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Finance Quizzes for Exam #2
Terms in this set (55)
Quiz 4- Finn Statements and Ratios Analysis
Generally accepted accounting principles are authorized by the Financial Accounting Standards Board (FASB)
The Sarbanes-Oxley Act of 2002 was designed to
eliminate the many disclosure and conflict-of-interest corporations
operating profit is known as
earnings before interest and taxes (EBIT)
earnings per share (EPS) results from dividing EARNINGS avail for common stockholders by the number of shares of COMMON STOCK AUTHORIZED
which of the following represents a current asset
retained earnings on the balance sheet represents the
cumulative total of all earnings reinvested in the firm
which of the following is used to analyze a firms financial performance over different years
which of the following is TRUE of the current ratio
a higher current ratio indicates a greater degree of liquidity
the higher the debt ratio, the more the financial leverage a firm has and thus, the greater will be its risk and return
if a firm uses any debt financing and if the firm generates positive earnings for common stockholders, then which of the following below is true
ROE > ROA
Quiz 5- Ratios and Financial Planning
A firm's P/E ratio tends to be higher if ________.
wrong: its risk and its growth prospects are higher
prob right: its risk is lower and its growth prospects are higher
The three basic ratios used in the DuPont system of analysis are ________.
wrong: net profit margin, total asset turnover, and return on investment
prob right: net profit margin, total asset turnover, and equity multiplier
A financial planning process begins with short-term, or operating, plans and budgets that in turn guide the formulation of long-term, or strategic, financial plans.
Key inputs to short-term financial planning are ________.
sales forecasts, and operating and financial data
Given a financial manager's preference for faster receipt of cash flows, ________.
shorter depreciable life is preferred to a longer one
Which of the following is a cash inflow?
wrong: a increase in dividend payment
prob right: decrease in accounts receivable; decrease in inventory;
A firm's free cash flow (FCF) represents the amount of cash flow available to investors (stockholders and bondholders) after the firm has met all operating needs and after having paid for net fixed asset investments and net current asset investments.
A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statement -- called the external financing required -- of $230,000. The firm should prepare to ________.
arrange for a loan of $230,000
A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm's total cash receipts in July is ________.
In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had ________.
an excess cash balance of $50,000
Quiz 6- Time Value of Money
The main idea behind the time value of money is that a dollar today is worth more than a dollar in the future because ________.
true, bc investors can earn a return of money they have today and thereby have more money in the future
You invest a certain amount of money today. The process of determining how much money that investment will produce in the future is called ________.
The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is approximately ________.
PV= alpha enter
Everything else being equal, the higher the discount rate, the higher the present value.
The time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.
The process of taking cash flow that is received or paid in the future and stating that cash flow in present value terms is called discounting.
Assuming that you deposited $100 today in a bank at 6 percent annual interest rate. After four years, _________ is the closest amount of money (principal and interest) you can get back.
PV = -100
I/Y = 6
N = 4
Bill plans to fund his individual retirement account (IRA) by contributing $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?
FV: alpha enter
You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you require 9 percent rate of return to your investment?
PV= alpha enter
A certain investment promises to pay you $2,500 per year forever with the first payment starting next year. If you can earn a 5% return on similar investments, what's the most you would pay for this investment today?
N= 100 (gives 49619)
PV= alpha enter
Quiz 7- time value of money and bonds
CH 5 and 6
Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 17 percent on its investments.
3000(1+.17)^2 + 6000(1+.17)^1+ 9000= answer
The effective rate of interest differs from the nominal rate of interest in that it reflects the impact of compounding frequency.
You deposited $200 today at 8 percent compounded semiannually for three years. The future value after three year is ________.
N= 2 (semiannually)
FV= P(1+ (r/n)^ (n*t)
N= (3x2)= 6
I= (8%/2)= 4
The future value of an ordinary annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is ________.
N= 40 (4*10)
I= 3% (12/4)
PMT= 100 (each quarter)
FV= alpha enter
If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years, what is the annual rate of return on the bond?
N= 25 yrs, annual
Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is ________.
N= 4 (4 equal installments)
Emily is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual deposits. If she plans to make her deposit today then at the beginning of each following year, and the deposit can earn an annual compound rate of 9 percent on her investment, how much must each deposit be in order to accumulate the $40,000?
N= 5 (annually * five equal dep)
The bond indenture identifies any collateral pledged against a bond and specifies how it is to be maintained.
The purpose of the restrictive debt covenant that limits the distribution of profits to shareholders is to ________.
avoid default of payments to bondholders
A(n) ________ is secured by collateral of real estate or mortgaged assets.
Quiz 8- Bond Valuation
As a general valuation process, the value of an asset is determined by discounting the expected cash flows back to its present value, using an appropriate discount rate.
The less certain a cash flow, the ________ the risk, and the ________ the present value of the cash flow.
As a bond approaches maturity, the price of the bond will approach its par value until, the bond is worth its face value at maturity.
The required return on a bond is likely to differ from the stated interest rate for either of two reasons: 1) economic conditions have changed, causing a shift in the basic cost of long-term funds, or 2) the firm's risk has changed.
If the required return is greater than the coupon rate, a bond will sell at ________.
The value of a bond is the present value of the ________.
periodical interest payments and maturity value
A & Z Corporation plans to issue new bonds at face value of $1,000. In its efforts to price the issue, A & Z has identified a company of similar risk with an outstanding bond issue that has a 6 percent coupon rate with a maturity of 10 years. This firm's bonds are currently selling for $986. If interest is paid annually for both bonds, what must the coupon rate of A & Z's new bonds be in order for the issue to sell at par?
A firm has an issue of $1,000 par value bonds with a 12 percent stated interest rate. The issue pays interest annually and has 10 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent (investors regard this rate as their required return), the firm's bond will sell for ________ today.
N= 10 (annual)
I= 8 (req rate of return)
Titan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in 10 years and currently sells for $1,250. Using this information, the yield to maturity (YTM) on the Titan Industries bond is ________.
N= 10 (annual)
What is the current price of a $1,000 par value bond maturing in 12 years with a coupon rate of 14 percent, paid semiannually, that has a YTM of 13 percent?
N= (12 *2)= 24
I= 6.5% (13/2) (ytm divided by 2 cuz semiannual payments)
PMT= NOT 140, (140/2 cuz semiannual payments?)
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