FIN 3113 Exam #1 Test 1. A company balance sheet reflects $10,000 in total assets and $6,000 in total liabilities.

| March 31, 2017

Question
FIN 3113 Exam #1 Test

1. A company balance sheet reflects $10,000 in total assets and $6,000 in total liabilities. Total sales on its income statement are $30,000, and the company’s ROE is 15%. The company distributes ½ of its net income to shareholders as dividends. What is the sustainable growth rate for the company?

a. 7.5%

b. 8.11%

c. 30%

d. Cannot be determined from the information given

e. 16.67%

2. How much would you pay for an investment that paid you $2.50 at the end of each three-month period in a year for 10 years? The investment yields 11% compounded quarterly.

a. $60.20

b. $100.00

c. $52.03

d. $22.37

e. $40.80

3. A corporations marginal tax rate:

a. Cannot exceed the firm’s average tax rate

b. Is always equal to its average tax rate

c. Cannot be exceeded by the firm’s average tax rate

d. Is constant at all income levels.

4. You look at your credit card statement and it says “Interest is charged monthly at 1.25% of the unpaid balance. What is the EAR?

a. 1.2572%

b. 1.25%

c. 15%

d. 16.08%

e. 12.5%

5. XYZ Inc. had sales of $21,000 in 2011 and $24,000 in 2012. The firm’s current accounts remained constant, net fixed assets increased, and long-term debt increased. Given this information, which one of the following statements must be true?

a. Receivables turnover decreased

b. The days’ sales receivables increased

c. Net working capital turnover increased

d. The total asset turnover increased

e. Fixed asset turnover decreased

6. How much can be accumulated for retirement if $2,000 is deposited annually, beginning one year from today, and the account earns 9% interest compounded annually for 40 years?

a. $87,200.00

b. $802,876.27

c. $675,764.89

d. $736,583.73

7. Determine the payment you will be required to make at the beginning of each month on a $25,000, 5-year loan with an APR of 7% compounded quarterly.

a. $491.70

b. $495.03

c. $416.67

d. $494.55

e. $489.34

8. The operating cash flow is calculated as: EBIT + Depreciation—Taxes. It can also be calculated as Net Income—Depreciation. These 2 formulas are equal when there is no_________expense.

a. The two equations are always equal

b. Interest

c. Dividends

d. Depreciation

e. Capital Spending

9. Maverick Enterprises reported sales of $525,000, costs of $157,500, depreciation expense of $21,000, interest expense of $7,500, and have a tax rate of 34%. What is the operating cash flow (OCF) for the firm?

a. $223,740

b. $454,260

c. $210,240

d. $339,000

e. $252,240

10. What will be the monthly payment on a home mortgage of $75,000 at 12% APR to be amortized over 30 years?

a. $1,028.61

b. $1034.53

c. $771.46

d. $775.90

11. In completing a ration analysis, you determine that a potential problem is occurring in inventory, since the Inventory Turnover is too low relative to the industry and has been decreasing over time. Which of the following could be a possible cause?

a. Prices are too high

b. Obsolete inventory

c. Too much inventory on hand

d. All of the above

12. Liquidity is the ease of converting an asset to cash

a. Regardless of value gain/loss

b. Without significant loss of value

c. In a recessionary period

d. In an expansionary period

13. You look at your credit card statement and it says “Internet is charged monthly at 1.25% of the unpaid balance.” What is the APR?

a. 12.5%

b. 15%

c. 1.2572%

d. 1.25%

e. 16.08%

14. Nike, Inc. reported the following annual earnings per share data. Calculate the earnings per share growth rate for the time period 2006 to 2011.

a. 3.35%

b. 10.11%

c. 10.79%

Year

Earnings per Share (EPS)

2006

$2.63

2007

$2.86

2008

$3.44

2009

$3.52

2010

$3.86

2011

$4.39

d. 9.43%

e. 8.91%

15. The purchase of a luxurious corporate jet for management use, while benefiting management represents a cost to shareholders. This is referred to as what kind of problem?

a. Proxy

b. Budgeting

c. Legal

d. Limited Liability

e. Agency

16. What is the present value of the following payment stream, discounted at 8% annually: $1,000 at the end of year 1, $3,000 at the end of year 2, and $5,000 at the end of year 3?

a. $7,541.18

b. $8,333.34

c. $7,144.49

d. $7,467.10

17. Which of the following will decrease if a firm can decrease its operating costs, all else..?

a. Total asset turnover

b. Price earnings ratio

c. Profit margin

d. …

e. Return on equity

18. An increase in which of the following will increase the return to equity, all else constant?

I. Sales

II. Net Income

III. Depreciation

IV. Total equity

a. 1 and 2 only

b. 1 only

c. 2 and 4 only

d. 1, 2, and 3 only

e. 2 and 3 only

19. XYZ, Inc. shows the following information on its 2011 Income Statement: Sales=$250,000, costs=$150,000, other expenses=$5,000, depreciation expense=$15,000, interest expense=$2,000, taxes=$7,000, dividends=$10,500. In addition, you’re told that the firm issued $5,00 in new equity during 2011 and redeemed $4,000 of outstanding long-term debt. XYZ’s Operating Cash Flow was

a. $95,000

b. $88,000

c. $93,000

d. $73,000

e. $83,000

20. You are saving to buy a house in the future for $200,000. You have $55,000 today that can be invested at your bank. The bank pays 10.5 percent annual interest on its accounts. How long will it be before you have enough to buy the house?

a. 10 years

b. 12.93 years

c. 72.65 years

d. 14.56 years

21. You recently contributed $125,000 to the Finance Department at OSU to start an annual scholarship in your name for finance majors forever. If the fund can earn 5.75% annually, how much in annual scholarship money does your donation provide? (Round answer to the nearest whole dollar.)

a. $7,298

b. $2,173,913

c. $7,188

d. $7,214

e. $718,750

22. The ____________________ growth rate is the maximum growth rate than can be achieved with no external equity…, while maintaining a constant debt-equity ratio.

a. Compound

b. Internal

c. Implied

d. Sustainable

e. Earnings

23. If you deposit $1,000 in an account at the end of each month, what would you have at the end of 10 years? The account has a stated APR of 4.5% compounded monthly.

a. $12,456.21

b. $151,765.07

c. $151,198.07

d. $125,400.00

e. $12,288.21

24. In 2002, Congress passed a law that greatly increased corporate governance responsibility by boards of directors, … management, imposing stiff penalties, including jail time for violation, and that law is know as:

a. Taft/Hartley Act

b. Dodd Act

c. Smoot/Hawley Act

d. Sarbanes Oxley Act

e. Farkel/Frank Accountability Act

25. What Apr is being earned on a deposit of $1,000 made five years ago today if the deposit is worth $1,410.60? The deposit pays interest semi-annually?

a. 6.7696%

b. 7.5676%

c. 3.12%

d. 7.00%

26. Free cash flow is also known as:

a. Cash flow from assets

b. Cash flow to creditors

c. Operating Cash Flow

d. Cash flow to stockholders

27. Which of the following is true regarding the corporate form of business organization?

I. Easiest to start

II. Income is taxed twice (double taxation)

III. Limited Liability

IV. Limited to the life of the owner(s)

V. Separation of ownership and management

a. 2 and 4

b. All are true

c. 1, 2, and 5

d. 1 and 5

e. 2, 3, and 5

28. A company balance sheet reflects $10,000 in total assets and $6,000 in total liabilities. Total sales on its income statement are $30,000, and the company’s ROE is 15%. How much net income did the company have in the current year?

a. $600

b. $4500

c. $4000

d. Cannot be determined from information given

e. $1500

29. A company has a project expected to produce the following annual cash flows: Yr. 1: $25,000; Yr. 2: $15,000; Yr. 3: $10,000; Year 4 and 5: $5,000 each year. What is the project’s value today, i.e., how much should the company be willing to invest in, or pay for, the project if they require a 15% annual return?

a. $52,173.91

b. $60,000

c. $45,001.10

d. $70,588.24

e. $55,000

30. Today, you use your credit card to buy a television for $1,600. You plan to make theminimum payment of $40 per month. If the interest rate for the credit card is 1.5% per month, how long will it take for you to pay off your balance assuming you make no new purchses?

a. 61.54 months

b. 36.22 months

c. 85.25 months

d. 40 months

31. The cash flow that results from the firm’s day-to-day activities of producing and selling is called

a. Cash flow from assets

b. Cash flow to stockholders

c. Operating cash flow

d. Free cash flow

e. Net new financing

32. The amount of current assets that are financed by long-term funds (long-term debt and equity) is called __________________.

a. Net working capital

b. Excess cash

c. Inventory

d. Current Ratio

e. Accounts payable

33. A supplier, who requires payment within ten days, should be most concerned with which of the following ratios when granting credit?

a. Quick

b. Cash

c. Current

d. Total debt

e. Debt-equity

34. Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make?

a. 15

b. 13

c. 19

d. 12

35. The primary goal of corporate management?

a. Minimize the firms profit

b. Maximize the number of shareholders

c. Maximize the shareholders wealth

d. Minimize the firms cost

36. A car dealer offers payment of $373.28 per month for 48 months on an $18,000 car after making a $3000 down payment. What is the APR?

a. 6%

b. 12%

c. 10%

d. 11%

e. 9%

37. How much would you have in an account at the end of 50 years if you deposit $1000 today? The account pays 12% APR compounded semiannually. You will not make any additional calculations.

a. $100,000

b. $289,002.19

c. $339,302.08

d. $115,125,903.90

e. $18,420.15

38. Which one of the following accurately describes the three parts of the DuPont identity for the ROE?

a. Profitability, Operating efficiency, financial leverage (equity multiplier, profit margin, total asset turnover)

39. What is the present value of the following cash flows that occur at the end of each year? Your opportunity cost is 14%.

Year

Cash Flow

1-3

$200

4-6

$0

7-15

$1,100

a. $2,943.18

b. $4,136.85

c. $3,350.57

d. $4,255.73

e. $2,789.07

40. You estimate to fully fund your childs college education at OSU, you will need $200,000 at the time she is a freshman. She is currently 8 years old and will begin college when she is 18. How much must you deposit at the beginning of each month in an account paying an APR of 6%?

a. $1216.33

b. 600.30

c. $1220.41

d. $1222.38

e. $591.38

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