| Corporations establish goals in areas including finance, diversity, and social responsibility. Match the corporate goal with the area that it addresses. Answer options may be used more than once or not at all. Select your answers from the pull-down list. Environmental goalDiversity goalFinancial goalFinancial goal |
Environmental goal-Create zero wasteDiversity goal-Promote women and minoritiesFinancial goal-Make a profitable investment for the companyFinancial goal-Switch to a freight company that provides a high volume discount |
| An analysis of a potential purchase of a new piece of equipment has been completed. The analysis included a review of the initial cost of the equipment, annual operating expenses, and the value of the expected increased production adjusted for the time value of money over the life of the equipment. Place the investments in the order they should be selected based on their valuation (from highest to lowest value). Select your answers from the pull-down list. Total costs of $700,000 and expected income $850,000Total costs of $500,000 and expected income of $700,000Total costs of $700,000 and expected income $875,000Total costs of $500,000 and expected income $600,000 |
2) Total costs of $700,000 and expected income $850,0003) Total costs of $500,000 and expected income of $700,0001) Total costs of $700,000 and expected income $875,0004) Total costs of $500,000 and expected income $600,000 |
| Classify each item as to whether it has or lacks a fundamental influence on valuation. Answer options may be used more than once or not at all. Select your answers from the pull-down list. |
Fundamental influence-Opportunity costFundamental influence-Cash flowNot a fundamental influence-Taxable incomeNot a fundamental influence-Revenue recognition |
| Which scenario illustrates the strong form of the efficient market hypothesis (EMH)? |
An investor is making an investment decision based on public information, as well as private information that is known only to company insiders. This type of information is also known as insider trading. |
| A company’s accounting records include inflated numbers that give the company a higher net income than its actual numbers. This overstatement was agreed upon by the company and its auditors. This collusion between the company and its auditors would be caught rather quickly due to regulations. What agency regulates accounting practices between companies and their accounting firms? |
Public Company Accounting Oversight Board |
| In credit unions, boards of directors that hire executives are elected from among volunteering members (whereas in commercial banks, they are hired by the stockholders from among non-member outsiders). Which agency problem with banks does this structure seek to eliminate? |
Between owners and board of directors |
| Why is transferability of ownership relatively easy in the case of corporations? |
Stocks can be bought and sold in the stock market. |
| Match each account to the pair of financial accounting statements that it appears on. Answer options may be used more than once or not at all. Select your answers from the pull-down list. |
Cash-Balance sheet and statement of cash flowsNet income-Income statement and statement of cash flowsRetained earnings-Balance sheet and income statement |
| How could a company that has a positive accounting income also be in trouble of going bankrupt when looking at its cash balance? |
Accounting income does not take into account the cash that is needed to pay salaries and dividends. |
| Which section of the statement of cash flows includes such transactions as paying dividends to shareholders, repurchasing common stock, and proceeds from the sale of long-term debt? |
Cash flows from financing activities |
| Use the following income statement for the current year. Assume the sales are 35% higher than the last year sales of $800,000. Calculate the net income. |
$604,000 |
| Assume that the cost of goods sold for 2012 increases 10% from the previous year. Other expenses remain constant for 2012. What is the net income forecast for the year 2012?$65,000-5,850 |
$59,150 |
| Use the following partial income statement data to answer the question below. What is the 2013 ending balance of accounts payable? |
$7,600 |
| Use the following information to answer the question below.Cash balance was a fixed percentage of sales for 2012. The same percentage will be used for 2013 for cash. Accounts Receivables were $4,500 in 2013.Sales in 2012 were $87,000.Sales in 2013 are projected at $99,300.Inventory increased by 10% for 2013. What is the ending cash balance for 2013? |
$2,850 |
| The income statement for Serentic Inc. for 2011 is shown below. With a net income of $15,000, tax rate was at 27% in 2012, and the board of directors decided to cut the dividend payments by 50%. 2011Sales $77,280COGS $47,914Gross Margin $29,366SG&A Expense $7,890Depreciation expense $2,090EBIT $19,386Interest Expense $860Taxable Income $18,526Taxes $5,373Net Income $13,154Dividends $850Retained earnings $12,304What are the retained earnings for 2012? |
$22,829 |
| Jane Eden works at CIME Inc. in the finance department. She was examining the finance forecasts given below. Product management was very optimistic about the forecasts because the net income showed a very positive trend. Jane was cautious, so she conducted percentage sales analysis. What is the correct action for Jane to take, given the above figures? |
Analyze the increases in marketing expenses to get a better understanding before presenting the analysis to management. |
| Ellen Ekman is a finance manager for Cubist Inc. She was discussing the financial forecast with the team from marketing, production, purchasing, and accounting. This team had provided the three scenarios for sales forecast for the business plan. The three scenarios show unit forecasts for the next six years at different levels of optimism. When Ellen examines the assumptions, she finds that the team has used the same price for Product A under all these assumptions. From her point of view, the sales forecasts need to take into account prices, since she believes that the higher unit forecast should assume lower prices. What is the correct action for Ellen to take in this situation? |
Ask the team to provide market research analysis and competitive intelligence to support these three forecasts and pricing assumptions. |
| What is a limitation of financial forecasting and analysis? |
When new products are launched, these could make the ratios less reliable since there is no historic information on new products. |
| Which statement concerning the use of ratio analysis for long-term forecasting versus short-termforecasting is appropriate? |
Generally for shorter time periods there is a high chance that the ratio could be more stable, since drastic changes in products and components used in these products is less likely. |
| What is the face value of a bond? |
Principal |
| Which formula shows the future value of $25,000 that earns an annual interest rate of 3% for six years? |
$25,000 x (1 + 0.03) 6 |
| What are two considerations in investing? Choose 2 answers Liquidity Risk Return Length of payback period |
Risk Return |
| Which three factors are lenders compensated for through interest payments? Choose 3 answers Opportunity cost of having the money unavailable for the length of the loanThe fact that the loan principal is guaranteed to be more valuable in the future Risk associated with making a loanLosses incurred due to government regulation Expected inflation for the period of the loanSudden changes in interest rates on the day that the loan was made |
Opportunity cost of having the money unavailable for the length of the loanRisk associated with making a loanExpected inflation for the period of the loan |
| Which two statements are true of compounding interest? Choose 2 answers A person will earn less interest when compounding occurs more frequently. A person will earn interest on previously earned interest. A person will earn more interest when compounding occurs more frequently. A person will earn interest on the principle only. |
A person will earn interest on previously earned interest. A person will earn more interest when compounding occurs more frequently. |
| Rank in order from highest to lowest the following investments in terms of future value for a $1,000 investment for 1 year. Answer options may be used more than once or not at all. Select your answers from the pull-down list. Choices:$1,000 invested at 8% per year, compounded quarterly$1,000 invested at 4% per year, compounded semiannually$1,000 invested at 2% per year, compounded yearly$1,000 invested at 8% per year, compounded weekly |
Rank 1 $1,000 invested at 8% per year, compounded weeklyRank 2 $1,000 invested at 8% per year, compounded quarterlyRank 3 $1,000 invested at 4% per year, compounded semiannuallyRank 4 Rank 4 $1,000 invested at 2% per year, compounded yearly |
| Match the present values for the following ten-year investments with the following cash flows. Answer options may be used more than once or not at all. Select your answers from the pull-down list. |
$6,418 Present value of annual $1,000 cash flows at 9% per year$6,231 Present value of semiannual $500 cash flows at 10% per year compounded semiannually$6,276 Present value of quarterly $250 cash flows at 10% per year compounded quarterly$5,268 Present value of annual $750 cash flows at 7% per year |
| What annual interest rate would John need to earn if he wanted a $1,000 per month contribution to grow to $65,000 in five years?Choices:2.8%3.2%4.4%5.4% |
3.2% |
| Sam invested $1,000,000 in an investment that will make him and his descendants a payment forever. Which two factors affect how much that payment will be? Choose 2 answers The number of years that Sam livedThe annual rate of return earned on the investmentThe number of years that Sam’s descendants will liveThe number of times per year that the payment is receivedThe number of descendants that Sam has |
The annual rate of return earned on the investmentThe number of times per year that the payment is received |
| A share of stock in the local fast food restaurant chain will pay a next dividend in the amount of $1.50. It is expected that dividends paid for stocks from this restaurant will grow by 1% per year. The appropriate discount rate for stocks of this type is 6%. What is the per share value of this stock?Choices$22.75$30.00$37.50$45.25 |
$30.00 |
| Holly is trying to calculate the present value of an ordinary annuity for a practice exam on her old financial calculator. Match the appropriate number to the symbol Holly will use on the calculator for finding the present value of a series of three payments, made at the end of each year, of $5,000. The current available rate of return is 4% and there is no future value. The list of available symbols includes PMT, PV, FV, N, and I/Y. Answer options may be used more than once or not at all. Select your answers from the pull down list. YourChoicesI/Y 4PMT $5,000N 3FV 0PV -$13,875.46 |
ChoicesI/Y 4PMT $5,000N 3FV 0PV -$13,875.46 |
| Place the following ordinary annuity options in order from lowest present value to highest present value. Answer options may be used more than once or not at all. Select your answer from a pull-down list. One payment of $1,200, for each of three years, with an annual discount rate of 4% Twelve payments of $100 each, for each of three years, with an annual discount rate of 4% Four payments of $300 each, for each of three years, with an annual discount rate of 4% Two payments of $600 each, for each of three years, with an annual discount rate of 4%. |
Place the following ordinary annuity options in order from lowest present value to highest present value. Answer options may be used more than once or not at all. Select your answer from a pull-down list. 1 One payment of $1,200, for each of three years, with an annual discount rate of 4%4 Twelve payments of $100 each, for each of three years, with an annual discount rate of 4%3 Four payments of $300 each, for each of three years, with an annual discount rate of 4%2 Two payments of $600 each, for each of three years, with an annual discount rate of 4%. |
| Ben just won the lottery and has a choice between accepting a lump sum payment of $5,000,000 or annual payments of $375,000 at the end of each year for the next 30 years, which he could then invest in a financial instrument that will pay him 6%. Ben decides to take the annual payments. How much is this choice worth today?Choices$4,989.237.91$5,003,714.82$5,161,811.68$6,271,390.46 |
$5,161,811.68 |
| The only difference between two contracts to purchase a new laptop is that the one vendor wants to be paid at the beginning of each month, starting immediately, whereas the other vendor wants to be paid at the end of each month. This is the difference between present value calculated as an ordinary annuity and the present value of an annuity due. Assume Ashley decides to make payments of $100 per month for 15 months at an annual discount rate of 8%. How much would Ashley save on the laptop if she chose the vendor that wanted to be paid at the end of the month?$8.12$9.49$10.25$13.27 |
$9.49 |
| Mark is saving for new furniture and saving $200 at the beginning of each month. He can save at an annual rate of 5%, compounded monthly for the next two years. How much will Mark be able to save?Choices$4,890.08$4,971.16$5,001.30$5,058.17 |
$5,058.17 |
| Karter has an amortized loan of equal payments over an extended period of time. How does the proportion of Karter’s payment that goes to interest fluctuate?YourAnswer CorrectAnswer AnswerChoices The amount starts higher and goes downThe amount starts lower and goes upThe amount always equals the proportion of principle that Karter is payingThe amount remains at zero until the end of the loan |
The amount starts higher and goes down |
| How much will Matthew be able to borrow to buy a car if he can get 1.5% annual interest, compounded monthly, on a 60-month loan, and can afford $300 payments each month?YourAnswer CorrectAnswer AnswerChoices$16,781.98 $17,331.13$18,268.13$19,245.16 |
$17,331.13 |
| Larry believes that he will benefit by investing in common stock shares rather than preferred. Which statement regarding his investment choice is appropriate?YourAnswer CorrectAnswer AnswerChoices He does not want to incur any unnecessary risk. He believes that the company will be profitable.He fears that the company could fail.He does not want to vote for members of the board of directors. |
He believes that the company will be profitable. |
| An investor receives a $30 dividend on her share of preferred stock, valued at $375. What rate of return is she earning?YourAnswer CorrectAnswer AnswerChoices6%7% 8%10% |
8% |
| The price of a share of stock is $25.00 and the current expected rate of return is 15%, with a constant growth rate of 3%. What is the next expected dividend (D1)?YourAnswer CorrectAnswer AnswerChoices$2.50 $3.00 $3.50$4.50 |
$3.00 |
| The price of a stock is $40.00 per share and there is an expected rate of return on shares of this kind of 17%. Dividends have been growing at a constant rate of 2%. What must be the value of D0 and D1?YourAnswer CorrectAnswer AnswerChoices $4.58 and $5.89$5.50 and $6.25$5.67 and $6.23 $5.88 and $6.00 |
$5.88 and $6.00 |
| A share of stock is expected to have a very high dividend growth rate of 10% for the next two years, and then will settle back to its standard 2% dividend growth rate. Assume that the last paid dividend was $3.00 and the expected rate of return is 18%. What is the value of this share of stock?YourAnswer CorrectAnswer AnswerChoices$21.76 $22.02$25.87$26.12 |
$22.02 |
| A stock is going to exhibit larger growth of 10% in its dividends for the next 4 years and then will settle back to the standard dividend growth rate of 6% when the company’s patent runs out. The last paid dividend ( D 0) was $3.00 and the expected rate of return is 16%. What is the value of the stock, P 0?YourAnswer CorrectAnswer AnswerChoices$30.20$33.20 $36.26 $42.95 |
$36.26 |
| Kevin is comparing investments and knows that he will earn 16% on a share of common stock, but is concerned about the risk of investing in common stock. He can buy a share of preferred stock for $30.00 and knows that the dividend for that share is a constant $3.60. What is the rate of return on the preferred share?YourAnswer CorrectAnswer AnswerChoices10% 12%15%17% |
12% |
| When presented with an investment opportunity, Joseph knows that calculating the interest rate associated with that investment is really important. Currently, he is evaluating a stock that will pay its next dividend in the amount of $6.50, and has a constant dividend growth rate of 5%. He can buy this stock for $65 per share. What is the discount rate associated with this stock?YourAnswer CorrectAnswer AnswerChoices 10% 12%15%18% |
12% |
| What will an investor pay for a zero-coupon bond that has a $2,000 face value, a 25-year maturity, and a 7% yield to maturity?YourAnswer CorrectAnswer AnswerChoices$257.98$316.29 $368.50$452.10 |
$368.50 |
| What are three characteristics of a bond? Choose 3 answers YourAnswer CorrectAnswer AnswerChoices Interest paid on bonds is deductible for tax purposes for the issuer. Bonds have no predetermined lifespan. Bonds represent debt of the issuer.Periodic payments made to the bond holder by the issuer vary. When bonds mature, they are worth their face value. When bonds mature, they are worth what the market thinks they are worth. |
Interest paid on bonds is deductible for tax purposes for the issuer.Bonds represent debt of the issuer. When bonds mature, they are worth their face value. |
| A $1,000 face value bond with 20-year maturity makes a coupon payment of 10% every year and is on the market for its face value. What is its yield to maturity?YourAnswer CorrectAnswer AnswerChoices8% 10%12%20% |
10% |
| A 10-year bond has a face value of $1,000, an annual coupon rate of 12%, and a current price of $1,268.40. What is the yield to maturity for the bond?YourAnswer CorrectAnswer AnswerChoices6% 8%10% 12% |
8% |
| Margot is thinking about changing her portfolio contents. She had planned to sell a $1,000 face value bond that she bought one year ago for $1,052.97 with a yield to maturity of 7%. This bond pays $75 per year in coupon payments and had a 20-year maturity last year when she bought it. Market interest rates have now risen to 10%. What is the current value of Margot’s bond one year later?YourAnswer CorrectAnswer AnswerChoices$699.27 $790.88$800.51 $1000.00 |
$790.88 |
| WorldQuest has an excellent rating for its bonds. WorldQuest is a global enterprise. It has 20% debt ratio and its earnings have been stable for the past 8 years. The cost of equity to WorldQuest is 19%. The board of directors do not want the debt ratio to exceed 40%. Its total capital currently is $520 million with 20% debt. WorldQuest plans to raise $50 million in additional capital. Its investment banking firm assesses that it can raise $50 million in debt with 30-year long-term bonds at 5.5% interest. Which financing option will WorldQuest use?YourAnswer CorrectAnswer AnswerChoices WorldQuest has good bond ratings, so it should use long-term bonds at 5.5% interest rate.WorldQuest has 20% debt ratio, so it should issue preferred stock.The revenues of WorldQuest Inc. are stable, so it should issue common stock.Since WorldQuest is an international firm, it should issue equity. |
WorldQuest has good bond ratings, so it should use long-term bonds at 5.5% interest rate. |
| Firm A and Firm B currently have $200 million in capital structure. Firm A has 70% debt in its capital structure, and Firm B has 20% debt in its capital structure. Both firms are in the same industry and market their products to the same customers. Also, both businesses are stable and both firms need to raise an additional $40 million in capital. Which firm will find it relatively easy to raise capital through debt issue at a reasonable interest cost?YourAnswer CorrectAnswer AnswerChoicesFirm A, because it has higher debt capacity Firm B, because it has higher debt capacityFirm A, because it has 70% debtFirm B, because it has same type of customers |
Firm B, because it has higher debt capacity |
| Dr. Tim Brown started a biotech firm in 2005 with a few of his colleagues who were also scientists. It was a private firm and the firm did well for several years. In 2012, the founding owners decided to go public and had an IPO. The executive team mostly consists of Dr. Tim Brown and his colleagues who founded the firm. In recent years, the firm sales have slowed down. The compensation plan for the executive team is tied to the number of patents, research activities, and publications. The executive team is of the opinion that incentive tied to research performance should increase. This will help the company come up with new patents. The firm now has stockholders and a board of directors. What changes should the board of directors institute in the compensation plan for the executive team in order to address the slowdown in sales?YourAnswer CorrectAnswer AnswerChoices Increase incentive plans tied to research performance as needed by the executive.Allow more flexible time for company employees.Increase vacation time for management. Institute an incentive component tied explicitly to financial performance. |
Institute an incentive component tied explicitly to financial performance. |
| Bytek has $450 million in capital structure with $175 million in debt. The company is planning on raising an additional $40 million in debt for licensing a new product that it will market in the United States. This would increase the company’s debt ratio to 48%. The firm’s interest payments will increase by $4.2 million a year. Why does the bankruptcy risk increase to Bytek with additional debt?YourAnswer CorrectAnswer AnswerChoices Interest payment on debt is a legal obligation, which Bytek has to meet.Bytek is required to make payments to its common stockholders. Bytek is required to pay dividends to preferred stockholders.The equity-to-debt ratio has decreased. |
Interest payment on debt is a legal obligation, which Bytek has to meet. |
| Budfast Inc. is evaluating three investment opportunities. There are three products that management wants to investigate. These products have all the life of 14 years and the expected return and risk are given below. Standard deviation is a measure of risk for Budfast Inc. Budfast Inc. requires a return of at least 18% on its projects, which have a standard deviation below 10%. If the risk level is higher than or equal to 10%, it requires a return above 25%. Classify these projects as either meeting or not meeting Budfast Inc.’s criteria for accepting the project? Answer options may be used more than once or not at all. Select your answer from the pull-down list. YourAnswer CorrectAnswer AnswerChoices Accept the project Accept the project Product PDo not accept the project Accept the project Product QAccept the project Do not accept the project Product R |
Accept the project Product PAccept the project Product QDo not accept the project Product R |
| CellZweo is evaluating four new products for development and marketing. CellZweo Inc. has a required rate of return of 12% on its new investment projects, if the project has no risk. On this rate of return, CellZweo also requires a premium of 4% premium for high-risk projects and 2% premium on average-risk projects. The rate of return on these candidates is given below. Risk Level ReturnProduct P High Risk 18%Product Q Average Risk 16%Product R Average Risk 12%Product S No Risk 10%Classify these projects as either meeting or not meeting CellZweo’s criteria for accepting the project? Answer options may be used more than once or not at all. Select your answer from the pull-down list. YourAnswer CorrectAnswer AnswerChoices Meets the criteria to accept the project Meets the criteria to accept the project Product P Meets the criteria to accept the project Meets the criteria to accept the project Product Q Does not meet the criteria to accept the project Does not meet the criteria to accept the project Product R Does not meet the criteria to accept the project Does not meet the criteria to accept the project Product S |
Meets the criteria to accept the project Product PMeets the criteria to accept the project Product QDoes not meet the criteria to accept the project Product RDoes not meet the criteria to accept the project Product S |
| What is a characteristic of market risk?Choices It is not possible to eliminate or reduce market risk through diversification.Market risk does not affect all industries; it affects only a few industries.Investors cannot eliminate market risk by increasing the number of stocks in their portfolio.Market risk is good for competition. |
It is not possible to eliminate or reduce market risk through diversification. |
| Crescent Corporation has total capital of $440 million. The ratio of debt to total capital is .35 and common stock is 40% of the total capital. Crescent Corporation has outstanding preferred stock, which has paid 8% dividends consistently for the past five years. The interest on debt is 7% and the cost of common stock is 19.4%. Crescent Corporation has a 38% tax rate. What is the weighted average cost of capital for Crescent Corporation?YourAnswer CorrectAnswer AnswerChoices13.4% 12.9% 11.3%10.6% |
11.3% |
| Great Tuna Inc. currently pays $5 dividend on its common stock. These dividends are expected to grow by 4% each year, perpetually. The current price of Great Tuna Inc. stock is $63. Great Tuna Inc. plans on raising $75 million in capital by issuing common stock. The flotation costs are 3%. What is the cost of common stock for Great Tuna Inc.?YourAnswer CorrectAnswer AnswerChoices10.6%11.9% 12.5%13.8% |
12.5% |
| Sailing Inc. manufactures and markets engines and batteries for small boats. Management wanted to expand, and Sailing Inc. decided to make engines and batteries for bigger boats. Dan Tufts was evaluating the financial viability of this long-term investment proposition by using net present value analysis. From his view, these additional investment projects are risky compared to Sailing’s current business. This has more fierce competition and Sailing Inc. does not have experience in this market. Weighted average cost of capital is used as the discount rate by Sailing Inc. for net present value analysis. Why did Dan decide to adjust weighted average cost of capital?YourAnswer CorrectAnswer AnswerChoicesStockholders would be happy with the additional risk that Sailing Inc. has undertaken.The risk in these projects can be eliminated by adjusting the discount rate. Sailing Inc. used different discount rates for high-risk projects. The new projects are long-term projects and different discount rates are used. |
Sailing Inc. used different discount rates for high-risk projects. |
| Rudner Inc. plans to float $25 million in bonds and $10 million in preferred stock. The current price of its preferred stock is $50 and it pays $2.60 in preferred dividends, which is likely to continue for the next five years. CrestInvest is its investment banking firm. It will charge 5% in flotation fees to float these securities. Crestnvest will sell these bonds with a 20-year maturity and 6.5% annual coupon rate at par value. Rudner has a tax rate of 35%. What is the cost of preferred stock and debt to Rudner after taxes, taking into account the flotation costs?YourAnswer CorrectAnswer AnswerChoicesCost of preferred stock is 5.9%; cost of bonds is 2.8% Cost of preferred stock is 5.5%; cost of bonds is 4.5%Cost of preferred stock is 3.9%; cost of bonds is 4.1% Cost of preferred stock is 4.6%; cost of bonds is 5.6% |
Cost of preferred stock is 5.5%; cost of bonds is 4.5% |
| A small convenience store fully depreciates a refrigerator with a cost basis of $4,000, and then sells it for $4,200. How would this transaction be taxed?YourAnswer CorrectAnswer AnswerChoices As capital gainsAs ordinary income Both as capital gains and ordinary incomeAs capital losses |
As capital gains |
| A hospital sells two of its older ambulances from its fleet for a total of $40,000, and the applicable tax rate is 25%. Book value is $18,000 per truck. How much cash flow would the hospital generate from this sale?YourAnswer CorrectAnswer AnswerChoices$49,000 $29,000 $39,000$69,000 |
$39,000 |
| The tax savings from an expense item are $75,000 for a company that spends 25% of its income to taxes. How much does the item cost before taxes?YourAnswer CorrectAnswer AnswerChoices$150,000$200,000$250,000 $300,000 |
$300,000 |
| A company’s after-tax income is $720,000 in an area where the corporate tax rate is 22%. What was the company’s net cash flow that year?YourAnswer CorrectAnswer AnswerChoices$392,650$568,230$612,400 $923,000 |
$923,000 |
| Which two concepts determine opportunity cost of an investment option? Choose 2 answers YourAnswer CorrectAnswer AnswerChoices Sunk costs of the chosen option Expected returns from the foregone optionSunk costs of the foregone option Expected costs of the foregone option |
Expected returns from the foregone option Expected costs of the foregone option |
| The cash flow schedule below provides a positive net present value for a company. What is the weighted cost of capital for this investment? YourAnswer CorrectAnswer AnswerChoices4% 6% 8%10% |
8% |
| How long is the payback period for an investment project if it requires $25,000 to start, and generates $7,000 a year after-taxes for six years?YourAnswer CorrectAnswer AnswerChoices2 years3 years 4 years6 years |
4 years |
| A company considered an investment opportunity that takes an initial investment of $75,000 and yields after-tax cash flow of $32,000 for the first three years and $12,000 for the following two years. Which two statements could be said of this project if the company decides to invest in the opportunity? Choose 2 answers YourAnswer CorrectAnswer AnswerChoicesIRR is less than 12%. IRR is higher than 13%. Hurdle rate can be 20%. Hurdle rate can be 24%. |
IRR is higher than 13%. Hurdle rate can be 20%. |
| When NPV and IRR drive an investor to choose different investment opportunities, how should the investor make a decision?YourAnswer CorrectAnswer AnswerChoices Choose the opportunity for which the difference between IRR and hurdle rate is the highest.Choose the opportunity for which hurdle rate exceeds the IRR. Choose the opportunity that offers the highest NPV.Choose the opportunity with zero NPV. |
Choose the opportunity that offers the highest NPV. |
| Edwards Investments wants to invest $100,000 in two of the projects identified below to realize a return of at least 12% a year. Which two projects that have different directions of cash flows would be appropriate to invest in? Choose 2 answers YourAnswer CorrectAnswer AnswerChoices IRR 17%, NPV $60,000 IRR 10%, NPV $62,000IRR 18%, NPV $60,000 IRR 13%, NPV $62,000 |
IRR 10%, NPV $62,000 IRR 13%, NPV $62,000 |
| If an investment offers the cash flow schedule as indicated below, which evaluation method would be more appropriate to use? CF1: $10,000 CF2: $8,500 CF3: ($1,250) CF4: $3,125 CF5: ($750) CF6: $4,935YourAnswer CorrectAnswer AnswerChoices IRRPayback period NPVHurdle rate |
NPV |
| The cash flow schedule for an investment opportunity is shown below: Year 1: $5,000 Year 2: $6,000 Year 3: $8,250 Year 4: $6,500 Year 5: $4,500 If the IRR is 13% a year, how much capital is required for this investment?YourAnswer CorrectAnswer AnswerChoices $15,773 $21,270$31,112$10,598 |
$21,270 |
| Wade and Sons Investment Consultancy considers an investment opportunity that requires $323,000 to start. If the company realizes the cash flow schedule indicated below, what is the project’s IRR? CF1: $100,000 CF2: $112,200 CF3: $107,050 CF4: $87,500 CF5: $90,250YourAnswer CorrectAnswer AnswerChoices22% 17% 30%14% |
17% |
| If an investment project requires $61,500 to start, and promises $17,000 a year for 7 years, what is the payback period?YourAnswer CorrectAnswer AnswerChoices3 years 4 years5 years6 years |
4 years |
| What could an investor review, in addition to the financial statements, to determine why the company experienced a much higher cost of sales in a specific fiscal year?YourAnswer CorrectAnswer AnswerChoices Media including the Internet Other analysts’ opinionsStock returnsComparative data |
Media including the Internet |
| Which information service provides market share information for an investor?YourAnswer CorrectAnswer AnswerChoicesNew York TimesCompany’s annual report Standard and Poors Pro forma reports from the company |
Standard and Poors |
| Use the following financial statements to answer the question below. Balance Sheet Cash 1,000Accounts Receivable 3,000Inventory 4,000Current Assets 8,000Fixed Assets, Net 2,000Total Assets 10,000Accounts Payable 2,000Accruals 1,000Current Liabilities 3,000Long Term Debt 3,000Total Liabilities 6,000Total Equity 4,000Total Liabilities & Equity 10,000Income Statement Revenue 20,000Cost of Sales 10,000Gross Profit 10,000Operating Expenses 5,750Operating Profit 4,250Interest Expense 250Income Before Taxes 4,000Taxes 1,600Net Income 2,400What is the assets turnover ratio for the company?YourAnswer CorrectAnswer AnswerChoices1.001.33 2.00 2.67 |
2.00 |
| Use the following financial statements to answer the question below. Balance Sheet Cash 2,000Accounts Receivable 3,000Inventory 5,000Current Assets 10,000Fixed Assets, Net 3,000Total Assets 13,000Accounts Payable 4,000Accruals 2,000Current Liabilities 6,000Long Term Debt 2,000Total Liabilities 8,000Total Equity 5,000Total Liabilities & Equity 13,000Income Statement Revenue 20,000Cost of Sales 8,000Gross Profit 12,000Operating Expenses 6,550Operating Profit 5,450Interest Expense 250Income Before Taxes 5,200Taxes 1,900Net Income 3,300What is the gross profit margin for the company?YourAnswer CorrectAnswer AnswerChoices0.27 0.280.58 0.60 |
0.60 |
| Which ratio is used to measure profitability?YourAnswer CorrectAnswer AnswerChoicesQuick ratioLeverage ratioInventory turnover ratio Net profit margin ratio |
Net profit margin ratio |
| What is an investor measuring if the investor is calculating a company’s net profit margin and return on assets ratios?YourAnswer CorrectAnswer AnswerChoices ProfitabilityLiquidityEfficiencyRelative value |
Profitability |
| Which company would have the highest Dupont model?YourAnswer CorrectAnswer AnswerChoices XYZ company has a profit margin of 50%, total asset turnover of .5, and financial leverage of 3ABC company has a profit margin of 20%, total asset turnover of 7, and financial leverage of .6MNO company has a profit margin of 30%, total asset turnover of .6, and financial leverage of 3EFG company has a profit margin of 60%, total asset turnover of .4, and financial leverage of 2 |
XYZ company has a profit margin of 50%, total asset turnover of .5, and financial leverage of 3 |
| Place the companies listed below in order from highest value (1) to lowest value (4), based on their Dupont analysis. Answer options may be used more than once or not at all. Select your answer from the pull-down list. Company Profit Margin Total Asset Turnover Financial LeverageA. ABC 20% 7 .6B. EFG 60% 2 .4C. MNO 30% .6 3D. XYZ 50% .5 3 Choices 1 A. 4 B. 3 C. 2 D. |
1 A. 4 B. 3 C. 2 D. |
| Which source of information provides additional company information that is not found in the company’s annual report?YourAnswer CorrectAnswer AnswerChoices Letter from CEO Market shareManagement discussionBalance sheet |
Market share |
| Use the given chart to answer the following question. What is the overall trend in long-term debt?YourAnswer CorrectAnswer AnswerChoicesLong-term debt is up.Long-term debt is up and then drops.Long-term debt is down and then rises. Long-term debt is down year after year. |
Long-term debt is down year after year. |
| Use the given chart to answer the following question. Which balance sheet item decreased each year since 2009?YourAnswer CorrectAnswer AnswerChoicesTotal EquityEarnings Before Taxes Total Fixed Assets and Long-Term DebtCurrent Liabilities and Total Fixed Assets |
Total Fixed Assets and Long-Term Debt |