Fin Mid-term
Which one of the following applies to a general partnership?
Any one of the partners can be held solely liable for all of the partnerships debt
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?
Approximate time period= 72/9= 8 years
Which one of the following is not a basic area of finance as described by the text?
Accounting
It takes Leila's Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year.
Accounts receivable Turnover= 365/16.8=21.72
Prospect Avenue Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 21 percent. The firm paid out $23,400 in dividends. What is the addition to retained earnings?
Addition to retained earning= ((318,400-199,400-28,600-1,100) x (1=.21) - 23,400 = 47,147
The DuPont identity can be used to help a financial manager determine the: -Degree of financial leverages used by a firm -Operating efficiency of a Firm -Utilization rate of a firms assets -Rate of return on a firms assets
All of them
Which term is defined as the total tax paid divided by the total taxable income
Average tax rate
The financial statement that summarizes a firms accounting value as of a particular date is called:
Balance sheet
Zoey Pet Supply had $314,000 in net fixed assets at the beginning of the year. During the year, the company purchased $98,200 in new equipment. It also sold, at a price of $10,000, some old equipment that had a book value of $12,500. The depreciation expense for the year was $24,500. What is the net fixed asset balance at the end of the year?
Ending Net fixed assets= 314,000 + 98,200 - 12,500 - 24,500=375,200
What is the future value of $25 a week for 40 years at 8.5 percent interest? Assume the first paymentt occurs at the end of this week
FV=441,710.03 FV=25 x ((1+(0.085/52)^2,080 - 1) / (0.085 / 52) = 441,710.03
Kurt will receive $1,200 a month for five years from an insurance settlement. The first payment was received today. If he invests the full amount of each payment at a guaranteed 6.15 percent rate, how much will he have saved at the end of the five years?
FV=84,047.58 N=5 x 12, I/Y = 6.15%/12 PMT=1,200
The Corner Bakery needs $86,000 today for remodeling. They have obtained a 2-year, pure-discount loan at an interest rate of 6.8 percent, compounded annually. How much must they repay in two years?
FV=86,000 (1+.068)^2 = 98,093.66
Sixty years ago, your grandparents opened two savings accounts and deposited $200 in each account. The first account was with City Bank at 3 percent, compounded annually. The second account was with Country Bank at 3.5 percent, compounded annually. Which one of the following statements is true concerning these accounts?
Future value city bank: 250 x (1+.036)^60=2,087.01 Future value Country bank: 250 x (1+.0365)^60 =2,148.32 Difference= 250 x ((1+.0365)^60 - (1+.036)^60)) = 61.30
Theodoro has just received an insurance settlement of $18,500. She wants to save this money until her daughter goes to college. If she can earn an average of 5.2 percent, compounded annually, how much will she have saved when her daughter enters college 9 years from now?
Future value= $18,500 x (1+.052)^9 = 29,195.33
You are due to receive a lump-sum payment of $1,675 in three years. If you could invest that money at a 5.3 percent interest for four years, how much would it be worth six yers from now
Fv=2,059.34 FV formuala: FV= PV*(1+i)^n N=4, I=5.3%, PV=-1,675
Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan. The original loan amount was $72,000 at an APR of 8.15 percent. How much of the third loan payment is interest?
Loan payments: 4,725.89
Swearingen United has total owners' equity of $18,800. The firm has current assets of $23,100, current liabilities of $12,200, and total assets of $36,400. What is the value of the long-term debt?
Long term debt=5,400 36,400-18,800-12,200=
The primary goal of financial management is most associated with increasing the:
Market value of the firm
Isaac only has $2,300 today but needs $2,500 to buy a new computer and add a virus protection package, as he does not trust the base defender. How long will he have to wait to buy the computer if he earns 5 percent compounded annually on his savings? Assume the price of the computer remains constant.
N= 1.71 years FV formuala: FV= PV*(1+i)^n I/Y=5% PV= -2,300 FC=2,500
You just won $17,500 and deposited your winnings into an account that pats 6.7 percent interest, compounded annually. How long will you have until your winning are worth $50,000
N=16.19 I/y=6.7 , PV=-17,500 , FV= 50,000
Cromwell is acquiring some land for $1,7500,000 in exchange for semiannual payments of $100,000 at an interest rate of 6.35 percent. How many years will it take Cromwell to pay for this purchase?
N=25.95 I/Y=6.36%/2, PV=1,750,000, PMT=-100,000 Years= 25.95/ 2 = 12.97
So you can retire early, you have decided to start saving $750 a month starting one month from now. You plan to retire as soon as you can accumulate $1.3 million. If you can earn 5 percent on your savings, how many years will it be before you can retire?
N=506.69 I/Y=5%/12 PMT, -750,000, FV= 1,300,000 Years=506.69 / 12 = 42.22
At 12.5 percent interest, how long does it take to triple your money?
N=9.33 I/Y=12.5%, PV=-1.00 , FV=3.00
The passage of the Tax Cuts and Jobs Act of 2017 created a revised progressive tax structure, which applies to all of the following except:
Corporations
Lilly K's has total assets of $726,030, net fixed assets of $556,740, long-term debt of $437,265, and total debt of $583,050. If inventory is $234,765, what is the current ratio?
Current Ratio= (726,030-556,740) / (583,050 - 437,265)=1.16
Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales for the year just ended were $5,338,411. How long did it take on average for credit customers to pay off their accounts during the past year? Assume a 365-day year.
Days sales in receivables= 365 / (5,338,411 / 391,648) = 26.78
A firm has an equity multiplier of 1.5. This means that the firm has a:
Debt-equity ratio= (1.5-1) / 1 = .50
Streamboat Bike Shoppe has total assets of 536,712 and an equity multiplier of 1.36. What is the debt-equity Ratio?
Debt-equity ratio= 1.36-1=.36
Computing the present value of a future cash flow to determine what that cash flow is worth today is called:
Discounted cash flow valuation
Dixies Markets offers credits to its customers and charges interest of 1.2 percent per month. What is the effective annual rate
EAR= ( 1+0.012)^12 - 1=.1519
Round house furntiture offers credit to its customers at a rate of 1.15 Percent per month. What is the effect annul rate of this credit owner?
EAR= 14.71% EAR= (1+.0115)^12 - 1= .1471
You have an outstanding loan with an EAR of 14.61 percent. What is the APR if interest is compounded monthly?
EAR=.1461=(1+(APR / 12))^12 - 1 APR=.1371
What is the effective annual rate of 14.9 percent compounded quarterly
EAR=15.75%EAR=(1+(.149/4))^4 - 1 = .1575
What is the effective annual rate of 9.6 percent compounded semianually?
EAR=9.83% EAR=(1+(0.096/2))^2 - 1=).0983
For Year 2020, Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation expense of $1,900, interest expense of $1,300, and dividends paid of $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate was 21 percent. What is the cash flow from assets for 2020?
EBIT=(42,900-26,800-1,900)=14,200 Taxes=(14,200-1,300)(.21)=2,709 OCF=14,200+1,900-2,709=13,391 CFA=13,391-(13,900-14,300+1,900)-((9,200-7400)-(8,700-6,600)=12,191
Last year, Northside Pizza added $6,230 to retained earnings from sales of $104,650. The company had costs of $87,300, dividends of $2,500, and interest paid of $1,620. Given a tax rate of 21 percent, what was the amount of the depreciation expense?
Earning before taxes and interest= (6,230 + 2,500) / (1-.21)) + 1,620=12,671 Decpreciation= 104,650-97,300-12,671= 4,679
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:
Effective annual rate (EAR)
Dakota Pride Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100, and interest paid of $12,400. The tax rate is 21 percent. How much net income did the firm earn for the period?
Net Income= (509,600-448,150-36,100-12,400)(1-.21)=10,231
The market value of a firms fixed assets:
is equal to the estimated current cash value of those assets
Paid-In surplus is classified as?
owner's equity
The financial statements of the Santa Domingo Marina reflect depreciation expenses of $41,600 and interest expenses of 27,900 of the year. The Current assets increased by 31,800 and the net fixed increased by 28,600. What is the amount of the net capital spending for the year?
Net capital Spendind= 28,600 + 41,600=70,200
Financial statements analysis:
provides useful information that can serve as a basis for forecasting future performance.
Taylor, Incorporated, has sales of $11,898, total assets of $9,315, and a debt-equity ratio of .55. If its return on equity is 14 percent, what is its net income?
Net income= (9,315 / (1+.55) x .14 = 841.35
George is considering an investment that will pay $3,250 a year for eight years, starting one year from today. What is the maximum amount he should pay for this investment if he desires a rate of return of 8.0 percent?
PV=18,676.58 N=8,I/Y=8%, PMT= -3,250
Alfa Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $10,000 per year forever. If the required return on this investment is 3.6 percent, how much will you pay for the policy?
PV=277,777.78PV=10,000 / 0.036
Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:
Working capital Management
Which one of the following is true concerning the price-earning ratio? -A high PE ratio may indicate that a firm is expected to grow significantly. -A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. -PE ratios are unaffected by the accounting methods employed by a firm. -The PE ratio is classified as a profitability ratio. -The PE ratio is a constant value for each firm.
A high PE ratio may indicate that a firm is expected to grow significantly.
An amortized, 3-year loan has annual payments and an effective annual rate of 14.56 percent. What is the APR?
APR=14.56 The APR equals the EAR when interest rate compounding is annual
A perpetuity in canada is frequently referred to as:
A consol
A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now, with the first payment coming 6.5 years from now. If the discount rate is 7 percent compounded semiannually, what is the value of this annuity 4 years from now?
1st Part: 6,200 (1-(1/1+(.07/2))^8 / 0.07/2 = 42,618.52 2nd part: 42,618.52/ 1+ (.07/2)^4) = 37,139.58
Today, Georgia is investing $24,000 at 5.5 percent, compounded annually, for 6 years. How much additional income could she earn if she had invested this amount at 6.5 percent, compounded annually?
1st part: N=6, I/y = 5.5% , PV=-24,000, 2nd part: N=6 I/Y = 6.5%, PV=-24,000 Difference= 35,019.23 - 33,092.23 = 1,927.19
Based on the recognition principle, revenue is recorded on the financial statements when the: I. payment is collected for the sale of a good or service. II. earnings process is virtually complete. III. value of a sale can be reliably determined. IV. product is physically delivered to the buyer.
2 and 3 only
In 2021, What was the maximum average tax rate for corporations
21%
You have been told that you need $15,000 today for every $50,000 you want when you retire 30 year from now. What rate of interest was used in the present value computation?
50,000=15,000 x (1 + r) ^30 R=.0409 N=30, I/Y=4.09 PV=-15,000 FV=50,000
Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?
8 Percent interest for 9 Years
Lester's Fried Chick'n purchased its building 11 years ago at a cost of $189,000. The building is currently valued at $209,000. The firm has other fixed assets that cost $56,000 and are currently valued at $32,000. To date, the firm has recorded a total of $49,000 in depreciation on the various assets it currently owns. Current liabilities are $36,600 and net working capital is $18,400. What is the total book value of the firm's assets?
Book value: 251,000 BK=189,000 + 56,000 -49,000 + 18,400 +36,600
The concept of marginal taxation is best exemplified by which one of the following?
Burke's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes
Which one of the following Functions is generally a responsibility assigned ti the corportate
Capital expenditures
Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio?
Capital intensity Ratio= (389,100 / .086) / (389100/.028)=.33
Copper Hill Winery has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680. What is the cash ratio?
Cash Ratio= 51,950 / 94,200=.55
Which one of the following is a measure of Long-term solvency?
Cash coverage Ratio
During the past year, Rend yard services paid 36,800 in interest along with 2,000 in dividends. The company issued 3,00 of stock and 16,000 of new debt. The company reduced the balance due on its old debt by 18,400. What is the amount of the cash flow to creditors?
Cash flow to creditors= 36,800-16,000 + 18,400
Which one of the following functions is generally a responsibility assigned to the corporate treasurer
Cash management
A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must:
Charge interest annually
Which one of the following Is most opt to align managements priorities with shareholders interests?
Compensating managers with shares of stock that must be held for a minimum of three years
Wha is an example of intangible fixed asset?
Copyright
Deandre and Mason 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. Deandre and Mason 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?
General partnership
You want to borrow $3,600 for 36 months and can afford monthly payments of $110, but no more. Assuming monthly compounding, what is the highest APR rates you can afford?
I/Y= .52% x 112 = 6.29 N=36 PV=3,600, PMT=-110
Recently, you needed money and agreed to sell a car you had inherited at a price of $55,000, to be paid in monthly payments of $800 for 60 months. What interest rate did you charge for financing the sale?
I/Y=0.4487 N=60, PMT=800 R=0.4487 x 12=5.38
Stephen claims that he invested $2,200 six years ago and that this investment is worth $10,500 today. For this to be true, what annual rate of return did he have to earn? Assume the interest compounded annually.
I/Y=29,76% N=6, PV=-2,200 Fv=10,500
Forni's Furniture is offering a bedroom suite for $2,700. The credit terms are 60 months at $73.00 per month. What is the interest rate on this offer?
I=1.747558 1.74 x 12 = 20.97 N=60, PV=2,700 PMT=-73
Roberto just deposited $11,500 into his savings account at Security Savings Bank. The bank will pay .55 percent interest, compounded annually, on this account. How much interest on interest will he earn over the next 6 years?
Interest on Interest= 11,500 x (1+.0055)^6 - (11,500 + (11,500 x .0055 x 6))= 5.26
A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must the total asset turnover be?
Internal growth rate= .045=(.075 x TAT x (1-.60) / (1-(.075 x TAT x (1-.60) TAT=1.44
The relationship between the present value and the investment time period is best describes as:
Inverse
A corporation is?
Is a legal entity separate from its owners
Oscar's Kennels spent $130,000 to refurbish its current facility. The firm borrowed 70 percent of the refurbishment cost at 4.5 percent interest for five years. What is the amount of each monthly payment?
PMT=1,696.51 N=5x12, I/Y=4.5/12%, PV=-91,000
You want to purchase a new codonminium that cost $325,00. Your plan is to pay 20 percent down in cash and finance the balance over 15 years at 4.1 percent. What will be your monthly mortgage payment including principal and interest?
PMT=1,936.24 Amount Financed (1.0-.20 x 325,000) N= 15 x 12 , I=4.1% / 12, PV= -260,000, PMT= 1,936.24
Your grandfather started his own business 5.2 years ago. He opened an investment account at the end of his third month of business and contributed $x. every three months since then, he faithfully saves another $x. His savings account has earned an average rate of 7.45 percent annually. Today, his account is valued at $289,209.11. How much did your grandfather save every three months assuming he saved the same amount each time?
PMT=118.52N=52 x 4, I=7.45 / 4% , FV= -289,209.11
Today, you are borrowing $18,200 to purchase a car. What will be your monthly payment if the loan is for three years at 7.0 percent interest?
PMt=561.96 N=3x12, I/Y=7%/12, PV=-18,200
Roberto can afford car payments of $450 per month for 4 years. If the interest rate is 5.3 percent, how much money can he afford to borrow?
PV= 19,425.49 N=4x12, I/Y=5.3%/12, PMT=-450,000
You are due to receive a lump-sum payment of $1,350 in four years and an additional lump-sum payment of $1,450 in five years. Assuming a discount rate of 2.0 percent interest, what would be the value of the payments toda
PV=1,247.19 + 1,313.13=2,560.5FV formuala: FV= PV*(1+i)^n1st: N=4, I=2%, FV=-1,350 2nd: N=5, I=2%, FV= -1,4500
You owe $6,800 on a car loan that has an interest rate of 6.75 percent and monthly payments of $310. You lost your job and your new job pays less, so your lender just agreed to lower the monthly payments to $225 while keeping the interest rate at 6.75 percent. How much longer will it take you to repay this loan than you had originally planned?
PV=6,800=310 x (1-(1/(1+(0.0675/12))^t) / (0.0675/12)^t=23.48PV= 6,800=225 x (1-(1/(1+(0.0675/12))^t) / (0.0675/12)^t=23.48 Difference=33.22=23.48=9.74
Best's Fried Chicken just took out an interest-only loan of $50,000 for three years with an interest rate of 8.15percent. Payments are to be made at the end of each year. What is the amount of the payment that will be dueat the end of Year 3?
Payment=54,075 Year 3 = 50,000+(50,000 x .0815)
Last year, Teresa's Fashions earned $2.03 per share and had 15,000 shares of stock outstanding. The firm paid a total of $16,672 in dividends. What is the retention ratio?
Plowback Ratio= 1-(16,672 / 15,00) / 2.03) = .4525
Last year, a firm earned $67,800 in net income on sales of $934,600. Total assets increased by $62,000 and total equity increased by $43,500 for the year. No new equity was issued and no shares were repurchased. What is the retention ratio?
Plowback Ratio= 43,500 / 67,800=.6416
Northside City Mart has a market-to-book ratio of 2.8, net income of $323,500, a book value per share of $31.25, and 7,500 shares of stock outstanding. What is the price-earnings ratio?
Price-earnings Ratio= (2.8 x 31.25) / (325,500 / 7500)=2.03
Goshen Pools has total equity of $358,200 and net income of $47,500. The debt-equity ratio is .68 and the total asset turnover is 1.2. What is the profit margin?
Profit margin=(47,500 / 358,200) / (1.2 x (1+.68)) = .0658
Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end of Year 1, $32,000 in Year 2, and $45,000 in Year 3. What is the present value of these cash inflows at a discount rate of 9 percent?
Pv= (18,000 / 1.09) + (32,000 / 1.09^2) + (45,000 / 1.09^3) = 78,195.78
You want to buy a new sports from Roy's car for $51,800. The contract is the form of a 48-monthly annuity due to an APR of 7.8%, compounded monthly. What should be the monthly payment
Pv=51,800 = C ((1/(0.078/12))^48) / (0.078 / 12) x (1+(0.078 / 12) C=1,251.60
Southwestern Agricultural Cooperative has current liabilities of $162,500, net working capital of $28,560, inventory of $175,800, and sales of $1,941,840. What is the quick ratio?
Quick Ratio= (28,560 + 162,500 - 175,8000) / 162,500=.09
Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):
Stakeholder
Tessier Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the reuturn on Assets?
Return on assets= .1128/(1+1.03) = .0556
The Saw Mill has a return on assets of 7.92 percent, a total asset turnover rate of 1.18, and a debt-equity ratio of 1.46. What is the return on equity?
Return on equity = .0792 x (1 + 1.46) = .1948
Amir's has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the sustainable growth rate?
Sustainable growth rate= (.0528 x 1.13 x 1.46) x .74) / (1-(.0528 x 1.13 x 1.46) x .74)=.0689
Which one of the following correctly defines a common chain of command within a corporation
The controller reports directly to the chief financial officer
Which distinguishes an ordinary annuity from an annuity due
Timing of an annuity payments
Quincy Real Estate pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will:
Vary in direct relation to the net profit percentage
