Taylor Inc., the company you work for, is considering a new project whose data are shown below. What is the project’s Year 1 cash flow?

### Finance

Orwell Building Supplies’ last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (r_{s}) is 12%. What is the best estimate of the current stock price?

Burke Tires just paid a dividend of D_{0} = $1.32. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?

Rogoff Co.’s 15-year bonds have an annual coupon rate of 9.5%. Each bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

- Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge

of:

A. capital structure management.

B. asset allocation.

C. risk management.

D. capital budgeting.

E. working capital management.

2. Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is

referred to as the firm’s:

A. capital structure.

B. capital budget.

C. asset allocation.

D. working capital.

E. risk structure.

3. Lester’s BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred

to as the firm’s:

A. capital structure.

B. cash equivalents.

C. working capital.

D. net assets.

E. fixed accounts.

4. Margie opened a used book store and is both the 100 percent owner and the store’s manager. Which type

of business entity does Margie own if she is personally liable for all the store’s debts?

A. Sole proprietorship

B. Limited partnership

C. Corporation

D. Joint stock company

E. General partnership

5. Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a

business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will

equally share in the decision making and in the profits or losses. Which type of business did they create if

they both have full personal liability for the firm’s debts?

A. Sole proprietorship

B. Limited partnership

C. Corporation

D. Joint stock company

E. General partnership

6. Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/

50 basis. Which type of entity did they create if they have no personal liability for the firm’s debts?

A. Limited partnership

B. Corporation

C. Sole proprietorship

D. General partnership

E. Public company

7. The potential conflict of interest between a firm’s owners and its managers is referred to as which type of

conflict?

A. Organizational

B. Structure

C. Formation

D. Agency

E. Territorial

8. The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as

a claim by one of the firm’s:

A. residual owners.

B. shareholders.

C. financiers.

D. provisional partners.

E. stakeholders.

9. The “Say on Pay” bill requires corporations to do which one of the following?

A. Give the chairman of the board the final say on executive pay

B. Give the firm’s creditors a nonbinding say on executive pay

C. Give the firm’s creditors a binding say on executive pay

D. Give shareholders a nonbinding vote on executive pay

E. Give shareholders a binding vote on executive pay

10. In 2009, the Obama administration established a maximum limit on executive salaries for firms that

received bailout funds. What was the amount of that salary limit?

A. $250,000

B. $500,000

C. $750,000

D. $1,000,000

E. $1,500,000

11. Jamie is employed as a commercial loan officer for a regional bank centered in the Midwestern section of

the U.S. Her job falls into which one of the following areas of finance?

A. International finance

B. Financial institutions

C. Corporate finance

D. Capital management

E. Investments

12. If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in

which one of the following financial areas?

A. international finance

B. private placements

C. corporate finance

D. capital management

E. investments

13. Which one of the following occupations best fits into the international area of finance?

A. Bank teller

B. Treasury bill analyst

C. Currency trader

D. Insurance risk manager

E. Local bank manager

14. Which of the following individuals commonly use finance in the course of their job?

I. Chief financial officers

II. Accountants

III. Security analysts

IV. Strategic managers

A. I and II only

B. III and IV only

C. I and III only

D. I, II, and III only

E. I, II, III, and IV

15. Which one of the following functions should be assigned to the treasurer rather than the controller?

A. Data processing

B. Cost accounting

C. Tax management

D. Cash management

E. Financial accounting

16. Which one of the following correctly defines a common chain of command within a corporation?

A. The controller reports directly to corporate treasurer.

B. The treasurer reports directly to the board of directors.

C. The chief financial officer reports directly to the board of directors.

D. The credit manager reports directly to the controller.

E. The controller reports directly to the chief financial officer.

17. Capital budgeting includes the evaluation of which of the following?

A. Size of future cash flows only

B. Size and timing of future cash flows only

C. Timing and risk of future cash flows only

D. Risk and size of future cash flows only

E. Size, timing, and risk of future cash flows

18. Which one of the following is a working capital decision?

A. How should the firm raise additional capital to fund its expansion?

B. What debt-equity ratio is best suited to our firm?

C. What is the cost of debt financing?

D. Which type of debt is best suited to finance our inventory?

E. How much cash should the firm keep in reserve?

19. Which one of the following is a capital structure decision?

A. Determining the optimal inventory level

B. Establishing the preferred debt-equity level

C. Selecting new equipment to purchase

D. Setting the terms of sale for credit sales

E. Determining when suppliers should be paid

20. Working capital management includes which one of the following?

A. Deciding which new projects to accept

B. Deciding whether to purchase a new machine or fix a current machine

C. Determining which customers will be granted credit

D. Determining how many new shares of stock should be issued

E. Establishing the target debt-equity ratio

21. The daily financial operations of a firm are primarily controlled by managing the:

A. total debt level.

B. working capital.

C. capital structure.

D. capital budget.

E. long-term liabilities.

22. A sole proprietorship:

A. provides limited liability for its owner.

B. involves significant legal costs during the formation process.

C. has an unlimited life.

D. has its profits taxed as personal income.

E. can generally raise significant capital from non-owner sources.

23. Which one of the following forms of business organization offers liability protection to some of its

owners but not to all of its owners?

A. Sole proprietorship

B. General partnership

C. Limited partnership

D. Limited liability company

E. Corporation

24. Maria is the sole proprietor of an antique store which she has operated at the same location for the past

16 years. The store rents the space in which it is located but does own all of the inventory and fixtures.

The store has an outstanding loan with the local bank but no other debt obligations. There are no specific

loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the

economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which

of the following options does the bank have to collect the money it is owed?

I. Sell the inventory and use the cash raised to apply to the debt

II. Sell the store fixtures and use the cash raised to apply to the debt

III. Take funds from Maria’s personal account at the bank to pay the store’s debt

IV. Sell any assets Maria personally owns and apply the proceeds to the store’s debt

A. I only

B. III only

C. I and II only

D. I, II, and III only

E. I, II, III, and IV

25. Which one of the following statements correctly applies to a sole proprietorship?

A. The business entity has an unlimited life.

B. The ownership can easily be transferred to another individual.

C. The owner enjoys limited liability for the firm’s debts.

D. Debt financing is easy to arrange in the firm’s name.

E. Obtaining additional equity is dependent on the owner’s personal finances.

26. Which one of the following applies to a general partnership?

A. The firm’s operations must be controlled by a single partner.

B. Any one of the partners can be held solely liable for all of the partnership’s debt.

C. The profits of the firm are taxed as a separate entity.

D. Each partner’s liability for the firm’s debts is limited to each partner’s investment in the firm.

E. The profits of a general partnership are taxed the same as those of a corporation.

27. In a general partnership, each partner is personally liable for:

A. the partnership debts that he or she created.

B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt.

C. the total debts of the partnership, even if he or she was unaware of those debts.

D. the debts of the partnership up to the amount he or she invested in the firm.

E.

all personal and partnership debts incurred by any partner, even if he or she was unaware of those

debts.

28. Which one of the following is an advantage of being a limited partner?

A. Non-taxable share of any profits

B. Control over the daily operations of the firm

C. Losses limited to capital invested

D. Unlimited profits without risk of incurring a loss

E. Active market for ownership interest

29. Which one of the following statements about a limited partnership is correct?

A. All partners have their losses limited to their capital investment in the partnership.

B. All partners are treated equally.

C. There must be at least one general partner.

D. Equity financing is easy to obtain and unlimited.

E. Any partner can transfer his or her ownership interest without ending the partnership.

30. A corporation:

A. is ultimately controlled by its board of directors.

B. is a legal entity separate from its owners.

C. is prohibited from entering into contractual agreements.

D. has its identity defined by its bylaws.

E. has its existence regulated by the rules set forth in its charter.

31. Which one of the following is contained in the corporate bylaws?

A. Procedures for electing corporate directors

B. State of incorporation

C. Number of authorized shares

D. Intended life of the corporation

E. Business purpose of the corporation

32. Which of the following are advantages of the corporate form of organization?

I. Ability to raise large sums of equity capital

II. Ease of ownership transfer

III. Profits taxed at the corporate level

IV. Limited liability for all owners

A. I and II only

B. III and IV only

C. II, III, and IV only

D. I, II, and IV only

E. I, II, III, and IV

33. Corporate shareholders:

A. are proportionately liable for the firm’s debts.

B. are protected from all losses.

C. have the ability to change the corporation’s bylaws.

D. receive tax-free distributions since all profits are taxed at the corporate level.

E. have basically no control over the actual corporation.

34. A limited liability company:

A. is a hybrid between a sole proprietorship and a partnership.

B. prefers its profits be taxed as personal income to its owners.

C. that meets the IRS criteria to be an LLC will be taxed like a corporation.

D. provides limited liability for some, but not all, of its owners.

E. cannot be created for professional service firms, such as accountants and attorneys.

35. Limited liability companies are primarily designed to:

A.

allow a portion of its owners to enjoy limited liability while granting the other portion of its owners

control over the entity.

B. provide the benefits of the corporate structure to foreign-based entities.

C. spin-off a wholly-owned subsidiary.

D. allow companies to reorganize themselves through the bankruptcy process.

E. provide limited liability while avoiding double taxation.

36. The primary goal of financial management is to maximize which one of the following for a corporation?

A. Current profits

B. Market share

C. Number of shares outstanding

D. Market value of existing stock

E. Revenue growth

37. Which one of the following best matches the primary goal of financial management?

A. Increasing the dollar amount of each sale

B. Increasing traffic flow within the firm’s stores

C. Transforming fixed costs into variable costs

D. Increasing the firm’s liquidity

E. Increasing the market value of firm

38. The goal of financial management is to increase the:

A. future value of the firm’s total equity.

B. book value of equity.

C. dividends paid per share.

D. current market value per share.

E. number of shares outstanding.

39. What is the goal of financial management for a sole proprietorship?

A. Maximize net income given the current resources of the firm

B. Decrease long-term debt to reduce the risk to the owner

C. Minimize the tax impact on the proprietor

D. Maximize the market value of the equity

E. Minimize the reliance on fixed costs

40. The Sarbanes-Oxley Act in 2002 was prompted by which one of the following from the 1990’s?

A. Increased stock market volatility

B. Corporate accounting and financial fraud

C. Increased executive compensation

D. Increased foreign investment in U.S. stock markets

E. Increased use of tax loopholes

41. The Sarbanes-Oxley Act of 2002 has:

A. reduced the annual compliance costs of all publicly traded firms in the U.S.

B. decreased senior management’s involvement in the corporate annual report.

C. greatly increased the number of U.S. firms that are going public for the first time.

D. decreased the number of U.S. firms going public on foreign exchanges.

E. made officers of publicly traded firms personally responsible for the firm’s financial statements.

42. Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

A. Increase the costs of going public

B. Increase protection against corporate fraud

C. Limit secondary issues of corporate securities

D. Decrease the number of publicly traded firms

E. Increase the number of firms that “go dark”

43. The Sarbanes-Oxley Act:

A. makes the officers of a public corporation personally responsible for the firm’s financial statements.

B. requires all corporations to fully disclose its financial dealings to the general public.

C. places the responsibility for a firm’s financial statements solely on the chief financial officer.

D. requires that the board of directors be solely responsible for the firm’s financial dealings.

E.

places total responsibility for the financial statements of a firm on the auditor who certifies the

statements.

44. Which one of the following situations is most apt to create an agency conflict?

A. Compensating a manager based on his or her division’s net income

B. Giving all employees a bonus if a certain level of efficiency is maintained

C. Hiring an independent consultant to study the operating efficiency of the firm

D. Rejecting a profitable project to protect employee jobs

E. Selling an underproducing segment of the firm

45. Which one of the following is most apt to create a situation where an agency conflict could arise?

A. Increasing the size of a firm’s operations

B. Downsizing a firm

C. Separating management from ownership

D. Decreasing employee turnover

E. Reducing both management and non-management salaries

46. Which one of the following is most apt to align management’s priorities with shareholders’ interests?

A. Increasing employee retirement benefits

B.

Compensating managers with shares of stock that must be held for 3 years before the shares can be

sold

C.

Allowing a manager to decorate his or her own office once he or she has been in that office for a period

of 3 years or more

D. Increasing the number of paid holidays that long-term employees are entitled to receive

E. Allowing employees to retire early with full retirement benefits

47. Which of the following are effective means of aligning management goals with shareholder interests?

I. Employee stock options

II. Threat of a takeover

III. Management bonuses tied to performance goals

IV. Threat of a proxy fight

A. I and III only

B. II and IV only

C. I, II, and III only

D. I, III, and IV only

E. I, II, III, and IV

48. Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She found a piece of

metal mixed in her cereal. The potential claim which Marti has against this firm is that of a(n):

A. general creditor.

B. debtholder.

C. shareholder.

D. stakeholder.

E. agent.

49. Which one of the following transactions occurred in the primary market?

A. Maria gave 100 shares of Alto stock to her best friend.

B. Gene purchased 300 shares of Alto stock from Ted.

C. South Wind Products sold 1,000 shares of newly issued stock to Mike.

D. Terry sold 3,000 shares of Uno stock to his brother.

E. The president of Trecco, Inc. sold 500 shares of Trecco stock to his son.

50. Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE.

Valerie’s purchase occurred in which market?

A. Dealer market

B. Over-the-counter market

C. Secondary market

D. Primary market

E. Tertiary market

51. Which one of the following statements is correct?

A. All secondary markets are dealer markets.

B. All secondary markets are broker markets.

C. All stock trades between existing shareholders are secondary market transactions.

D. All stock transactions are secondary market transactions.

E. All Dutch auction sales are secondary market transactions.

52. Ted currently owns 100 shares of a publicly traded stock which he would like to sell. Which one of the

following provides the most efficient means for Ted to sell his shares?

A. Issuer sponsored Dutch auction

B. Proxy statement

C. Private placement transaction

D. Stakeholder purchase

E. Secondary market transaction

53. Which one of the following parties can sell shares of ABC stock in the primary market?

A. ABC company

B. Any corporation, other than the ABC company

C. Institutional shareholder

D. Private individual shareholder

E. Any of the above

54. Which one of the following statements related to securities dealers is correct?

A. Dealers match buyers with sellers.

B. Dealers buy and sell from their own inventory.

C. Dealers operate on a physical trading floor.

D. Dealers operate exclusively in auction markets.

E. Dealers are limited to trading non-listed stocks.

55. An auction market:

A. is an electronic means of exchanging securities.

B. has a physical trading floor.

C. handles primary market transactions exclusively.

D. is also referred to as an OTC market.

E. is dealer based.

56. Which one of the following statements is correct?

A. NASDAQ has more listed stocks than does the NYSE.

B. The NYSE is a dealer market.

C. NASDAQ is an auction market.

D. NASDAQ has the most stringent listing requirements of any U.S. exchange.

E. The trading floor for NASDAQ is located in Chicago.

57. Which one of the following is a general characteristic of a securities broker?

A. Trades from his or her own inventory

B. Trades only foreign securities

C. Trades listed securities in an auction market

D. Trades electronically from any geographic location

E. Is the principal trader of debt securities

58. Which one of the following statements is correct?

A. All of the major stock exchanges are U.S. based.

B. The NYSE was created by the National Association of Securities Dealers in the early 1970’s.

C. The American Stock Exchange is a dealer market.

D. OTC markets have a physical trading floor generally located in either New York City or Chicago.

E. The primary purpose of the NYSE is to match buyers with sellers.

**QUESTION **

**1. **The ability of the firm to pay off short-term obligations as they come due is indicated by:

My Grade Point Average | ||

Turnover Ratios | ||

Liquidity Ratios | ||

Profitability Ratios |

**QUESTION 2**

ABC earned a net profit margin of 5.5% last year and had an equity multiplier of 2.6. If its total assets are $81 million and its sales are 180 million, what is the firm’s return on equity?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

**QUESTION 3**

A firm has sales of $350,000, a profit margin of 6 percent, a total asset turnover rate of 1.25, and an equity multiplier of 1.4. What is the return on equity?

10.50 percent | ||

7.50 percent | ||

7.75 percent | ||

11.11 percent | ||

5.36 percent |

**QUESTION 4**

ABC Corporation has the following ratios: Total Asset Turnover= 1.6 Total debt to total assets= 0.5 Current Ratio= 1.7 Current Liabilities= $2,000,000 Sales = $16,000,000 What is the amount of current assets?

2,000,000 | ||

3,200,000 | ||

3,400,000 | ||

1,000,000 |

**QUESTION 5**

The Baker s Dozen has current liabilities of $5,600, net working capital of $2,100, inventory of $3,900, and sales of $13,500. What is the quick ratio? Assume pre-paid expenses are zero.

0.68 | ||

0.70 | ||

1.38 | ||

1.47 | ||

2.08 |

**QUESTION 6**

If the debt ratio is 0.60, the Debt/Equity Ratio is:

1.25 | ||

0.25 | ||

1.20 | ||

0.20 | ||

0.80 | ||

1.5 |

** **

**QUESTION 7**

Toast and Butter, Inc., has total assets of $712,000 and an equity multiplier of 1.6. What is the debt-equity ratio?

0.60 | ||

0.67 | ||

0.63 | ||

1.60 | ||

1.67 |

** **

**QUESTION 8**

XYZ has total sales of $210, assets of $82, return on equity of 26%, and net profit margin of 5%. What is the amount of equity?

Enter you answer rounded off to two decimal points. Do not enter $ in the answer box.

**QUESTION 9**

Top Sound, Inc., has total assets of $212,000, a debt-equity ratio of .6, and net income of $9,500. What is the return on equity?

6.87 percent | ||

7.17 percent | ||

7.34 percent | ||

7.50 percent | ||

7.67 percent |

** **

**QUESTION 10**

If the debt ratio is 0.75, the Debt/Equity Ratio is:

0.75 | ||

0.25 | ||

1 | ||

5 | ||

1.75 | ||

3 |

** **

**QUESTION 11**

If the Debt/Equity Ratio is 0.60. What is the Debt Ratio?

0.40 | ||

0.375 | ||

0.60 | ||

1 | ||

o.4444 |

** **

**QUESTION 12**

If the debt ratio is 0.20, the Equity Multiplier is:

1.25 | ||

0.25 | ||

1.20 | ||

0.20 | ||

0.80 | ||

1.5 |

** **

**QUESTION 13**

ABC’s balance sheet indicates a book value of shareholders’ equity of $879,832. The firm’s earning per share are $3.5 and the price-earnings ratio is 12.12. If there are 58,347 shares outstanding, what is the book value per share?

Enter your answer rounded off to two decimal points. Do not enter $ in the answer box.

Hint: Market value per share is same as market price per share

** **

**QUESTION 14**

ABC’s balance sheet indicates a book value of shareholders’ equity of $713,385. The firm’s earning per share are $2.5 and the price-earnings ratio is 9.6. If there are 47,987 shares outstanding, what is the market-to-book ratio?

Enter your answer rounded off to two decimal points.

Hint: Market value per share is same as market price per share

** **

**QUESTION 15**

A firm has total assets of $682,000 and total equity of $424,000. What is the debt-equity ratio?

1.61 | ||

0.61 | ||

1.64 | ||

0.62 |

** **

**QUESTION 16**

Wexford Hotels has sales of $289,600, depreciation of $21,400, interest of $1,300, Operating Income of $23,269.70, and a tax rate of 34 percent. What is the times interest earned ratio?

20 | ||

17.9 | ||

18.5 | ||

16 | ||

19.8 |

** **

**QUESTION 17**

ABC’s balance sheet indicates a book value of shareholders’ equity of $866,173. The firm’s earning per share are $2.6 and the price-earnings ratio is 12.98. If there are 56,487 shares outstanding, what is the market value per share?

Enter your answer rounded off to two decimal points. Do not enter $ in the answer box.

Hint: Market value per share is same as market price per share.

**QUESTION 18**

If the Debt/Equity Ratio is 0.80. What is the Debt Ratio?

0.40 | ||

0.375 | ||

0.60 | ||

1 | ||

o.4444 |

** **

**QUESTION 19**

ABC, Inc., has a market-to-book ratio of 2, net income of $82,313, a book value per share of $19.5, and 46,103 shares of stock outstanding. What is the price-earnings ratio?

Enter your answer rounded off to two decimal points.

Enter your answer rounded off to two decimal points.

**1 points **

**QUESTION 20**

If the debt ratio is 0.80, the Equity Multiplier is:

0.8 | ||

0.2 | ||

1 | ||

5 | ||

1.8 | ||

4 |

**1 points **

**QUESTION 21**

If the Debt/Equity Ratio is 0.50. What is the Debt Ratio?

0.50 | ||

0.375 | ||

0.60 | ||

1 | ||

o.3333 |

**1 points **

**QUESTION 22**

XYZ earned a net profit margin of 4.2% last year and had an equity multiplier of 2.5. If its total assets are $108 million and its sales are 183 million, what is the firm’s debt ratio?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

**1 points **

**QUESTION 23**

XYZ earned a net profit margin of 4.6% last year and had an equity multiplier of 3.8. If its total assets are $97 million and its sales are 194 million, what is the firm’s return on assets?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

**1 points **

**QUESTION 24**

If Roten, Inc., has a equity multiplier of 1.75, total asset turnover of 1.30, and profit margin of 8.5 percent, what is the return on equity (ROE)?

19.34% | ||

2.275% | ||

1.75% | ||

14.875% |

**1 points **

**QUESTION 25**

- ABC’s Balance Sheet lists Current Assets of $300, Current Liabilities of $200, Fixed Assets of $700, Long-Term Debt of $400. ABC has 200 shares outstanding. What is the market-to-book ratio (MTB) if the market price per share is $8?

4 times | ||

400 times | ||

2 times | ||

8 times | ||

0.25 times |

**1 points **

**QUESTION 26**

- A firm has total equity of $70,312.50, a profit margin of 8 percent, an equity multiplier of 1.6, and a total asset turnover of 1.3. What is the amount of the firm s sales?

$91,406 | ||

$112,500 | ||

$121,500 | ||

$137,500 | ||

$146,250 |

**1 points **

**QUESTION 27**

- A firm has net working capital of $1,100 and current liabilities of $2,800. What is the current ratio?

.98 | ||

2.56 | ||

.39 | ||

.72 | ||

1.39 |

**1 points **

**QUESTION 28**

ABC has total sales of $214, assets of $114, return on equity of 32%, and net profit margin of 8%. What is the debt ratio?

Enter you answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

**1 points **

**QUESTION 29**

- The Jamestown Group has equity of $421,000, sales of $792,000, and a profit margin of 6 percent. What is the return on equity?

8.87 percent | ||

6.19 percent | ||

11.29 percent | ||

10.27 percent | ||

9.37 percent |

**QUESTION 30**

- Blackstone, Inc., has net income of $9,433, a tax rate of 31%, and interest expense of $715. What is the times interest earned ratio?

Enter your answer rounded off to two decimal points.

** **

**QUESTION 31**

- Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith s acid test ratio? Assume pre-paid expenses is zero.

1.69 | ||

0.54 | ||

0.74 | ||

1.35 |

Managerial Finance Quiz 2 Sample problems

We are able to assist you in solving these problems and understanding the concepts.

We also have available step by step solutions to problems below in excel.

QUESTION 1

1. The ability of the firm to pay off short-term obligations as they come due is indicated by:

My Grade Point Average

Turnover Ratios

Liquidity Ratios

Profitability Ratios

QUESTION 2

1. ABC earned a net profit margin of 5.5% last year and had an equity multiplier of 2.6. If its total assets are $81 million and its sales are 180 million, what is the firm’s return on equity?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 3

1. A firm has sales of $350,000, a profit margin of 6 percent, a total asset turnover rate of 1.25, and an equity multiplier of 1.4. What is the return on equity?

10.50 percent

7.50 percent

7.75 percent

11.11 percent

5.36 percent

QUESTION 4

1. ABC Corporation has the following ratios: Total Asset Turnover= 1.6 Total debt to total assets= 0.5 Current Ratio= 1.7 Current Liabilities= $2,000,000 Sales = $16,000,000 What is the amount of current assets?

2,000,000

3,200,000

3,400,000

1,000,000

QUESTION 5

1. The Baker s Dozen has current liabilities of $5,600, net working capital of $2,100, inventory of $3,900, and sales of $13,500. What is the quick ratio? Assume pre-paid expenses are zero.

0.68

0.70

1.38

1.47

2.08

QUESTION 6

1. If the debt ratio is 0.60, the Debt/Equity Ratio is:

1.25

0.25

1.20

0.20

0.80

1.5

QUESTION 7

1. Toast and Butter, Inc., has total assets of $712,000 and an equity multiplier of 1.6. What is the debt-equity ratio?

0.60

0.67

0.63

1.60

1.67

QUESTION 8

1. XYZ has total sales of $210, assets of $82, return on equity of 26%, and net profit margin of 5%. What is the amount of equity?

Enter you answer rounded off to two decimal points. Do not enter $ in the answer box.

QUESTION 9

1. Top Sound, Inc., has total assets of $212,000, a debt-equity ratio of .6, and net income of $9,500. What is the return on equity?

6.87 percent

7.17 percent

7.34 percent

7.50 percent

7.67 percent

QUESTION 10

1. If the debt ratio is 0.75, the Debt/Equity Ratio is:

0.75

0.25

1

5

1.75

3

QUESTION 11

1. If the Debt/Equity Ratio is 0.60. What is the Debt Ratio?

0.40

0.375

0.60

1

o.4444

QUESTION 12

1. If the debt ratio is 0.20, the Equity Multiplier is:

1.25

0.25

1.20

0.20

0.80

1.5

QUESTION 13

1. ABC’s balance sheet indicates a book value of shareholders’ equity of $879,832. The firm’s earning per share are $3.5 and the price-earnings ratio is 12.12. If there are 58,347 shares outstanding, what is the book value per share?

Enter your answer rounded off to two decimal points. Do not enter $ in the answer box.

Hint: Market value per share is same as market price per share

1 points

QUESTION 14

1. ABC’s balance sheet indicates a book value of shareholders’ equity of $713,385. The firm’s earning per share are $2.5 and the price-earnings ratio is 9.6. If there are 47,987 shares outstanding, what is the market-to-book ratio?

Enter your answer rounded off to two decimal points.

Hint: Market value per share is same as market price per share

QUESTION 15

1. A firm has total assets of $682,000 and total equity of $424,000. What is the debt-equity ratio?

1.61

0.61

1.64

0.62

QUESTION 16

1. Wexford Hotels has sales of $289,600, depreciation of $21,400, interest of $1,300, Operating Income of $23,269.70, and a tax rate of 34 percent. What is the times interest earned ratio?

20

17.9

18.5

16

19.8

QUESTION 17

1. ABC’s balance sheet indicates a book value of shareholders’ equity of $866,173. The firm’s earning per share are $2.6 and the price-earnings ratio is 12.98. If there are 56,487 shares outstanding, what is the market value per share?

Enter your answer rounded off to two decimal points. Do not enter $ in the answer box.

Hint: Market value per share is same as market price per share.

QUESTION 18

1. If the Debt/Equity Ratio is 0.80. What is the Debt Ratio?

0.40

0.375

0.60

1

o.4444

QUESTION 19

1. ABC, Inc., has a market-to-book ratio of 2, net income of $82,313, a book value per share of $19.5, and 46,103 shares of stock outstanding. What is the price-earnings ratio?

Enter your answer rounded off to two decimal points.

QUESTION 20

1. If the debt ratio is 0.80, the Equity Multiplier is:

0.8

0.2

1

5

1.8

4

QUESTION 21

1. If the Debt/Equity Ratio is 0.50. What is the Debt Ratio?

0.50

0.375

0.60

1

o.3333

QUESTION 22

XYZ earned a net profit margin of 4.2% last year and had an equity multiplier of 2.5. If its total assets are $108 million and its sales are 183 million, what is the firm’s debt ratio?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 23

XYZ earned a net profit margin of 4.6% last year and had an equity multiplier of 3.8. If its total assets are $97 million and its sales are 194 million, what is the firm’s return on assets?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 24

If Roten, Inc., has a equity multiplier of 1.75, total asset turnover of 1.30, and profit margin of 8.5 percent, what is the return on equity (ROE)?

19.34%

2.275%

1.75%

14.875%

QUESTION 25

ABC’s Balance Sheet lists Current Assets of $300, Current Liabilities of $200, Fixed Assets of $700, Long-Term Debt of $400. ABC has 200 shares outstanding. What is the market-to-book ratio (MTB) if the market price per share is $8?

4 times

400 times

2 times

8 times

0.25 times

QUESTION 26

A firm has total equity of $70,312.50, a profit margin of 8 percent, an equity multiplier of 1.6, and a total asset turnover of 1.3. What is the amount of the firm s sales?

$91,406

$112,500

$121,500

$137,500

$146,250

QUESTION 27

A firm has net working capital of $1,100 and current liabilities of $2,800. What is the current ratio?

.98

2.56

.39

.72

1.39

QUESTION 28

ABC has total sales of $214, assets of $114, return on equity of 32%, and net profit margin of 8%. What is the debt ratio?

Enter you answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 29

The Jamestown Group has equity of $421,000, sales of $792,000, and a profit margin of 6 percent. What is the return on equity?

8.87 percent

6.19 percent

11.29 percent

10.27 percent

9.37 percent

QUESTION 30

Blackstone, Inc., has net income of $9,433, a tax rate of 31%, and interest expense of $715. What is the times interest earned ratio?

Enter your answer rounded off to two decimal points.

QUESTION 31

Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith s acid test ratio? Assume pre-paid expenses is zero.

1.69

0.54

0.74

1.35

**Question 1 **

- A stock is expected to pay a dividend of $1.1 at the end of the year. The required rate of return is r
_{s}= 9.9%, and the expected constant growth rate is g = 7.7%. What is the stock’s current price?

*Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.*

1 points

**Question 2 **

- ABC Enterprises’ stock is currently selling for $60.3 per share. The dividend is projected to increase at a constant rate of 5.3% per year. The required rate of return on the stock is 12%. What is the stock’s expected price 5 years from today (i.e. solve for P5)?

*Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.*

* *

1 points

**Question 3 **

- A stock’s next dividend is expected to be $2.2. The required rate of return on stock is 12.4%, and the expected constant growth rate is 6.9%. What is the stock’s current price?

*Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.*

1 points

**Question 4 **

- A stock just paid a dividend of $2.6. The required rate of return is 16.6%, and the constant growth rate is 4.3%. What is the current stock price?

1 points

**Question 5 **

- If D
_{1}= $3.51, g (which is constant) = 2%, and P_{0}= $29.65, what is the stock’s expected dividend yield for the coming year?

*Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

1 points

**Question 6 **

- ABC’s last dividend paid was $1, its required return is 12.6%, its growth rate is 7.8%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 7 years, i.e., what is P7?

* *

1 points

**Question 7 **

- ABC’s stock has a required rate of return of 19%, and it sells for $67 per share. The dividend is expected to grow at a constant rate of 7.5% per year. What is the expected year-end dividend, D
_{1}?

* *

1 points

**Question 8 **

- ABC Enterprises’ stock is expected to pay a dividend of $0.6 per share. The dividend is projected to increase at a constant rate of 4.4% per year. The required rate of return on the stock is 12.7%. What is the stock’s expected price 3 years from today (i.e. solve for P3)?

* *

1 points

**Question 9 **

- If last dividend = $4.8, g = 4.7%, and P
_{0}= $67.2, what is the stock’s expected total return for the coming year?

*Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

1 points

**Question 10 **

- ABC Company’s last dividend was $4.5. The dividend growth rate is expected to be constant at 31% for 2 years, after which dividends are expected to grow at a rate of 6% forever. The firm’s required return (r
_{s}) is 12%. What is its current stock price (i.e. solve for Po)?

* *

1 points

**Question 11 **

- The common stock of Wetmore Industries is valued at $59.8 a share. The company increases their dividend by 6.7 percent annually and expects their next dividend to be $0.6. What is the required rate of return on this stock?

*Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

1 points

**Question 12 **

- ABC is expected to pay a dividend of $1.1 per share at the end of the year. The stock sells for $147 per share, and its required rate of return is 19.5%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (i.e. solve for g)?

1 points

**Question 13 **

- ABC just paid a dividend of D
_{0}= $1.7. Analysts expect the company’s dividend to grow by 31% this year, by 24% in Year 2, and at a constant rate of 6% in Year 3 and thereafter. The required return on this stock is 16%. What is the best estimate of the stock’s current market value?

* *

1 points

**Question 14 **

- If D
_{1}= $2, g (which is constant) = 8.2%, and P_{0}= $64.7, what is the stock’s expected total return for the coming year?

1 points

**Question 15 **

- ABC’s last dividend was $3.1. The dividend growth rate is expected to be constant at 20% for 3 years, after which dividends are expected to grow at a rate of 5% forever. If the firm’s required return (r
_{s}) is 16%, what is its current stock price (i.e. solve for Po)?

* *

1 points

**Question 16 **

- ABC Inc., is expected to pay an annual dividend of $1.8 per share next year. The required return is 17.3 percent and the growth rate is 6.5 percent. What is the expected value of this stock five years from now?

* *

1 points

**Question 17 **

- The common stock of Connor, Inc., is selling for $31 a share and has a dividend yield of 2.2 percent. What is the dividend amount?

* *

1 points

**Question 18 **

- A stock just paid a dividend of D
_{0}= $2.1. The required rate of return is r_{s}= 15.2%, and the constant growth rate is g = 5.4%. What is the current stock price?

**Question 1 **

- Portfolio diversification eliminates which one of the following?

Total investment risk | ||

Portfolio risk premium | ||

Market risk | ||

Unsystematic risk | ||

Reward for bearing risk |

**Question 2 **

- A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.29 while the beta of stock B is 0.90. One-half of the portfolio is invested in the risk-free security. How much is invested in stock A if the beta of the portfolio is 0.58?

$6,000 | ||

$9,000 | ||

$12,000 | ||

$15,000 | ||

$18,000 |

1 points

**Question 3 **

- Standard deviation measures _____ risk while beta measures _____ risk.

systematic; unsystematic | ||

unsystematic; systematic | ||

total; unsystematic | ||

total; systematic | ||

asset-specific; market |

1 points

**Question 4 **

- You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

9.58 percent | ||

9.62 percent | ||

9.74 percent | ||

9.97 percent | ||

10.23 percent |

1 points

**Question 5 **

- What is the beta of the following portfolio?

0.98 | ||

1.02 | ||

1.11 | ||

1.14 | ||

1.20 |

1 points

**Question 6 **

- You own a portfolio that has $1,900 invested in Stock A and $2,700 invested in Stock B. If the expected returns on these stocks are 9 percent and 15 percent, respectively, what is the expected return on the portfolio?

10.57 percent | ||

11.14 percent | ||

11.96 percent | ||

12.52 percent | ||

13.07 percent |

1 points

**Question 7 **

- The stock of Billingsley United has a beta of 0.92. The market risk premium is 8.4 percent and the risk-free rate is 3.2 percent. What is the expected return on this stock?

8.87 percent | ||

9.69 percent | ||

10.93 percent | ||

11.52 percent | ||

12.01 percent |

1 points

**Question 8 **

- What is the beta of the following portfolio?

1.08 | ||

1.14 | ||

1.17 | ||

1.21 | ||

1.23 |

**Question 9 **

- The systematic risk is same as:

Unique risk | ||

Diversifiable risk | ||

Asset-specific risk | ||

Market risk | ||

Unsystematic risk |

**Question 10 **

- You own a portfolio invested 25.17% in Stock A, 16.06% in Stock B, 10.11% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.68, 0.84, 0.47, and 1.24. What is the portfolio beta?

*Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.*

1 points

**Question 11 **

- You have observed the following returns on ABC’s stocks over the last five years:

3.5%, 8.2%, -13.5%, 12.7%, -2.2%

What is the arithmetic average returns on the stock over this five-year period.

*Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

1 points

**Question 12 **

- Suppose a stock had an initial price of $62.27 per share, paid a dividend of $5.8 per share during the year, and had an ending share price of $86.37. What are the percentage returns if you own 25 shares?

*Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

**Question 13 **

- Suppose a stock had an initial price of $91.87 per share, paid a dividend of $9.3 per share during the year, and had an ending share price of $90.79. If you own 193 shares, what are the dollar returns?

**Question 14 **

- Calculate the expected returns of your portfolio

Stock | Invest | Exp Ret |

A | $251 | 7.4% |

B | $955 | 19% |

C | $1,265 | 25.4% |

*Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.*

**Question 15 **

- Suppose a stock had an initial price of $93.2 per share, paid a dividend of $5.6 per share during the year, and had an ending share price of $106.03. What are the dollar returns?

1 points

**Question 16 **

- You have observed the following returns on ABC’s stocks over the last five years:

3.8%, 8.1%, 4.8%, 10.2%, 8.9%

What is the geometric average returns on the stock over this five-year period.

*Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.*

**Question 17 **

- Suppose a stock had an initial price of $96.2 per share, paid a dividend of $6 per share during the year, and had an ending share price of $104.92. What are the percentage returns?

**Question 18 **

- Suppose the real rate is 2.84% and the inflation rate is 6.24%. Solve for the nominal rate.

**Question 19 **

- Suppose the returns for Stock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%.

Compute the standard deviation of the returns.

1. How many years it will take you to double your money if you can earn 5% each year, given that compounding is

quarterly? Note: Do not write “years” in your answer. Simply write the number in the answer box.

2. Consider a 10-year loan with monthly payments at 10%. If the loan amount is $250,000, compute the Interest

paid during the 6th year.

3. The ABC Company is considering a new project which will require an initial cash investment of $13,248. The

projected cash flows for years 1 through 4 are $9,734, $9,362, $8,528, and $5,772, respectively. If the

appropriate discount rate is 11%, compute the NPV of the project.

4. What is the future value of annual payments of $5,016 for 14 years at 4 percent?

5. Assume interest rate of 13%. A company receives cash flows of $969 at the end of year 5, $385 at the end of

year 7, and $389 at the end of year 10. Compute the future value of this cash flow stream.

6. If you can triple your money in 27 years, what is the implied rate of interest? Note: Do not put % sign in your

answer.

7. What is the future value of $564 invested for 18 years at 12% if interest is compounded semi-annually? Note: Do

not put $ sign in your answer.

8. What is the effective rate of 10% compounded monthly?

9. Say, you deposit $4,382 in a bank for 16 years. What is the amount you will have in the bank at the end of 16

years if interest of 5 % compounded monthly for first 7 years and interest of 8 % compounded quarterly for the

remaining years?

10. If you can double your money in 13 years, what is the implied annual rate of interest, given that compounded in

quarterly?

11. If you receive $308 at the end of each year for the first three years and $619 at the end of each year for the next

three years. What is the present value? Assume interest rate is 5%.

Hint: This is an uneven cash flow problem. Use the CF function and solve for NPV to get the answer.

12. What is the future value of quarterly payments of $562 for 14 years at 6 percent?

13. What is the future value of $11,866 for 9 years at 9 percent if interest is compounded semi-annually?

14. The ABC Company is considering a new project which will require an initial cash investment of $5,753. The

project will produce no cash flows for the first 5 years. The projected cash flows for years 6 through 9 are

$3,730, $4,568, $2,018, and $3,118, respectively. If the appropriate discount rate is 12%, compute the NPV of

the project.

15. If the effective rate is 11%. What is the nominal rate if compounding is daily?

16. How many months it will take to grow your money from $3,711 to $6,515 if you can earn an interest of 19%

compounded monthly?

17. If you can double your money in 29 years, what is the implied annual rate of interest, given that compounded

semi-annually?

18. How much do you need to invest today in order to have $5,268 at the end of 16 years if you are sure to earn an

interest at the rate of 5%?19. If you put $700 in a savings account with a 10% nominal rate of interest compounded monthly, what will the

investment be worth in 21 months (round to the nearest dollar)?

1. A) $827 / B) $770 / C) $833 D) $828 E) $1,176

20. What is the future value of $2,348 invested for 15 years at 13% if interest is compounded quarterly?

21. Kelly starting setting aside funds 8 years ago to buy some new equipment for her firm. She has saved $6,280

each quarter and earned an average rate of return of 4 percent. How much money does she currently have

saved for this purpose?

22. In order to buy a house, you take a loan of 100,000 at 7.5% for a period of 13 years. Compute the balance

remaining at the end of 5 years.

23. How many years it will take to grow your money from $4,503 to $7,232 if you can earn an interest of 17%

compounded monthly?

24. How much do you need to invest today in order to have $3,763 at the end of 27 years if you are sure to earn an

interest at the rate of 11%, if interest is compounded quarterly?

25. How much do you need to invest today in order to have $4,507 at the end of 28 years if you are sure to earn an

interest at the rate of 10%, if interest is compounded monthly?

26. What is the future value of $1,103 invested for 24 years at 11% if interest is compounded semi-annually (twice a

year)?

27. Barrett Pharmaceuticals is considering a drug project that costs $185,689 today and is expected to generate

end-of-year annual cash flows of $11,781, forever. At what discount rate would Barrett be indifferent between

accepting and rejecting the project?

28. What should you be willing to pay in order to receive $655 annually forever, if you require 6% per year on the

investment?

29. How many years it will take to grow your money from $3,153 to $8,775 if you can earn an interest of 6%

compounded quarterly?

30. Today, you are purchasing a $1,746 13-year car loan at 7 percent. You will pay annually at the end of each year.

What is the amount of each payment?

31. Assume interest rate of 3%. Suppose that you receive $91,917 at the end of each year for 4 years. Suppose that

this cash flow starts at the end of the fourth year. Compute the present value.

32. The Perpetual Life Insurance Co is trying to sell you an investment policy that will pay you and your heirs

$10,113 per year forever. Suppose the Perpetual Life Insurance Co. told you the policy costs $179,869. At what

interest rate would this be a fair deal?

33. Say, you deposit $1,680 in a bank for 18 years. What is the amount you will have in the bank at the end of 18

years if interest of 4 % for first 8 years and interest of 10 % for the remaining years?

34. How many years it will take you to quadruple (means 4 times) your money if you can earn 14.08% each year?

35. Gertrude Carter and Co. has an outstanding loan that calls for equal annual payments of $14,903 over the 10-

year life of the loan. The original loan amount was $100,000 at an APR of 8 percent. How much of the third

payment is interest?

36. Assume interest rate of 3%. A company receives cash flows of $86,130 at the end of years 4, 5, 6, 7, and 8, and

cash flows of $280,548 at the end of year 10. Compute the future value of this cash flow stream.