FIN202 SP26 B5 FE RE

1. (Choose 1 answer)

Which one of the following statements is NOT true?
A. The accounts receivable turnover ratio measure s how quickly the firm collects its credit sales.
B. One ratio that measures the efficiency of a firm's collection policy is days' sales outstanding.
C. The more days that it takes a firm to collect its receivables, the more efficient the firm is.
D. Days' sales outstanding measures how many days a firm takes to convert its receivables into cash.
2. (Choose 1 answer)

In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30 percent and h as total assets of $3,000,000. What is Photon’s return on equity? (Round your percentage answer to one decimal place.)
A. 13.1%
B. 14.6%
C. 22.25%
D. 18.7%
3. (Choose 1 answer)

Jorge Cabrera paid $980 for a 15 - year bond 10 years ago. The bond pays a coupon of 10 percent semianually. Today, the bond is priced at $1,064.36. If he sells the bond today, what will be his realized yield? (Round to the nearest percent.)
A. 12%
B. 8%
C. 11%
D. 9%
4. (Choose 1 answer)

Suppose an investor earned a semiannual yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? (Round to two decimal places.)
A. 12.80%
B. 6.40%
C. 6.50%
D. 13.21%
5. (Choose 1 answer)

Which one of the following statements is NOT true?
A. The relationship between yield to maturity and marketability is known as the term structure of interest rates.
B. The shape of the yield curve is not constant over time.
C. As the general level of interest rises and falls over time, the yield curve sh ifts up and down and has different slopes.
D. Yield curves show graphically how market yields vary as term to maturity changes.
6. (Choose 1 answer)

Which of the following statements is true about dealer markets?
A. NYSE is the best - known example of a dealer market.
B. A dealer market involves time - consuming search for a fair deal.
C. The advantage of a dealer over a brokered market is that broke rs cannot guarantee that an order will be executed promptly, while dealers can promise execution due to their holding of inventory of securities.
D. Buying and selling in dealer markets take quite some time to execute.
7. (Choose 1 answer)

Assume that you are considering the purchase of a stock which will pay dividends of $4.50 during the next year. Further assume that you will be able to sell the stock for $86.00 one year from today and that your required rate of return is 15 percent. How much would you be willing to pay for the stock today? (Round to the nearest $0.01.)
A. $89.50
B. $65.37
C. $94.10
D. $77.83
8. (Choose 1 answer)

Johnson Corporation has just paid a dividend of $4.45. The company has forecasted a constant dividend growth rate of 8 percent forever. If the appropriate discount rate is 14 percent, what is the current price of this stock? (Round to the nearest dollar.)
A. $74
B. $32
C. $80
D. $60
9. (Choose 1 answer)

Which of the following statements about preferred stock is FALSE?
A. Preferred stock has a higher - priority claim on the firm’s assets than the common stock.
B. Failure to pay dividen ds on preferred stocks will result in a default.
C. Preferred stock has a lower - priority claim on the firm’s assets than the firm’s creditors in the event of default.
D. Preferred stock typically pays a fixed dividend.
10. (Choose 1 answer)

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11. (Choose 1 answer)

Johnson Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $1,750,000. Expected cash flows over the n ext four years are $725,000, $850,000, $1,200,000, and $150,000. Given the company's required rate of return of 15 percent, what is the NPV of this project? (Do not round intermediate computations. Round final answer to nearest dollar.)
A. $1,169,806
B. $2,919,806
C. $469,806
D. $3,122,607
12. (Choose 1 answer)

Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm’s cost of capital is 12 percent. What is the discounted payback period for this project? If the firm’s acceptance period is five years, will this project be accepted? (Do not round intermediate computations. Round your answer to one decimal place.)
A. 5.4; yes
B. 6.1; no
C. 6.1; yes
D. 4.2; yes
13. (Choose 1 answer)

The cash flows used in capital budgeting calculations are based on:
A. historical estimates.
B. forecasts of future cash revenues, expenses, and investment outlays.
C. forecasts of net income.
D. forecasts of retained earnings available for financing projects.
14. (Choose 1 answer)

________ represent dollars stated in terms of constant purchasing power.
A. Nominal dollars
B. Real dollars
C. Inflated dollars
D. Constant dollars
15. (Choose 1 answer)

Milonalo Corp. purchased a truck that currently has a book value of $1,000. If the firm sells the truck for $5,000 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 15 percent marginal tax rate?
A. $1,200
B. $4,400
C. $3,400
D. $6,000
16. (Choose 1 answer)

Your firm is deciding whether to purchase a durable delivery vehicle or a short - term vehicle. The durable vehicle costs $25,000 and should last five years. The short - term vehicle costs $10,000 and should last two years. If the cost of capital for the firm is 15 percent, then what is the equivalent annual cost for the best choice for the firm? (Round final answer to nearest whole dollar.)
A. $5,000, either vehicle
B. $5,000, short - term vehicle
C. $6,151, short - term vehicle
D. $7,458, long - term vehicle
17. (Choose 1 answer)

Which of the following describes the effect of changes in sets of interrelated variables?
A. A sensitivity analysis
B. A scenario analysis
C. A Monte Carlo simulation
D. A horizontal analysis
18. (Choose 1 answer)

Which of the following statements is true about zero coupon bonds?
A. They typically sell at a premium over par when they are first issued.
B. They typically sell for a higher price than similar coupon bonds.
C. They are alw ays convertible to common stock.
D. They typically sell at a deep discount below par when they are first issued.
19. (Choose 1 answer)

Briar Corp is issuing a 10 - year bond with 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? (Do not round intermediate computations. Round your final answer to the nearest dollar.)
A. $872
B. $1,066
C. $990
D. $945
20. (Choose 1 answer)

(Choose 1 an swer) In calculating the current price of a bond paying semiannual coupons, one needs to:
A. Use the annual discount rate for discounting the par payment at maturity.
B. Use double the annual coupon value.
C. Use the semiannual rate only for discounting the annual coupons.
D. Use double the number of years for the number of payments made.
21. (Choose 1 answer)

Modern Federal Bank is setting up a brand - new branch. The cost of the project w ill be $1.2 million. The branch will create additional cash flows of $235,000, $412,300, $665,000 and $875,000 over the next four years. The firm's cost of capital is 12 percent. What is the internal rate of return on this branch expansion? (Do not round i ntermediate computations. Round final answer to the nearest percent.)
A. 20%
B. 23%
C. 25%
D. 27%
22. (Choose 1 answer)

WACC: 7% Year 0 1 2 3 CFS - $1,100 $500 $600 $200 CFL - $2,700 $600 $700 $1,800
A. 4.250%
B. 9.67%
C. 10.16%
D. 10.38%
23. (Choose 1 answer)

A trademark is an example of:
A. a liquid asset.
B. an intangible asset.
C. a contingent asset.
D. a physical asset.
24. (Choose 1 answer)

Which organizational form best enables the owners of a firm to monitor the professional conduct of other owners of the same firm?
A. Sole proprietorship
B. Partnership
C. Private corporation
D. Public corporation
25. (Choose 1 answer)

Which of the following is primarily responsible for managing all financial aspects of a firm?
A. CFO
B. CEO
C. Board of directors
D. Audit committee
26. (Choose 1 answer)

Which of the following factors or activities can be controlled by a firm's managers?
A. Capital budgeting decision
B. The level of economic activity
C. The level of market interest rates
D. Stock market conditions
27. (Choose 1 answer)

(Choose 1 answe r) Executives that repeatedly put their own interests before that of the firm may find that they have difficulty in finding another job after their current one. This is an example of:
A. the managerial labor market disciplining managers.
B. the marke t for corporate control.
C. the board of directors affecting the prospects of a manager.
D. the agency problem.
28. (Choose 1 answer)

Your uncle is planning to sell his second home in Bethany Beach, Delaware in the next few weeks. You are interested in buying this beachside property, so your agent negotiates a price for the house with your uncle's agent. This transaction is an example of:
A. cost principle.
B. assumption of arm's - length transactions.
C. realization principle.
D. going concern assumption.
29. (Choose 1 answer)

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30. (Choose 1 answer)

Which of the following statements is NOT a limitation associated with market valuation of balance sheet accounts?
A. It can be difficult to identify the market value of an asset, particularly if there are few transactions involving comparable assets.
B. The estimates of market value can involve complex financial modeling, and the resulting numbers can be open to manipulation and abuse.
C. Marking to market provides decision makers with a better chance of making the correct economic decision, given the information available.
D. Mark - to - market accounting can become inaccurate if market prices deviate from the "fundamental" values of assets and liabilities.
31. (Choose 1 answer)

Centennial Brewery produced revenues of $1,145,227 in 20 22. 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.
A. $120,140
B. $248,475
C. $79,292
D. $40,848
32. (Choose 1 answer)

What is the fundamental belief behind the Time Value of Money (TVM)?
A. People prefer to save today rather than spend.
B. People prefer to consume goods today rather than in the future.
C. Money loses value over time.
D. Interest rates increase over time.
33. (Choose 1 answer)

Carlos Lopes is lookin g to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years? (Round to the nearest dollar.)
A. $8,870
B. $8,575
C. $8,681
D. $8,990
34. (Choose 1 answer)

Which of the following equations is used to compute the future value using continuous compounding? (1) FV₀₀ = PV × e^{i × n} (2) FV₀₀ = PV ÷ e^{i × n} (3) FV₀₀ = e^{i} ÷ PV (4) FV₀₀ = e^{i} × PV
A. (i)
B. (ii)
C. (iii)
D. (iv)
35. (Choose 1 answer)

What is the present value of $1,000 received in 2 years if the discount rate is 5%?
A. $907.03
B. $950.00
C. $890.00
D. $925.00
36. (Choose 1 answer)

Which of the following best explains the purpose of discounted cash flow (DCF) analysis?
A. A company estimates taxes based on its revenue
B. To determine stock volatility using historical data
C. To value an investment based on its future cash flows
D. To analyze profitability through accounting ratios
37. (Choose 1 answer)

What is the PMT required annually end of year to accumulate $7,500 in three years at 6%?
A. $2,355.82
B. $2,000.00
C. $2,200.00
D. $2,500.00
38. (Choose 1 answer)

Jack is planning to invest in an insurance company product. The pr oduct will pay $10,000 at the end of this year. Thereafter, the payments will grow annually at a 3 percent rate forever. Jack will be able to invest his cash flows at a rate of 6.5 percent. What is the present value of this investment cash flow stream? (Ro und to the nearest dollar.)
A. $326,908
B. $312,766
C. $285,714
D. $258,133
39. (Choose 1 answer)

Which one of the following statements is TRUE about the effective annual rate (EAR)?
A. The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.
B. The EAR conversion formula accounts for the numb er of compounding periods and; thus, effectively adjusts the annualized interest rate for the time value of money.
C. The EAR is the true cost of borrowing and lending.
D. All of these are true.
40. (Choose 1 answer)

Beautinator Cosmeti cs borrowed $152,300 from a bank for three years. If the quoted rate (APR) is 11.75 percent, compounded daily, what is the effective annual rate (EAR)? (Round to one decimal place.)
A. 11.7%
B. 14.3%
C. 12.5%
D. 11.6%
41. (Choose 1 answer)

Anyone analyzing a firm's financial statements should:
A. ignore trends, because the future is unpredictable.
B. ignore benchmarks because firms are unique.
C. not consider competitors performance and focus on the firm.
D. use audited financial statements.
42. (Choose 1 answer)

Which of the following is NOT true of common - size income statements?
A. Each income statement item is standardized by dividing it by total assets.
B. Income statement accounts are represented as percentages of net sales.
C. Each income statement item is standardized by dividing it by net sales.
D. Common - size income statements analysis is a specialized application of ratio analysis.
43. (Choose 1 answer)

Last year Viera Corp had $155,000 of assets, $305,000 of sales, $20,000 of net income, and a debt to total capital ratio of 37.5 percent. The new CFO believes a new computer program will enable it to reduce costs and thus raise ne t income to $33,000. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the ROE?
A. 11.51%
B. 12.11%
C. 12.75%
D. 13.42%
44. (Choose 1 answer)

Pedro & Son's total common equity at the end of last year was $405,000 and its net income was $70,000. What was its ROE?
A. 14.92%
B. 15.60%
C. 16.42%
D. 17.28%
45. (Choose 1 answer)

Which bond would be most sensitive to interest rate changes?
A. Short - term, low - coupon bond
B. Long - term, high - coupon bond
C. Short - term, zero - coupon bond
D. Long - term, zero - coupon bond
46. (Choose 1 answer)

Use the following infor mation to answer the questions below: Thunderbird Amusement Park – Balance Sheet as of June 30 Assets 2021 2022 Cash $ 13,221 $ 11,729 Accounts receivables 31,323 37,909 Inventory 77,244 91,617 Total current assets $121,788 $141,255 Fixed assets 444,712 563,323 Less: Accumulated depreciation (100,000) (172,487) Net fixed assets 344,712 390,836 Total assets $466,500 $532,091 Liabilities and Stockholders' Equity Accounts payable $ 38,549 $ 42,881 Notes payable 12,004 16,753 Deferred taxes 21,934 16,788 Total current liabilities $ 72,487 $ 76,422 Long - term debt 78,445 61,290 Common stock 125,000 175,000 Retained earnings 190,568 219,379 Total liabilities and stockholders' equity $466,500 $532,091 The company had a net in come of $248,462, and depreciation expenses were equal to $72,487. What is the firm's cash flow from financing activities? Thunderbird Amusement Park – Balance Sheet as of June 30 Assets Cash $ 11,729 Accounts rece ivables 31,323 Inventory 27,611 Total current assets $ 70,663 Fixed assets 444,712 Less: Accumulated depreciation ( 116,269) Total fixed assets $ 328,443 Total assets $ 466,500 Liabilities and Stockholders' Equity Accounts payable $ 38,549 $ 42,881 Accrued liabilities 21,936 Deferred taxes 21,093 Total c urrent liabilities $ 81,578 Long - term debt 75,621 Total liabilities $ 157,199 Retained earnings 201,000 Total earnings and stockholders' equity $ 532,091 The company had a net income of $248,462, and depreciation expenses were equal to $72,487. What is the firm's cash flow from financing activities?
A. - $66,405
B. $61,656
C. - $61,656
D. - $182,057
47. (Choose 1 answer)

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48. (Choose 1 answer)

There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?
A. Ratio analysis requires the analyst to evaluate a firm’s performance over a period of time.
B. Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated.
C. Thorough ratio analysis require s the analyst to refer to benchmarking, which is very easy to misinterpret.
D. Ratio analysis requires the analyst to utilize accounting data that is based on historical value instead of current market values.
49. (Choose 1 answer)

Nickole wants to invest in a bank CD that will pay her 7.8 percent annually. If she invests $11,500 today, when will she reach her goal of $15,000? (Round to the nearest year.)
A. 5 years
B. 7 years
C. 2 years
D. 4 years
50. (Choose 1 answer)

What is the yield curve's shift due to a change in the interest rate environment called?
A. A market premium
B. A yield curve adjustment
C. A term structure change
D. A bond price fluctuation

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