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Finance Exam 2 Quiz Questions

Terms in this set (47)

true or false: generally accepted accounting principles are authorized by the financial accounting standards board (FASB)
true
the sarbanes-oxley act of 2002 was designed to
eliminate many of the disclosure and conflict -of-interest problems of corporations
operating profit is known as
earnings before interest and taxes
true or false: earnings per share (EPS) results from dividing earnings available for common stockholders by the number of shares of common stock authorized
false
which of the following represents a current asset?
marketable securities
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 firm's financial performance over different years?
time-series analysis
which of the following is true of the current ratio?
a higher current ratio indicates a greater degree of liquidity
true or false: the higher the debt ratio, the more the financial leverage a firm has an thus, the greater will be it's risk and return
true
if a firm uses any debt financing and if the firm generated positive earnings for common stockholders, then which of the following below is true?
ROE>ROA
a firm's P/E ratio tends to be higher if
its risk is lower and its growth prospects are higher
the three basic ratios used in the DuPont system of analysis are
net profit margin, total asset turnover, and equity multiplier
true or false: 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
false
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, ________
a shorter depreciable life is preferred to a long one
which of the following is a cash inflow
a decrease in accounts receivable
true or false: 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
true
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 ________
$220
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
the main idea behind the time value of money is that a dollar today is worth more than a dollar in the future because
investors can earn a return on 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
compounding
the present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is approximately
$42
true or false: everything else being equal, the higher the discount rate, the higher the present value
false
true or false: 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
true
true or false: 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
false
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
$126
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
$144,104
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
$2,985.18
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
$50,000
true or false: the effective rate of interest differs from the nominal rate of interest in that it reflects the impact of compounding frequency
true
you deposited $200 today at 8 percent compounded semiannually for three years. the future value after three years is
$252
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
$20,127
the future value of an ordinary annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is
$75,401
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
5%
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
$1,482
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
$6,132
true or false: the bond indenture identifies any collateral pledged against a bond and specifies how it is to be maintained
true
the purpose of the restrictive debt covenant that limits the distribution of profits to shareholder is to
avoid default of payments to bondholders
a(n) ________ is secured by collateral of real estate or mortgaged assets
mortgage
true or false: 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
true
the less certain a cash flow, the _________ the risk, and the ________ the present value of the cash flow
higher; lower
true or false: 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
true
true or false: 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
true
if the required return is greater than the coupon rate, a bond will sell at ____________
discount
the value of a bond is the present value of the _______
...
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
$1,268.40
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