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FIN 571 Week 1 Problem Set
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Terms in this set (17)
A business owned by a single individual is called a:
sole proprietorship.
The ultimate control of a corporation lies in the hands of the corporate:
stockholders.
For a firm to create value it must:
create more cash flow than it uses.
One intent of the Sarbanes Oxley Act of 2002 is to:
protect investors from corporate abuses.
The primary goal of financial management is to:
maximize the current value per share of the existing stock.
Which one of the following business types is best suited to raising large amounts of capital?
corporation
Accounting profits and cash flows are generally:
different because of GAAP rules regarding the recognition of income.
Some time ago, Julie purchased eleven acres of land costing $14,190. Today, that land is valued at $61,328. How long has she owned this land if the price of the land has been increasing at 5 percent per year?
30.00 years
Your credit card company charges you 2.00 percent per month. What is the annual percentage rate on your account?
24.00 percent
Imprudential, Inc., has an unfunded pension liability of $565 million that must be paid in 15 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present.
If the relevant discount rate is 5.8 percent, what is the present value of this liability?
$242,528,863.88
First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually.
If you made a $60,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years?
$11,450.86
A. Compute the future value of $1,000 compounded annually for 20 years at 6 percent.
B. Compute the future value of $1,000 compounded annually for 15 years at 9 percent.
C. Compute the future value of $1,000 compounded annually for 25 years at 6 percent.
A. $3,207.14
B. $3,642.48
C. 4,291.87
For each of the following, compute the present value
Present Value Years Interest Rate Future value
$
14 8 % $ 15,151
5 14 48,557
30 15 883,073
35 8 547,164
A. $5,158.33
B. $25,218.98
C. $13,337.10
D. $37,007.19
Wilkinson Co. has identified an investment project with the following cash flows:
Year Cash Flow
1 $ 920
2 1,330
3 1,590
4 1,775
A. If the discount rate is 10 percent, what is the present value of these cash flows?
B. If the discount rate is 20 percent, what is the present value of these cash flows?
C. If the discount rate is 30 percent, what is the present value of these cash flows?
A. $4,342.48
B. $3,466.42
C. $2,839.87
Four months ago, you purchased 1,300 shares of Lakeside Bank stock for $16.96 a share. You have received dividend payments equal to $.58 a share. Today, you sold all of your shares for $17.96 a share. What is your total dollar return on this investment?
$2,054
Suppose a stock had an initial price of $66 per share, paid a dividend of $1.70 per share during the year, and had an ending share price of $78.
Compute the percentage total return.
20.76%
You've observed the following returns on SkyNet Data Corporation's stock over the past five years: 17 percent, -4 percent, 20 percent, 12 percent, and 10 percent. Suppose the average inflation rate over this period was 2.7 percent, and the average T-bill rate over the period was 5.4 percent.
A. What was the average real return on the stock?
B. What was the average nominal risk premium on the stock?
A. 8.08%
B. 5.6%
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