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Finance Flashcards

Finance 300 exam 1

Given an interest rate r, the Rule of 72 states that the time it will take for an investment to double in value equals approx. 72/r, where r is expressed as a percentage. True
Converting an annuity to an annuity due decreases the present value. False
If a project’s value is less than its required investment, then the project is attractive financially. False
Any sequence of equally spaced, level cash flows is called an annuity. An annuity is also known as a perpetuity. False
You should never compare cash flows occurring at different times without first discounting them to a common date. True
To calculate present value, we discount the future value by some interest rate r, the discount rate? True
For a given amount, the lower the discount rate, the less the present value. False
Financial markets and intermediaries allow investors and businesses to reduce and reallocate risks. True
The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm’s capital investments. True
The primary goal on any company should be to maximize current period profits. False
The liability of sole proprietors is limited to the amount of their investment in the company. False
Financial assets have value because they have claims on the firm’s real assets and that cash that those assets will produce. True
A successful investment is one that increases the value of the firm. True
Capital budgeting decisions are used to determine how to raise the cash necessary for investments. False
Assume the total expense for your current year in college equals 20,000. Approx. how much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount? $3,973
What is the minimum nominal rate of return you should accept, if you require a 4% real rate of return and the rate of inflation is expected to average 3.5% during the investment period? 7.64%
What is the present value of your trust fund if it promises to pay you a one-time payment of $50,000 on your 30th birthday (7 years from today) and earns 8.51 % compounded annually? $28,228.10
What is the effective annual interest rate on an account with an APR of 11% and quarterly compounding? 11.46%
In 5 years you will receive $1,000, what is it worth to you next year? r= 5%. $823
Approximately, what is the present value of the following set of cash flows at an interest rate of 5%, $3,000 today, $2,500 at the end of year one, and $4,500 at the end of year two? $9,500
Calculate the interest rate (graph). 22.45%
What is the present value of 4,000 to be received 9 years from now? r=5% $2,578
Today you want to invest $350 in a UNL hedge fund that promises an annual return of 15%. What do you expect the value of your investment to be 10 years from today? $1,416
The concept of compound interest refers to: payment of interest on previously earned interest and the principal amount.
Long-term financing decisions commonly occur in the: capital markets
Short-term financing decisions commonly occur in the: money markets
When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: Nothing
A primary market would be utilized when: securities are initially issued.
Which of the following would be considered an advantage of the sole proprietorship form of organization? Profits taxed at only one level.
Which of the following would NOT be considered a real asset? A corporate bond.
Unlimited liability is faced by the owners of: sole proprietorship and partnerships.
The cost of capital: is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm’s capital.
Agency problems can best be characterized as: differing incentives between managers and owners.
Double taxation refers to: paying taxes on profits at the corporate level and dividends at the personal level.
Which of the following would be considered a capital budgeting decision? Deciding to expand into a new line of products, at a cost of $5 million.
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Finance Flashcards

Finance Chapter 2: Questions

Net working capital is defined as:A. total liabilities minus shareholders’ equityB. current liabilities minus shareholders’ equity.C. fixed assets minus long-term liabilities. D. current assets minus current liabilities. Current assets minus current liabilities
The common set of standards and procedures by which audited financial statements are prepared is known as the:A. matching principleB. cash flow identityC. Generally Accepted Accounting PrinciplesD. Financial Accounting Reporting PrinciplesE. Standard Accounting Value Guidelines Generally Accepted Accounting Principles
Which one of the following is the financial statement that summarizes a firm’s revenue and expenses over a period of time?A. income statementB. balance sheetC. statement of cash flowsD. tax reconciliation statementE. market value report Income statement
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.A. meanB. residualC. totalD. averageE. marginal Marginal
The cash flow related to interest payments less any net new borrowing is called the:A. Operating cash flowB. Capital spending cashC. Net working capitalD. Cash flow from assetsE. Cash flow to creditors Cash flow to creditors
Cash flow to stockholders is defined as:A. the total amount of interest and dividends paid during the past year.B. the change in total equity over the past year.C.cash flow from assets plus the cash flow to creditors. D.operating cash flow minus the cash flow to creditors. E. dividend payments less net new equity raised. Dividend payments less net new equity raised
Which of the following are included in current liabilities?I. note payable to a supplier in eight monthsII. amount due from a customer next monthIII. account payable to a supplier that is due next weekIV. loan payable to the bank in fourteen monthsA. I and III and onlyB. II and III onlyC. I, II, and III onlyD. I, III, and IV onlyE. I, II, III, and IV I and III onlyNote payable to a supplier in eight monthsAccount payable to a supplier that is due next week
Which one of the following accounts is the most liquid?A. InventoryB. BuildingC. Accounts receivableD. EquipmentE. Land Accounts receivable
The higher the degree of financial leverage employed by a firm, the:A. higher the probability that the firm will encounter financial distress.B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable. higher the probability that the firm will encounter financial distress.
Which one of the following statements related to taxes is correct?A. The marginal tax rate must be equal to or lower than the average tax rate for a firm.B. The tax for a firm is computed by multiplying the firm’s current marginal tax rate times the taxable income.C. Additional income is taxed at a firm’s average tax rate.D. Given the corporate tax structure in 2012, the highest marginal tax rate is equal to the highest average tax rate.E. The marginal tax rate for a firm can be either higher than or the same as the average tax rate. The marginal tax rate for a firm can be either higher than or the same as the same as the average tax rate
A positive cash flow to stockholders indicates which one of the following with certainty?A. The dividends paid exceeded the net new equity raised. B. The amount of the sale of common stock exceeded the amount of dividends paid.C. No dividends were distributed but new shares of stock were sold.D. Both the cash flow to assets and the cash flow to creditors must be negative.E. Both the cash flow to assets and the cash flow to creditors must be positive. The dividends paid exceeded the net new equity raised.
A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?A. $710B. $780C. $990D. $2,430E. $2,640 $780
Given the tax rates in the table, what is the average tax rate for a firm with taxable income of $311,360? Tax = .15(50,000) + .25(25,000) + .34(25,000) + .39(211,360) = 104,680.40Average tax rate = 104,680.40/311,360Average tax rate = 33.62%
The tax rates are as shown in the table. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000? Additional tax = .34(100,000-97,800) + .39(97,800 + 21,000 – 100,000)Additional tax = $8,080
Use the Corporate Tax tables found elsewhere in this quiz or your notes. Compute the Federal Corporate Taxes owed on 21165936 of taxable income. 7408077.6
Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? Earnings before interest and taxes = $1,349,800 – $903,500 – $42,700 = $403,600Tax = $403,600 x .34 = $137,224Operating cash flow = $403,600 + $42,700 – $137,224 = $309,076Operating cash flow = $309,076
At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? Change NWC = End – Beg= 18,700 – (-3003)= $21,903
At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors? Cash flow to creditors = Interest paid – Net New BorrowingNNB = 68,219 – 72,918 = (4,699)Interest paid = 6,430CFC = 6,430 – (-4,699)= $11,129
The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders? NI = $121,600Div = (NI) (.4) = $48,640CFTS = Div – Net New Equity Raised$48,640 – $75,000 = $-26,360CFTS = ($26,360)
Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 32 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? $76,320
Dee Dee’s Marina is obligated to pay its creditors $6,400 today. The firm’s assets have a current market value of $5,900. What is the current market value of the shareholders’ equity? Since the market value of equity cannot be negative, the answer is zero.
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Finance Flashcards

Personal Finance Chapter 4

Almost _____% of Americans are living paycheck to paycheck. 70
When it comes to debt, if you tell a lie or spread a _____ long enough, eventually it becomes accepted as the _____. The truth is, debt is a product – the most successfully marketed product in history. Myth ; truth
Debt has been ______ to us with such intensity for so long that to imagine living without it requires a complete _______ shift – a completely new way of looking at things. Marketed ; paradigm
The first myth is the belief that you have to build _____. The credit industry wants you to believe this. Credit is NOT necessary to survive. The truth is there is ____ good reason to go into debt. Credit ; no
The second myth is that you can spend money on whatever you want while in _____ and pay for it later when you’re making more _____. College ; money
The third myth is that you need a _____ car. You should buy the car you can afford – with cash. New
Don’t fall for these myths. _____ debt, save for emergencies and large purchases, and learn to say no, even when people around you won’t. Avoid
Myth : If I _____ money to a friend or relative, I will be helping them. Loan
Truth : the relationship will be strained or _______. Destroyed
Myth : By ______ a loan, I am helping out a friend or relative. Cosigning
Truth : The bank requires a co-signer because the person isn’t likely to ______. Be ready to pay the loan and have your credit damaged. Repay
Myth : ______ _______, payday lending, rent – to – own, title pawning, and tote – the – note lots are needed ________ for lower income people to help them get ahead. Cash advance ; services
Eighth percent of ________ in America are first – generation rich. That means they started with nothing, did smart stuff, and become millionaires. That’s the opposite of what we’re talking about here. Millionaires
Myth : The _______ and other forms of gambling will make me ______. Lottery ; rich
Truth : the lottery is a _____ on the poor and on people who can’t do math. Tax
Texas tech university did a study on the Texas lottery and found that, of those who play the lottery, people without a high school diploma spent an average of $____ a month playing the lottery. College graduates spent $____ a month on average. 173 ; 49
Myth : ____ payments are a way of life, and you’ll always have one. Car
Truth : Staying away from car payments by driving reliable used cars is what the typical _______ does. That is how they became millionaires. Millionaire
Myth : _______ your car is what sophistical financial people do. You should always lease things that go down in value. These are tax advantages. Leasing
Truth : consumer reports, smart money magazine and a good calculator will tell you that the car _____ is the most ______ way to Finance and operate a vehicle. Lease ; expensive
If you own a business, you can _____ ______ your paid – for car on taxes without making payments for the privilege. Write off
The way to ______ the money lost on things that go down in value is to buy slightly ______. Minimize ; used
Myth : you can get a good deal on a ____ car. New
Truth : a new car loses ____% of its value in the first four years. This is the largest purchase ,pst consumers make that goes down in value. 70
Myth : I’ll take outs 30-year mortgage and pay _____ on it. I promise! Extra
Truth : life happens and something else will always seem more important. Never take out more than a ____-year fixed mortgage rate. 15
Myth : You need a _____ ______ to rent a car or make a purchase online or by phone. Credit card
Truth : A _____ card does all of that. The only thing you can’t do with a debit card that you can do with a credit card is go into debt! Debit
Myth : I pay my _____ _____ off every month with no annual payment or fee. I get brownie points, air miles, and a free hat. Credit card
Truth : When you use cash instead of plastic, you spend ________% less because spending cash hurts. 12-18
Myth : I’ll make sure my ______ gets a credit card so he or she can learn to be responsible with money. Teenager
Teens are a huge ______ of credit card companies today. Target
Debt is a _____. It should be used to create prosperity. Tool
Truth : the ______ is slave to the lender. Borrower
When surveyed, the Forbes 400 were asked, “What is the most important key to building wealth?” _____% of replied that becoming and staying ____-free was the number one key to wealth building. 75 ; debt
Myth : you need to take out a credit card or car loan to “build up your ______ ______.” Credit score
Truth : The ______ score is an “I love _____” score and is not a measure of winning financially. In fact, it can often mean the opposite. FICO ; debt
Identity theft is the fastest growing _____-______ crime in North America today. White collar
Place a _____-______ alert on your credit bureau report. Fraud victim
File a ______ report and keep a copy of the report for your personal records. Police
Remember, this is ______. You owe ______ and should pay nothing. Theft ; nothing
Contact the fraud-victim division of the three main credit reporting companies and furnish _________. Documentation
Be persistent. This will take some time. You now have a new ______. Hobby
Credit report A detailed report of an individual’s credit history
Loan term Time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.
Depreciation A decrease or loss in value
Credit score A measure of an individuals credit risk ; calculated from a credit report using a standardized formula
Debt Snowball Preferred method of debt repayment ; includes a list of all debts organized from smallest to largest balance ; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments
Annual percentage rate Cost of borrowing money on an annual basis ; takes into account the interest rate and other related fees on a loan
Credit card Type of card issued by a bank that allows users to finance a purchase
Annual fee A yearly fee that’s charged by the credit card company for the convenience of the credit card
True or false : you must establish credit in order to buy a house False
True or false : if you are a victim of identity theft, you are only responsible for laying back half of the debt. False
Which of the following is not a factor in deterring a FICO score? A. Paying cash for all purchases B. Getting a personal loan from a bankC. Using credit cards D. Taking out a mortgage on a house A. Paying cash for all purchases
Which of the following is not a good idea for getting out of debt?A. Quit borrowing moneyB. Get a part-time job or work overtimeC. Borrow money from your parents to pay off the debt D. Sell something C. Borrow money from your parents to pay off the debt
Which of the following things cannot be done with a debit card but can be done with a credit card?A. Rent a carB. Purchase something onlineC. Go into debtD. Purchase an airline ticket C. Go into debt
Why is an adjustable rate mortgage (ARM) a bad idea? You want a fixed rate mortgage
Explain why financing a car is a bad idea. You end up paying more for your car because of interest
Describe the negative consequences of taking on debt. What effect can debt have on your future? You could go bankrupt and never be able to get out of debt
What are some things you can do to protect your personal information? Check your checkbook and make sure your billing statements arrive on time
Explain how the debt snowball works. You pay the least expensive debt until all of it is paid off
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Finance Flashcards

Finance – Chapter 9

Identify the three main sources of cash flows over the life of a typical project.A) cash outflows from investment in plant and equipment at the inception of the projectB) net cash flows are sales and expenses over the life of the projectC) test marketing expenses that have been classified as sunk costs.D) net cash flows from salvage value at the end of the project A, B, D
When evaluating cost-cutting proposals, how are operating cash flows affected?A) the decrease in costs decreases operating incomeB) wages are always reduced in cost-cutting endeavorsC) there is an additional depreciation deductionD) the decrease in costs increases operating income C, D
Korporate Classics Corporation (KCC) won a bid to supply widgets to Pacer Corporation but lost money on the deal because they underbid the project. KCC fell victim to the:A) Hamilton’s blessingB) Winner’s blessingC) winner’s curseD) loser’s curse C.
When analyzing a project, sunk costs _____ incremental cash outflows.are notare are not
opprotunity costs are classified as ___ costs in project analysis.- sunk- intangible- relevant- irrelevant relevant
Side effects from investing in a project refer to cash flows from:- beneficial spillover effects- opportunity costs- erosion effects- sunk costs beneficial spillover effects, erosion effects
sunk costs are costs that ____.- cannot be measured- have already occurred and are not affected by accepting or rejecting a project- will not contribute to profits in the long run even if the project is accepted- relate to other projects of the firm have already occurred and are not affected by accepting or rejecting a project
According to the ____ principle, once the incremental cash flows from a project have been identified, the project can be viewed as a “minifirm”- stand-alone- stand-with-stand-and-deliver- walk-alone stand-alone
When developing cash flows for capital budgeting, it is ____ to overlook important terms.Easyimpossibleraredifficult easy
Operating cash flow is a function of:A) Initial investment in EquipmentB) DepreciationC) Salvage value of EquipmentD) Earnings Before Interest and TaxesE) Taxes B,D, E
Using your personal savings to invest in your business is considered to have an ____ ____ because you are giving up the use of these funds for other investments or uses, such a s vacation or paying off a debt. Opprotunity Cost
If a firm’s current assets are $150,000, its total assets are $320,000, and its current liabilities are $80,000, what is the net working capital? Answer: $150,000 – $80,000 = $70,000
Once cash flows have been estimated, which of the following investment criteria can be applied to them?A) The constant growth dividend discount modelB) Payback periodC) YTMD) IRRE) NPV Answer: payback period, IRR, NPV
Incremental cash flows come about as an ____ consequence of taking a project under consideration. direct
Which of the following are fixed costs?A) net working capitalB) inventory costsC) cost of equipmentD) rent on a production facility C, D
Cash flows should always be considered on a(n) ____ basis.A) zero-taxB) after-taxC) pre-taxD) before-tax after-tax
The first step in estimating cash flow is to determine the ____ cash flows.A) operatingB) speciousC) relevant relevant
Which of the following are considered relevant cash flows? (Select all that apply)A) cash flows from erosion effectsB) cash flows from sunk costsC) cash flows from beneficial spillover effectsD) cash flows from opportunity costs A, C, D
The difference between a firm’s current assets and it’s current liabilities is known as the ____?A) capital structureB) net working capitalC) long-term capitalD) net opportunity capital NWC
Erosion will _____ the sales of existing productsreduceincreasenot affect reduce
Which of the following statements regarding the relationship between book value, sales price, and taxes are true when a firm sells a fixed asset?taxes are based on the difference between the purchase price and sales price of the assetthere will be a tax savings if the book value exceeds the sales pricetaxes are based on the difference between the book value and sales pricebook value represents the purchase minus the accumulated depreciation there will be a tax savings if the book value exceeds the sales pricetaxes are based on the difference between the book value and sales pricebook value represents the purchase minus the accumulated depreciation
Investment in net working capital arises when ____.cash is kept for unexpected expendituresinventory is purchasedcredit sales are madeequipment is purchased cash is kept for unexpected expendituresinventory is purchasedcredit sales are made
Accounts receivable and accounts payable are not an issue with project cash flow estimation unless changes in ____ are overlooked.investor sentimentNWCthe cost of capitaltax rates NWC
Which of the following is an example of a sunk cost?cost of equipmentsalvage value of equipmenttest marketing expensesbonus to top managment test marketing expenses
An investment project provides cash inflows of $645 per year for eight years.What is the project payback period if the initial cost is $1,800?What is the project payback period if the initial cost is $3,500?What is the project payback period if the initial cost is $5,300? to calculate the payback period, we need to find the time that the project has recovered its initial investment. The cash flows in this problem are an annuity, so the calculation is simpler. If the initial cost is $1,800, the payback period is: Payback = 2 + ($510 / $645) = 2.79 years*There is a shortcut to calculate the payback period when the future cash flows are an annuity. Just divide the initial cost by the annual cash flow. For the $3,500 cost, the payback period is: Payback = $3,500 / $645 = 5.43 years*The payback period for an initial cost of $5,300 is a little trickier. Notice that the total cash inflows after eight years will be: Total cash inflows = 8($645) = $5,160 If the initial cost is $5,300, the project never pays back. Notice that if you use the shortcut for annuity cash flows, you get: Payback = $5,300 / $645 = 8.22 years This answer does not make sense since the cash flows stop after eight years, so again, we must conclude the payback period is never. 0 years*
An investment project has annual cash inflows of $4,100, $5,000, $6,200, and $5,400, for the next four years, respectively. The discount rate is 14 percent. What is the discounted payback period for these cash flows if the initial cost is $6,800? What is the discounted payback period for these cash flows if the initial cost is $8,900? What is the discounted payback period for these cash flows if the initial cost is $11,900? Explanation:When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: Value today of Year 1 cash flow = $4,100 / 1.14 = $3,596.49Value today of Year 2 cash flow = $5,000 / 1.142 = $3,847.34Value today of Year 3 cash flow = $6,200 / 1.143 = $4,184.82Value today of Year 4 cash flow = $5,400 / 1.144 = $3,197.23 To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,596.49, so the discounted payback for a $6,800 initial cost is: Discounted payback = 1 + ($6,800 – 3,596.49) / $3,847.34 = 1.83 years For an initial cost of $8,900, the discounted payback is: Discounted payback = 2 + ($8,900 – 3,596.49 – 3,847.34) / $4,184.82 = 2.35 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback. If the initial cost is $11,900, the discounted payback is: Discounted payback = 3 + ($11,900 – 3,596.49 – 3,847.34 – 4,184.82) / $3,197.23 = 3.08 years –> 1.83–> 2.35–> 3.08
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.5 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,904,300, $1,957,600, $1,926,000, and $1,379,500 over these four years, what is the project’s average accounting return (AAR)? Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: Average net income = ($1,904,300 + 1,957,600 + 1,926,000 + 1,379,500) / 4 = $1,791,850 And the average book value is: Average book value = ($12,500,000 + 0) / 2 = $6,250,000 So, the AAR for this project is: AAR = Average net income / Average book valueAAR = $1,791,850 / $6,250,000AAR = .2867, or 28.67%
An investment project has annual cash inflows of $4,100, $5,000, $6,200, and $5,400, for the next four years, respectively. The discount rate is 14 percent. What is the discounted payback period for these cash flows if the initial cost is $6,800?
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Finance Flashcards

Intro to Finance Chap 2 Quiz

Which one of the following statements concerning net working capital is correct? A decrease in the cash balance may or may not decrease net working capital
The _______ tax rate is equal to total taxes divided by total taxable income. average
The cash flow related to interest payments less any net new borrowing is called the: cash flow to creditors
A firm has common stock of {cs}, paid-in surplus of {pds}, total liabilities of 2703. current assets of 314, and fixed assets of 36367. What is the amount of the shareholder’s equity? 33978.00
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. marginal
Which one of the following must be true if a firm had a negative cash flow from assets? The firm utilized outside funding
Which one of the following statements concerning net working capital is correct? Net working capital increases when inventory is sold for cash at a profit
Which term relates to the cash flow which results from a firm’s ongoing, normal business activities? operating cash flow
A firm has 712 in inventory, 601 in fixed assets, 1230 in accounts receivables, 567 in accounts payable, and 1849 in cash. What is the amount of the current assets? 3791
Noncash items refer to: expenses which do not directly affect cash flow
Four years ago, Velvet Purses purchased a mailing machine at a cost of $184956. This equipment is currently valued at $82537 on today’s balance sheet but could actually be sold for $2306. This is the only fixed asset the firm owns. Net working capital is $38116. and long term debt is $57273. What is the book value of shareholder’s equity? 63380.00
Which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date? balance sheet
A firm has 944 in inventory, 277 in fixed assets, 3763 in accounts receivable, 831 in accounts payable, and 100 in cash. What is the amount of the current assets? 4807
Net working capital is defined as: current assets minus current liabilities
The book value of a firm is: based on historical cost
Depreciation: reduces both taxes and net income
Which one of the following is classified as an intangible fixed asset? trademark
A firm has net working capital of 3789. Long-term debt is 9863, total assets are 983, and fixed assets are 3693. What is the amount of the total liabilities? 3364.00
Which one of these is most apt to be a fixed cost? office salaries
Which one of the following will increase the value of a firm’s net working capital? selling inventory at a profit
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Finance Flashcards

Finance Module 8

The below screen shot from Google Finance shows the basic stock information for Logitech International SA (USA) after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date? $0.24
The below screen shot from Google Finance shows the basic stock information for Kraft Foods Inc. after the close of the stock market on May 30, 2008. What is the highest that the stock has traded at in the last 12 months? $35.29
You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a: Limit order.
A “round lot” consists of how many shares? 100
Which of the following is NOT a way that a firm can increase its dividends per share? By increasing its retention rate
Which of the following statements is FALSE? According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the required rate of return plus the grow rate.
Which of the following statements is FALSE? We cannot use the general dividend-discount model to value the stock of a firm with rapid or changing growth even if you can estimate future expected dividends well.
Which of the following statements is FALSE? During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to shareholders in the form of dividends.
Stocks that do not currently pay a dividend must have a value of $0. False
Classified stock differentiates different classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don’t want to relinquish voting control. True
Which of the following statements is CORRECT? The dividend discount model for constant growth firms can be used for firms that have expected negative, but constant, growth rates.
Stock A has a required return of 10% and a price of $25, and its dividend is expected to grow at a constant rate of 7% per year. Stock B has a required return of 12% and a price of $40, and its dividend is expected to grow at a constant rate of 9% per year. Which of the following statements is CORRECT? The two stocks have the same dividend yield.
Stocks A and B have the same required return of 15% and the same price, $25. Stock A’s dividend is expected to grow at a constant rate of 10% per year, while Stock B’s dividend is expected to grow at a constant rate of 5% per year. Which of the following statements is CORRECT? Stock A’s expected dividend at t = 1 is only half that of Stock B.
Stocks A and B have the same price, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B’s.
A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company’s expected and required rate of return is 15%, which of the following statements is CORRECT? The company’s current stock price is $10.
If two constant growth stocks have the same price and the same required rate of return, which of the following statements is CORRECT? If one stock has a higher dividend yield, it will also have a lower dividend growth rate.
If markets are efficient, which of the following will occur? Each stock’s expected return should equal its required return.
If in the opinion of a given investor a stock’s expected return exceeds its required return, this suggests that The investor thinks the stock is a good buy (it is undervalued).
Northeast Corporation’s stock expected return is 14%. Its dividend is expected to grow at a constant rateof 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT? The stock price is expected to be $54 a share one year from now.
Stock A has a beta of 1.1 and Stock B’s beta is 0.9. Both stocks have a constant dividend growth rate of 7%. If the CAPM holds, which of the following statements is CORRECT? Stock A must have a higher dividend yield than stock B
The cash flows associated with common stock are more difficult to estimate than those related to bonds because stocks only have residual claims against the company True
Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT? Some class/classes of common stock may be entitled to more votes per share than other classes.
Which of the following statements is CORRECT? The constant growth model takes into consideration the dividend growth rate.
Which of the following statements is CORRECT? An implication of the efficient markets hypothesis is that you cannot consistently benefit from trading on information reported in The Wall Street Journal.
Categories
Finance Flashcards

Finance FINAL

G & L Plastic Molders spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?A.opportunity B.FixedC. SunkD. Erosion E. Incremental Sunk Cost
Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule?A. Project A onlyB. Neither A nor BC. Both A and BD. Answer cannot be determined based on the information given.E. Project B only Project A only
What has serious problems and should not be used?A. Internal rate of returnB. Discounted paybackC. Average accounting rate of returnD. PaybackE. Net present value Average accounting rate of return
The discount rate that makes the net present value of an investment exactly equal to zero is called the:A. average accounting returnB. profitability indexC. external rate of returnD. equalizerE. internal rate of return Internal rate of return
Project cash flows should:A. Be pre-taxB. Include all sunk costsC. Include all incremental costsD. Include all financing costsE. Include all of the above Include all incremental costs
Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as:A. financial rejection.B. project rejection.C. soft rationing.D. capital rationing.E. marginal rationing. Capital rationing
Steve is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is Steve using?A. simulation testingB. sensitivity analysisC. rationing analysisD. scenario analysisE. break-even analysis Scenario Analysis
Which of the following variables will be at their highest expected level under a worst case scenario?I. fixed costII. sales priceIII. variable costIV. sales quantity I and III
Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security’s systematic risk?A. expected risk formulaB. time value of money equationC. capital asset pricing modelD. unsystematic risk equationE. market performance equation Capital asset pricing model
Which one of the following risks is irrelevant to a well-diversified investor?A. systematic portion of a surpriseB. market riskC. systematic riskD. nondiversifiable riskE. unsystematic risk unsystematic risk
Which of the following are examples of diversifiable risk?I. earthquake damages an entire townII. federal government imposes a $100 fee on all business entitiesIII. employment taxes increase nationallyIV. toymakers are required to improve their safety standardsA. I and IV onlyB. II and III onlyC. I, III, and IV onlyD. I and III onlyE. II and IV only I and IV
The length of time a firm must wait to recoup the money it has invested in a project is called the:A. internal return period.B. valuation period.C. profitability period.D. discounted cash period.E. payback period payback period
The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the:A. net present value period.B. discounted payback period.C. internal return period.D. payback period.E. discounted profitability period. Discounted payback period
Which of the following are advantages of the payback method of project analysis?I. works well for research and development projectsII. liquidity biasIII. ease of useIV. arbitrary cutoff pointA. II and III onlyB. I and III onlyC. II, III, and IV onlyD. II and IV onlyE. I and II only II and III
The IRR for the following set of cash flows is what percent? 0 −$9,868 1 3,400 2 5,300 3 6,900 23.64%
A project’s average net income divided by its average book value is referred to as the project’s average:A. accounting return.B. internal rate of return.C. net present value.D. profitability index.E. payback period. Accounting return
The internal rate of return is defined as the:A. maximum rate of return a firm expects to earn on a project.B. discount rate that equates the net cash inflows of a project to zero.C. rate of return a project will generate if the project in financed solely with internal funds.D. discount rate which causes the net present value of a project to equal zero.E. discount rate that causes the profitability index for a project to equal zero. Discount rate which causes the net present value of a project to equal zero
Which of the following are considered weaknesses in the average accounting return method of project analysis?I. exclusion of time value of money considerationsII. need of a cutoff rateIII. easily obtainable information for computationIV. based on accounting values A. II and III onlyB. I onlyC. I and IV onlyD. I, II, and IV onlyE. I, II, III, and IV I, II, and IV
Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant’s property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods?A. accounting rate of returnB. net present valueC. profitability indexD. paybackE. internal rate of return Net present value
Which two methods of project analysis are the most biased towards short-term projects? A. discounted payback and profitability indexB. payback and discounted paybackC. net present value and internal rate of returnD. net present value and discounted paybackE. internal rate of return and profitability index Payback and discounted payback
An analysis of the change in a project’s NPV when a single variable is changed is called _____ analysis. A. sensitivityB. break-evenC. simulationD. scenarioE. forecasting Sensitivity
Which one of the following is a risk that applies to most securities? A. unsystematicB. asset-specificC. diversifiableD. totalE. systematic Systematic
A news flash just appeared that caused about a dozen stocks to suddenly drop in value by about 20 percent. What type of risk does this news flash represent?A. marketB. nondiversifiableC. totalD. portfolioE. unsystematic Unsystematic
The principle of diversification tells us that: A. concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk.B. spreading an investment across many diverse assets will eliminate all of the systematic risk.C. spreading an investment across many diverse assets will eliminate some of the total risk.D. concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.E. spreading an investment across five diverse companies will not lower the total risk Spreading an investment across many diverse sets will eliminate some of the total risk
Unsystematic risk:A. is compensated for by the risk premium.B. is related to the overall economy.C. can be effectively eliminated by portfolio diversification.D. is measured by beta.E. is measured by standard deviation. Can be effectively eliminated by portfolio diversification
Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset?A. standard deviationB. reward-to-risk ratioC. betaD. price-earnings ratioE. risk ratio Beta
Which one of the following is an example of systematic risk?A. corn prices increase due to increased demand for alternative fuelsB. a city imposes an additional one percent sales tax on all productsC. a flood washes away a firm’s warehouseD. investors panic causing security prices around the globe to fall precipitouslyE. a toymaker has to recall its top-selling toy Investors panic causing security prices around the globe to fall precipitously
The primary goal of financial management?A. Avoid financial distressB. Maximize dividends per shareC. Maximize the current value per share of the existing stockD.Maximize firm efficiency Maximize the current value per share of the existing stock
As the Yield to maturity increases the:A. Value of the bond decreasesB. Longer the time to MaturityC. Lower the Desired couponD. Value of the bond increases Value of the bond decreases
The financial statement summarizing a firm’s performance over a period of timeA. Income statementB. statement of cash flowsC. Balance sheetD. Shareholders’ Equity sheet Income statement
An analysis of what happened to NPV when you change only one variable is?A. Break-evenB. SimulationC. ScenarioD. Sensitivity Sensitivity
Do NPV and IRR always lead to the same decision?A. yesB. No no
What are the three financial management decisions? Capital budgeting, capital structure and working capital
What is the agency problem? Conflicts between management and stockholders
Financial planning model ingredients 1)Sales forecast2)Asset requirements3)Financial requirements4)Economic assumptions
The cash flows of a new project that come at the expense of a firm’s existing projects are:A. Salvage value expenses.B. Net working capital expenses.C. Sunk costs.D. Opportunity costs.E. Erosion costs. Erosion costs
A firm is considering a project which would increase accounts receivable by $10,000, accounts payable by $35,000, and inventory by $30,000. Which of the following is true?A. Net working capital has increased.B. Sales will increase.C. Payments to creditors will slow.D. Net working capital has decreased.E. This is a net source of cash. Net working capital had increased
Which of the following would be considered a use of funds? I. An increase in receivablesII. An increase in payablesIII. An increase in inventoryIV. An increase in sales A) I and III only B) I and IV only C) II and III only D) II and IV only E) I, III, and IV only I and III only
The tax rate applicable to the next dollar of taxable income is called the _____ tax rate. a. nextb. absolutec. totalD. marginale. average Marginal
16. Which of the following correctly describe a dealer market? I. Dealers match buyers with sellers.II. Dealers buy and sell for themselves at their own risk.III. Dealer trading occurs over-the-counter.IV. Dealer transactions occur on a trading floor. a. I and IV onlyb. I and III onlyc. II and IV onlyd. I, II, and III onlyE. II and III only II and III only
A series of equal cash flows that occur at the beginning of each time period for a limited number of time periods is called a(n): a. perpetuity due.b. perpetuity.c. beginning annuity.D. annuity due.e. ordinary annuity. Annuity due
Which one of the following is a breakdown of the ROE into its three component parts? a. equity analysisb. sustainable growthC. Du Pont identityd. profitability ratiose. efficiency breakout Du Pont Identity
A real rate of return has been adjusted for: A. default risk.B. market risk.C. interest rate risk.D. taxes.E. inflation. Inflation
An analysis which combines scenario analysis with sensitivity analysis is called _____ analysis.a. forecastingb. scenarioc. sensitivityd. simulatione. break-even Simulation
7. What is the yield-to-maturity of a bond? A bondholder’s required rate of return for holding a bond
18. What kind of issues do I get to vote on as a common shareholder Directors, mergers, auditors
Which of the following questions are appropriate to address during the financial planning process?I. Should the firm merge with a competitor?II. Should additional shares of stock be sold?III. Should a particular division be sold?IV. Should a new product be introduced? II, III, and IV only
The cash flow of a firm which is available for distribution to the firm’s creditors and stockholders is called theA. net working capital.B. operating cash flow.C. cash flow to stockholders.D. net capital spending.E. cash flow from assets. Cash Flow from Assets
For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.A. depreciationB. change in net working capitalC. net capital spendingD. taxesE. production costs Deprecation
You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire?I. Invest in a different account paying a higher rate of interest.II. Invest in a different account paying a lower rate of interest.III. Retire later.IV. Retire sooner.A. I and IV onlyB. II and III onlyC. I and III onlyD. II onlyE. I only I and III only
Which of these important relationships are true?I: For a given interest rate – the longer the time period, the higher the future valueII: For a given interest rate – the longer the time period, the higher the present valueIII: For a given time period – the higher the interest rate, the lower the future valueIV: For a given time period – the higher the interest rate, the lower the present valueA. I, II, III, and IVB. II and IV onlyC. II and III onlyD. I and III onlyE. I and IV only I and IV only
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.A. a discount; less thanB. a discount; higher thanC. par; less thanD. a premium; less thanE. a premium; equal to a discount; less than
The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond?A. decrease the market priceB. increase the market priceC. increase the coupon rateD. decrease the coupon rateE. increase the time period decrease the market price
The mixture of debt and equity used by a firm to finance its operations is called:A. agency cost analysis.B. financial depreciation.C. capital budgeting.D. capital structure.E. working capital management. Capital Structure
Which one of the following is a capital budgeting decision?A. determining how many shares of stock to issueB. deciding how to refinance a debt issue that is maturingC. determining how much inventory to keep on handD. determining how much money should be kept in the checking accountE. deciding whether or not to purchase a new machine for the production line deciding whether or not to purchase a new machine for the production line
Which one of the following is a capital structure decision?A. determining which one of two projects to acceptB. determining how much debt should be assumed to fund a projectC. determining how much inventory will be needed to support a projectD. determining how to allocate investment funds to multiple projectsE. determining the amount of funds needed to finance customer purchases of a new product determining how much debt should be assumed to fund a project
Which one of the following is a working capital management decision?A. determining the amount of long-term debt required to complete a projectB. determining the number of shares of stock to issue to fund an acquisitionC. determining whether to pay cash for a purchase or use the credit offered by the supplierD. determining the amount of equipment needed to complete a jobE. determining whether or not a project should be accepted determining whether to pay cash for a purchase or use the credit offered by the supplier
The primary goal of a publicly-owned firm interested in serving its stockholders should be to:A. maximize share price.B. minimize expected EPS.C. minimize the chances of losses.D. minimize shareholder wealth.E. maximize expected total corporate profit. Maximize share price
Which term relates to the cash flow which results from a firm’s ongoing, normal business activities?A. cash flow from assetsB. operating cash flowC. net working capitalD. capital spendingE. cash flow to creditors Operating cash flow
An increase in which of the following will increase the return on equity, all else constant?I. salesII. net incomeIII. depreciationIV. total equityA. I, II, and III onlyB. II and III onlyC. I and II onlyD. I onlyE. II and IV only I and II only
A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond?I. discounted priceII. premium priceIII. yield-to-maturity that exceeds the coupon rateIV. yield-to-maturity that is less than the coupon rateA. III onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only II and IV
Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?A. warrantB. debentureC. common stockD. preferred stockE. senior bond Preferred stock
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm’s stock is:A. equal in value to the present value of $1 paid one year from today.B. worth $1 a share in the current market.C. basically worthless as it offers no growth potential.D. valued at an assumed growth rate of one percent.E. priced the same as a $1 perpetuity Priced the same as a $1 perpetuity
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:A. structured cost of capital.B. subjective cost of capital.C. weighted capital gains rate.D. reward to risk ratio.E. weighted average cost of capital. weighted average cost of capital.
The capital structure weights used in computing the weighted average cost of capital:A. remain constant over time unless the firm issues new securities.B. are based on the market value of the firm’s debt and equity securities.C. are computed using the book value of the long-term debt and the book value of equity.D. are restricted to the firm’s debt and common stock.E. are based on the book values of total debt and total equity. are based on the market value of the firm’s debt and equity securities.
Most loans are a form of a(n) annuity
Decreasing the required rate of return will ________ the net present value of a project.A. increaseB. Decrease Increase
A decision to issue additional shares of stock is what kind of decision? Capital structure decision
For a given time period, the higher the interest rate, the smaller the _________ present value
For a given interest rate, the higher the ______, the lower the present value future value
What is a bond call option? it gives the company the right to call or purchase the bonds at a specified price from bondholders
What is the yield-to-maturity of a bond? a bondholders required rate of return for holding a bond. it is the current required market rate.
If the coupon is higher than the YTM then it is a ____ bond Discount
What is a common shareholder entitled to? voting, share in profits, residual assets in a liquidation
Advantages of payback liquidity basis, ease of use, adjusts for uncertainty of later cash flows
Disadvantages of payback requires cut off point, biased against long term projects, and ignores time value money
Advantages of discounted payback includes time value money, easy to understand, biased towards liquidity
Disadvantages of discounted payback requires cut off point, ignores cash flows beyond cut off point and may reject positive NPV investments.
Advantages of Account rate of return easy to calculate, and needed information will usually be available
Disadvantages of Account rate of return exclusion of time value of money, need a cut off rate and based on accounting values
Advantages of Profitability index easy to understand and communicate, useful when investment funds are limited
Disadvantages of Profitability index leads to incorrect decisions in comparison of mutually exclusive investments
Side effects (positive and negative) positive: benefits to other projectsNegative: costs to other projects
should operating cash flows be pre tax or after tax? after tax
What is the capital asset pricing model and what does it measure? it defines the relationship between risk and return. We can use the CAPM to determine its expected return, and expected equity on return.
What two models can estimate the cots of equity? Capital asset pricing model and dividend growth model
What are the two ways to estimate the growth in dividends? historical growth and analysts’ forecast
How do you measure the cost of debt? is it equal to the coupon outstanding company debt? yield to maturity // not the coupon rate
Which components of the capital structure is adjusted for taxes and why? Debt is adjusted for taxes because, only interest is tax deductible. Companies are not allowed to adjust dividends.
In calculating the weighted average cost of capital do you use the market value or the book value? Market value
If you one of the models and compare a cost of equity to be less than the cost of debt does this make sense? No, because equity should have a higher return and debt since, it carries more risk to the holder.
What are you trying to minimize/maximize when you select a debt- equity ratio? you want to minimize the cost of capital
As the firms risk increases, the cost of capital _______ and the NPV of projects __________ cost of capital INCREASES and the NPV of projects DECREASE
What does beta measure? beta measures the systematic risk of market risk which cannot be divorced away. The risk you can’t get rid of such as things that impact all companies or economic downturns
If you were calculating a worst case scenario would you use high or low costs? In calculating the worst case scenario you would use high costs and low revenue and vise versa for best case scenario.
The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is called the: a. mean.B. beta coefficient.c. risk premium.d. standard deviation.e. variance. Beta Coeffiecient
The return on a risky asset that is anticipated in the future is called the: a. real return.b. risk premium.c. systematic return.D. expected return.e. beta. Expected Return
Which of the following will increase the sustainable growth rate of a firm? I. eliminating all dividendsII. increasing the target debt-equity ratioIII. increasing the profit marginIV. increasing the total asset turnover rate a. I, III, and IV onlyB. I, II, III, and IVc. I, II, and III onlyd. I and II onlye. II, III, and IV only I, II, III and IV
Which one of the following is the preferred method of analyzing a proposed investment? a. paybackB. net present valuec. internal rate of returnd. profitability indexe. accounting rate of return Net present value
A net present value of zero implies that an investment: A. is earning a return that exactly matches the requirement.b. has no initial cost.c. never pays back its initial cost.d. should be rejected even if the discount rate is lowered.e. has an expected return that is less than the required return. Is earning a return that exactly matches the requirement
Systematic risk is: a. also called diversifiable risk.b. unique to an individual firm.c. also called asset-specific risk.d. the total risk inherent in an individual security.E. a risk that affects a large number of assets. A risk that affects a large number of assets
The discount rate that causes the net present value of a project to equal zero is called the: a. average accounting return.b. market rate.C. internal rate of return.d. yield to maturity.e. required return. Internal rate of return
The concept of investing in a variety of diverse assets to reduce risk is referred to as: A. the principle of diversification.b. beta measuring.c. the systematic risk principle.d. the principle of elimination.e. split investing. The principle of diversification
The change in a firm’s future cash flows that results from adding a new project are referred to as _____ cash flows. a. directb. deviatedC. incrementald. erodede. residual Incremental
Which of the following will increase the net income of a profitable firm? I. decreasing the depreciationII. increasing the variable cost per unitIII. decreasing fixed costsIV. increasing revenue a. III and IV onlyb. I, II, and III onlyC. I, III, and IV onlyd. I and IV onlye. II, III, and IV only I, III, and IV
A situation in which taking one investment prevents the taking of another is called:A. Net present value profiling.B. Operational ambiguity.C. Mutually exclusive investment decisions.D. Issues of scale.E. Multiple rates of return. Mutually exclusive investment decisions
A conventional cash flow is defined as a series of cash flows where:A. The total of the cash flows is positive.B. All of the cash flows are positive.C. The sum of the cash flows is equal to zero.D. The present value of the cash flows is equal to zero.E. Only the initial cash flow is negative. Only the initial cash flow is negative
Which of the following decision rules has the advantage that the information needed for the computation is readily available?A. Net present valueB. Internal rate of returnC. Payback periodD. Average accounting returnE. Discounted payback Average Accounting Return
Which of the following calculations takes the time value of money into account?I. PaybackII. Average accounting returnIII. Profitability index III only
The payback rule can be best stated as:A. An investment is acceptable if its calculated payback period is less than some prespecified number of years.B. An investment should be accepted if the payback is positive and rejected if it is negative.C. An investment should be rejected if the payback is positive and accepted if it is negative.D. An investment is acceptable if its calculated payback period is greater than some pre-specified number of years. An investment is acceptable if its calculated payback period is less than some prespecified number of years.
Diversification works because:I. Unsystematic risk exists.II. Forming stocks into portfolios reduces the standard deviation of returns for each stock.III. Firm-specific risk can be dramatically reduced if not eliminatedA. I onlyB. I and III onlyC. I and II onlyD. III onlyE. I, II, and III I and III
The CAPM shows that the expected return for a particular asset depends on:I. The amount of unsystematic risk.II. The reward for bearing systematic risk.III. The pure time value of money.A. I onlyB. I and II onlyC. III onlyD. I, II, and IIIE. II and III only II and III
Which of the following does NOT describe the risk that exists in a well-diversified portfolio?A. Asset-specific riskB. Market riskC. Non-diversifiable riskD. Systematic risk Asset-specific risk
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Finance Flashcards

Capstone Midterm

Which of the following would an R&D manager be concerned with Position, age, service life, and new products
Which is the most important factor for customers when buying a performance product Positioning
Which of the following issues should the R&D Department and the Marketing department coordinate on Ensuring product lines meet customer expectations
As an R&D manager, how can you reduce material costs Reduce Service life
How can you change your product release date Adjust accuracy, speed or service life
If your customers have a high level of awareness of your product but are still not buying much of it which of the following scenarios is most likely Your accessibility is low
Which of the following decisions are not found in Marketing Product specifications
Which of the following marketing investments would impact the awareness of all products in that region Regional promo
What does the worst cases forecast directly impact Forecast net margin
Which action would decrease demand Increase Price
Which of the following would a Finance manager be concerned with Managing cash, Issuing/Retiring Debt, Dividend Policy
Typically, matching long-term investments with a mix of equity and long-term debt is considered a good tactic. Which one of the following would be considered a long-term investment Adding capacity
When the Production Department works with the Finance Department, which of the following would be determined Establishing how much capacity and automation is feasible to buy or sell
When the Finance Department works with the R&D Department, which of the following would be determined Ensuring R&D costs per product are properly funded
What is the safest way for a company to replenish cash reserves depleted from plant improvements Finance the investment with a mix of equity and long-term debt
What are the advantages of outsourcing over producing in your plant Outsourcing can be used as a means to temporarily meet demand
What impact does a higher automation rating have on the cost of producing units It reduces unit costs
What happens when scheduled production exceeds plant capacity You won’t produce any of the excess units
What is the actual number of units available Inventory + Fulfillment after Adjustment
Which of the following is a Production Manager concerned with Producing products, capacity, automation, unit cost
Categories
Finance Flashcards

PERSONAL FINANCE UNIT TEST (4) 100%

What is the best reason for homebuyers to create a budget before taking out a mortgage?to compare the value of their home with that of their neighborsto plan how to pay off the money they have borrowedto set aside enough money to refinance the loanto figure out how long they can stay in their home to plan how to pay off the money they have borrowed
Lois bought clothing at a store. She did not have enough in her bank account to pay for the purchase. After receiving the bill and paying off the balance, she realized that she paid $9.69 in interest. Which statement is true about her method of payment?Lois used a debit card to make the purchase.Lois used a credit card to make the purchase.Lois either used a debit card or used a credit card and paid the balance in full when the bill arrived.Lois either used a debit card or used a credit card and made a single payment. Lois used a credit card to make the purchase.
Which information is found on a credit report?grade point averagelist of schools attendednames of family memberscredit account history credit account history
In determining whether to issue a loan, banks are not allowed to ask about an applicant’semployment history.date of birth.country of origin.income tax returns. country of origin.
Vera has a June credit card balance of $476.09. Her payment due date is June 27th, with a grace period of 5 days. If her payment is late, the credit card company charges a $30 late fee. Vera wants to pay the full amount to have a zero balance. How much should she pay if her online payment is processed on July 6th? 506.09
Xavier buys a computer for $525, which includes taxes. He pays for the computer over a 12-month period by paying $48.13 per month. Which statement about Xavier’s purchase is most likely true?He used a debit card to make the purchase and paid exactly $525 for the computer.He used a debit card to make the purchase and paid an additional $52.56 in interest.He used a credit card to make the purchase and paid exactly $525 for the computer.He used a credit card to make the purchase and paid an additional $52.56 in interest. He used a credit card to make the purchase and paid an additional $52.56 in interest.
The graph shows the average price of homes in the United States from 2009 to 2014.https://media.edgenuity.com/evresources/3314/3314-06/3314-06-11/3314-06-11-assessment/3314-06-11-04-01.pngBased on the information in the graph, what is the most reasonable prediction?The cost of a new home in the United States will continue to be inexpensive.Rising home prices in recent years means that more people will need to take out mortgages.More people will be able to pay cash for new homes and not need to take out a mortgage.Based on recent trends, fewer people will need mortgages in the future. Rising home prices in recent years means that more people will need to take out mortgages.
The table shows a schedule of Evita’s payment plan for a used car. Evita’s Payment Plan for the First Three YearsYearBalanceMonthly PaymentEnd of YearBalance1 $356.82 2 $356.82 3 $356.82$8,563.39Evita paid $2,408.91 in interest. What was the selling price of the car?$12,845.52$17,127.07$19,000.00$21,408.91 $19,000.00
The table shows a schedule of Inga’s payment plan for a car. Inga’s Payment Plan for the First 3 YearsYearBalanceMonthly PaymentEnd of YearBalance1$19,691.28$273.49$16,409.402$16,409.40$273.49$13,127.523$13,127.52$273.49$9,845.64 How many more years will it take Inga to pay off the loan?2 years.3 years4 years6 years 3 years
When people take out a mortgage, they must pay back the moneywhen they are able.within a year.over time, usually many years.as soon as they can. over time, usually many years.
A balloon payment mortgage makes the best sense for borrowers who arefearful of taking risks when borrowing money.planning on selling their homes before the term of the loan ends.looking to avoid borrowing money from banks.anticipating losing their jobs in the next few years. planning on selling their homes before the term of the loan ends.
A credit score is based in part on employment and race.income and location.employment and trust.payment history and total debt. payment history and total debt.
Caitlyn has a credit card with a spending limit of $1500 and an APR (annual percentage rate) of 18%. During the first month, Caitlyn charged $375 and paid $250 of that in her billing cycle. Which expression will find the amount of interest Caitlyn will be charged after the first month? D
Filing for bankruptcy can make it hard for a consumer to reestablish and obtain _____. credit
Before applying for a credit card, Jacob examines his credit report. Which explains why Jacob might examine his credit report?to determine which company has the best credit card featuresto determine if he has a history of good creditto determine if he needs a credit cardto determine his credit limit to determine if he has a history of good credit
Which account has the lowest minimum balance requirement?https://media.edgenuity.com/evresources/3106-13-04/mc002-1.jpgAccount AAccount BAccount CAccount D Account D
Irma has $500 to open a checking account. She wants an account with the lowest fees. She plans to use only her bank’s ATM to deposit her paychecks and withdraw cash. https://media.edgenuity.com/evresources/3106-13-04/mc005-1.jpgWhich checking account would be best for Irma? Account AAccount BAccount CAccount D Account A
In a mortgage, the amount of money borrowed is called the ____. principal
An example of secured credit is apayday loan.credit card.mortgage.medical bill. mortgage.
The table shows a schedule of Igor’s payment plan for a used car. Igorr’s Payment Plan for the First Three YearsYearBalanceMonthly PaymentEnd of YearBalance1 $245.33 2 $245.33$8,831.883 $245.33 How much is Igor’s total closed-end credit for the car?$11,775.84$14,719.80$23,551.68$26,495.64 $14,719.80
The table shows the terms of a fixed-rate mortgage.https://media.edgenuity.com/evresources/3314/3314-06/3314-06-11/3314-06-11-assessment/3314-06-11-21-01.pngWhich accurately describes the terms of this mortgage? Check all that apply.The homeowner is borrowing $360,000.The monthly interest rate is 4 percent.Monthly payments must be made for 30 years.The annual interest rate is 4.8 percent.The homeowner is borrowing $200,000.Monthly payments must be made for 360 years. Monthly payments must be made for 30 years.The annual interest rate is 4.8 percent.The homeowner is borrowing $200,000.
Karen has $800 to open a checking account. She wants an account with the lowest fees. She only writes about five checks per month and her employer has direct deposit. She does not plan on using the ATM or online banking. Bank Account Terms and Conditionshttps://media.edgenuity.com/evresources/3106-13-04/mc007-1.jpgWhich checking account would be best for Karen? Account AAccount BAccount CAccount D Account C
A lender is assessing customers for loans. The credit scores of four customers are below.IdaCorrineBruceRoland820550390610Which person will the lender assess as having the lowest risk?IdaCorrineBruceRoland Ida
Which describes the difference between secured and unsecured credit?Secured credit is backed by an asset equal to the value of a loan, while unsecured credit is not guaranteed by a material object. Unsecured credit is backed by an asset equal to the value of a loan, while secured credit is not guaranteed by a material object.Secured credit is risky because banks cannot seize assets, while unsecured credit is less risky because it is backed by material objects.Unsecured credit enables lenders to seize an asset if a loan is not paid, while secured credit prohibits lenders from taking material objects. Secured credit is backed by an asset equal to the value of a loan, while unsecured credit is not guaranteed by a material object.
The type of credit people are most likely to use for small purchases during their lifetime isa credit card.a personal loan.an auto loan.a mortgage. a credit card.
Categories
Finance Flashcards

Finance 300

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ________. Increase
Which of the following are traditional financial ratio categories? (3 answers) – Turnover Ratios- Profitability Ratios- Financial Leverage Ratios
Which of the following equations defines the total asset turnover ratio? Sales / Total Assets
A firm with a market-to-book value that is greater than 1 is said to have ________ value for its shareholders. Created
How is price-earnings (PE) ratio computed? Market price per share / Earnings price per share
Which of the following items is used to compute the current ratio? (2 answers) – Accounts Payable- Cash
The debt to equity ratio for a company with $1 million in total debt and $2 million in equity is _________? – .5- Total Debt / Equity
Which of the following is (are) true of financial ratios? (2 answers) – Are used for comparison purposes- Are developed from a firm’s financial information
The information needed to compute the profit margin can be found on the ________. Income Statement
one of the most important uses of financial statement information within the firm is: Performance evaluation – Credit evaluation (Ex. an external use)
A cash ratio is found by dividing cash by: Current liabilities
what does a Times Interest Earned (TIE) Ratio of 3.5 times mean? The company’s interest obligations are covered 3.5 times versus EBIT
Days’ sales in receivables is given by the following ratio: 365 / Receivables turnover
_____ _____ are the prime source of information about a firm’s financial health. Financial statements
Which of the following would a company wish to compare its ratios against? – Its own historical ratios- major companies- Aspirant companies- Peer companies
Alpha Co. has interest expense of $1.2 million, total assets of $84 million, sales of $76 million, long-term debt of $16.4 million, and net income of $12.1 million. How will interest expense be recorded in the common-size income statement? – 1.58% – 1.2 million / $76 million
Return on assets (ROA) is a measure of _____. Profitability
Which of the following create problems with financial statement analysis? – The firm or its competitors are global companies- The firm and its competitors operate under different regulatory environments- the firm or its competitors are conglomerates
Rock construction has current assets of $45 million, total liabilities and equity of $67 million, and sales of $59 million. how would current assets be expressed on a common-size balance sheet? – 67% – $45m / $67m
AD corporation had sales of $750,000 and cost of goods sold of $350,000. Inventory at year end was $87,500. the firm’s inventory turnover is ______. – 4.00
Vera’s has earnings per share of $3 and dividends per share of $1.20. The stock sells for $30 a share. What is the PE ratio. – 10 times – $30 / $3 = 10 times
The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times respectively. Explaining that upward trend in the inventory turnover ratio requires: – Further Investigation
Return on equity (ROE) is a measure of _____. – profitability
Which of the following is the correct representation of the cash coverage ratio? (EBIT + depreciation) / Interest expense
Solid Rock Construction has current assets totaling $7 million, including $4 million in inventory. The company’s current liabilities total $5 million. The quick ratio is _____. – .6
Which of the following represents the receivables turnover ratio? Sales / Accountants receivable
A firm with a market-to-book value that is greater than 1 is said to have ______ value for shareholders. – created
What is the impact on the total asset turnover ratio if sales increase significantly while there is no change in any of the other variables? The total asset turnover ratio will increase.
Alpha Manufactoring has cost of goods sold of $90 million and a net income of $9.6 million on total sales of $120 million. Total assets are $150 million. A common-size income statement will show cost of goods sold of 75% and a net profit of ______% – 8 – Net Profit(%) = 9.6 / 120 = 8%
A firm has an operating profit (EBIT) of $600 on sales of $1,000. Interest expense is $250 and taxes are $120. What is the times interest earned ratio. – 2.4 – $600 / $250
A common-size balance sheet expresses accounts as a percentage of _____. Total Assets
If a company’s balance sheet shows $400 in cash, $100 in inventory, and $200 in current liabilities, its cash ratio is ______. – 2.0 – cash ratio = 400 / 200
Which one of the following is the correct equation for computing return on assets (ROA)? – Net Income / Total Assets
Alder Inc. has net income of $403,000, operating earnings of $640,000, sales of $1.23 million, and total assets of $1.48 million. what is the return on assets? – 27.23% – 403,000 / 1.48m = 27.23%
BK Trucking has total equity of $25,380 and 1,500 shares outstanding. its stock is currently selling $38 per share. What is the market-to-book ratio? – 2.25 – $38 / (25,380 / 1,500) = 2.25
What will happen to current ratio if current assets increases, while everything else remains unchanged? – It will increase
If a company has had negative earnings for several periods they might choose to use a ______. – Price-sales ratio
Better Life Corporation has sales of $500,000 on assets of $2,000,000. At year end accounts receivable were still 5% of assets. the firm’s receivable turnover is ______ times. – 5 – refer to page 61
Cal’s market has return on equity (ROE) of 15%. What does this mean? – Cal’s generated $.15 in profit for every $1 of book value of equity.
Long-term debt on the common-size balance sheet of Solid Rock Construction over the past three years is 30%, 34%, and 40% respectively. This indicates that the firm has increased its _____. – Leverage
Better Life Inc. had net income of $375,000 on sales of $3.5 million and assets of $4.1 million this year. What is the profit margin? – 10.71% – Profit Margin = Net income / Sales
The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company’s inventory takes an average of _____ days to sell. – 287
What is the main difference between the cash coverage ratio and the times interest earned ratio? – Non Cash Expenses
BC Toys has total equity of $584,000. there are 35,000 shares outstanding at a market price of $54 per share. What is the market-to-book ratio? – 3.24 times – $54 / ($584,000 / 35,000) = 3.24 times
Current assets on the common size balance sheet over the past three years have increased from 32 to 35% while current liabilities have decreased from 29 to 25%. This indicates the firm has increased its _____. – liquidity
BC Corporation has net income of $176,000, sales of $1,982,000 and total assets of $2.24 million. What is the return on assets? – 7.86% – 176,000 / 2.24m = 7.86%
A firm with a 26% return on equity earned ____ cents in profit for every one dollar in shareholders’ equity 26
A firm with the profit margin of 10% generates _____ in net income for every dollar in sales. – 10 cents
If the management of a company has been unsuccessful at creating value for their stockholders, the market-to-book ratio will be: – less than or equal to 1
What does it mean when a company reports ROA of 12%? – The company generates $12 in sales for every $100 invested in assets.