Final Review Bus 170 - Practice Final Solutions 1. The...

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Practice Final Solutions 1. The followings are considered as financial assets, except: A) well-trained sales force. B) car insurance. C) checking accounts. D) mortgage loans. Answer: A A well-trained sales force is not a financial asset. All the others are financial assets. 2. Which of the following does NOT address the question: "What are the roles of a financial manager?" I. Deciding how to maximize the stock prices. II. Deciding the capital mix of long-term debt and equity. III. Deciding which projects a firm should undertake. IV. Deciding how much short-term debt to borrow. A) I only B) III only C) II and III only D) II, III, and IV only E) I, II, III, and IV Answer: A Maximizing the stock price is not a role of the financial manager. 3. Given the following income statement data, calculate net income : sales = $2,500, cost of goods sold = $1,800, miscellaneous expenses = $200, depreciation = $150, interest expense = $50, average tax rate = 35%. A) $195 B) $230 C) $377 D) $425 Answer: A EBT = $2,500 - 1,800 - 200 - 150 - 50 = $300; NI = $300 - (300 x .35) = $195 1
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4. A firm with negative net working capital ______________. A) is technically bankrupt B) has no cash on hand C) needs to sell some of its inventory to correct the problem D) has more current liabilities than current assets Answer: D Net Working Capital = Current Assets – Current Liabilities 5. Calculate the EBIT (earnings before interest and taxes) for a firm with $5 million total revenues, $3 million cost of goods sold, $500,000 depreciation expense, and $500,000 interest expense. A) $1,500,000 B) $500,000 C) $1,000,000 D) -$500,000 Answer: A EBIT = $5,000,000 - $3,000,000 - $500,000 = $1,500,000 6. What are the annual sales for a firm with $400,000 in liabilities, a total debt ratio of 0.25, and an asset turnover of 3.0 (assume total assets remains unchanged)? A) $ 333,333 B) $3,200,000 C) $4,800,000 D) $6,400,000 Answer: C Total Debt Ratio = Total Liabilities / Total Assets = .25 = ¼ ¼ = $400,000/total assets, so total assets = $1,600,000 Asset Turnover = Sales / Average Total Assets = 3.0 3.0 = Sales / $1,600,000 So, Sales = $4,800,000 7. How much will accumulate in an account with an initial deposit of $100, and which earns 15% interest for four years? A) $107.69 B) $132.25 C) $152.09 D) $174.90 Answer: D 2
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$100 x (1.15) ^4 = $174.90 8. How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 5%? A) $
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State University .

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Final Review Bus 170 - Practice Final Solutions 1. The...

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