If Boyd Corporation has sales of $2 million per year (all credit) and days sales outstanding of 35 days

| December 10, 2017

If Boyd Corporation has sales of $2 million
per year (all credit) and days sales outstanding of 35 days, what is its
average amount of accounts receivable outstanding (assume a 360 day year)?

$194,444

$57,143

$5,556

$97,222

$285,714

2. An analysis of a firm’s financial ratios
over time that is used to determine the improvement or deterioration in its
financial situation is called

sensitivity analysis

DuPont chart

ratio analysis

progress chart

trend analysis

3. Which of the following financial
statements shows a firm’s financing activities (how funds were generated) and
investment activities (how funds were used) over a particular period of
time?

balance sheet
income statement

statement of retained earnings

statement of cash flows

proxy statement

4. Determine the increase or decrease in
cash for Rinky Supply Company for last year, given the following information.
(Assume no other changes occurred during the past year.)

Decrease in marketable securities = $25
Increase in accounts receivables = $50
Increase in notes payable = $30
Decrease in accounts payable = $20
Increase in accrued wages and taxes = $15
Increase in inventories = $35
Retained earnings = $ 5

-$50

+$40

-$30

+$20

-$10

5. Which of the following statements is
correct?
The
annual report contains four basic financial statements: the income statement; balance
sheet; statement of cash flows; and statement of changes in long-term
financing.
Although the annual report is geared toward
the average stockholder, it represents financial analysts’ most complete source
of financial information about the firm.
The key importance of annual report
information is that it is used by investors when they form their expectations
about the firm’s future earnings and dividends and the riskiness of those cash
flows.
The annual report provides no relevant
information for use by financial analysts or by the investing public.
None
of the above statements is correct.

6. A firm has total interest charges of
$10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net
profit margin of 6 percent. What is the firm’s times-interest-earned ratio?

16 times

10 times

7 times

11 times

20 times

7.
What is the future value of a 5-year ordinary annuity with annual payments of
$200, evaluated at a 15 percent interest rate?

$670.44

$842.91

$1,169.56

$1,522.64

$1,348.48

8. As the discount rate increases without
limit, the present value of the future cash inflows :

Gets larger without limit.

Stays unchanged.

Approaches zero.

Gets smaller without limit, i.e., approaches minus infinity.

Goes to ern.

9. Assume that you will receive $2,000 a
year in Years 1 through 5, $3,000 a year in Years 6 through 8, and $4,000 in
Year 9, with all cash flows to be received at the end of the year. If you
require a 14 percent rate of return, what is the present value of these cash
flows?

$9,851

$13,250

$11,714

$15,129

$17,353

10. At an effective annual interest rate of
20 percent, how many years will it take a given amount to triple in value?
(Round to the closest year.)

5

8

6

10

9

11. As the winning contestant in a
television game show, you are considering the prizes to be awarded. You must indicate
to the sponsor which of the following two choices you prefer, assuming you want
to maximize your wealth. Assume it is now January 1, and there is no danger
whatever that the sponsor won’t pay off.
(1) $1,000 now and another $1,000 at the
beginning of each of the 11 subsequent months during the remainder of the year,
to be deposited in an account paying 12 percent simple annual rate, but
compounded monthly (to be left on deposit for the year).
(2) $12,750 at the end of the year.
Which one would you choose?

Choice 1

Choice 2

Choice 1, if the payments were made at the end of the year.

The choice would depend on how soon you need the money.

Either one, since they have the same present value.

12. You are given the following cash flow
information. The appropriate discount rate is 12 percent for Years 1-5 and 10
percent for Years 6-10. Payments are received at the end of the year.
Year Amount
1–5
$20,000
6–10
$25,000
What should you be willing to pay right now
to receive the income stream above?

$166,866

$158,791

$225,000

$125,870

$198,433

13. Assume that you can invest to earn a
stated annual rate of return of 12 percent, but where interest is compounded semiannually.
If you make 20 consecutive semiannual deposits of $500 each, with the first
deposit being made today, what will your balance be at the end of Year 20?

$52,821.19

$57,900.83

$58,988.19

$62,527.47

$64,131.50
14.
Vegit Corporation needs to borrow funds to support operations during the
summer. Vegit’s CFO is trying to decide whether to borrow from the Bank of
Florida or the Bank of Georgia. The loan offered by Bank of Florida has a 12.5
percent simple interest rate with annual interest payments, whereas the loan
offered by the Bank of Georgia has a 12 percent simple interest rate with
monthly payments. Which bank should Vegit use for the loan?
Bank of Georgia, because the 12 percent
simple interest is cheaper than the 12.5 percent simple interest at Bank of
Florida.
Bank of Georgia, because the effective
interest rate on the loan is less than 12 percent, whereas the effective
interest rate on the loan at the Bank of Florida is greater than 12.5 percent.
Bank of Florida, because the simple
interest rate is higher, which means that Vegit will be able to invest the
proceeds from the loan at a higher rate of return.
Bank of Florida, because the effective
interest rate on the loan is 12.5 percent, which is less than the 12.7 percent
effective interest rate on the loan offered by the Bank of Georgia.
There is not enough information to answer
this question.

15. Which of the following statements is
correct?
For the most part, our federal tax rates
are progressive, because higher incomes are taxed at higher average rates.
Bonds issued by a municipality such as the
city of Miami would carry a lower interest rate than bonds with the same risk
and maturity issued by a private corporation such as Florida Power & Light.
Our federal tax laws tend to encourage
corporations to finance with debt rather than with equity securities.
Our federal tax laws encourage the managers
of corporations with surplus cash to invest it in stocks rather than in bonds.
However, other factors may offset tax considerations.
All
of the above statements are true.

16. Your corporation has the following cash
flows:
Operating income $250,000
Interest received 10,000
Interest paid 45,000
Dividends received 20,000
Dividends paid 50,000

If the applicable income tax rate is 40
percent, and if 70 percent of dividends received are exempt from taxes, what is
the corporation’s tax liability?

$74,000

$88,400

$91,600

$100,000

$106,500

17. If the yield curve is downward sloping,
what is the yield to maturity on a 10-year Treasury coupon bond, relative to
that on a 1-year T-bond?
The yield on the 10-year bond is less than
the yield on a 1-year bond.
The yield on a 10-year bond will always be
higher than the yield on a 1-year bond because of maturity premiums.
It is impossible to tell without knowing
the coupon rates of the bonds.
The yields on the two bonds are equal.
It is impossible to tell without knowing
the relative risks of the two bonds.

18. Solarcell Corporation has $20,000 which
it plans to invest in marketable securities. It is choosing between AT&T
bonds which yield 11%, State of Florida municipal bonds which yield 8%, and
AT&T preferred stock with a dividend yield of 9%. Solarcell’s corporate tax
rate is 40%, and 70% of the preferred stock dividends it receives are tax
exempt. Assuming that the investments are equally risky and that Solarcell
chooses strictly on the basis of after-tax returns, which security should be
selected? Answer by giving the after-tax rate of return on the highest yielding
security.

8.46%

8.00%

7.92%

9.00%
9.16%

19. Assume that the current yield curve is
upward sloping, or normal. This implies that :

Short-term interest rates are more volatile than long-term rates.

Inflation is expected to subside in the future.

The economy is at the peak of a business cycle.

Long-term bonds are a better buy than short-term bonds.

None of the above statements is necessarily implied by the yield curve
given.

20. Interest rates on 1-year, 2-year, and
3-year Treasury bills are 5%, 6%, and 7% respectively. Assume that the pure
expectations theory holds and that the market is in equilibrium. Which of the
following statements is most correct?
The maturity risk premium is positive.
Interest rates are expected to rise over
the next two years.
The market expects one-year rates to be
5.5% one year from today.
Answers a, b, and c are all correct.
Only answers b and c are correct.

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