Finance 303 Test 1

All else held constant, the future value of annuity will increase if you: increase the time period
Which of the following concerning annuities is correct?A. An annuity due has payments that occur at the beginning of each time periodB. The present value of an annuity is equal to the cash flow amount divided by the discount rate C. An annuity is an unending stream of equal payments occurring at equal intervals of timeD. If unspecified you should assume an annuity is an annuity dueE. The future value of an annuity decreases as the interest rate increases A. An annuity due has payments that occur at the beginning of each time period
Which statement is true?A. All else equal, a decrease in the number of payments increases the future value of an annuity due B. All else equal, an ordinary annuity is more valuable than an annuity due C. All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity D. All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity E. An annuity with payments at the beginning of each period is called an ordinary annuity C. All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity
Which one of the following statements is correct?A. The EAR, rather than the APR, should be used to compare both investment and loan options B. The APR is equal to the EAR for a loan that charges interest monthlyC. The APR is the best measure of the actual rate you are paying on a loanD. The APR on a monthly loan is equal to (1+ monthly interest rate)^12-1E. The EAR is always greater than the APR A. The EAR, rather than the APR, should be used to compare both investment and loan options
Which of the following features distinguishes an ordinary annuity from an annuity due? A. Number of equal paymentsB. Amount of each payment C. Annuity interest rate D. Time of the annuity paymentsE. Frequency of the payments D. Time of the annuity payments
Scott borrowed $2,500 today at an APR of 7.4 percent. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type of loan is referred to as a:A. quoted rate B. amortized loanC. pure discount loanD. compound interest loanE. interest-only loan C. pure discount loan
All else held constant, the future value of a lump sum investment will decrease if the: interest is changed to simple interest from compound interest
The relationship between the present value and the investment time period is best described as inverse
The potential conflict of interest between a firm’s owners and its managers is referred to as agency conflict
Financial statement analysis is only useful when: there is a benchmark such as a peer or industry to compare your performance to
Financial statement analysis provides useful information that can serve as a basis for forecasting future performance
Renault Inc is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm’s capital structure
Dupont Identity Profit MarginTotal Asset TurnoverEquity Multiplier
The primary goal of financial management is to maximize market value of existing stock
Net working capital is defined as current assets minus current liabilities
The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the marginal tax rate
Highly liquid assets can be sold quickly at close to full value
Net income increases when revenue increases
Which of these is correct?A. Depreciation has no effect on taxesB. Interest paid is a noncash itemC. Taxable income must be a positive valueD. Net income is distributed to either dividends or retained earnings E. Taxable income equals net income (1+ Average tax rate) D. Net income is distributed to either dividends or retained earnings
What will increase the present value of a lump sum future value to be received in 15 years? A decrease in the interest rate
The interest rate used to compute the present value of a future cash flow us called the discount rate
A credit card has an annual percentage rate of 12.9 percent and charges monthly. The effective annual rate on this account: will be greater than 12.9 percent
What is the maximum growth rate that a firm can achieve without any additional external financing? internal growth rate
What is a measure of long term solvency? cash coverage ratio
If a firm has an inventory turnover of 15, the firm: sells its entire inventory an average of 15 times each year
Donnavans would like to increase its internal rate of growth. Decreasing what would help achieve this goal? dividend payout ratio
In a general partnership, each partner is personally liable for: the total debts of the partnership, even if he or she was unaware of those debts.
An agency issue is most apt to develop when: the control of a firm is separated from the firm’s ownership
The daily financial operations of a firm are primarily controlled by managing the: working capital
What is the primary goal of financial management for a sole proprietorship? maximize the market value of the equity
Which one of the following is an advantage of being a limited partner? Losses limited to capital invested
Which of the following occupations best fits into the area of corporate finance chief financial officer
he primary goal of financial management is most associated with increasing the: market value of firm
Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm’s debts? Corporation
Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm’s: capital structure.
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? Corporate accounting and financial fraud
What is an advantage of being a limited partner? losses limited to the capital invested

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