BUSN 379 Week
4 Midterm Exam
1.(TCO 1) What is the
goal of financial management for a sole proprietorship? (Points : 3)
decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production
2.(TCO 1) Working
capital management includes which of the following? (Points : 3)
establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
3.(TCO 1) Market value
reflects which of the following: (Points : 3)
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
4.(TCO 1) Which of the
following is true regarding income statements? (Points : 3)
It shows the revenue and expenses, based upon selected accounting
It reveals the net cash flows of a firm over a stated period of time.
It reflects the financial position of a firm as of a particular date.
It records revenue only when cash is received for the product or service
It records expenses based on the recognition principle
5.(TCO 1) Tato’s Pizza
has sales of $625,000. They paid $43,000 in interest during the year and
depreciation was $79,000. Administrative costs were $100,000 and other costs
were $160,000. Assuming a tax rate of 35 percent, what is Tato’s Pizza net
(Points : 3)
6.(TCO 1) Home Best
Hardware had $315,000 in taxable income last year. Using the tax rates
provided in Table 2.3, what is the marginal tax rate?(Points : 3)
7.(TCO 1) Pizza A had
earnings after taxes of $390,000 in the year 2008 and 300,000 shares
outstanding. In year 2009, earnings after taxes increased by 20 percent to
$468,000 and 25,000 new shares were issued for a total of 325,000 shares.
What is the EPS figure for 2008? (Points : 3)
8.(TCO 1) The income
statement reflects: (Points : 3)
income and expenses at the time when those items affect the cash
flows of a firm.
income and expenses in accordance with GAAP.
the cash flows in accordance with GAAP.
the flow of cash into and out of a firm during a stated period of time.
the flow of cash into and out of a firm as of a particular date
9.(TCO 1) Print Imaging
has EBIT of $150,000, interest of $30,000, taxes of $50,000, and depreciation
of $50,000. What is the company’s operating cash flow? (Points : 3)
10.(TCO 3) Mark
deposited $1,000 today, in an account that pays eight percent interest,
compounded semi-annually. Which one of the following statements is correct
concerning this investment? (Points : 3)
Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the
Mark would have earned more interest if he had invested in an account paying 8
percent simple interest.
Mark would have earned more interest if he had invested in an account paying
Mark will earn less and less interest each year over the life of the investment
11.(TCO 3) Mr. Smith
will receive $7,500 a year for the next 14 years from his trust. If the
interest rate on this investment is eight percent, what is the approximate
current value of these future payments? (Points : 3)
12.(TCO 3) Your
neighbor just received a credit offer in an e-mail. The company is offering
him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he
accepts this offer, how long will it take him to pay off the loan? (Points :
13.(TCO 3) Fine Oak
Woodworks is considering a project that has cash flows of $5,000, $3,000, and
$8,000 for the next three years. If the appropriate discount rate of this
project is 10 percent, which of the following statements is true? (Points :
The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and
The project should be rejected because its present value is negative
14.(TCO 4) You are considering two investments. Investment I is in a
software company, and Investment II is an engineering company. The investments
offer the following cash flows:
the appropriate discount rate is 10 percent, what is the approximate present
value of the Engineering Company investment? (Points : 3)
15.(TCO 3) North Bank
offers you an APR of 9.76 percent compounded semiannually, and South Bank
offers you an effective rate of 9 percent on a business loan. Which bank
should you choose and why? (Points : 3)
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower
1.(TCO 3) Tim needs to
borrow $5,000 for two years. The loan will be repaid in one lump sum at the
end of the loan term. Which one of the following interest rates is best for
Tim? (Points : 3)
7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
2.(TCO 3) Which one of
the following is an example of an annuity, but not a perpetuity? (Points : 3)
unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month
3.(TCO 3) Fanta Cola
has $1,000 par value bonds outstanding at 12 percent interest. The bonds
mature in 25 years. What is the current price of the bond if the YTM is 16
percent? Assume annual payments. (Points : 3)
4.(TCO 6 and 8) Which
one of the following statements is correct? (Points : 3)
Bond issuers maintain a listing of bondholders when bonds are
issued in bearer form.
An indenture, is a contract between a corporation and its shareholders.
Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the
5.(TCO 3) Bonds issued
by Blue Sky Airlines have a face value of $1,000 and currently sell for
$1,180. The annual coupon payments are $125. If the bonds have 20 years until
maturity, what is the approximate YTM of the bonds? (Points : 3)
6.(TCO 3) Bean Coffee
issued preferred stock many years ago. It carries a dividend of $8 per share,
fixed. As time has passed, yields have decreased from the original eight
percent (at the time of issuance) to six percent. What was the current price
of the stock? Hint: Yield is the same as required rate of return. (Points :
None of the above
7.(TCO 3) Intelligence
Research, Inc. will pay a common stock dividend of $1.60 at the end of the
year. The required rate of return by common stockholders is 13 percent. The
firm has a constant growth rate of seven percent. What is the current price
of the stock? (Points : 3)
8.(TCO 3) Royal
Electric paid a $4 dividend last year. The dividend is expected to grow at a
constant rate of six percent over the next four years. Common stockholders
require a 13 percent return. What are the values of the dividends for years
1, 2 and 3, respectively? (Points : 3)
$4, $4.5 and $4.8
$4.24, $4.76 and $5.05
$4.24, $4.49, $4.76
$4, $4.50, $5.05
9.(TCO 6) Which of the
following is true regarding the primary market? (Points : 3)
it is the market where the largest number of shares are traded on
a daily basis.
it is the market in which the largest number of issues are listed.
it is the market with the largest number of participants.
it is the market where new securities are offered.
it is the market where shareholders trade most frequently with each other
10.(TCO 6) A member of
the NYSE who trades on the floor of the exchange for his or her personal
account is called a(n): (Points : 3)
11.(TCO 6) The annual
interest on a bond divided by the bond’s market price is called the: (Points
yield to maturity.
yield to call.
12.(TCO 6) Star
Industries has one outstanding bond issue. An indenture provision prohibits
the firm from redeeming the bonds during the first two years. This provision
is referred to as a _____ provision. (Points : 3)
13.(TCO 8) Which of the
following is true regarding bonds? (Points : 3)
Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest
None of the above is true
14.(TCO 6) Which of the
following is not a floating-rate bond? (Points : 3)
A bond that adjusts the coupon payments based on an interest rate
index, such as the T-bill.
An EE Savings Bond issued by the U.S. government.
A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.
15.(TCO 6) Which of the
following is true regarding put bonds? Select all that apply: (Points : 3)
Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
1.(TCO 1) In a general
partnership, each partner is personally liable for: (Points : 3)
the partnership debts that he or she personally obtained for the
his or her proportionate share of all partnership debts, regardless of which
partner incurred that debt.
the total debts of the partnership, even if he or she was unaware of those
the debts of the partnership, up to the amount he or she invested in the firm.
all personal and partnership debts incurred by any partner, even if he or she
was unaware of those debts
2.(TCO 1) Trademarks
are classified as: (Points : 3)
tangible fixed assets.
intangible fixed assets
1.(TCO 1) Can you provide some examples of recent, well-known
unethical behavior cases? Explain the situation in one or two sentences.
2. What are some real-life scenarios where you can apply the time
value of money? Present two or three scenarios. Briefly explain your rationale.
3. Explain some of the key risks associated with bonds.
4. What are some of the features of zero-coupon bonds that make
them attractive to certain investors? Which type of investors will be most
interested in these bonds?