# 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

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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