Nie I, Please Answer the Questions, Remember: Only 1 Correct Answer! 1. Which one of the following is classified as an intangible fixed asset? A. accounts receivable B.production equipment building (}rademark Eiinventory 2. In the past, Net Income of Zen Co. had been growing at 10%, and the firm expects this growth to continue next year. Last year, Zen Co produced Net Income of $150,000 and has, established a dividend policy of paying out 40% of its reported earnings. Assuming all costs are proportionate, what will be the expected change in Retained Earnings for the coming year? A $12,500 Net Income Next year 450000x (1+ 0.19) = le5oe9 (8)$ 99,000 a €. $122,200 Yo Dividend 3 Meco ee 2, = 95005 D. $136,800 bok Retamed E. $158,400 3. Noncash items refer to: Cash ‘A. Accrued expenses. as : ct B. Inventory items purchased using credit, Casts (ered y cash, was ef The ownership of intangible assets such as patents. ( Valve ~ w (like De @evpenses whieh do not directly affect cash flows, deste MO Cas) Sales which are made using store credit. Cash (credix) fecton Brae vate) pre ceatio) 4, Which one of the following will increase the cash flow from assets, all else equal? ‘A, decrease in cash flow to stockholders CEEA 2 CPT Stockholders + B. decrease in operating cash flow it Cash Flow to creditors increase in the change in net working capital AW % . decrease in cash flow to creditors x CEEA> OCF — ANWL- NCS lecrease in net capital spending ~~ Answer is E 5. Which one of the following statements concerning net working capital Is correct? A. The lower the value of net working capital the greater the ability of a firm to meet its current obligations. B.An increase in net working capital must also increase current assets. let working capital increases when inventory is sold for cash at a profit, D.Firms with equal amounts of net working capital have the same current ratio. E.Net working capital is a part of the operating cash flow.6. Ifa firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? @D io 2_———~- -> € Asset (or Lickaivty) aa DrE DtE panes dD+d = aD 7. Dee Dee's Marina is obligated to pay its creditors $6,400 today. The firm's assets have a current market value of $5,900. What is the current market value of the shareholders equity? A. -$600 ee Equity is eoter up by debt, 0 Gonkrwploy. D. $500 Wow E, $600 Mettes vaive of tre 5 (These © A negative eertet vatue |) 8. Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating ? lie OCF = Seleg — Cost — toy 8. $171,852 = 1344800 — Go3svo — (31224 = 309076 c. $179,924 D, $281,417 : fons ee ace cx bay | (344200 ©)$309,076 tex bas. 5 HRB boo F889) sy 20y Aox + UGboo » 084s 9. Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of ,919. The interest paid was $4,767. What is the amount of the cash flow to creditors? @ sues LTD py — LTP ggg, = HHO Bias Cosh Flew ts Creditors T— ALTO . $11,175 = YTeT— 640% = — leu 10. Today, you earn a salary of $36,000. What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent? A, $58,235.24 i © $55,032.54 26000 (1+ v.d3e) C. $57,414.06 D. $59,122.08 E, $59,360.45 bot calcutesor $ 4-036 4 12 x e00911. You would like to give your daughter $75,000 towards her college education 17 years from now. How much money must you set aside today for this purpose if you can eatn 8 percent on your investments? A. $18,388.19 ee @ $20,270.17 Y ae €. $28,417.67 D. $29,311.13 Se09 a E. $32,488.37 Fv a CPT PV N a = 20270. 17 12. Based only on the following information for Bennington Corp., did cash go up or down? By id cash go up or downs how much? Decrease in inventory $510) Lnventory 1A Asset Yay COSn inflow Decrease in accounts payable 220 (=) AP tw Liability Y 2 cosh wrt low Increase in notes payable 620 KE) ND im Lrabikly T => cosh into ask our fied Increase in accounts receivable 290 (~) AR in Asser A > cas f A.Cash increased by $960 8.Cash decreased by $720 hash increased by $720 D.Cash increased by $1,300 E.Cash decreased by $1,540 13. You receive $9,000 this year. You plan on investing this money at 10 percent until you have $60,000, How many years will it be until this occurs? A. 18.78 years 8. 19.96 years 21.90 years Py — 9909 D,) 19.90 years 1 E, 25.00 years — lo y EV 60009 cer oN {.% g14, You just won the grand prize in a national writing contest! As your prize, you will receive $2,000 a month for ten years. If you can eam 7 percent annual return on your money, what is this prize worth to you today? Q) $172,252.71 2202 | mone —bO-yeers B, $178,411.06 C, $181,338.40 D. $185,333.33 + 9.583%, PMT ane, 7 E. $190,450.25 y 12 410) $ N it C ae cet fv —492-397. 15. You are scheduled to receive two different payments of $5,000 / year for 2 years. The discount rate is 10 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year? A. $483 B. $513 £. $721 $868 E. $804 agus $677 Year Project Beg. A —_-Project End B 0 $5,000 1 $5,000 $5,000, 2 $5,000 16. What is the future value of $1,200 a year for 40 years at 8 percent interest? Assume annual compounding. fn se01 115 WAALMAE 8. $306,492 © $310,868 PMT 1t00 D. $342,908 €. $347,267 N we — 310 367 t % 17. You are borrowing $17,800 to buy a car. The terms of the loan call for monthly payments for 5 years at 8.6 percent annual interest, What is the amount of each payment? A, $287.71 B. $291.40 PY (7 Boo c. $301.12 D. $342.76 N bo co ¥i2) ©)5366.05 ; a 0.1) Golo Y cet PMT = Wbo0T218, Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? income statement B.balance sheet Csstatement of cash flows D.tax reconciliation statement E.market value report 19, In 2012, Chan's Karate Co. had a net profit margin of 9%, sales of $15M, total assets of $4M, and long-term debt of $1.6M. What was Chan’s total asset turnover ratio for 2012? A135 C038. Asset Turmver Forres S92? = jim 62m “Tote Aners un £)3.75 ewly lote 20. Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a7 percent discount rate to these amounts? 7 A, The present values of Luis and Soo Lee's monies are equal. =X the es B. In future dollars, Soo Lee's money is worth more than Luis' money. % in today's dollars, Luis' money is worth more than Soo Lee's. \-~ D. Twenty years from now, the value of Luis’ money will be equal to the value of Soo Lee's y& money. E. Soo Lee's money is worth more than Luis' money given the 7 percent discount rate. 21. What is the effective annual rate if a bank charges you 8.25 percent compounded quarterly? lesa patceu EAR 3.15 & qultes In ayecr 6 He aca yrtta calodedo/ 8.61 percent ‘and 7 ( tea), i+ EAR = (+ eae Feary \ low 815 Frequency ene 4 % ly GAR 2 Ct 0.020625) “ rae = 1085037162 nN Eng = 0.0851 oc BSI | CPT22. Your credit card company charges you 1.65 percent interest per month. What is the annual percentage rate on your account? A. 18.95 percent (@) 19.80 percent C. 20.90 percent 1.65 x12 = (4,30 D, 21.25 percent E, 21.70 percent Care pet EAe) 23, One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn? A, 6.59 percent 8. 6.67 percent py — (B00 1.2.62 “C. 6.88 percent ae =) 6.92 percent Fy 191K. o¢ [B00 E. 7.01 percent 4 N ; ce 0.064% %3 COL 24. Samuelson’s has a debt-equity ratio of 44%, dies of $10,500, net income of $2,000, and total debt of $10,200. What is the return on equity? NI A. 5.99 percent cA On ut it ceo i eay Ketan on eaity ¢. 19.61 percent e 8.63 percent eectoseS E. 4.40 percent De ou ¥ Ee Pericirice = OU Xe = ella rat. 318 = 0.08627 25, Seaborn Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $950 2 1,010 3 1,310 4 1,150. If the discount rate is 11 percent, what is the present value of these cash flows? ynorcich — calculetof ecee Use CF Fectore of — finoeich cate B.4,420 €.3,470 oe (Bro use (avo aan 6 FY 960 oy — ere") wz (eo) One: ~ troll26. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $172,950? 3 O- 50,000 7500 40,001 75,000 25% 62159 75,001 1 3 3h0o 100,001. 335,000 39%, 18459 5° —_——— 7 coo = 72450 goee.§ 'T2%0— I A. 26.68 percent B, 33.87 percent T2AG0 * 345 (©2932 percent ae D. 24.67percent ORO = 24.4. E, 28.00 percent 12.450 27. Write down cash flow identity (hint: CEFA calculation via two different ways.) CEEAs CE te stocklolder 4 CE te creditor CEEAs OCF — ANWO — NCS ' Write down each formula of the component of the CFFA (_ Bapiy Stockton caer ) Ce fy Stucke’ = Di. — Net New Stock [seve ( LD|E na — LT? ges CE ip Credtey = Taterest — Net naw keorrowing 29. 30. OCF = Sates- Cost — tor 51 = ET —tow + DEP a) BNE = NWCend — NWS ge = (CAead Chord) (Aga OAT? 32. > Deecec- Nes = & Fived asset. — Fixed Asset = + Dep(alee rr 4 Please Answer the Questions, 11, SamcoTrading Corp. has $1,000 face value bonds issued with a 8.4% coupon. They mature in 7 years and call for semi-annual payments. What is the expected current market price if the yield to maturity Is 6.9%? FV » — 00> a) $ 896.40 b) $961.60 N 14 (12) ceT Pv «) $1,000.00 1 a) $1,024.23 cr 3.45 64a (os1082.18 i 1oB2119 0.084 pmt 42 eek 2. Which one ofthe following bonds Is the least sensitive to interest rate risk? a} 3-year; 4 percent coupon : @)3-year; 6 percent coupon the shorter maturity, He be Her «) S:year; 6 percent coupon d} 7-year; 6 percent coupon Hoe higher coupon rede , the be: @) 7-year; 4 percent coupon 3. Far Side Corporation is expected to pay the following dividends over the next four years: $10, $9, $7, and $2. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 16 percent, what is the current share price? to 4 me Lz 2x (1.06) a) $33.59 5) $30.98 ona v 2 Gees 6 c) $40.99 aso R = \b le Pye g = —= = 10 — 0.06 (apne py i oy = Te 29 O18 ee ne ots OMe “CO Toy = of 4. Which one of the following is an underlying assumption of the dividend growth model? CE @Astock as the some value to every investor, inonecok 'b) A stock's value is equal to the discounted present value of the future cash flows which it generates. (plex CJA stock's value changes in direct relation to the required return. X CinMerse. ) tea d) Stocks that pay the same annual dividend have equal market values, X €) The dividend growth rate is inversely related to a stock’s market price. X5, Seether Co, wants to issue new 15-year bonds for some much needed expansion projects. The ‘company currently has 10.6 percent coupon bonds on the market that sell for $1,000.00, make semiannual payments, and mature in 15 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? 2) 5.30% Price (9998 covpen 10.6 b) 10.30% \oo0 G)0.60% Por ‘11.20% 7 . oe on = yield we Price = Por xy cove ¥ or cobevlode | 6. The next dividend payment by Hot Wings, Inc. will be $2.35 per share. The dividends are anticipated to maintain a 4 percent growth rate forever. If the stock currently sells for $50 per share, what is the required return? Di a) S wee re Be 6) 8.26% 2.36 (@)s.70% So= = => R287 R— 0.04 7. Answer this question based on the dividend growth model. If you expect the required rate of return to increase across the board on all equity securities, then you should also expect: Dy a) an increase in all stock values. at PV, = —— b) all stock values to remain constant. R-3 (Js decrease in all stock values. ~~ Rt WY 4) dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. ) dividend-paying stocks to increase in price while non-dividend paying stocks decrease in value, 8, Samson Inc. just paid $1.80 to thelr shareholders as the annual dividend. The company also announced that future dividends will be increasing by 3% percent. If you require an 8% rate of return, how much are you willing to pay to purchase one share of the stock? D as me (33708 : pye 2 noe ner" 3 ou = Bon wien) 4) $49.01 \.30 x ( 4-03) : : e) $46.66 = 0.02% — 0.039, Many economists are predicting that corporate bonds’ default risk may rise in the coming year. Which of the following statements regarding corporate bonds is consistent with this prediction? a) bond prices wiley aise K foil Defavit ose. 4 b} bond prices will be unaffected prices wl ikely fall. V~ yield t d) bond yields will likely decrease Xx e) bond maturities will likely shorten 2 rice y 10, When the present value of the cash inflows exceeds the initial cost of a project, then the project, should be: a) accepted because the internal rate of return is positive. A PV accepted because the profitability Index is greater than 1. mak ©) accepted because the profitability index is negative. Cost 4) rejected because the net present value is negative, ye 11. You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the appropriate discount rate is now 4 percent? a) The current yield-to-maturityisless than 6 percent. b) The next interest payment will be $30, ¥% ° 5 ) The bond is currently valued at one-half of ks Issue price, % py, : (ovo RUE (ou will realize a capital gain on the bond if you sell it today. _ fear C.eh Nix Wyeors Yield > coupon 12. Which one of the following sets of dividend payments best meets the definition of two-stage Pode, growth as it applies to the two-stage dividend growth model? tArktoN Q@ro dividends for S years, then increasing dividends forever de Fin *9' b) decreasing dividends for 6 years followed by one final liquidating dividend payment ©) dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter 4} constant dividends for 5 years followed by complete elimination of dividends.13. Metallica Bearings, Inc. s a young start-up company. No dividends will be paid on the stock over the next 12 years because the firm needs to plow back its earnings to fuel growth, The company will pay an ‘$11 per share dividend in 13 years and will increase the dividend by 7 percent per year thereafter. Ifthe required return on this stock is 12 percent, what is the current share price? BY WeCL ot) a) $53.63 ee ees ») $50.42 ee tgs ‘ €) $58.16 ° fs d) $59.29 ov ~ wt Re lat Opse47 2 7 0.07 220 5h ms = Ve iz = 5b! Cleary 14. Abond's coupon rate is equal to the annual interest divided by which one of the follo a) call price b) current price }face value d) clean price 15. Which one of the following will decrease the net present value of a project? a) increasing the value of each of the project's discounted cash inflows bb) moving each of the cash inflows forward to a sooner time period X ¢} decreasing the required discount rate (ai)ncreasing the project's intial cost at time zero 16. Ngata Corp. issued 20-year bonds 2 years ago at a coupon rate of 9.9 percent. The bonds make semiannual payments. If these bonds currently sell for 96 percent of par value, what is the YT? a) 11.44% Ab‘ x tooo = Fe +b) 5.20% Pv Ako N 46 (o— 2) ¥2 PMT —- 44.50 Fv — (903 cet + Y 5.1474 KL = \9,345%17, Samuelson Electronics has a required payback period of three years for all ofits projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years, and a net present value of $6,800. Project 8 has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule? cleat Aan 18. Day Interiors is considering a project with the following cash flows. Assume market interest rate is 6%. What is the IRR of this project? 0 1 2 3 4 114600 35900 50800 45000 12000 a)}10.9 percent 3) 12.73 percent fe (RR ¢c} 9.48 percent d) 8.22 percent use CF feature ose pucen For Quentrons (B— 23 a) 2.37 ee ) 2.20 20. The DISCOUNTED PAYBACK for the project shown above is 2.57 »)3.08 Ghoa 4) 3.561, The NET PRESENT VALUE for the project shown above is: $11,767 b) $9,325 ) $12,527 d) none of the above 22. The PRESENT VALUE of the future cash flow for the project shown above is: a) $211,767 ) $409,325 126,367 d) none of the above 23, The PROFITABILITY INDEX for the project shown above is: a) 0.33 bj 1.27 @io