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# final quiz answers - Grade Details 1 Question The primary...

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Grade Details 1. Question: The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to _________. Your Answer: maximize its expected total corporate income maximize its expected EPS minimize the chances of losses maximize the stock price per share over the long run, which is the stock's intrinsic value CORRECT maximize the stock price on a specific target date Instructor Explanation: See page 6 of the book. Points Received: 5 of 5 Comments: 2. Question: What's the future value of \$2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually? Your Answer:

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Instructor Explanation: FV = PV * (1+i/n)t*n = \$2,000 * (1+.08/2)3*2 = \$2,000*1.2653 = \$2,530.64 Points Received: 5 of 5 Comments: 3. Question: You own an oil well that will pay you \$25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask for if you decide to sell it? Your Answer: Instructor Explanation: PVA = PMT * [(1 – {1 / (1+i)n}) / i ] Since the first payment is made today, there are 7 more payments of \$25,000. PVA = \$25,000 * [(1 – {1 / (1+.07)7}) /.07] PVA = \$25,000 * [.3773 / .07] PVA = \$25,000 * 5.3893 = \$134,732.24 + \$25,000 payment today = \$159,732.24 Points Received: 5 of 5 Comments: 4. Question: Suppose you borrowed \$25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?
Your Answer: Instructor Explanation: PVA = PMT * [(1 – {1 / (1+i)n}) / i ] \$25,000 = PMT * [(1 – {1 / (1+.08)4}) / .08] \$25,000 = PMT * [.2650 / .08] \$25,000 = PMT * 3.3121 PMT = \$7,548.02 Points Received: 5 of 5 Comments: 5. Question: If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT? Your Answer: Instructor Explanation: A low debt ratio would imply that a company has less risk for bankruptcy so would earn a higher credit rating and lower interest rate on any borrowings. Points Received: 5 of 5 Comments: 6. Question:

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During the latest year Ruth Corp. had sales of \$300,000 and a net income of \$20,000, and its year-end assets were \$200,000. The firm's total debt to total assets ratio was 40%. Based on the Du Pont equation, what was the firm's ROE? Your Answer: Instructor Explanation: DuPont ratio = (Profit margin)(Total asset turnover)(Equity multiplier) Debt / Total assets = 40% implies that Equity/Total assets = 60% \$200,000 * .60 = \$120,000 (\$20,000 / \$300,000) * (\$300,000 / \$200,000) * (\$200,000 / \$120,000) = .1667 or 16.67% Points Received: 5 of 5 Comments: 7. Question: Rangoon Corp's sales last year were \$400,000, and its year-end total assets were \$300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average? Your Answer: Instructor Explanation: TATO = Sales / Total assets 2.5 = \$400,000 / Total assets Total assets = \$160,000 Current assets – assets sold = new assets
\$300,000 – assets sold = \$160,000 The company needs to sell \$140,000 in assets to achieve a TATO of 2.5 Points Received: 5 of 5 Comments: 8.

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final quiz answers - Grade Details 1 Question The primary...

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