# Finance Misc. Mid-term Problems 2015

7. The King Carpet Company has $3,000,000 in cash and a

total of $12,000,000 in current assets. The firm’s current liabilities equal

$6,000,000 such that the firm’s current ratio equals 2. The company’s managers

want to reduce the firm’s cash holdings down to $1,000,000 by paying $500,000

in cash to expand the firm’s truck fleet and using $1,500,000 in cash to retire

a short-term note. If the carry this plan through, what will be the firm’s NEW

current ratio?

a.2.00

b. 2.22

c. 2.42

d. 1.52

9. Your grandmother asks for your help in choosing a

certificate of deposit (CD) from a bank with a one-year maturity and a fixed

interest rate. The first certificate of deposit, CD #1 pays 4.99% APR

compounded daily and the second certificate of deposit, CD #2 pays 5.00% APR

compounded monthly. Based on the effective annual rate (EAR) which CD would you

suggest for her [keep two digits after decimals]?

a. CD #1

b. CD #2

c. Either one is best

d. They are not comparable due to

different rates

11. You are trying to plan for retirement in 10 years and

currently you have $150,000 in a savings account and $250,000 in stocks. In

addition, you plan to deposit $8,000 per year into your savings account at the

end of each of the next five years, and then $10,000 per year at the end of

each year for the final five years until you retire. Assume your savings

account returns 8% compounded annually, and your investment in stocks will

return 12% compounded annually.

a. $323,839

b.$162,000

c.$270,000

d.$1,500,000

15.You are trying to plan

for retirement in 10 years and currently you have $150,000 in a savings

account and $250,000 in stocks. In addition, you plan to deposit $8,000 per

year into your savings account at the end of each of the next five years, and

then $10,000 per year at the end of each year for the final five years until

you retire. Assume your savings account returns 8% compounded annually, and

your investment in stocks will return 12% compounded annually.

a. $46,933

b.$68,960

c.$68,690

d.$550,000

17.You are trying to

plan for retirement in 10 years and currently you have $150,000 in a

savings account and $250,000 in stocks. In addition, you plan to deposit

$8,000 per year into your savings account at the end of each of the next

five years, and then $10,000 per year at the end of each year for the final

five years until you retire. Assume your savings account returns 8%

compounded annually, and your investment in stocks will return 12%

compounded annually.

a. $58,666

b. $144,866

c. $50,000

d. $73,466

19. You are trying to plan for retirement in 10 years and currently you have

$150,000 in a savings account and $250,000 in stocks. In addition, you plan to

deposit $8,000 per year into your savings account at the end of each of the

next five years, and then $10,000 per year at the end of each year for the

final five years until you retire. Assume your savings account returns 8%

compounded annually, and your investment in stocks will return 12% compounded

annually.

How much (FV of all savings) will you have at the end of 10 years?

a. $1,100,301

b. $1,169,261

c. $1,219,261

d. $1,227,927

23. Syntex, Inc. is considering an investment in one of two common stocks.

Given the information that follows:

Calculate the risk (standard

deviation) of stock A.

a. 10.00%

b. 3.10%

c. 15.00%

d. 0.10%

25.Syntex, Inc. is

considering an investment in one of two common stocks. Given the information

that follows:

Calculate the risk (standard deviation) of

stock B.

a. 0.83%

b. 8.33%

c. 9.11%

d. 9.40%

30. Which of the following statements is true?

a. As a general rule, management

would want to reduce the firm’s average collection period.

b. As a general rule, management

would want to reduce the firm’s accounts receivable turnover ratio.

c. As a general rule, management

would want to increase the firm’s average collection period.

d. As a general rule, a firm is

not financially affected by the amount of time required to collect its

accounts receivable.

34.What is a series of equal payments for an

infinite period of time called?

a. A perpetuity

b. A cash cow

c. An annuity

d. An axiom

35. The present value of a perpetuity decreases when the

________ decreases.

a. Number of investment periods

b. Annual discount rate

c. Perpetuity payment

d. Both annual discount rate and

perpetuity payment

37.A decrease in ________ will increase

gross profit margin.

a. Cost of goods sold

b. Depreciation expense

c. Interest expense

d. Both cost of goods sold and

depreciation expense

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