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18. Which one of these statements related to growing annuities and perpetuities is correc

The present value of a growing perpetuity will decrease if the discount rate is increased.

16. Which of the following statements related to interest rates are correct

- When comparing loans, you should compare the effective annual rates. - Annual and effective interest rates are equal when interest is compounded annually

36. Which one of the following statements related to an income statement is

. Taxes reduce both net income and operating cash

How is the principal amount of an interest-only loan repai

. The principal is repaid in a lump sum at the end of the loan period.

45. A positive cash flow to stockholders indicates which one of the following with

A. The dividends paid exceeded the net new equity raised.

37. Which one of the following statements is correct concerning a corporation with income of $125,000?

An increase in depreciation will increase the operating cash

Martin invested $1,000 six years ago and expected to have $1,500 today. He has added or withdrawn any money from this account since his initial investment.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?

B. Martin earned a lower interest rate than he expected

43. Net capital spending

B. is equal to zero if the decrease in the net fixed assets is equal to the depreciation

34. As of 2008, which one of the following statements concerning corporate income taxes is

C. A firm's tax is computed on a basis

32. Which one of the following statements related to an income statement is correct? accrual accounting is used.

C. The labor costs for producing a product are expensed when the product is

28. Which one of the following is true according to Generally Accepted Principles? A. Depreciation may or may not be recorded at management's discretion. B. Income is recorded based on the matching principle. C. Costs are recorded based on the realization principle. D. Depreciation is recorded based on the recognition principle. E. Costs of goods sold are recorded based on the matching

Costs of goods sold are recorded based on the matching

33. Which one of the following statements related to taxes is

E. The marginal tax rate for a firm can be either higher or lower than the average tax

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

compound

following costs is most apt to be a fixed

depreciation

amortized loan:

may have equal or increasing amounts applied to the principal from each loan payment.

loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan

pure discount

19. What is the relationship between present value and future value interest

reciprocals

You are comparing two investment options that each pay 5 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays three annual payments starting with $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?

. Option B has a higher present value at time zero than does option A.

18. Which one of the following will produce the highest present value interest

6% for 5 years

15. Which one of the following statements related to annuities and perpetuities is correct?

A perpetuity comprised of $100 monthly payments is worth more than an annuity comprised of $100 monthly payments, given an interest rate of 12 percent, compounded monthly.

You are comparing two annuities which offer quarterly payments of $2,500 for five years and pay 0.75 percent interest per month. Annuity A will pay you on the first of each month while annuity B will pay you on the last day of each month. Which one of the following statements is correct concerning these two annuities?

Annuity B has a smaller present value than annuity A.

17. You want to have $1 million in your savings account when you retire. You plan 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. III. Retire later.

41. An increase in the depreciation expense will do which of the

II. decrease net income III. increase the cash flow from assets

12. 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

19. Which one of the following statements correctly states a relationshi

Time and future values are inversely related, all else held constant

38. Which one of the following will increase the cash flow from assets, all else

decrease in net capital

39. For a tax-paying firm, an increase in _____ will cause the cash flow from assets

depreciation

15. Luis is going to receive $20,000 six years from now. Soo Lee is going to receive 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?

dollars, Luis' money is worth more than Soo

40. Which one of the following must be true if a firm had a negative cash flow from

firm utilized outside funding

Which one of the following is NOT included in cash flow from assets

interest expense

8. Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment?

interest on interest

indenture

the legal agreement between the bond issuer and the bondholders.

31. Which of the following are expenses for accounting purposes but are not operating flows for financial purposes? I. interest expense II. taxes III. costs of goods sold

D. I and IV


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