Finance Exam 2
9.56%
5 years ago, Henry bought a 10-year bond that pays 8% semi-annually for $981.10. Today, he sold it for $1,067.22. what is the realized yield (not effective yield) on her investment?
1.7%
A 6-year, 8% annual coupon bond that is currently selling for $1,200 has been called after 2 years for $1,080. What is its yield to call? (Round to two decimal places.)
a discount
A bond pays a coupon interest rate of 7.5 percent. The market rate on similar bonds is 8.4 percent. The bond will sell at ____.
Borrow long-term debt to reduce accounts payable
A company's current ratio is 0.5. Everything else held constant, which of the following actions would increase the company's current ratio?
Borrow using short-term notes payable and use the proceeds to reduce long-term debt
A company's current ratio is 2.0. Which of the following actions would lower the company's current ratio, assuming everything else remains the same?
True
A firm decreased its day's sales outstanding (DSO) from 35 to 31 days. This implies the firm is more efficient in collecting the debts owed to the firm.
5.04%
A new pizzeria reported the following financial information shown below. What is the restaurant's net profit margin? (Sales/Total Assets) = 2.45 ROA = 12.36% ROE = 18.98%
Equal to one
A portfolio with a level of systematic risk that is the same as the market has a beta that is:
False
A typical way in which a common-size income statement is constructed is by dividing all expense items in an income statement by net income.
Sales occurs whether or not cash is actually received
According to the realization principle, revenue from a sale of a firm's products are recognized when the:
An increase in accounts payable
All else being equal, which of the following will decrease a firm's current ratio?
False
All other things being equal, a given change in interest rates will have a greater impact on the price of higher coupon bonds than lower coupon bonds with the same maturity.
1.83
Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio?
greater than the bond's coupon rate
Bonds sell at a discount when the market rate of interest is:
$872
Briar Corp is issuing a 10-year bond with a face value of $1,000 at a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present value of the bond?
1.67
Calculate the Sharpe Ratio for an investment that has an expected return of 18%, a standard deviation of 12%, and the risk-free rate of interest is 4%.
24.4%
Carla & Co. has $1,500,000 in assets and a debt ratio of 40%. If the company earned net income after taxes of $220,000, what was its Return on Equity? (Round to one decimal place.)
34.0%
Carter Corp. has debt of $1,978,654, total assets of $4,264,314, sales of $6,454,631 and net income (earnings after taxes) of $776,232. What is the firm's return on equity (ROE)? (Round your answer to one decimal place.)
Buying and selling bonds or stock of other firms
Cash flows from financing activities include all but one of the following:
False
Cash flows from financing activities involve increases and decreases in current assets.
$79,292
Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131, 335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after taxes? Round your final answer to the nearest dollar.
are prepared by having each financial statement item expressed as a percentage of some base number, such as total assets or total revenues
Common-size financial statements:
2.31; 1.31
Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio?
-$132,085
During 2008, Towson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisition by $109,455, and had marketable securities of $14,215 mature. What is the net cash provided by (used in) investing activities?
$39,800
Edward's Associates financial statement indicated that the company had taxable income of $145,000. How much will the company pay in taxes if they use the following tax table? Tax Rate - Taxable Income 15% - $0 to $50,000 25% - $50,001 to $75,000 34% - $75,001 to $100,000 39% - $100,001 to $335,000
False
Efficiency ratios illustrate how much profit for every dollar sold.
$2,074,557
Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold?
1,485,000
Elliott City Manufacturers, Inc. has sales of $5,500,000 and a gross profit margin of 73%. what is the firm's cost of goods sold? (Round your final answer to the nearest dollar)
0.0031
Elrond has made an investment that will generate returns that are based on the state of the economy. Use the following information to calculate the variance of the return distribution for Elrond's investment. Do not round intermediate computations. State - Return - Probability Weak - 0.10 - 0.8 OK - 0.17 - 0.1 Great - 0.28 - 0.1
10%
Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment?
$490,837
Flowers, Inc. provided the following financial information for the quarter ending December 31, 2021. Find the net cash flow from operating activities. Depreciation and amortization - $121,344 Net income - $462,893 Increase in receivables - $104,684 Increase in inventory - $86,978 Increase in accounts payable - $70,000 Decrease in marketable securities - $28,262
65 days
Gateway Corp. has an inventory turnover ratio of 5.6. What is its days' sales in inventory?
8.50%
Generic Inc. issued bonds in 2021 that will mature 16 years from the date of issue. The bonds pays a 14.375 percent coupon and the interest is paid semiannually. Its current price is $1,508.72. What is the yield to maturity on the bonds?
16%
George Wilson purchased Bright Light Industries common stock for $47.50 on January 31, 2020. The firm paid dividends of $1.10 during the last 12 months. George sold the stock today (January 30, 2021) for $54. What is George's holding period return?
$1,085
Giant Electronics is issuing 20-year bonds with a face value of $1,000 that will pay coupons semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such bonds is 7 percent, what with the bonds sell for today?
Small U.S. Stocks
Given the historical information in the chapter, which of the following investment classes had the greatest variability in returns?
$8
Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock?
$726.27
Highland Corp., a U.S. company, has a five-year bond with a face value of $1,000 whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond? (Assume semiannual compounding for these zero-coupon bonds.)
$1,890,963
If Batman, Inc. has an accounts receivable turnover of 4.6 times and net sales of $8,698,432, what is its accounts receivable? (Round your answer to the nearest dollar.)
at a price equal to its face value
If a bond's coupon rate is equal to the market rate of interest, then the bond will sell:
13.1%
In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity?
$1,122
Jenny Craig is interested in investing in a four-year bond that pays a 10% coupon with interest to be received quarterly. Her required rate of return is 6.5%. What is the most she should be willing to pay for this bond? (Round to the nearest dollar.)
4.26 times; 86 days
Jet, Inc., has net sales of $712,478 and accounts receivable of $167,435. What are the firm's accounts receivable turnover and days' sales outstanding?
$5
Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends that he received for owning the stock during the year?
$938
Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity with a face value of $1,000 and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the current market have a yield to maturity of 12 percent. What will be the price that he will get for his bond?
$1,048
Kevin Rogers is interested in buying a five-year bond with a face value of $1,000 that pays a coupon of 10 percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent. What should be the current price of this bond?
1.01
Lionel, Inc., has current assets of $623,122, including inventory of $241,990, and current liabilities of $378,454. What is the quick ratio?
15.2%
Lois Lane wants to invest her recent bonus in a six-year bond that pays a coupon of 12% semi-annually. The bonds are selling at $876.12 today. If she buys this bond and holds it to maturity, what would be her annual (not effective annual) yield to maturity? (Round to the closest answer.)
$167,918
Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178, 334, and common stock of $162,000. What is the amount of retained earnings?
The stock is worth $0 today and the stock paid no dividends during the year.
Moshe purchased a stock for $30 last year. He found out today that he had a 100 percent return on his investment. Which of the following must be true?
$7,125
Nachos, Inc. paid $18,268.20 in interest expense on its long-term debt. If Nachos' average tax rate is 39%, what was the "tax savings" on this interest expense? (Round your answer to the nearest dollar.)
$1,168,615
Parrino Corporation has announced that its net income for the year ended June 30, 2008, is $1,824,214. The company had an EBITDA of $5,174,366, and its depreciation and amortization expense was equal to $1,241,790. The company's average tax rate is 34 percent. What is the amount of interest expense for the firm?
17.28%
Pedro & Son's total common equity at the end of last year was $405,000 and its net incomes was $70,000. What was its ROE?
35,923
Petra, Inc. paid $48,545 in interest expense on its long-term debt. If petra's marginal tax rate is 0.26%, what was the "after-tax cost" of this interest expense? (round to the nearest dollar)
4
RTR Corp. has reported a net income (earnings after taxes) of $931,149 this year. The company's share price is 12, and the company has 343,263 shares outstanding. Compute the firm's price-earnings ratio.
True
Regarding debt ratios, in general higher ratios indicate greater potential return and greater bankruptcy risk.
$75,281.80
Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53 times, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income?
$700,000
Shane, Inc., has completed its fiscal year and reported Total Assets of $1,000,000 and Total Liabilities of $300,000. Calculate the value of common equity.
Determine the firm's profitability, their return for that period, and the dividend they are likely to receive. Focus on the value of the stock they hold. Assess the cash flows that the firm will generate from its operations.
Shareholders analyze financial statements in order to:
12.2%
Shawana Carter wants to invest her recent bonus in a four-year bond with a face value of $1,000 that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield?
$374,468
Super Grocers, Inc., provided the following financial information for the quarter ending September 30, 2006. Depreciation and amortization - $133,414 Increase in receivables - $112,709 Increase in accounts payables - $62,411 Decrease in marketable securities - $31,225 Net income - $341,463 Increase in inventory - $81,336 What is the cash flow from operating activities generated during this quarter by the firm?
13.21%
Suppose an investor earned a semiannually yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment?
net profit margin, total asset turnover, and the equity multiplier
The DuPont equation shows that a firm's return on equity (ROE) is determined by three factors:
20%
The PAQ Co. had $85,000 in taxable income in the year ending 6/30/2018. Calculate the company's average tax rate using the following tax schedule (round to the nearest percentage.) Income Range - Tax rate 0-$50,000 - 15% $50,001-$75,000 - 25% $75,001-$100,000 - 34%
10.67
The beta of Alcoa Co.'s stock is 1.1 and the risk-free rate of return is 3.3. If the expected return on the market is 10, what should investor's expect as a return on Alcoa Co.?
37.80%
The beta of Ricci Co.'s stock is 3.2 and the risk-free rate of return in 9 percent. If the expected return on the market is 18 percent, then what should investors expect as a return on Ricci Co.?
True
The coefficient of variation (CV) is equal to the standard deviation divided by the expected return.
yield to maturity
The discount rate that makes the present value of a bond's coupons and principal payment equal to its price is the:
0.054486
The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns? Round intermediate computations to 6 decimal places Return - Probability 0.10 - 0.25 0.20 - 0.50 0.25 -0.25
6.0%
The expected return on Mike's Seafood stock is 1.79 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate?
8%
The expected return on Shrimpdock stock is 19.4%. If the expected return on the market is 14% and the beta for Shrimpdock is 1.9, then what is the risk-free rate?
3.89%
The expected return on Sims Co. stock is 15 percent. If the risk-free rate is 8 percent and the beta of Sims Co. is 1.8, what is the risk premium on the market portfolio?
$777,777
The firm's current ratio now is 2.1. The firm plans to acquire additional inventory to meet a surge in the demand for its products and will pay for the inventory with short-term debt. How much inventory can the firm purchase without violating its debt agreement, to maintain current ratio of 1.75 if their total current assets equal $3.5 million?
Marketability, call feature, default risk, term-to-maturity
The four risk characteristics of bonds are:
The company is going to continue to be in business indefinitely.
The going concern assumption states that:
expected return
The greater the risk associated with an investment, the greater is its _____.
True
The income statement includes revenues and expenses.
13.80%
The risk-free rate of return is currently 3 percent and the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?
$1.61 million
Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The net value of the asset that should be reported on the balance sheet is:
Preferred dividends of $330,000 paid to shareholders
Trident Corporation had the following cash flows in the current year. Which of the following will be categorized under the financing activities section of the statement of cash flows?
$28,496
Trident Manufacturing Company's treasurer identified the following cash flows during this year as significant. The company repaid existing debt of $425,110, while raising additional debt capital of $750,000. It also repurchased stock in the open markets for a total of $63,250 and paid $233,144 in dividends to its shareholders. What is the net cash provided by (used in) financing activities?
$804,795
Trimeton Corporation announced that in the year ended June 30, 2021, its earnings before taxes amounted to $2,367,045. Calculate its taxes using the following table. Round your final answer to the nearest dollar. Tax Rate, Taxable Income 15%, $0 to $50,000 25, $50,001 to $75,000 34, $75,001 to $100,000 39, $100,001 - $335,000 34, $335,001 - $10,000,000 35, $10,000,001 - $15,000,000 38, $15,000,001 - $18,333,333 35, More than $18,333,333
the inventory acquired on April 23 with the products sold
Tyson Corporation bought raw materials on April 23, 200 and also on July 2, 2008. Products produced during the months of May were sold in July. The firms uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate:
15.75%
Use the following table to calculate the expected return from the asset. Return - Probability 0.05 - 0.1 0.1 - 0.15 0.15 - 0.5 0.25 - 0.25
18.75%
Use the following table to calculate the expected return from the asset. Return - Probability 0.1 - 0.25 0.2 - 0.5 0.25 - 0.25
Walmart is more efficient at managing its inventory that its competitors.
Walmart has an inventory turnover ratio of 5x compared to the industry average of 4.1x. most likely:
False
Well-diversified portfolios contain both systematic risk and firm-specific risk.
$576,000
What is the net book value of an asset, as reported on the balance sheet at the end of year 3, if the asset was purchased for $2,000,000 and has been depreciating using the following schedule? Year 1 - 20% Year 2 - 32% Year 3 - 19.2% Year 4 - 11.53% Year 5 - 11.52% Year 6 - 5.76%
1.43
What will be the firm's equity multiplier (EM), given a debt ratio of 0.30? (Round your final answer to two decimal places)
both inventory and net income a higher value
When prices are rising, the value of ending inventory using the FIFO method rather than LIFO gives:
Cash payments on the principal of long-term debt
Which of the following is NOT a cash flow from operating activities?
Purchased of plant and equipment
Which of the following is a cash flow from investing activities?
Increase in current assets
Which of the following is an outflow from operating activities?
Beta
Which of the following is the measure of the stock's systematic risk?
Cash
Which of the following items does NOT belong on an income statement?
As interest rates decline, the prices of bonds rise and as interest rates rise, the prices of bonds decline
Which of the following statements is true?
Convertible bonds can be converted into shares of common stock at some predetermined ratio at the discretion of the bondholder
Which of the following statements is true?
8.2%
You have invested 20 percent of your portfolio in Homer, Inc., 40 percent in Marge Co., and 20 percent in Bart Resources. What is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2 percent, 18 percent, and 3 percent, respectively?
1.91 inches
You have observed that the average size of a particular goldfish 1.5 inches long. The standard deviation of the size of the goldfish is 0.25 inches. What is the size of a goldfish such that 95 percent of the goldfish are smaller from such size? Assume a normal distribution for the size of goldfish.
True
Zero coupon bonds do not make coupon payments but pay their face value at maturity.