FIN 3715 Exam 2

Your father invested a lump sum 26 years ago at 4.25 percent interest. Today, he gave you the proceeds of that investment which totaled $51,480.79. How much did your father originally invest?

$17,444.86

In 1895, the winner of a competition was paid $110. In 2006, the winner's prize was $70,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate?

$505,697

What is the equity multiplier for 2009?

1.93

The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?

10.63 percent

What is the return on equity for 2009? (Use 2009 values)

18.02 percent

What is the price-sales ratio for 2009 if the market price is $18.49 per share?

4.12

Collingwood Homes has a bond issue outstanding that pays an 8.5 percent coupon and matures in 16.5 years. The bonds have a par value of $1,000 and a market price of $944.30. Interest is paid semiannually. What is the yield to maturity?

9.16 percent

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time?

common-base year statement

Shareholders probably have the most interest in which one of the following sets of ratios?

return on equity and price-earnings

A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:

sales

Which one of the following variables is the exponent in the present value formula?

time

A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?

$1.08

Ray's Welding Supplies common stock sells for $38 a share and pays an annual dividend that increases by 3 percent annually. The market rate of return on this stock is 8.20 percent. What is the amount of the last dividend paid?

$1.92

You collect old coins. Today, you have two coins each of which is valued at $250. One coin is expected to increase in value by 6 percent annually while the other coin is expected to increase in value by 4.5 percent annually. What will be the difference in the value of the two coins 15 years from now?

$115.32

What is the amount of the cash flow from investment activity for 2009?

$29,300

Russell's Deli has cash of $136, accounts receivable of $87, accounts payable of $215, and inventory of $409. What is the value of the quick ratio?

1.04

What is the cash coverage ratio for 2009?

10.53

What is the return on equity? (Use 2009 values)

20.68 percent

What is the net working capital to total assets ratio for 2009?

45.49 percent

It is easier to evaluate a firm using financial statements when the firm:

uses the same accounting procedures as other firms in the industry

This morning, TL Trucking invested $80,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings?

$3,651.82

Big Guy Subs has net income of $150,980, a price-earnings ratio of 12.8, and earnings per share of $0.87. How many shares of stock are outstanding?

173,540

Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

18.63

Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 78 percent. What is the return on equity?

32.14 percent

How many days of sales are in receivables? (Use 2009 values)

32.97 days

Which of the following rights is never directly granted to all shareholders of a publically-held corporation?

Determining the amount of dividend to be paid per share

The formula which breaks down the return on equity into three component parts is referred to as which one of the following?

Du Pont identity

Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $218, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $198, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of accounts receivable?

0.91

You're trying to save to buy a new $160,000 Ferrari. You have $56,000 today that can be invested at your bank. The bank pays 6 percent annual interest on its accounts. How many years will it be before you have enough to buy the car? Assume the price of the car remains constant.

18.02 years

Which one of the following bonds is the best sensitive to interest rate risk?

3-year; 6 percent coupon

Which one of the following will produce the highest present value interest factor?

6 percent interest for five years

You own a classic automobile that is currently valued at $147,900. If the value increases by 6.5 percent annually, how much will the automobile be worth ten years from now?

$277,628.63

Consider an asset that costs $176,000. And its depreciated straight-line to zero over its 11 year tax life. The asset is to be used in a 7-year project ; at the end of the project, the asset can be sold for $22,000. The relevant tax rate is 30 percent. What is the after tax cash flow from the sale of this asset?

$34,600

A firm has a debt-equity ratio of 57 percent, a total asset turnover of 1.12, and a profit margin of 4.9 percent. The total equity is $511,640. What is the amount of the net income?

$44,084

What is the future value of $7,189 invested for 23 years at 9.25 percent compounded annually?

$54,999.88

Today, you earn a salary of $36,000. What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent?

$55,032.54

Relationships determined from a firm's financial information and used for comparison purposes are known as:

financial ratios

The price-sales ratio is especially useful when analyzing firms that have which one of the following?

negative earnings

Wise's Corner Grocer had the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2009?

net source of cash of $111

Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91. Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88. Both companies have similar operations. Based on this information, Dee's must be doing which one of the following?

utilizing its total assets more efficiently than Sam's

How many days on average does it take Precision Tool to sell its inventory? (Use 2009 values)

283.31 days

The Meat Market has $747,000 in sales. The profit margin is 4.1 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $27. What is the price-earnings ratio?

6.61

One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn?

6.92 percent

Sara invested $500 six years ago at 5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment. Which type of interest is Sara earning?

simple interest

According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.

total assets for the current year

Kelly's baskets make handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of incremental operating cash flow related to the wreath project?

Hiring additional employees to handle the increased workload should the firm accept the wreath project

An increase in which of the following will increase the return on equity, all else constant?

I and II only

You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I. Invest in a different account paying a higher rate of interest. II. Invest in a different account paying a lower rate of interest. III. Retire later. IV. Retire sooner.

I and III only

What is the relationship between present value and future value interest factors?

The factors are reciprocals of each other

Which one of the following statements is correct?

The real rate must be less than the nominal rate given a positive rate of inflation

Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?

$1,400,000

You are depositing $1,500 in a retirement account today and expect to earn an average return of 7.5 percent on this money. How much additional income will you earn if you leave the money invested for 45 years instead of just 40 years?

$11,790.90

A firm has total debt of $4,620 and a debt-equity ratio of 0.57. What is the value of the total assets?

$12,725.26

Alex invested $10,500 in an account that pays 6 percent simple interest. How much money will he have at the end of four years?

$13,020

K.I. Airlines paid an annual divided of $1.18 a share last month. The company is planning on paying $1.50, $1.75, and $1.80 over the next three years, respectively. After that, the dividend will be constant at $1.50 per share per year. What is the market price of this stock if the market rate of return is 10.5 percent?

$14.71

Charlie's Chicken has a debt-equity ratio of 2.05. Return on assets is 9.2 percent, and total equity is $560,000. What is the net income?

$157,136

Canine Supply has sales of $2,200, total assets of $1,400, and a debt-equity ratio of 0.3. Its return on equity is 15 percent. What is the net income?

$161.54

You have just made a $1,500 contribution to your individual retirement account. Assume you earn a 12 percent rate of return and make no additional contributions. How much more will your account be worth when you retire in 25 years than it would be if you waited another 10 years before making this contribution?

$17,289.75

Marie's Fashions is considering a project that will require $28,000 in net working capital and $87,000 in fixed assets. The project is expected to produce annual sales of $75,000 with associated cash costs of $57,000. The project has a 5-year life. The company used straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project?

$17,820

Imprudential, Inc. has an unfunded pension liability of $850 million that must be paid in 25 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 6.5 percent. What is the present value of this liability?

$171,438,907

How many dollars of sales are being generated from every dollar of net fixed assets? (Use 2009 values.)

$2.59

You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can earn 8 percent on your investments?

$20,270.17

When you retire 40 years from now, you want to have $1.2 million. You think you can earn an average of 12 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 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit?

$3,280.78

Your older sister deposited $5,000 today at 8.5 percent interest for 5 years. You would like to have just as much money at the end of the next 5 years as your sister will have. However, you can only earn 7 percent interest. How much more money must you deposit today than your sister did if you are to have the same amount at the end of the 5 years?

$360.43

Your coin collection contains fifty-four 1941 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 10 percent annual rate. How much will your collection be worth when you retire in 2060?

$4,551,172

The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?

$42.25

You are scheduled to receive $30,000 in two years. When you receive it, you will invest it for 5 more years, at 8 percent per year. How much money will you have 7 years from now?

$44,079.84

What is the amount of the dividends paid for 2009?

$45,100

Winter Tome Adventures is going to pay an annual dividend of $2.86 a share on its common stock next year. This year the company paid a dividend of $2.75 a share. The company adheres to a constant rate of growth dividend policy. What will one share of its common stock be worth five years from now if the applicable discount rate is 11.7 percent?

$45.19

Gladstone Pavers has a long-term debt ratio of 0.6 and a current ratio of 1.3. Current liabilities are $700, sales are $4,440, the profit margin is 9.5 percent, and the return on equity is 19.5 percent. How much does the firm have in net fixed assets?

$5,197.69

Suppose that the first comic book of a classic series was sold in 1954. In 2000, the estimated price for this comic book in good condition was about $340,000. This represented a return of 27 percent per year. For this to be true, what was the original price of the comic book in 1954?

$5.71

You have just received notification that you have won the $1.4 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 70 years from now. The appropriate discount rate is 8 percent. What is the present value of your winnings?

$6,404.20

You want t purchase some shares of Green World stock but need a 15 percent rate of return to compensate for the perceived risk of such ownership. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $0.90 annual dividend per share?

$6.00

You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 8.5 percent instead of just 8 percent on your savings?

$60,923.52

What is the present value of $150,000 to be received 8 years from today if the discount rate is 11 percent?

$65,088.97

You want to have $35,000 saved 6 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent on your savings? Today's deposit is the only deposit you will make to this savings account.

$733.94

Suppose you are committed to owning a $140,000 Ferrari. You believe your mutual fund can achieve an annual rate of return of 9 percent and you want to buy the car in 7 years. How much must you invest today to fund this purchase assuming the price of the car remains constant?

$76,584.79

Travis invested $9,250 in an account that pays 6 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually?

$773.58

A year ago, you deposited $30,000 into a retirement savings account at a fixed rate of 5.5 percent. Today, you could earn a fixed rate of 6.5 percent on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 6.5 percent and still have the same amount as you currently will when you retire 38 years from today?

$9,234.97 less

Gerold invested $6,200 in an account that pays 5 percent simple interest. How much money will he have at the end of ten years?

$9,300

A firm generated net income of $878. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $22, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

$904

During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash flows for the year?

$95 use of cash

Roadside markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent

$967.24

You hope to buy your dream car four years from now. Today, that car costs $82,500. You expect the price to increase by an average of 4.8 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it?

$99,517.41

What is the net cash flow from investment activity for 2009?

-$1,680

Kelly's Corner Bakery purchases a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on the site. The building cost is estimated at $1.51 million. What amount should be used as the initial cash flow for the project?

-$1,850,000

Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?

.96

Lancaster Toys has a profit margin of 9.6 percent, a total asset turnover of 1.71, and a return on equity of 21.01 percent. What is the debt-equity ratio?

0.28

A firm has a debt-equity ratio of 0.42. What is the total debt ratio?

0.30

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

0.5

Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

0.51

What is the quick ratio for 2009?

0.60

A firm has sales of $3,400, net income of $390, total assets of $4,500, and total equity of $2,750. Interest expense is $40. What is the common-size statement value of the interest expense?

1.18 percent

A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 18.7, and a book value per share of $9.12. What is the market-to-book ratio?

1.62

Coulter Supply has a total debt ratio of 0.47. What is the equity multiplier?

1.89

A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500. The tax rate is 34 percent. What is the value of the cash coverage ratio?

12.14

Global communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1023.46. the bond has a par value of $1000 and a yield to maturity of 6.72 percent. How many years is it till this bond matures?

12.53 years

What is the times interest earned ratio for 2009?

12.59

The Dockside Inn has net income for the most recent year of $8,450. The tax rate was 38 percent. The firm paid $1,300 in total interest expense and deducted $1,900 in depreciation expense. What was the cash coverage ratio for the year?

12.95 times

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

121.07

A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory?

13.36 percent

High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?

15.11 percent

The Flower Shoppe has accounts receivable of $3,709, inventory of $4,407, sales of $218,640, and cost of goods sold of $167,306. How many days does it take the firm to both sell its inventory and collect the payment on the sale assuming that all sales are on credit?

15.81

Lassiter Industries has annual sales of $220,000 with 10,000 shares of stock outstanding. The firm has a profit margin of 7.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

16

Some time ago, Julie purchased eleven acres of land costing $36,900. Today, that land is valued at $214,800. How long has she owned this land if the price of the land has been increasing at 10.5 percent per year?

17.64 years

The Bike Shop paid $2,310 in interest and $1,850 in dividends last year. The times interest earned ratio is 2.2 and the depreciation expense is $460. What is the value of the cash coverage ratio?

2.40

Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $109,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?

2.56 times

A firm uses 2008 as the base year for its financial statements. The common-size, base-year statement for 2009 has an inventory value of 1.08. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following?

2008 inventory expressed as a percent of 2008 total assets

You expect to receive $9,000 at graduation in 2 years. You plan on investing this money at 10 percent until you have $60,000. How many years will it be until this occurs?

21.90 years

Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?

3.32 percent

Billings, Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?

33.18 days

BL Lumber has earnings per share of $1.21. The firm's earnings have been increasing at an average rate of 3.1 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $18.70. What is the firm's PEG ratio?

4.99

A firm has total assets of $311,770 and net fixed assets of $167,532. The average daily operating costs are $2,980. What is the value of the interval measure?

48.40 days

A firm has a debt-total asset ratio of 74 percent and a return on total assets of 13 percent. What is the return on equity?

50 percent

The Home Supply Co. has a current accounts receivable balance of $300,000. Credit sales for the year just ended were $1,830,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

59.84 days

The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 5.20 percent. What is the return on assets?

6.22 percent

Fifteen years ago, Jackson Supply set aside $130,000 in case of a financial emergency. Today, that account has increased in value to $330,592. What rate of interest is the firm earning on this money?

6.42 percent

The common stock of Auto Deliveries sells for $28.16 a share. The stock is expected to pay $1.35 per share next year when the annual divided is distributed. The firm has established a pattern of increasing its dividends by 3 percent annually and expects to continue doing so. What is the market rate of return on this stock?

7.79 percent

BL Industries has ending inventory of $300,000, and cost of goods sold for the year just ended was $1,410,000. On average, how long does a unit of inventory sit on the shelf before it is sold?

77.66 days

Taylor's Men's Wear has a debt-equity ratio of 42 percent, sales of $749,000, net income of $41,300, and total debt of $198,400. What is the return on equity?

8.74 percent

Penn Station is saving money to build a new loading platform. Two years ago, they set aside $24,000 for this purpose. Today, that account is worth $28,399. What rate of interest is Penn Station earning on this investment?

8.78 percent

Assume the total cost of a college education will be $300,000 when your child enters college in 16 years. You presently have $75,561 to invest. What rate of interest must you earn on your investment to cover the cost of your child's college education?

9.00 percent

Fourteen years ago, your parents set aside $7,500 to help fund your college education. Today, that fund is valued at $26,180. What rate of interest is being earned on this account?

9.34 percent

Home Canning Products common stock sells for $41.00 a share and has a market rate of return of 12.8 percent. The company just paid an annual dividend of $1.15 per share. What is the dividend growth rate?

9.72 percent

The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations?

I, II and III only

Which of the following represent problems encountered when comparing the financial statements of two separate entities?

I, II, II and IV

Gateway communications is considering a project with an initial fixed asset cost of $2.46 million, which will be depreciated straight-line to a zero book value over the 10 year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35%. The project will require $45,000 of inventory, which will be recouped when the project ends. Should this project be implemented if the firm requires a 14% required rate of return? Why or why not?

Yes; the NPV is $466,940.57

Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now?

decreases

Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?

discount rate

The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?

discounted cash flow valuation

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:

discounting

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?

equity multiplier

Which one of the following accurately describes the three parts of the Du Pont identity?

equity multiplier, profit margin, and total asset turnover

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:

financial ratios to the firm's historical ratios.

If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:

has an equity multiplier of 1.0

Steve invested $100 two years ago at 10 percent interest. The first year, he earned $10 interest on his $100 investment. He reinvested the $10. The second year, he earned $11 interest on his $110 investment. The extra $1 he earned in interest the second year is referred to as:

interest on interest

Over the past year, the quick ratio for a firm increased while the current ratio remained constant. Given this information, which one of the following must have occurred? Assume all ratios have positive values.

inventory decreased

Ratios that measure a firm's financial leverage are known as _____ ratios.

long-term solvency

The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations?

payment of interest to a lender

Shelley won a lottery and will receive $1,000 a year for the next ten years. The value of her winnings today discounted at her discount rate is called which one of the following?

present value

Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

price-earnings ratio

Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?

primary

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

profitability

You invested $1,650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?

$1,077.94

Which one of the following is an example of a sunk cost?

$1,200 paid to repair a machine last year

Which one of the following statements is correct?

An increase in the depreciation expense will not affect the cash coverage ratio.

Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?

Bard will earn interest on interest

Which one of the following risk premium compensates for the possibility of nonpayment by the bond issuer?

Default risk

On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?

base-year accounts receivable

At 11 percent interest, how long would it take to quadruple your money?

13.28 years

Theo needs $40,000 as a down payment for a house 6 years from now. He earns 3.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today?

$1,138.90

You just received $225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent?

$1,189,576

A firm has total assets with a current book value of $68,700, a current market value of $74,300, and a current replacement cost of $75,600. What is the value of Tobin's Q?

.98

A firm has annual sales of $320,000, a price-earnings ratio of 24, and a profit margin of 4.2 percent. There are 14,000 shares of stock outstanding. What is the price-sales ratio?

1.01

What is debt-equity ratio? (Use 2009 values)

1.01

Forty years ago, your mother invested $5,000. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment?

11.78 percent

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

Ben's is increasing its earnings at a faster rate than the Al's

Net present value:

Is the best method of analyzing mutually exclusive projects

The dividend growth model:

I, II, III, and IV

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?

future

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

According to the Rule of 72, you can do which one of the following?

double your money in 8 years at 9 percent interest

Which of the following can be used to compute the return on equity?

II and III only

Which of the following ratios are measures of a firm's liquidity?

II and IV only

Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?

In today's dollars, Luis' money is worth more than Soo Lee's.

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines, which have differing initial and ongoing costs and differing lives. Whichever machine is purchases will be replaced at the end of its useful life. You should select the machine which has the:

Lowest equivalent annual cost

Martin invested $1,000 six years ago and expected to have $1,500 today. He has not added or withdrawn any money from this account since his initial investment. All interest was reinvested in the account. As it turns out, Martin only has $1,420 in his account today. Which one of the following must be true?

Martin earned a lower interest rate than he expected

Sixteen years ago, Alicia invested $1,000. Eight years ago, Travis invested $2,000. Today, both Alicia's and Travis' investments are each worth $2,400. Assume that both Alicia and Tavis continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments?

One year ago, Alicia's investment was worth less than Travis' investment

Samantha opened a savings account this morning. Her money will earn 5 percent interest, compounded annually. After five years, her savings account will be worth $5,600. Assume she will not make any withdrawals. Given this, which one of the following statements is true?

Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest.

Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming that neither Sue nor Neal has withdrawn any money from their accounts?

Sue will have more money than Neal as long as they retire at the same time.

The pure time value of money is known as the:

Term structure of interest rates

Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market is 5.5 percent

Jasper United had sales of $21,000 in 2008 and $24,000 in 2009. 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

This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in forty years. Which one of the following statements is correct?

The present value of this investment is equal to $1,000.

How does accounts receivable affect the statement of cash flows for 2009?

a use of $807 of cash as an operating activity

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

accounts receivable

On your ninth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

age 30

A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?

cash

Interest earned on both the initial principal and the interest reinvested from prior periods is called:

compound interest

Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. 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 which one of the following?

compounding

A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?

cover its operating costs for the next 48 days

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

decrease in the day's sales in inventory

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.

decrease in the quick ratio