MANAGEMENT MIDTERM 1

Racing Engines wants to save $750,000 to buy some new equipment four years from now. The plan is to set aside an equal amount of money on the last day of each quarter. The firm can earn 4.75 percent on its savings. How much does the firm have to save each quarter to achieve its goal? $43,692.05 $42,839.75 $43,919.29 $44,511.08

$42,839.75

Andre's Bakery has sales of $613,000 with costs of $479,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 25 percent. What is the net income? a. $81,000 b. $74,550 c. $49,500 d. $42,750

$49,500

What is the annual percentage rate on a loan with a stated rate of 2.75 percent per quarter? 11% 11.31% 11.18% 11.09%

11%

The $1,000 par value bonds of Uptown Tours have a coupon rate of 6.5 and a current price quote of 101.23. What is the current yield? 6.60% 6.42% 6.49% 6.58%

6.42%

Which one of the following will produce the lowest present value interest factor? 6 percent interest for 5 years. 8 percent interest for 10 years. 6 percent interest for 8 years. 8 percent interest for 5 years.

8 percent interest for 10 years.

High Mountain Foods has an equity multiplier of 1.72, a total asset turnover of 1.16, and a profit margin of 4.5 percent. What is the return on equity? a. 8.98% b. 12.96 % c. 14.38% d. 11.94 %

8.98 percent

Suppose the first comic book of a classic series was sold in 1954. In 2015, the estimated price for this comic book in good condition was about $310,000. This represented a return of 22 percent per year. For this to be true, what was the original price of the comic book in 1954? $1.33 $0.50 $1.67 $1.40

$1.67

You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay? $160,408 $147,027 $153,524 $164,319

$153,524

Your coin collection contains fifty 1949 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 7.6 percent annual rate. How much will your collection be worth when you retire in 2020? $14,122.01 $11,218.27 $8,987.56 $9,070.71

$9,070.71

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act: a. Must continue to provide audited financial statements to the public. b. Can provide less information to its shareholders than it did prior to "going dark." c. Can continue publicly trading its stock but only on the exchange on which it was previously listed. d. Must continue to provide a detailed list of internal control deficiencies on an annual basis.

Can provide less information to its shareholders than it did prior to "going dark."

The higher the degree of financial leverage employed by a firm is, the: a. Lower is the balance in accounts payable. b. Lower is the amount of debt incurred. c. Higher is the probability that the firm will encounter financial distress. d. Higher is the number of outstanding shares of stock.

Higher is the probability that the firm will encounter financial distress.

The DuPont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?

I, II, and III only.

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the: Coupon payment will increase. Current yield will decrease. Coupon rate will also increase. Market price of the bond will decrease.

Market price of the bond will decrease.

Which one of the following statements concerning net working capital is correct? a. Net working capital is a part of the operating cash flow. b. Firms with equal amounts of net working capital are also equally liquid. c. Net working capital increases when inventory is sold for cash at a profit. d. An increase in net working capital must also increase current assets.

Net working capital increases when inventory is sold for cash at a profit.

Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming neither Sue nor Neal withdraw any money from their accounts prior to retiring? Sue will have less money when she retires than Neal. Sue will have more money than Neal at age 60. Neal will earn more interest on interest than Sue. Neal will earn more compound interest than Sue.

Sue will have more money than Neal at age 60.

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond? Yield to maturity less than the coupon rate. Yield to maturity equal to the current yield. Current yield greater than coupon rate. Currently selling at par.

Yield to maturity less than the coupon rate.

All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity. a discount; less than a discount; higher than a premium; equal to par; less than

a discount; less than

Suppose that you are offered an investment at a cost of $900. That investment will pay the following cash flows at the end of each of the next five years. a. Should you make the investment if the required rate of return is 10% per year? Why? Explain your answer. b. What is the Internal Rate of Return of this cash-flow stream? If you require a 10% annual return on this investment, should you make the investment? Why? Explain your answer.

a. NPV = $7.90 b. IRR = 10.40%

You buy a new house for $357,500. You put 10% down and borrow at 5.00% per year with equal monthly payments for 30 years. a. What are the monthly payments for an amortized mortgage with equal monthly payments? Show your work. b. Construct the amortization schedule for the first 2 months. Show your work.

a. Using Excel: = PMT (0.050 / 12,30 x 12 357500 x 0.90) = 1,727.22 b. Month Beginning Mortgage Balance Monthly Payment Monthly Interest Scheduled Principal Repayment Ending Mortgage Balance 1 $321,750.00 ($1,727.22) ($1,340.63) ($386.60) $321,363.40 2 $321,363.40 ($1,727.22) ($1,339.01) ($388.21) $320,975.191,

A) What is the firm's profit margin? B) What is the firm's total assets turnover? C) What is the firm's equity multiplier? D) What is the firm's ROE?

a. profit margin = net income / sales = 1,133 / 58,800=0.019269 b. total asset turnover ratio = sales / total assets = 58,800 / 42,000= 1.40 c. equity multiplier = total assets / total common equity = 42,000 / 12,600 = 3.333333 d. ROE = (profit margin) x (total asset turnover) x (equity multiplier) ROE = 0.019269 x 1.40 x 3.333333 = 0.0899 alternatively ROE = Net income / Total Common Equity = $1,133 / $12,600 = 0.0899

A callable bond pays coupons of $50 every year, has a par value of $1,000, matures in 10 years and has a value today of $1,150. The bond is callable in 5 years at a price of $1,050. a. What is the yield to maturity (i.e., YTM)? b. What are the expected current yield and the expected capital gains yield, assuming no change in the YTM? c. What is the yield to call (i.e., YTC)?

a. what it the yield to maturity? 1150 = 50 [1-1/(1+r)^10/ r + $1000/(1+r)^10 excel rate (10,50 - 1150, 1000) 0.0322 = 3.22% b. current yield = 50/1150 = 0.0435 = 4.35 capital gains yield = 0.0322 - 0.0435 = -0.0113= -%1.13 c. $1150 = 50 [1-1/(1+r)^5/r + 1050/(1+r)^5 excel = rate(5,50-1150,1050 = 0.0270 = 2.70%

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? a. Statement of cash flows. b. Dividend statement. c. Income statement. d. Balance sheet.

balance sheet

Which one of the following business types is best suited to raising large amounts of capital? a. Corporation. b. Limited liability company. c. Sole proprietorship. d. Limited partnership.

corporation

A business owned by a solitary individual who has unlimited liability for its debt is called: a. A limited liability company. b. A limited partnership. c. A corporation. d. A sole proprietorship.

sole proprietorship