BA 10 - Accounting and Finance - Spring 2002 - Robinson

BA 10 - Accounting and Finance - Spring 2002 - Robinson -...

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Unformatted text preview: AccouNnNo- FHUP FINANCE SPIZlNG-ZOO'Z. Instructions Business Administration 10 A 1 0 Principles of Business HAAS SCHOOL OF BUSINESS May 2002 Module 5 Exam: Accounting & Finance David Robinson Make sure your family name comes first! This is an examflplease do not talk Your books and notes must be put cempletel You need a Scantron 882 E5 or I: ~ #2 pencil; if you are without either, raise your hand While you are waiting to - :1, enter the following on your Scantron: Name: EEEEI First M. Suhkcfl 1234d5678 your Student Identification Number TestNo.: {A, B, C, or D} This is the test version—you won’t know this until you open the test Date: (1, 2, etc) This module number Houn Your Section number: [101 m 114), BA—1O Accounting & Finance 1 You have rented a ski condo at Tahoe for the weekend and have paid in full $359 for rent. You decide to invite some friends with y0u at the price of $70 each for room and breakfast. The food will cost you an additional $20 for each person who comes. Atwhat point do yOu “break even” on rent? a.~ 5 friends aw M . a’: b. 6 friends . Q {hm}: ., c. 7 friends M . d. 8 friends j”) Large, highly credit worthy firms often loan money to one another by buying “commercial paper.” This is a form of funding for the firm that sells the paper and usually costs than an equivalent bank loan. a. Short—term, more (/15: Long—term, more , c. Short—term, less 4.‘ a ‘ ,di'i Long—term, more ~17" ./ The format for the Income Statement is (£11, {-5) 21. Income — Expenses = Revenue .55 R b. Revenue + Expenses = Income ""3"" ' c. Income + Revenue = Expenses d. Revenue — Expenses = Income One of the following is not true about the Fiscal Year, which one? a. Each company can choose its own Fiscal Year b. Companies in the same industry tend to end their Fiscal Year at about the same time c. The Fiscal Year need not end on 31 December d. Each Fiscal Year must have 365 days We are using double entry bookkeeping. We use cash to buy a cash register that we expect to use in the business for 15 years. Which is true: a. Cash goes down, inventory goes up b. Cash goes down, Property Plant and Equipment (PPE) goes up c. Cash goes up, Property Plant and Equipment (PPE) goes down d. Cash goes up, Inventory goes down. Which is true of Land a Balance Sheet item? It is an Asset It does not depreciate It is considered part of inventory A and B are true A and C are true stoop—e 2 BA-1O Accounting & Finance 7. Déflimlt This week, Microsoft announced it is buying a Danish software company, Navision, for $1.3 billion. Microsoft can afford this without issuing new shares because it has more than $38 bilfi'on in cash. Many analysts think this may not be a good thing to have this much cash because: a. It may cause Microsoft to overpay for acquisitions b. It causes Microsoft to be in a high tax bracket c. Most people do not consider holding cash to be a very productive use of capital . A and B are true e. A and C are true 8. Which ratio would tell you if a firm is becoming more profitable? a. Net margin percent b. Debt/ Inventory ratio c. Inventory turns (1. Current ratio 9. One of the following is not true of a firm’s Retained Earnings in general: a. They are inSufficient to fund growth in a rapidly growing firm 1). They are considered part of Assets on the Balance sheet c. They are a cheap source of capital d. They are considered part of Equity on the Balance sheet 10. Dgfiimlt A firm has won a very large new order, but is suffering from undercapitalization. The cheaper! my to deal with this problem is to: a. Sell the invoices to a factor b. Take out a bank loan c. ' Rely on trade credit d. Sell bonds 11. Which type ofinvestments do Pension Funds often seek? a Long term investments with predictable returns b. Short term investments with very high returns, but high risk c. Long term investments with below market returns d. Medium-term investments which have zero returns 12. Which technique of controlling the money supplyis occasionally used in Europe, but almost never used in the United States? a. Buying government bonds in the open market b. Changing the rules for consumer credit, especially minimum downpayments c. Changing the discount rate d. Selling government bonds on the open market 13. 14. 15. 16. 17. 18. BA-iO Accounting & Finance 3 The prevailing interest rate is 10 percent. What is the present value of the sum of $1,100 to be received one time period from now? a. $1,000 13. $1,110 c. $1,190 d. $1,210 The Clinton administration was successful in changing most long—term government debt From 30—year maturity to 10—year. This is: a. A bad idea as it increases the amount of interest the government has to pay b. A good idea as it decreases the amount of interest the government has to pay c. A good idea as it increases the amount of interest that investors receive from the government d. Has no net effect on the interest paid. You read in the Wall Street Journal that the price of Lucent’s 2008 bonds has dropped, and you conclude that: a. The current yield of these bonds has gone down b. The current yield of these bonds has gone up c. The coupon rate of these bonds has gone down d. The coupon rate of these bonds has gone up In general, the stock markets give the highest P/ E (Price Earnings) multiples to firms which: a. Have prospects to grow earnings b. - Have prospects to grow revenues c. Have stable earnings ‘ d. Have stable revenues The “Total Return” of a stock is: a. The number of shares sold by investors (returned to the company) b. Dividend paid + share price appreciation c. Share price appreciation — Dividend paid d. None of the above Which of the following is true about the Partnership form of business? a. General partners have unlimited liability b. Limited partners have liability only up to the amount paid into the partnership c. Limited partners have no active role in the business d. All of the above are true 19. 20. 21. 22. 23. BA—10 Accounting & Finance Which group of investors typically has a long time horizon, and low tolerance for risk? a. Savers b. Wealthy individuals c. Retirees d. Speculators Walter Hewlett recently sued the management of Hewlett—Packard (and lost) in Delaware State court over the planned merger with Compaq. He man.“ [#2391 chose Delaware as the venue for this case because: . HP is headquartered in Delaware b. HP is incorporated in Delaware c. Carly Fiorina, the CEO of HP, has a Delaware drivers’ license d. Walter Hewlett is resident in Delaware for tax purposes a The IRS considers you to use “cash basis” for your accounting. Most companies, however, use: a. Deferred revenue b. Accelerated revenue c. Accrual accounting d. Deferral accounting You are organizing a party and have paid a D} $200 deposit, part ofa $500 total fee. If you cancel, you lose the deposit, but wouldn’t have to pay the rest of the fee. Because you have promised a “dry” (alcohol-free) party, sales of tickets have been poor—only three $20 tickets have been sold. You are considering canceling, and your friends say: “No, that’d be a waste of $200!” You respond: a. The $200 is a sunk cost The $300 remainder we’d have to pay the DJ is a sunk cost b. c. The $500 is a sunk cost d. This is too difficult to figure out! Which of the following is true: 25/ Dividends paid are tax deductible for the firm, but are taxable to the i I shareholder who receives them b. Dividends paid are not tax deductible for the firm, and are taxable to the shareholder who receives them c. Corporate bond interest is a tax deductible expense for a firm, but is taxable interest for a bond owner d. A and C are true 1:, B and C are true 25. 26. 27. 28. 29. 30. BA-1O Accounting & Finance 5 Many Enron retirees have apparently lost their life savings with the collapse and bankruptCy filing of the firm. The mistake these individuals made was: i . Investing in derivatives b. Using only index funds c. Investing heavily in ETF (Exchange Traded Funds) d. Failing to diversify their stock holdings ’1 Which of the following is not a current criticism of stock mutual funds? a. There are probably too many funds b. There are too few funds to meet investors’ needs c. Most funds don’t stick with a pure investing style d. Most funds underperform the relevant index Your grandma has purchased a financial instrument from an insurance company. In return for a premium of $10,000, the company agrees to pay Grandma $600 a year as long as she lives. This instrument is: a. A life insurance policy b. A mortgage c. A debenture d. An annuity For Net Present Value calculations, firms need to choose an interest rate. If the firm selects the “opportunity cost of capital” they are considering: a. The rate for the 10—year Treasury bond b. What the firm could have earned in interest if it invested its money elsewhere c. The Prime Rate d. The rate that the firm is paying on its bonds “Spiders,” “Cubes,” and “Diamonds" are examples of Exchange Traded Funds. All except which one of the following is true: They are traded on the exchanges like regular stocks They have very high commission costs They are very liquid They can be used for “index investing” 9-???” During the height of the “bubble” in technology stock valuations, the P/ E (Price Earnings ratio) of some stocks (such as Cisco) reached astronomical heights and analysts were forced to use this method for determining the stock price: a. Guessing what investors would be willing to pay b. Comparing the stock with historical P / E ratios c. Discounting future cash flows d. None of the above This is version A; bubble in —A- for this question and write “A" in the identification section of your Scantron. Ifjau do not answer flair qwertz'on,_you [are tbepaz'n ...
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