FIN midterm
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?
Amount borrowed = .60 × $220,000 = $132,000 PMT 2,184.51
Max's Kennels spent $220,000 to refurbish its current facility. The firm borrowed 60 percent of the refurbishment cost at 5.95 percent interest for six years. What is the amount of each monthly payment?
an invoice from a supplier.
Net working capital includes:
EAR = (1 + .0115)12 − 1 = .1471, or 14.71 percent
Round House Furniture offers credit to its customers at a rate of 1.15 percent per month. What is the effective annual rate of this credit offer?
Net new borrowing = $318,400 − 289,200 = $29,200
A balance sheet shows beginning values of $56,300 for current liabilities and$289,200 for long-term debt. The ending values are $61,900 and $318,400, respectively. The income statement shows interest paid of $29,700 and dividends of $19,000. What is the amount of the net new borrowing?
has its profits taxed as personal income.
A sole proprietorship:
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:
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:
International finance
Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?
will be greater if you invest with Northern Bank.
South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today:
Kurt will have a larger account value than Stacey will.
Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:
Interest-only
Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have?
FVYear 10 = [$8,500 × (1 + .078)8] + [$9,300 × (1 + .078)7] + [$7,100 × (1 + .078)4] = $40,822.55
Assume you can save $8,500 at the end of Year 2, $9,300 at the end of Year 3, and $7,100 at the end of Year 6. If today is Year 0, what is the future value of your savings 10 years from now if the rate of return is 7.8 percent annually?
EAR First Bank = [1 + (.077 / 12)]12 − 1 = .0798, or 7.98 percent EAR Second Bank = [1 + (.074 / 365)]365 − 1 = .0768, or 7.68 percent
First Bank offers personal loans at 7.7 percent compounded monthly. Second Bank offers similar loans at 7.4 percent compounded daily. Which one of the following statements is correct concerning these loans? Assume a 365-day year.
2.43 (1+1.43)
Fresh Foods has sales of $213,600, total assets of $198,700, a debt-equity ratio of 1.43, and a profit margin of 4.8 percent. What is the equity multiplier?
$3,096.24
Given an interest rate of 9.3 percent per year, what is the value at t = 6 of a perpetual stream of $1,000 annual payments that begin t =21?
$1,979 = $1,090 × (1 + .054)tt = 11.34 years
Isaac only has $1,090 today but needs $1,979 to buy a new computer. How long will he have to wait to buy the computer if he earns 5.4 percent compounded annually on his savings? Assume the price of the computer remains constant.
She could have the same future value and invest less than $2,000 initially if she could earn more than 6.5 percent interest.
Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?
9.55 months / 12 = 7.96 years
Lionheart Trucking recently purchased a new truck costing $178,000. The firm financed this purchase at 6.6 percent interest with monthly payments of $2,400. How many years will it take the firm to pay off this debt?
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?
inventory is sold at a profit.
Net working capital increases when:
$890.99
The manager of Steve's Audio has approved Daisy's application for 24 months of credit with maximum monthly payments of $45. If the APR is 19.2 percent, what is the maximum initial purchase that Daisy can buy on credit?
Present value = $2,200,000/(1 + .036)4.5= $1,876,306.49
Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment. Currently, the firm has some extra cash and would like to establish a savings account for this purpose. The account pays 3.6 percent interest, compounded annually. How much money must the company deposit today to fully fund the equipment purchase?
$80,485.65 Net income = .081 × (1 + .67) × $595,000 = $80,485.65
Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?
Cash flow to creditors = $42,300 − ($574,600 − 638,100) = $105,800
Suzette's Market had long-term debt of $638,100 at the beginning of the year compared to $574,600 at year-end. If the interest expense was $42,300, what was the firm's cash flow to creditors?
Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent
Tessler 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 return on assets?
Corporate accounting and financial fraud
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?
inverse
The relationship between the present value and the investment time period is best described as:
The period of time she has to wait decreases as the amount she invests increases.
Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?
$561.96
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?
Total debt ratio = ($1,292,485 - 815,280) / $1,292,485 = .37
Tony's Machinery has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485. What is the total debt ratio?
Increase in accounts payable
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?
The future value is directly related to the interest rate.
Which one of the following is a correct statement, all else held constant? The future value is inversely related to the period of time. The present value is directly related to the interest rate. The future value is directly related to the interest rate. The present value is inversely related to the future value.
Cash coverage ratio
Which one of the following is a measure of long-term solvency?
There must be at least one general partner.
Which one of the following statements about a limited partnership is correct?
Profit margin = ($47,500/$358,200)/[1.2 × (1 + .68)] = .0658, or 6.58 percent
Wiggle 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?
Determining which customers will be granted credit
Working capital management includes which one of the following?
Future value = $12,500 × (1 + .07)10 × (1 + .095)20 = $151,018.51
You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 45 years?
$50,000 = $15,000 × (1 + r)30r = 4.09 percent
You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now. What rate of interest was used in the present value computation? Assume interest is compounded annually.
Present value = $32,000/(1 + .043)5 = $25,925.58
You want to have $32,000 for a down payment on a house 5 years from now. If you can earn 4.3 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal?
Present value = $35,000/(1 + .036)3 = $31,476.67
You want to have $35,000 in cash to buy a car 3 years from today. You expect to earn 3.6 percent, compounded annually, on your savings. How much do you need to deposit today if this is the only money you save for this purpose?
Amount financed = (1 − .30) × $285,000 = $199,500
You want to purchase a new condominium that costs $285,000. Your plan is to pay 30 percent down in cash and finance the balance over 30 years at 5.2 percent. What will be your monthly mortgage payment including principal and interest?
P = $100,000 / .045 = $2,222,222
You would like to establish a trust fund that would provide annual scholarships of $100,000 forever. How much would you have to deposit today in one lump sum to achieve this goal if you can earn a guaranteed 4.5 percent rate of return?
