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

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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