11 years at 6.55 percent interest

The cash flow related to interest payments less any net new borrowing is called the A) Capital spending cash flow. B) Operating cash flow. C) Cash flow from assets. D) Cash flow to creditors. E) Net working capital.

Cash Flow to Creditors

Financial Planning:

Considers multiple options and scenarios

A firm's external financing need is financed by which of the following? A) Net working capital and retained earnings. B) Retained earnings. C) Net income and retained earnings. D) Debt or equity. E) Owners' equity, including retained earnings

Debt or Equity

Which one of the following is a use of cash? 1)Decrease in fixed assets 2) Decrease in inventory 3) Increase in the long-term debt 4) Decrease in accounts receivables 5)Decrease in accounts payable

Decrease in accounts payable

Which one of these will increase the present value of a set amount to be received sometime in the future? 1) increase in the time untill the amount is received 2)increase in the discount rate 3)Decrease in the future value 4)Decrease in the interest rate

Decrease in the interest rate

Which are the three parts of the DuPont identity?

Equity multiplier, profit margin, and total asset turnover

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? A) Future value. B) Discounted value. C) Principal amounts. D) Present value. E) Invested principal.

Future Value

Which one of the following statements is correct? A) A general partnership is legally the same as a corporation. B) Income from both sole proprietorships and partnerships is taxed as individual income. C) Only firms organized as sole proprietorships have limited lives. D) All business organizations have bylaws. E) Partnerships are the most complicated type of business to form.

Income from both sole proprietorships and partnerships is taxed as individual income

Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: A) Interest on interest. B) Bonus income. C) Simple interest. D) Free interest. E) Present value interest.

Interest on Interest

Which one of the following statements related to liquidity is correct? 1)Liquid assets tend to earn a high rate of return 2) Liquid assets are valuable to a firm 3)Liquid Assests are defined as assets that can be sold quickly regardless of the price obtained 4) inventory is more liquid than accounts receivable because inventory is tangible

Liquid Assets are valuable to a firm

The internal growth rate of a firm is best described as the: A) Minimum growth rate achievable if the firm maintains a constant equity multiplier. B) Minimum growth rate achievable assuming a 100 percent retention ratio. C) Maximum growth rate achievable with unlimited debt financing. D) Maximum growth rate achievable excluding external financing of any kind. E) Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio

Maximum growth rate achievable excluding external financing of any kind.

During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the sources of uses of cash by the firm?

Net use of cash of $25

Which one of these is most apt to be a fixed cost? 1)Raw materials 2)Manufacturing wages 3)Management bonuses 4)Office Salaries 5)Shipping and freight

Office Salaries

Which one of the following is classified as a tangible fixed asset? 1) Accounts Receivable 2)Production Equipment 3)Cash 4)Patent 5)Inventory

Production Equipment

Which one of the following are you most apt to estimate first as you begin the process of preparing pro forma statements? 1) Need for additional fixed assets 2) Current fixed cost 3) Projected sales 4)Desired net income 5) Desired dividend payments

Projected sales

Which one of the following grants an individual the right to vote on behalf of a shareholder? A) Stock option. B) Proxy. C) Indenture agreement. D) Stock audit. E) Bylaws.

Proxy

What is the formula for computing the return on equity?

ROA x Equity Multiplier

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: 1) total assets 2)total equity 3)net income 4)taxable income 5)sales

Sales

Which one of the following statements related to an income statement is correct? 1) Interest expense increase the amount of tax due 2) Depreciation does not affect taxes since it is a non-cash expense 3) Net income is distributed to dividends and paid-in surplus 4)Taxes reduce both net income and operating cash flow 5)interest expense is included in operating cash flow

Taxes reduce both net income and operating cash flow

Which one of the following statements correctly defines a time value of money relationship? A) Time and future values are inversely related, all else held constant. B) Interest rates and time are positively related, all else held constant. C) An increase in time increases the future value given a zero rate of interest. D) An increase in a positive discount rate increases the present value. E) Time and present value are inversely related, all else held constant.

Time and present value are inversely related, all else held constant.

Tobin's Q relates the market value of a firm's assets to which one of the following? A) Current book value of the firm. B) Average market value of similar firms. C) Initial cost of creating the firm. D) Average asset value of similar firms. E) Today's cost to duplicate those assets.

Today's cost to duplicate those assets.

Tobin's Q relates the market value of a firm's assets to which one of the following? 1) Initial cost of creating the firm 2) Current book value of the firm 3) Average asset value of similar firms 4) Average market value of similar firms 5) Todays Cost to duplicate those assets

Todays cost to duplicate those assets

Activities of a firm that require the spending of cash are known as: A) Cash on hand. B) Sources of cash. C) Cash receipts. D) Cash collections. E) Uses of cash.

Uses of cash

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following? 1) utilize its fixed assets more efficiently than Sam's 2) Utilizing its total assets more efficiently than Sams 3) Generating 1$ in sales for every $1.26 in net fixed assets

Utilizing its total assets more efficiently than Sam's

A firm's external financing need is met by:

debt or equity

Wood Products is operating at 87 percent capacity and earning a substantial profit. A sales increase is least apt to increase the firm's:

fixed assets

The maximum rate of growth a corporation can achieve can be increased by:

increasing the retention ratio

The price-sales ratio is especially useful when analyzing firms that have:

negative earnings

The external financing need:

will limit growth if unfunded