FIN 350 test #1

bid-ask spread

A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the:

the control of a firm is separated from the firm's ownership

An agency issue is most apt to develop when:

has a physical trading floor

An auction market:

effective annual rate

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:

size, timing, and risk of future cash flows

Capital budgeting includes the evaluation of which of the following?

interest rate risk premium

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

enterprise value/EBITDA

EBITDA ratio

total market value of the stock + book value of all liabilities - cash

Enterprise value

$962.62

First City Bank pays 5 percent simple interest on its savings account balances, whereas Second City Bank pays 5 percent interest compounded annually. If you made a deposit of $9,500 in each bank, how much more money would you earn from your Second City Bank account at the end of 9 years?

$10,000-$15,000

First Hand Bank pays 6% simple interest on its savings account balances, whereas Second City Bank pays 6% interest compounded annually. If you made a deposit of $10,000 in each bank, how much more money would you earn from from the Second City Bank account at the end of 20 years?

$7,932

Hailey, Inc., has sales of $19,650, costs of $9,380, depreciation expense of $2,050, and interest expense of $1,540. Assume the tax rate is 35 percent. What is the operating cash flow, or OCF?

$9,000-$10,000

If you made a deposit of $5,000 in a bank that pays you 7.75% interest, compounded annually, how much will you have at the end of 8 years?

the total debts of the partnership, even if he or she was unaware of those debts

In a general partnership, each partner is personally liable for:

capital structure management

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

increasing the interest rate

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?

you'll never pay it off unless you increase the monthly payment

Last year on Spring break you in Puerto Vallarta, you treated everyone to cocktails. When you woke up, you learned that you had signed the credit card bill for $2,000. If the interest rate on the credit card is 20% and you make the monthly payment of $25/month. How long will it take you to pay off the bill?

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?

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?

$139,750

Pharrell, Inc., has sales of $589,000, costs of $269,000, depreciation expense of $69,000, interest expense of $36,000, and a tax rate of 35 percent. What is the net income for this firm?

$119,150

Pharrell, Inc., has sales of $601,000, costs of $257,000, depreciation expense of $63,000, interest expense of $30,000, and a tax rate of 35 percent. The firm paid out $44,000 in cash dividends. What is the addition to retained earnings?

1 - payout ratio

Plowback ratio (b)

$690,000

Rotweiler Obedience School's December 31, 2015, balance sheet showed net fixed assets of $1,770,000, and the December 31, 2016, balance sheet showed net fixed assets of $2,130,000. The company's 2016 income statement showed a depreciation expense of $330,000. What was the company's net capital spending for 2016?

buy and sell from their own inventory

Security dealers:

a loss of 10%-0%

Suppose you invested in NASDAQ when it hit its high of 4,698 on February of 2000. In February of 2010, it was at a level of 2100. What was your annual average compound growth over the period? Stated differently, what was the annualized return for the period?

8.62%

The Crash Davis Driving School has an ROE of 14.7 percent and a payout ratio of 46 percent. What is its sustainable growth rate?

$120

The December 31, 2015, balance sheet of Maria's Tennis Shop, Inc., showed current assets of $1,135 and current liabilities of $930. The December 31, 2016, balance sheet showed current assets of $1,350 and current liabilities of $1,025. What was the company's 2016 change in net working capital, or NWC?

-162,000

The December 31, 2015, balance sheet of Schism, Inc., showed $143,000 in the common stock account and $2,680,000 in the additional paid-in surplus account. The December 31, 2016, balance sheet showed $153,000 and $2,980,000 in the same two accounts, respectively. The company paid out $148,000 in cash dividends during 2016. What was the cash flow to stockholders for the year?

-$68,000

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,380,000, and the December 31, 2016, balance sheet showed long-term debt of $1,540,000. The 2016 income statement showed an interest expense of $92,000. What was the firm's cash flow to creditors during 2016?

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

The Sarbanes-Oxley Act of 2002 has:

requires the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.

The Sarbanes-Oxley Act:

maturity

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

3.37

The market value of the equity of Ginger, Inc., is $780,000. The balance sheet shows $51,200 in cash and $248,100 in debt, while the income statement has EBIT of $109,100 and a total of $180,700 in depreciation and amortization. What is the enterprise value−EBITDA multiple for this company?

Agency

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

bid

The price at which a dealer will purchase a bond is referred to as the _____ price.

asked

The price at which an investor can purchase in the bond market is called the _____ price.

inverse

The relationship between the present value and the investment time period is best described as:

compounding

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:

capital structure

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:

How much cash should the firm keep in reserve?

Which one of the following is a working capital decision?

Losses limited to capital invested

Which one of the following is an advantage of being a limited partner?

- the federal reserve buys financial assets from banks and other institutions -the federal reserve stimulates the economy -the federal reserve prints a lot of money

Which one of the following occurs with Quantitative Easing?

default risk premium

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?

All over-the-counter sales occur in dealer markets

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers

Which one of the following statements is correct?

Trust income of $1,200 a year forever

Which one of these is a perpetuity?

General Partnership

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?

between $22,000 and $24,000

You can afford car payments of $400 per month for 5 years. The bank will lend you money at 2.9% interest (APR). How much can you borrow?

secondary market

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:

more than $1300

You expect to receive $200 at the end of one year, $400 at the end of two years, $600 at the end of three years, and $800 at the end of four years. With a discount rate of 12%, what are these cash flows worth now?

12 years

You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6 percent interest. Approximately how long must you wait for your investment to double in value?

24.39%

jPhone, Inc., has an equity multiplier of 1.44, total asset turnover of 1.54, and a profit margin of 11 percent. What is the company's ROE?

(ROE x b)/[1-(ROE x b)

sustainable growth rate