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Unformatted text preview: Name BUS! 408
lnstructoerhokher
HWK QUIZ 1
SPRING 2013. instructions: Complete the SCAN form with your name, student ID, and the test form on this test. Select the single best answer and darken the corresponding letter on the SCAN. Double
check your student ID on the SCAN. Note: Assume all cash flows occur at the end of each period unless otherwise stated. Which of the basic financial statements is best used to answer the question, “How profitabie is the
business?" A Balance sheet B. Statement of shareholder's equity (9 Income statement D. Accounts receivable aging schedule E. none of the above Keeping aii else constant, totai equity on the balance sheet increases as dividends paid increases.
A. True
(a), False Assuming a positive rate of interest, the future value of an investment increases as the number of
years of compounding Increases. A True B. False One characteristic of an annuity is that an equal sum of money is deposited each period
CA> True
B. False To evaluate and compare investment proposals, we must adjust aii cash flows to a common date.
A. True
B. False The formula for calculating the present value of a perpetuity is P = A/(l s i). A. True
62) False The discount rate for the time value of money should reﬂect delaying consumption. (3 True The present value of an annuity increases as the discount rate decreases.
CA} True B. False 9. The value of a bond is equal to the present value of interest and principal the owner will receive.
(Assume that there IS no possibility of default) :C) True 3.0. Keeping ail eise constant, as bond yields increase bond prices decline.
{E} True
B. False 13. A perpetuity is an investment that continues forever but must pay a different doliar amount each period. A. True
{3} False V . 12. The term structure of interest rate refers to:
A. the different risk leveis of interest rates.
B. the different interest rates of securities with the same maturity dates.
© the different interest rates of securities with the same risk but with different maturity dates.
D. the terms of agreement associated with a bond's interest payments.
E. none of the above 13. 25 basis point is:
A. onequarter of the underwriting fee.
I3. onequarter of one percent of the underwriting fee.
C. a term used to describe an investment banking syndicate (covering the 25 points of due
diligence).
0.25% {that is, one quarter of 1 percent).
E. none of the above Table 1 Smith Company Balance Sheet Assets: Cash and marketable securities
Accounts receivable
Inventories Prepaid expenSes Total current assets Fixed assets Less: accumulated depreciation
Net fixed assets Total assets Liabilities: Accounts payabie Notes payabie Accrued taxes Total current iiabiiities
Long~term debt Owner’s equity Total liabilities and owner’s equity Net sales (ali credit) Less: Cost of goods soid Selling and administrative expense
Depreciation expense lnterest expense Earnings before taxes income taxes Net income Common stock dividends Change in retained earnings $300,000
2,215,000
1,837,500
24,000
$3,286,500
2,700,000
1 087 500
1 612 500
4 899 000 iii $240,000
825,000
42,500
51, 107,000
975,000
2,817,000 $4,899,000 $6,375,000 .__.._
4,312,500 .15
1,387,500
135,000
127 ,000
$412,500
225,000
$187,500
$97,500
$90,000 14. Based on the information in Table 1, the current ratio (rounded to two decimal places) is: . 2.97. C. 2.11. ..—«*"“‘ HM”
cl. 2.23. at “02'
e. noneoftheabove ' 15. Based on the information in Tabie 1, the debt ratio (rounded to two decimal places) is: a. 0.70. e 3, 0% 453351 '2 333 *
ta‘o it"? {ch 0.332. e. none of the above 16. Based on the information in Table 1, the gross profit margin (rounded to two decimai piaces) is: a 54.61%. b 6165?. .. c 51.97%: ' ‘ 59.23.43. .. £333 4: Q3 2% wmﬂrﬁgﬁim 1 "3,2.
01. 65.33%. :34.&: (9?, 1‘3"?
none of the above 17. Your firm has the following baiance sheet statement items: total current iiabilities of $805,000; ‘
total assets of $2,655,000; ﬁxed and other assets of $1,770,000, and long—term debt of $200,000.
What is the amount of the firm’s net working capital? a. $25,000 NW1: ,3 ﬂit .... it...» b. $325,000  32 >020) c. 5770, 000 6“?" ”be“ “c ' rig} $80,000 2 (Marc — new) ~ 803”
2 334$ ___ at»? 18. Your firm has the following income statement items: sales of $50,250,000, income tax of
$1,744,000; operating expenses of $10,115,000; cost of goods soid of $35,025,000; and interest
expense of $750,000. What is the amount of the firm’s EBIT? . 15,552,000 ,_. M :93. m C) 9. EX
2. $53,000,000 45:; l3" 5" ‘: SW23 ("C 9
@ $5,110,000 .2 go} 2&1")  3301’?  H9; HS
d. $4,530,000 m 5 I, H) e. none of the above ‘ . 3 "iii! 19. Lei Materials’ balance sheet lists total assets of $1 billion, $100 million in current liabilities, $400
million in longterm debt, $500 million in common equity, and 50 million shares of common stock.
if Lei’s current stock price is $50, what is the firms market to book ratio? a. 2 MV a 5‘6?
b. 4 CoHM?M Caut'il % ﬁ‘oO/ : If;
@ 5 E U 2 MW. .._. ,._, .. ....... NW... wm .mw. u... ‘3 {a
d. 3 $1,510. Estates
e. none ofthe above MV/ 913:7 : ‘3
E, U PD
29. Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. (32
What is Smith’s acid test ratio? 1 1» (9 1; CL. = (+33%
K _, CA :1 H i" CDC? '3.
. 1.69 C — M... ET...»
b. O. 54 CL.
C. 0.74 m .
d. 1.35 it; i D as: LtQQ...” 3903’ ’ I 6 3
e. none of the above R2285 (3 3 21. Kiosk Corp has current assets of S4. 5 million and current liabiiities of $3 6 million The current
ratio is 1. 25, and the quick ratio is 0 75 How much does Kiosk have invested in inventory (in millions)? (gamut. a; CA g: '2 {i Shikfiii. 20“}?
a. $0.8 MK 3 Q. .' $18 a. c. 52.4 . . ¢ ci. 32.9 "IN V 2 0.; u, 3 éxo ”i3“ e. none of the above 22. GAAP, inc. has total assets of $2,575,000, sales of $5,950,000, total liabiiities of $1,855,062, and a
net profit margin of2.9%. What is GAAP’s return on equity? Round to the nearest 1%. a. 8.6% _ ,._.
24.0% ROE ”"5  WN'L
c. 164% ' E d. 4.4% 8‘ none oftheabove NIT : Miar“ premium iii/inﬂow? is Sfr‘ceﬁ ii star. ~>< 3W0
lass l3 (20!; __ was?“ 24 /
' "a W 4%? 23. How much money must be put into a bank account yielding 5.5% (compounded annually) in order
to have $250 at the end of five years (round to nearest $1)? a. $237 5 Eye... 1.. 2 23“" 5
GE :12; l)“ ow) (teem)
c_ ,
d. $179 I I’ll e. none of the above 24. Assuming two investments have equal lives, a high discount rate tends to make which investment
more unattractive: a. the investment with large cash inflows early.
the investment with large cash infEOWS late. c. the investment with even cash inflows. d. neither investment since they have equal lives. e none of the above 25. The same basic formula is used for the computation of both future value and of present value. _ T
@ True l?“ m ii; 2A l: U .3 Pu (HA
b. False K Hf) T 26. You wish to borrow $2,000 to be repaid in 12 monthly installments of$189.12. The quoted annual interest rate is: Q) —— 7.009
g) 24%. i we. n. .—. n‘t “3/an
b. 8%. ‘ Z 13%.11
c 18%. “.
a. 12%. ‘2 ,
e. none ofthe above V2 139": 2" 2' )ﬁdgl—VHW /é '” Q
27. Which of the following provides the greatest annual interest? A7
10% compounded annually 1?. _ bk; cleanseLev};
b. 9.5% compounded monthly 5, (l 4.. CE. SK M l < lib”. M .. U j
c. 9% compounded quarterly ll 2...; 1;. F
d. 8.5% compounded daily
e. none of the above +M‘w‘ r, 5t ll. 22%}. 28. What is the annual compounded interest rate of an investment with a stated interest rate of 6%
compounded quarterly for seven years (round to the nearest .)?1% . 51.7% ‘
b. 5.7% ,1. g; /> i
c. 10.9%
6.1%
e. none of the above 29. Your firm has taken on cost saving measures that wili provide a benefit of $10,000'one year from
now. These cost savings will decrease each year at a rate of 3% forever. If the appropriate interest rate is 6%, what is the present value of these savings (rounded to the nearest $1)?
a. $282,243 P \E E22", Pa. {fast in? 3 gnaw :7 ”:0: Uﬂm
b. $390,452 . ' iﬂ—g ( 37)
c. $333 333 :2. no one
@ $111 111 ,7, ‘r’. none of the above 30. What is the present value of a 3year annuity of $10,000 per year with the first payment received
at the end of 2 years from now given a 10 percent discount rate (round to nearest $1)? a. $21,155
~ $22,608
6. $24,260
6. $25,680
e. None of the above. 31. Which of the following statements about bonds is true? a. Bond prices move in the same direction as market interest rates. if market interest rates change, long— —term bonds wili ﬂuctuate more in value than short term
bonds. c. Longterm bonds are less risky than shortterm bonds. d. If market interest rates are higher than a bond’s coupon interest rate, then the bond will seil
above its par vaiue. e. None of the above. 32. Bondholders have a priority claim on assets ahead of:
a. common stockholders.
b. preferred stockholders. © both a and b.
d. none of the above. 33. Coiby & Company bonds pay semiannual interest of S50. They mature in 15 years and have a par
vaiue of $1,000. The appropriate discount rate is 8%. The market value of Colby bonds is (round to the nearest doilar): (9
@ $1,173. i .m r": ‘87/
b. $743. ,1 go 2
c. $1,000. \
d. $827.' _
e. noneoftheabove ; Lit ‘30 ’50 mo 34. Cassei Corp. bonds pay an annual coupon rate of 10%. If investors’ required rate of return is now
8% on these bonds, they wili be priced at:
a. par vaiue.
® a premium to par value.
c. a discount to par value.
d. cannot be determined from information given. 35. You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds
were originally sold, they had a 30—year maturity and a 14.375% coupon interest rate on a $1000
par value that is payabie semiannualiy. The bond is currently selling for $1,508.72. What is the
yield to maturity on the bonds? (a) 8.50%
b. 14.38% a) .. ”3:353:32“ /
o t: ‘ . r «l
3' iiiii" sW/C r 3% i = i" iii/cm
e. none of the above MM,w""ﬂﬂ 2. i}. l"l""§iiig‘“
M” ~
lH3i3'4 Moore 5
rL‘ 1.
”5 1?»! .. ‘2’?"3 .
'61 i O 5H“ “i m 3.2. Table 2 Jones Company
Financiat Information March 1995 March 1996
Net income $1,500 $3,000
Accounts receivable 750 750
Accumulated depreciation 1,125 1,500
Common stock 4,500 5,250
Capital surpius ' 7,500 8,250
Retained earnings 1,500 2,250
Accounts payable 750 750
36. Based on the information given in Table 2, calculate the dividends paid in 1996. M; c: w R #5"
a. $3,750 “We ”dc‘3’ Wit "“
b. $3,000 3090 ,_ (2 2 yo  Koo)
c. $750
@ $2,250 :2 1'2. {'0 e. none of the above 37. Which ofthe foliowing is the correct equation to solve for the PV of the cash flows generated by a
security that only generates $20,000 in incremental cash inflow over the next three years?
Assume a discount rate of 10%. a. PV 2 $20,000(1.10)1+ $20,000{1.10)2 + $2CJ,000(1.10)3
@ PV = $20,000(1.10)"1+ $20,000{1.10)'2 + $20,000(1.10)‘3
0. PV :7 $20,000/(1.01)~1°+ $20,000/(1.02)'i° + $20,000/(1.03)'1°
d. PV 2 $20,000/(1.1)'19+ $320,eoor1.2)'10 + $20,000(1.3)'1°
e. none of the above 38. Brookiine, Inc. just sold an issue of 30year bonds for $1,107.20. Investors require a rate of return
on these bonds of 7.75% on the principal value of $1,000. The bonds pay interest semiannualiy.
What is the coupon rate of the bonds? 3. 7.759%
13. 11.072? e; a; "tr  M2 .
e g a??? ‘3’ ‘ ear
3) i“
E
C m 3...“ r9? 6%
Mk E000 éo mum iin'r WWWW
: g» (3%”? ' f : f? 10 Ten] chm, W, O J
i’nr 39. You have just purchased an investment that generates the cash flows that are shown below. You
are abte to invest your money at 5.75%, compounded annually. How much is this investment
worth today (rounded to the nearest $1)? 19—11: Amen; 0 S O “N x 1 $1,250 8;, laser) /(1 +343, 3, W) 2 $1,585 a  3 $1,750 4 $2,225 . 5 $3,450 ‘ ............ W... 
2:?
iii, 3 $7,758 b $4,521 5 $10,250 $8,467 8? $6,583 40. Kannan Carpets, lnc. has asked you to caicuiate the company’s quick ratio for 2001. Ali you have is a partial balance sheet and some assumptions. Using the information provided, calculate ‘ "C
Kannan’s quick ratio for 2001. CC} (mg; 1 620/. vL $0U‘5.» ......——w"  lo 0 7 i. «MW
e: ... Toiiuovia‘ii, MW ”W
' :2 ”£07. 80000 WW Gross profit margin m 50%
inventory turnover (COGS/inv) = 5 N \J
2001 sales = $3,000 W " ﬂ 5300 a; 30 o i.
5,
, Assets (2:) Liabilities & Equity
Cash ' ? C90 Accounts payable 550
5 AR ' $40 Accruals ? '3» 0 0
W“? inventory Q3 ? '50 0 Longterm debt $400
‘ Net fixed assets $500 Equity $250
T T l" . ' ?
otai assets $900\ otal tab 0 eqwty W434. Q00
MMWMHW_w«umMM"” _ ”WMawn“
a. 0.2
0.4 ‘
c. 0.6 .. M 60 8 so
 vm  H ”in A / ”M wwwww W
01. 0.8 @U i Calf» r~ inm,wwﬁa
225—6) 1’4 9 Jr R'CQ :2 Tit/g II ...
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 Spring '11
 ZEIGHAMKHOKHER
 Corporate Finance

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