Finance Misc. Mid-term Problems 2015

| October 3, 2018

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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