Finance for Business (FIN/370)
MULTIPLE CHOICE/TRUE OF FALSE Highlight answers in Blue attached document has some completed please check for correct choice
1. The goal of the firm should be the maximization of profit.
2. Consider the following equally likely project outcomes:
(A) Project Y has less uncertainty than Project X.
(B) Project X has more variability than Project Y.
(C) a and b.
(D) Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.
3. Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the firm's management.
4. Which of the following transactions does not affect the quick ratio?
(A) Land held for investment is sold for cash.
(B) Equipment is purchased and is financed by a long-term debt issue.
(C) Inventories are sold for cash.
(D) Inventories are sold on a credit basis.
5 The financial markets represent institutions and procedures for selling primarily real assets.
6 The Federal Reserve buys and sells U.S. Treasury securities in large quantities at times in order to influence short-term interest rates. The securities markets monitor changes in short-term interest rates very closely. What is the name of the closely-watched indicator that the Federal Reserve is attempting to influence by taking the above action?
(A). The Lehman Brothers Corporate Bond Index
(B) The Bellwether U.S. Treasury Bond rate
(C) The Federal Funds rate
(D) The Dow Jones Industrial Average
7. Pro forma statements are important since they formally report the performance of the firm during a previous reporting period.
Use the following information and the percent-of-sales method to Answer questions. Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)
Banner, Inc. Balance Sheet
December 31, 2004
Current assets $890,000
Net fixed assets 1,000,000
Liabilities and Owners' Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital) 360,000
Retained earnings 270,000
Common equity 630,000
8. Banner's projected current assets for 2005 are:
9. Banner's projected accounts payable balance for 2005 is:
10. Banner's projected retained earnings for 2005 are:
11. Determining the specified amount of money that you will receive at the maturity of an investment is an example of a future value equation.
12. A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 12% of the unpaid balance. What is the amount of the monthly payments?
13. If sales increase by 20 percent, the break-even model assumes that total variable costs will increase by 30 percent.
Use the following information to answer the questions. A friend of yours is trying to determine whether to open a sandwich stand at the local mall based on the following data. She expects total fixed costs per year of $24,000, a sale price per sandwich of $3.00, and variable costs per sandwich of $1.80.
14. The break-even level of output for this endeavor is:
15. What percentage of every sales dollar will contribute to covering fixed costs?
16. The break-even point in sales dollars is:
17. If your friend expects to sell no more than 15,000 sandwiches per year, then:
(A) she should not undertake the endeavor given the current cost/volume/profit expectations.
(B) she should undertake the endeavor given the current cost/volume/profit expectations.
(C) she should assess the effect of lowering the sales price of sandwiches if she wishes to pursue this endeavor.
(D) None of the above.
18. Errors resulting from a capital budgeting decision are not considered major since the consequences of such errors average out over the life of the investment.
19. Suppose you determine that the NPV of a project is $1,525,855. What does that mean?
(A) In all cases, investing in this project would be better than investing in a project that has an NPV of $850,000.
(B) The project would add value to the firm.
(C) Under all conditions, the project's payback would be less than the profitability index.
(D) The project's IRR would have to be less than the firm's discount rate.
20. Management of a firm's liquidity involves management of the firm's investment in current assets.
21. Which of the following is considered to be a spontaneous source of financing?
(A) Operating leases
(B) Accounts receivable
(D) Accounts payable
22. A financial manager should be willing to assume greater financial risk in the marketable securities portfolio so long as the expected return is commensurate with the risk.
23. ZZZ Corp. ended the day with a cleared balance in its bank account of $7,000. The company deposited $50,000 in checks received from customers the next day. It wrote checks to its suppliers the same day that totaled $20,000. If $14,000 of the firm's deposited checks have cleared by the end of the third day but only $8,000 of its checks to suppliers have cleared, what is its "float"?
24. The economic ordering quantity (EOQ) model calculates the size of the firm's inventory given its expected usage, carrying costs, and ordering costs.
25. Which of the following will have the most influence on the amount of investment a firm will have tied up in accounts receivable?
(A) Inventory turnover
(B) The volume of credit sales
(C) The rate of interest the firm is presently paying for short-term loans
(D) Salaries of collection personnel
26. An operating lease usually:
(A) is for a shorter length of time than a financial lease.
(B) is for high-tech equipment that might become obsolete rapidly.
(C) has the income tax advantage that the entire lease payment is a deductible expense.
(D) both a and c.
(E) all the above.
27. Which of the following statements about a financial lease is generally true?
(A) The entire lease payment is used as an income tax deduction.
(B) Only the portion of the lease payment that reduces the principal may be used as an income tax deduction.
(C) It has no income tax deductibility.
(D) Only the portion of the lease payment that is applied to interest is tax-deductible.
28. When the firm decides to retain a portion of its earnings, the stockholders are indirectly investing in the firm.
29. Sacramento Light & Power issued preferred stock in 1998 that had a par value of $85. The preferred stock pays a dividend of 5.75%. Investors require a rate of return of 6.50% today on this stock. What is the value of the preferred stock today? Round to the nearest $1.
30. The capital budgeting decision-making process involves measuring the incremental cash flows of an investment proposal and evaluating the attractiveness of these cash flows relative to the project's cost.
31. Depreciation expenses affect capital budgeting analysis by increasing
(A) taxes paid.
(B) incremental cash flows
(C) The initial outlay
(D) working capital
32. The minimum rate of return necessary to attract an investor to purchase or hold a security is called the cost of capital.
33. J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is the cost of debt to J & B?
34. Because preferred stock dividends are not tax-deductible, they are not a source of financial leverage.
35. A __________ is a business combination of two companies in which the new company maintains the identity of the acquiring company.
(B) Holding company
36. An increase in financial leverage will increase earnings before income and taxes (EBIT).
37. Compared with other developed countries, the U.S. is particularly reliant on foreign trade for self-subsistence.
38. The rate that a subsidiary or parent of the multinational corporation charges other divisions of the firm for its products is called a(n):
(A) forward price
(B) transaction price
(C) transfer price
(D) exchange price
39. An option contract gives its owner the right to buy or sell a fixed number of shares at a specified price over a limited time period.
40. An increase in the ___________________ would increase the value of a warrant.
(A) market price of the common stock
(B) exercise price
(C) exercise ratio
(D) both a and c
all of the above
Response provides steps to compute the Growth percentage in Sales