Post FIn201 final exam

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Question 1

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

		0.0
		0.5
		1.0
		1.5
		2.0

Question 2

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?

		net present value
		internal return
		payback value
		profitability index
		discounted payback

Question 3

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

		working capital
		debt
		investment capital
		net capital
		capital structure

Question 4

According to the Rule of 72, you can do which one of the following?

		double your money in five years at 7.2 percent interest
		double your money in 7.2 years at 8 percent interest
		double your money in 8 years at 9 percent interest
		triple your money in 7.2 years at 5 percent interest
		triple your money at 10 percent interest in 7.2 years

Question 5

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

		altering
		cumulative voting
		straight voting
		indenture agreement
		voting by proxy

Question 6

Phil can afford $180 a month for 5 years for a car loan. If the interest rate is 8.6 percent, how much can he afford to borrow to purchase a car?

		$7,750.00
		$8,348.03
		$8,752.84
		$9,266.67
		$9,400.00

Question 8

Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account. What is the effective annual interest rate if the firm borrows $35,000 for one year?

		7.76 percent
		8.00 percent
		8.17 percent
		8.33 percent
		8.42 percent

Question 9

An amortized loan:

		requires the principal amount to be repaid in even increments over the life of the loan.
		may have equal or increasing amounts applied to the principal from each loan payment.
		requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.
		requires that all payments be equal in amount and include both principal and interest.
		repays both the principal and the interest in one lump sum at the end of the loan term.

Question 10

Which one of the following terms is defined as the management of a firm's long-term investments?

		working capital management
		financial allocation
		agency cost analysis
		capital budgeting
		capital structure

1 points

Question 11

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

		amortized
		continuous
		balloon
		pure discount
		interest-only

Question 12

A monthly interest rate expressed as an annual rate would be an example of which one of the following rates?

		stated rate
		discounted annual rate
		effective annual rate
		periodic monthly rate
		consolidated monthly rate

Question 13

Which one of the following is a capital budgeting decision?

		determining how many shares of stock to issue
		deciding whether or not to purchase a new machine for the production line
		deciding how to refinance a debt issue that is maturing
		determining how much inventory to keep on hand
		determining how much money should be kept in the checking account

Question 14

Which of the following questions are addressed by financial managers?
I. How should a product be marketed?
II. Should customers be given 30 or 45 days to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm acquire new equipment?

		I and IV only
		II and III only
		I, II, and III only
		II, III, and IV only
		I, II, III, and IV

Question 15

Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now?

		remains constant
		increases
		decreases
		becomes negative
		cannot be determined from the information provided

Question 16

Wayco Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity of 14.3 percent, and a cost of preferred stock of 8.5 percent. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market quote of 101.2. The company's tax rate is 37 percent. What is the firm's weighted average cost of capital?

		10.18 percent
		10.84 percent
		11.32 percent
		12.60 percent
		12.81 percent

Question 17

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

		operating cycle.
		inventory period.
		accounts receivable period.
		accounts payable period.
		cash cycle.

Question 18

The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:

		operating cash flow.
		net capital spending.
		net working capital.
		cash flow from assets.
		cash flow to stockholders.

Question 19

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now?

		future value
		present value
		principal amounts
		discounted value
		invested principal

Question 20

Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value. What is the company's pre-tax cost of debt?

		3.98 percent
		4.42 percent
		4.71 percent
		5.36 percent
		5.55 percent

Question 21

Shareholders' equity:

		increases in value anytime total assets increases.
		is equal to total assets plus total liabilities.
		decreases whenever new shares of stock are issued.
		includes long-term debt, preferred stock, and common stock.
		represents the residual value of a firm.

Question 22

Alex invested $10,500 in an account that pays 6 percent simple interest. How much money will he have at the end of four years?

		$12,650
		$12,967
		$13,020
		$13,256
		$13,500

1 points

Question 23

Net working capital is defined as:

		total liabilities minus shareholders' equity.
		current liabilities minus shareholders' equity.
		fixed assets minus long-term liabilities.
		total assets minus total liabilities.
		current assets minus current liabilities.

Question 24

Which one of the following statements correctly states a relationship?

		Time and future values are inversely related, all else held constant.
		Interest rates and time are positively related, all else held constant.
		An increase in the discount rate increases the present value, given positive rates.
		An increase in time increases the future value given a zero rate of interest.
		Time and present value are inversely related, all else held constant.

Question 25

What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent.

		-$3,383.25
		-$2,784.62
		-$2,481.53
		$52,311.08
		$66,416.75

Question 26

An ordinary annuity is best defined by which one of the following?

		increasing payments paid for a definitive period of time
		increasing payments paid forever
		equal payments paid at regular intervals over a stated time period
		equal payments paid at regular intervals of time on an ongoing basis
		unequal payments that occur at set intervals for a limited period of time

Question 27

Which one of the following is a source of cash?

		increase in accounts receivable
		decrease in notes payable
		decrease in common stock
		increase in accounts payable
		increase in inventory

Question 28

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

		equilibrium.
		premium.
		discount.
		call price.
		spread.

Question 29

You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions?

		democratic
		cumulative
		straight
		deferred
		proxy

Question 30

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

		operating cycle.
		inventory period.
		accounts receivable period.
		accounts payable period.
		cash cycle.

Question 31

An ordinary annuity is best defined by which one of the following?

		increasing payments paid for a definitive period of time
		increasing payments paid forever
		equal payments paid at regular intervals over a stated time period
		equal payments paid at regular intervals of time on an ongoing basis
		unequal payments that occur at set intervals for a limited period of time

Question 32

Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

		return on equity
		return on assets
		profit margin
		equity multiplier
		price-earnings ratio

Question 33

Travis invested $9,250 in an account that pays 6 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually?

		$741.41
		$773.58
		$802.16
		$833.33
		$858.09

1 points

Question 34

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

		amortized loan
		modified loan
		balloon loan
		pure discount loan
		interest-only loan

Question 35

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

		yield to maturity
		total yield
		dividend yield
		capital gains yield
		growth rate

Question 36

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

		yield to maturity
		total yield
		dividend yield
		capital gains yield
		growth rate

Question 37

Which one of following is the rate at which a stock's price is expected to appreciate?

		current yield
		total return
		dividend yield
		capital gains yield
		coupon rate

1 points

Question 38

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:

		accepted because the internal rate of return is positive.
		accepted because the profitability index is greater than 1.
		accepted because the profitability index is negative.
		rejected because the internal rate of return is negative.
		rejected because the net present value is negative.

Question 39

A business created as a distinct legal entity and treated as a legal "person" is called a:

		corporation.
		sole proprietorship.
		general partnership.
		limited partnership.
		unlimited liability company.

Question 40

Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?

		coupon
		face value
		discount
		call premium
		yield

1 points

Question 41

The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is called the:

		reward to risk ratio.
		weighted capital gains rate.
		structured cost of capital.
		subjective cost of capital.
		weighted average cost of capital.

Question 42

The decision to issue additional shares of stock is an example of which one of the following?

		working capital management
		net working capital decision
		capital budgeting
		controller's duties
		capital structure decision

Question 43

Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following?

		simplifying
		compounding
		aggregation
		accumulation
		discounting
Question 44 The decision to issue additional shares of stock is an example of which one of the following? working capital management net working capital decision capital budgeting controller's duties capital structure decision

Question 45

An agent who maintains an inventory from which he or she buys and sells securities is called a:

		broker.
		trader.
		capitalist.
		principal.
		dealer.

Question 46

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

		coupon
		face value
		discount
		yield
		dirty price

Question 47

At 11 percent interest, how long would it take to quadruple your money?

		6.55 years
		6.64 years
		13.09 years
		13.28 years
		13.56 years

Question 48

Which one of the following will increase the value of a firm's net working capital?

		using cash to pay a supplier
		depreciating an asset
		collecting an accounts receivable
		purchasing inventory on credit
		selling inventory at a profit

1 points

Question 49

Chelsea Fashions is expected to pay an annual dividend of $0.80 a share next year. The market price of the stock is $22.40 and the growth rate is 5 percent. What is the firm's cost of equity?

		7.58 percent
		7.91 percent
		8.24 percent
		8.57 percent
		9.00 percent

Question 50

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

		constant dividend growth model
		discounted cash flow valuation
		average accounting return
		expected earnings model
		internal rate of return