Business Finance EXAM 1 Ch 1-4 - Connect

3 October 2022
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Probably the least effective means of aligning management goals with shareholder interests is:
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automatically increasing management salaries on an annual basis.
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A limited liability company (LLC):
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prefers its profits be taxed as personal income to its owners.
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Which one of the following is a working capital decision?
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How much cash should the firm keep in reserve?
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The Sarbanes-Oxley Act of 2002 has:
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essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
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Which one of the following situations is most apt to create an agency conflict?
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Basing management bonuses on the length of employment
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Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?
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International finance
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Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?
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Positive cash flow to stockholders
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Which one of the following statements concerning the balance sheet is correct?
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Assets are listed in descending order of liquidity.
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An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?
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Depreciation
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The December 31, 2018, balance sheet of Justin's Golf Shop, Inc., showed current assets of $1,065 and current liabilities of $895. The December 31, 2019, balance sheet showed current assets of $1,280 and current liabilities of $955. What was the company's 2019 change in net working capital, or NWC?
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Equation: Change in net working capital = change in current assets - change in current liabilities Change in net working capital = (1280 - 1065) - (955 - 895) Change in net working capital = 155 Answer : NWC = 155
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Duela Dent is single and had $195,200 in taxable income. Use the rates from Table 2.3. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) TABLE: https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/finance/Ross_Essentials_10e/table_2.3.jpg Calculate her income taxes.
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(0- 9525) (.1 ) = 952.50 (9525 -38,700)(.12) = 3501 (38,700 - 82,500)(.22) = 9636 (82,500 - 157,500)(.24) = 18,000 (157,500 - 195,200)(.32) = 12,064 ADD them all Income taxes = (952.5 + 3501 + 9636 + 18,000 + 12,064) Income taxes = 44,153.50 Income taxes = $44,153.50 Solution: https://gyazo.com/bbb75d5dae7bfe090317d2fa9d098cb0
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The December 31, 2018, balance sheet of Whelan, Inc., showed long-term debt of $1,470,000 and the December 31, 2019, balance sheet showed long-term debt of $1,720,000. The 2019 income statement showed an interest expense of $101,000. What was the firm's cash flow to creditors during 2019?
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Cash flow to creditors = Interest Expense - [Long term debt (2019) - Long term debt (2018)] Cash flow to creditors = $101,000 - [$1,720,000 - $1,470,000] Cash flow to creditors = - $149,000 Cash flow to creditors during 2019 is - $149,000
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A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm:
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Current ratio = current assets/ current liabilities % Net working cap = %curr assets = %curr liab % Net working cap = 1.4 - 1 % Net working cap = .4 has positive net working capital.
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The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets.
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I, II, III, and IV
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The sustainable growth rate is based on the premise that:
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the debt-equity ratio will be held constant
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Prince Albert Canning PLC had a net loss of £26,782 on sales of £492,162. a. What was the company's profit margin? b. In dollars, sales were $698,266. What was the net loss in dollars?
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(a) Profit margin = (Net profit or loss / sales) x 100 Profit margin = -26,782 / 492,162 Profit margin = -5.44% (b) Value per £ = (Sales in dollars / Sales in pounds) Value per £ = 698,266/ 492,162 Value per £ = $1.419 Value per £ = $1.42
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Y3K, Inc., has sales of $7,535, total assets of $3,555, and a debt-equity ratio of .40. Assume the return on equity is 16 percent. What is its net income?
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Equity: = Total assets/1.40 = $3,555/1.40 = $2,539 Net income: = Equity*16% = $2,539*16% = $406.29
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Assume the following ratios are constant. Total asset turnover = 2.17 Profit margin = 4.5% Equity multiplier=1.64 Payout ratio=42% What is the sustainable growth rate?
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ROE = profit margin x asset turnover x equity multiplier sustainable growth rate = (ROE x b)/ [1-(ROE x b)] ROE = 16.01% sustainable growth rate = (16.01% x .58)/ (1- (16.01% x .58)) sustainable growth rate = 10.24%
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Today, Charity wants to invest less than $3,000 with the goal of receiving $3,000 back some time in the future. Which one of the following statements is correct?
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The period of time she has to wait decreases as the amount she invests increases.
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Computing the present value of a future cash flow to determine what that cash flow is worth today is called:
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discounted cash flow valuation.
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You're trying to save to buy a new $200,000 Ferrari. You have $33,000 today that can be invested at your bank. The bank pays 4 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
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(a) FV = PV * ( 1+ r)^n 200000 = 33,000 x (1 + .04)^n n = log( 200,000/33,000) / log(1.04) n = 45.94
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Imprudential, Inc., has an unfunded pension liability of $758 million that must be paid in 15 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7 percent, what is the present value of this liability?
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Present value=$758,000,000*Present value of discounting factor(rate%,time period) =$758,000,000/1.07^15 =$758,000,000*0.362446019 which is equal to =$274,734,082.90(Approx).
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Assume that in 2018, a copper penny struck at the Philadelphia mint in 1796 was sold for $480,000. What was the rate of return on this investment?
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(a) Future Value = Present Value*((1+r)^t) t = 2018 - 1796 t = 222 480,000 = 0.01(1+r)^222 1+ r = 48,000,000^(1/222) r = 0.0829 r = 8.29%
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You have $5,200 to deposit. Regency Bank offers 9 percent per year compounded monthly (.75 percent per month), while King Bank offers 9 percent but will only compound annually. How much will your investment be worth in 18 years at each bank?
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(a) REGENCY BANK Excel format: =FV(.09/12 , 18 x 12, 0, -5200) = 26,117.72 Regency bank investments after 18 years is $26,117.72 (b) KING BANK Excel format: = FV(0.09,18,0,-5200) = 24,529.03 King bank investments after 18 years is $24,529.03 Alternative method - Numbers are different https://gyazo.com/cad2bdc5bd5cb001e4349ac62f34216f
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Suppose you are committed to owning a $240,000 Ferrari. If you believe your mutual fund can achieve an annual return of 11.05 percent, and you want to buy the car in 9 years on the day you turn 30, how much must you invest today?
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PV = FV/ (1 +r)^n PV = 240,000/ (1+ 0.1105)^9 PV = 93,442.44 Amount to be invested today is $93,442.44