Fin exam 1

Last year, Yang Software had $15,900 of sales, $500 of net new equity, dividend payments of $75, addition to retained earnings of $418, depreciation of $680, and $511 of interest expense. What are the earnings before interest and taxes at a tax rate of 21 percent?

$1,135.05

Smashed Pumpkins Company paid $88 in dividends and $526 in interest over the past year. The company increased retained earnings by $438 and had accounts payable of $522. Sales for the year were $16,055 and depreciation was $696. The tax rate was 21 percent. What was the company's EBIT?

$1,192

Smashed Pumpkins Company paid $160 in dividends and $589 in interest over the past year. The company increased retained earnings by $492 and had accounts payable of $630. Sales for the year were $16,370 and depreciation was $732. The tax rate was 21 percent. What was the company's EBIT?

$1,414 Net Income = Dividends paid + increased retained earnings EBT = Net income/(1-tax rate) EBIT = EBT + Interest paid

What is the present value of $13,000 to be received 4 years from today if the discount rate is 5 percent?

$10,695.13

An investment will pay you $23,000 in 6 years. The appropriate discount rate is 11 percent compounded daily. What is the present value?

$11,888.76

You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 25 years and the payments will increase by 2.9 percent per year. If the appropriate discount rate is 6.9 percent, what is the present value of your winnings?

$15,364,333.78

Today Anita is buying a car and has a loan that requires her to make monthly payments of $400 for 4 years. If the interest rate on the loan is 8.3% compounded monthly, what was the amount that she borrowed today?

$16,290

You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 35 years and the payments will increase by 3.1 percent per year. If the appropriate discount rate is 7.1 percent, what is the present value of your winnings?

$18,402,767.12

Your coin collection contains 47 1948 silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2047, assuming they appreciate at an annual rate of 9 percent?

$238,408.18 To find the FV of a lump sum, we use:FV = PV(1 + r)tFV = $47(1.09)99FV = $238,408.18

You want to have $69,000 in your savings account 13 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.30 percent interest, what amount must you deposit each year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

$3,359.85

A balance sheet has total assets of $1,664, fixed assets of $1,156, long-term debt of $614, and short-term debt of $191. What is the net working capital?

$317 Net working capital = (total assets - fixed assets) - short-term debt

You are planning to make monthly deposits of $360 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 25 years?

$342,369.50

You are scheduled to receive $21,000 in two years. When you receive it, you will invest it for six more years at 9.25 percent per year. How much will you have in eight years?

$35,706.56 FV = PV(1 + r)t

You are planning to make monthly deposits of $390 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 25 years?

$370,900.29

Your company will generate $74,000 in annual revenue each year for the next seven years from a new information database. If the appropriate discount rate is 7.25 percent, what is the present value?

$395,345.84

You want to have $93,000 in 17 years to help your child attend college. If you can earn an annual interest rate of 4.9 percent, how much will you have to deposit today?

$41,238.20 PV=F V(1 + r)^t

You are planning to make annual deposits of $6,210 into a retirement account that pays 8 percent interest compounded monthly. How large will your account balance be in 25 years?

$474,370.20

What is the future value of $3,068 invested for 9 years at 5.9 percent compounded annually?

$5,139.48

Red Barchetta Company paid $27,680 in dividends and $28,563 in interest over the past year. During the year, net working capital increased from $13,602 to $18,319. The company purchased $42,440 in fixed assets and had a depreciation expense of $16,985. During the year, the company issued $25,100 in new equity and paid off $21,140 in long-term debt. What was the company's cash flow from assets?

$52,283 Cash flow from assets = (interest+long-term debt) + (dividends paid - new equity issued)

Red Barchetta Company paid $27,905 in dividends and $28,878 in interest over the past year. During the year, net working capital increased from $13,722 to $18,444. The company purchased $42,990 in fixed assets and had a depreciation expense of $17,210. During the year, the company issued $25,225 in new equity and paid off $21,315 in long-term debt. What was the company's cash flow from assets?

$52,873 Cash flow from assets = ($28,878 + 21,315) + ($27,905 − 25,225) = $52,873

The Maybe Pay Life Insurance Company is trying to sell you an investment policy that will pay you and your heirs $34,000 per year forever. If the required return on this investment is 6.3 percent, how much will you pay for the policy?

$539,682.54

Suppose you plan on saving money at the end of each month in an account that earns 4.9% percent compounded monthly. How much do you need to deposit each month to have a balance of $59,497 at the end of 7 years?

$595.19

The appropriate discount rate for the following cash flows is 7.28 percent per year. Year. Cash Flows 1. $2460 2. 0 3 3900 4 2150 What is the present value of the cash flows?

$7074.93

The Somerville Corporation has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?

$906.33 Net income = Dividends paid + retained earnings Taxable income = Net income/(1- tax rate)

A small business has determined that the machinery they currently use will wear out in 16 years. To replace the new machine when it wears out, the company wants to establish a savings account today. If the interest rate on the account is 2 percent per quarter and the cost of the machinery will be $345,000, how much will the company have to deposit today?

$97,142.24 PV = F V(1 + r)^t

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes? - Interest Expense - Taxes - Cost of goods sold - Labor costs - Administrative expenses

- Interest Expense

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: - simplifying - compounding - aggregating - accumulating - discounting

- compounding

Which one of the following statements regarding corporations is correct? -The majority of firms in the U.S. are structured as corporations. -Undistributed corporate profits are taxable income to the shareholders. -Corporations can have an unlimited life. -Shareholders are protected from all potential losses. -Shareholders directly elect the chief financial officer.

- corporations can have an unlimited life

articles of incorporation: -describe the purpose of the firm and set forth the number of shares of stock that can be issued. -are amended periodically especially prior to corporate elections. -explain how corporate directors are to be elected and the length of their terms. -set forth the procedures by which a firm regulates itself. -include only the corporation's name and intended life.

- describe the purpose of the firm and set forth the number of shares of stock that can be issued

Evergreen Credit Corporation wants to earn an effective annual return on its consumer loans of 14.7 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?

13.72%

You expect to receive $39,000 at graduation in two years. You plan on investing it at 10 percent until you have $174,000. How long will you wait from now?

17.69 years from now FV = PV(1 + r)t

According to the Census Bureau, in October 2016, the average house price in the United States was $27,158. 7 years earlier, the average price was $22,208. What was the annual increase in the price of the average house sold?

2.92% To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r)t Solving for r, we get: r = (FV/PV)1/t − 1r = ($27,158/$22,208)1/7 − 1 r = .0292, or 2.92%

Rick deposited $2,800 into an account 10 years ago for an emergency fund. Today, that account is worth $3,980. What annual rate of return did Rick earn on this account assuming no other deposits and no withdrawals?

3.58% $3,980 = $2,800(1 + r)10 r = ($3,980/$2,800)1/10 − 1 r = .0358, or 3.58%

According to the Census Bureau, in October 2016, the average house price in the United States was $27,858. 7 years earlier, the average price was $21,308. What was the annual increase in the price of the average house sold?

3.90%

You're prepared to make monthly payments of $370, beginning at the end of this month, into an account that pays an APR of 7.8 percent. How many payments will you have made when your account balance reaches $28,000?

62.00

Maxxie purchased a tract of land for $27,000. Today, the same land is worth $43,200. How many years have passed if the price of the land has increased at an annual rate of 6.7 percent?

7.25 years

The Maybe Pay Life Insurance Company is trying to sell you an investment policy that will pay you and your heirs $39,000 per year forever. Suppose a sales associate told you the policy costs $484,000. At what interest rate would this be a fair deal?

8.06%

Three years ago, you invested $2,900. Today, it is worth $3,700. What rate of interest did you earn?

8.46%

If you put up $40,000 today in exchange for a 6.50 percent, 12-year annuity, what will the annual cash flow be?

ANSWER

The appropriate discount rate for the following cash flows is 8 percent compounded quarterly. Year. Cash FLow 1. $930 2. 1,010 3. 0 4. 1600 What is the present value of the cash flows

ANSWER

What is the future value of $3,200 in 19 years at an APR of 8.5 percent compounded semiannually?

ANSWER

You expect to receive $11,000 at graduation in two years. You plan on investing it at 9 percent until you have $98,000. How long will you wait from now?

ANSWER

You want to have $12,500 in 10 years for a dream vacation. If you can earn an interest rate of .3 percent per month, how much will you have to deposit today?

ANSWER

You're prepared to make monthly payments of $310, beginning at the end of this month, into an account that pays an APR of 7.2 percent. How many payments will you have made when your account balance reaches $22,000?

ANSWER

Financial managers should strive to maximize the current value per share of the existing stock to: -ensure the company will grow in size at the maximum possible rate. -provide the greatest opportunity for employees to earn high salaries. -best represent the interests of the current owners of the firm. -increase the current dividends per share. -create the possibility of rewarding high-performing managers with shares of stock.

Best represent the interests of the current owners of the firm

An ordinary annuity is best defined as: - increasing payments paid for a definitive period of time. - increasing payments paid forever. - equal payments paid at the end of regular intervals over a stated time period. - equal payments paid at the beginning of regular intervals for a limited time period. - equal payments that occur at set intervals for an unlimited period of time.

Equal payments paid at the end of regular intervals over a stated time period.

Which one of the following best describes a noncash item? -Fixed expenses -Inventory Items purchased using credit - ownership of intangible assets such as patents - Expenses that do not consume cash - Sales that are made using store credit

Expenses that do not consume cash

Which one of the following questions involves a capital structure decision?

How much debt should the firm incur to fund a project?

Marissa and Raj are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with the idea of unlimited liability. If they wish to remain as the only two owners of the business, which form of business entity should they consider to replace their current arrangement? -Sole proprietorship -Joint stock company -Limited partnership -Limited liability company -Corporation

LLC

Public offerings of debt and equity must be registered with the: - New York Board of Governors - Federal Reserve - NYSE Registration Office - Securities and Exchange Commission - Market Dealers Exchange

Securities and Exchange Commission

Which one of the following questions involves a capital budgeting decision? -How many shares of stock should the firm issue? -Should the firm purchase a new machine for the production line? -Should the firm borrow money to acquire new equipment? -How much inventory should the firm keep on hand? -How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

which one of the following is a working capital management decision?

Should the firm require immediate payment from customers or offer credit terms?

Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? - Free interest - Complex Interest - Simple Interest - Interest on Interest - Compound Interest

Simple Interest

You have just made your first $2,500 contribution to your retirement account. Assume you earn a return of12 percent and make no additional contributions. a. What will your account be worth when you retire in 35 years? b. What will your account be worth if you wait 7 years before contributing?

a. $131,999.05 b. $59,709.67

Big Dom's Pawn Shop charges an interest rate of 27.9 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. a. What rate should the shop report? b. What is the effective annual rate

a. APR= 334.8% b. EAR= $1,816.23

The interest rate that is most commonly quoted by a lender is referred to as the: - annual percentage rate - compound rate - effective annual rate - simple rate - common rate

annual percentage rate

Net working capital is defined as:

current assets minus current liabilities

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

Which of the following is a cash flow from a corporation into the financial markets? -Borrowing of long-term debt -Payment of government taxes -Payment of loan interest -Issuance of corporate debt -Sale of common stock

payment of loan interest

Financial managers should primarily focus on the interests of: -themselves -the vice president of finance -their immediate supervisor -shareholders -the board of directors

shareholders