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Corporate Finance Questions

1.
A firm's balance sheet shows current assets of $95, net fixed assets of $250, long-term debt of $40, and owners equity of $200. What is the value of the firm's current liabilities if that is the only remaining balance sheet item?
A) -$ 50
B) $ 50
C) $105
D) $145
E) $545

2.
Calculate net income using the following information: sales = $135; cost of goods sold = $40; selling, general and administrative expense = $35; depreciation = $20.00; interest expense = $20.00; tax rate = 34%.
A) $ 13.20
B) $ 19.80
C) $ 20.00
D) $ 23.10
E) $ 42.90

3.
RDJ Manufacturing has 600 million shares of stock outstanding and $900 million in retained earnings at the end of the year. Net income for the year is $600 million. $240 million in dividends were paid out during the year. What is RDJ's earnings per share?
A) $0.40
B) $0.50
C) $0.80
D) $1.00
E) $2.50

4.
Use the corporate tax rates in your textbook to answer this question. Suppose a firm has a taxable income of $74,000. Then, its total tax liability is
A) $10,050
B) $11,750
C) $13,500
D) $16,750
E) $18,500

5.
You have the following data for the Frank Winery: return on equity = 15%, earnings before taxes = $30,000, total asset turnover = .80, profit margin = 4.5%, tax rate = 35%. What is the firm's return on assets (ROA)?
A) 3.6%
B) 3.9%
C) 5.7%
D) 6.4%
E) 9.3%

6.
Brandies Candies has total assets of $1,200, total equity of $900, an ROA of 15%, and a dividend payout ratio of 40%. What is the internal growth rate of Brandies Candies?
A) 6.0%
B) 7.8%
C) 9.9%
D) 11.2%
E) 20.0%

7.
You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded annually, how long will you have to wait to buy the stereo?
A) 6.58 years
B) 8.42 years
C) 14.58 years
D) 15.75 years
E) 18.78 years

8.
You are going to receive $500 four years from today. If the discount rate is 6% compounded annually, what will be the present value of the $500 two years from today?
A) $395.16
B) $396.05
C) $429.04
D) $433.33
E) $445.00

9.
An account was opened with an investment of $1,000 three years ago. Today, the account balance is $1,157.63. If the account earns a fixed annual interest rate, how long will it take until the account has earned a total of $225 in simple interest?
A) less than one more year
B) between one and two more years
C) between two and three more years
D) between three and four more years
E) between four and five more years

10.
A savings account, which started with a balance of $500, has the following end of year balances: Year 1 = $525; Year 2 = $550; Year 3 = $580; Year 4 = $612; Year 5 = $700. No withdrawals were made over the life of the account, but there was one additional deposit of $50 made at the beginning of year 5. During year 2, the account earned ________
A) 4.8%.
B) 5.3%.
C) 5.5%.
D) 5.7%.
E) 5.9%.

11.
In a growing Midwestern town, the number of eating establishments at the end of each of the last five years are as follows: Year 1 = 128; Year 2 = 143; Year 3 = 166; Year 4 = 173; Year 5 = 181. From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of ________ compounded annually.
A) 4.2%
B) 4.7%
C) 5.6%
D) 8.7%
E) 9.0%

12.
Fred and Mary each invest $1,000 today. Fred is more conservative and invests his money in an account that is expected to earn 5% a year. Mary is an aggressive investor and invests her money in an account that is expected to earn 13% a year. Assume Fred and Mary each earn their expected rates of return. After ten years, how much more money will Mary have than Fred?
A) $1,313
B) $1,629
C) $1,766
D) $1,826
E) $3,395

13.
You just paid $14,960 for a rare model car. You hope to resell the car in three years and earn 15% annually on your investment. What selling price will you have to place on the model car?
A) $17,204
B) $19,785
C) $20,988
D) $21,038
E) $22,752

14.
You have $300 you would like to invest. You have 2 choices: Savings Account A which earns 5% compounded annually or Savings Account B which earns 4.75% compounded semiannually. Which would you choose and why?
A) A because it has a higher effective annual rate
B) A because the future value in one year is lower
C) B because it has a higher effective annual rate
D) B because the future value in one year is lower
E) A because it has the higher quoted rate

15.
Your monthly mortgage payment on your house is $1,311.00. It is a 30 year mortgage at 6.875% compounded monthly. How much did you borrow?
A) $181,523
B) $187,601
C) $190,690
D) $199,565
E) $200,708

16.
You are going to withdraw $1,000 at the end of each year for the next three years from an account that pays interest at a rate of 8% compounded annually. The account balance will reduce to zero when the last withdrawal is made. How much money will be in the account immediately after the second withdrawal is made?
A) $925.93
B) $977.10
C) $982.29
D) $1,000.00
E) $2,000.00

17.
You agree to loan your parents $22,000 to buy a new van. They agree to pay you $450 a month for 5 years. The _______________
A) stated interest rate on the loan is 0.75% per month.
B) APR on the loan is 8.17%.
C) EAR on the loan is 8.37%.
D) APR on the loan is 8.68%.
E) EAR on the loan is 8.70%.

18.
Moe purchases a $100 perpetuity on which payments begin in one year. Larry purchases a $100 perpetuity on which payments begin immediately. Both make annual payments and a 10% interest rate is appropriate for both cash flow streams. Which of the following statements is true?
A) Moe's perpetuity is worth $100 more than Larry's.
B) Larry's perpetuity is worth $100 more than Moe's.
C) The perpetuities are of equal value today.
D) Larry's perpetuity is worth $90.91 more than Moe's.
E) Moe's perpetuity is worth $90.91 more than Larry's.

19.
The company you work for will deposit $500 at the end of each month into your retirement fund. Interest is compounded monthly. You plan to retire 12 years from now and estimate that you will need $1,800 per month out of the account for the next 20 years. If the account pays 7.0% compounded monthly, how much do you need to put into the account in addition to your company deposit in order to meet your objective?
A) $0.00
B) $267.67
C) $533.26
D) $766.67
E) $1,033.26

20.
Consider the following balance sheet entries: Beginning Accounts Receivable (AR) = 180; ending AR = 190; Beginning Inventory (I) = 205; ending I = 210; Beginning Accounts Payable (AP) = 160; ending AP = 155. What is net cash flow?
A) -20
B) -15
C) 0
D) 5
E) 15

Solution Summary

Using an Excel 97-2003 spreadsheet, this solution answers the following questions:

1.
A firm's balance sheet shows current assets of $95, net fixed assets of $250, long-term debt of $40, and owners equity of $200. What is the value of the firm's current liabilities if that is the only remaining balance sheet item?
A) -$ 50
B) $ 50
C) $105
D) $145
E) $545

2.
Calculate net income using the following information: sales = $135; cost of goods sold = $40; selling, general and administrative expense = $35; depreciation = $20.00; interest expense = $20.00; tax rate = 34%.
A) $ 13.20
B) $ 19.80
C) $ 20.00
D) $ 23.10
E) $ 42.90

3.
RDJ Manufacturing has 600 million shares of stock outstanding and $900 million in retained earnings at the end of the year. Net income for the year is $600 million. $240 million in dividends were paid out during the year. What is RDJ's earnings per share?
A) $0.40
B) $0.50
C) $0.80
D) $1.00
E) $2.50

4.
Use the corporate tax rates in your textbook to answer this question. Suppose a firm has a taxable income of $74,000. Then, its total tax liability is
A) $10,050
B) $11,750
C) $13,500
D) $16,750
E) $18,500

5.
You have the following data for the Frank Winery: return on equity = 15%, earnings before taxes = $30,000, total asset turnover = .80, profit margin = 4.5%, tax rate = 35%. What is the firm's return on assets (ROA)?
A) 3.6%
B) 3.9%
C) 5.7%
D) 6.4%
E) 9.3%

6.
Brandies Candies has total assets of $1,200, total equity of $900, an ROA of 15%, and a dividend payout ratio of 40%. What is the internal growth rate of Brandies Candies?
A) 6.0%
B) 7.8%
C) 9.9%
D) 11.2%
E) 20.0%

7.
You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded annually, how long will you have to wait to buy the stereo?
A) 6.58 years
B) 8.42 years
C) 14.58 years
D) 15.75 years
E) 18.78 years

8.
You are going to receive $500 four years from today. If the discount rate is 6% compounded annually, what will be the present value of the $500 two years from today?
A) $395.16
B) $396.05
C) $429.04
D) $433.33
E) $445.00

9.
An account was opened with an investment of $1,000 three years ago. Today, the account balance is $1,157.63. If the account earns a fixed annual interest rate, how long will it take until the account has earned a total of $225 in simple interest?
A) less than one more year
B) between one and two more years
C) between two and three more years
D) between three and four more years
E) between four and five more years

10.
A savings account, which started with a balance of $500, has the following end of year balances: Year 1 = $525; Year 2 = $550; Year 3 = $580; Year 4 = $612; Year 5 = $700. No withdrawals were made over the life of the account, but there was one additional deposit of $50 made at the beginning of year 5. During year 2, the account earned ________
A) 4.8%.
B) 5.3%.
C) 5.5%.
D) 5.7%.
E) 5.9%.

11.
In a growing Midwestern town, the number of eating establishments at the end of each of the last five years are as follows: Year 1 = 128; Year 2 = 143; Year 3 = 166; Year 4 = 173; Year 5 = 181. From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of ________ compounded annually.
A) 4.2%
B) 4.7%
C) 5.6%
D) 8.7%
E) 9.0%

12.
Fred and Mary each invest $1,000 today. Fred is more conservative and invests his money in an account that is expected to earn 5% a year. Mary is an aggressive investor and invests her money in an account that is expected to earn 13% a year. Assume Fred and Mary each earn their expected rates of return. After ten years, how much more money will Mary have than Fred?
A) $1,313
B) $1,629
C) $1,766
D) $1,826
E) $3,395

13.
You just paid $14,960 for a rare model car. You hope to resell the car in three years and earn 15% annually on your investment. What selling price will you have to place on the model car?
A) $17,204
B) $19,785
C) $20,988
D) $21,038
E) $22,752

14.
You have $300 you would like to invest. You have 2 choices: Savings Account A which earns 5% compounded annually or Savings Account B which earns 4.75% compounded semiannually. Which would you choose and why?
A) A because it has a higher effective annual rate
B) A because the future value in one year is lower
C) B because it has a higher effective annual rate
D) B because the future value in one year is lower
E) A because it has the higher quoted rate

15.
Your monthly mortgage payment on your house is $1,311.00. It is a 30 year mortgage at 6.875% compounded monthly. How much did you borrow?
A) $181,523
B) $187,601
C) $190,690
D) $199,565
E) $200,708

16.
You are going to withdraw $1,000 at the end of each year for the next three years from an account that pays interest at a rate of 8% compounded annually. The account balance will reduce to zero when the last withdrawal is made. How much money will be in the account immediately after the second withdrawal is made?
A) $925.93
B) $977.10
C) $982.29
D) $1,000.00
E) $2,000.00

17.
You agree to loan your parents $22,000 to buy a new van. They agree to pay you $450 a month for 5 years. The _______________
A) stated interest rate on the loan is 0.75% per month.
B) APR on the loan is 8.17%.
C) EAR on the loan is 8.37%.
D) APR on the loan is 8.68%.
E) EAR on the loan is 8.70%.

18.
Moe purchases a $100 perpetuity on which payments begin in one year. Larry purchases a $100 perpetuity on which payments begin immediately. Both make annual payments and a 10% interest rate is appropriate for both cash flow streams. Which of the following statements is true?
A) Moe's perpetuity is worth $100 more than Larry's.
B) Larry's perpetuity is worth $100 more than Moe's.
C) The perpetuities are of equal value today.
D) Larry's perpetuity is worth $90.91 more than Moe's.
E) Moe's perpetuity is worth $90.91 more than Larry's.

19.
The company you work for will deposit $500 at the end of each month into your retirement fund. Interest is compounded monthly. You plan to retire 12 years from now and estimate that you will need $1,800 per month out of the account for the next 20 years. If the account pays 7.0% compounded monthly, how much do you need to put into the account in addition to your company deposit in order to meet your objective?
A) $0.00
B) $267.67
C) $533.26
D) $766.67
E) $1,033.26

20.
Consider the following balance sheet entries: Beginning Accounts Receivable (AR) = 180; ending AR = 190; Beginning Inventory (I) = 205; ending I = 210; Beginning Accounts Payable (AP) = 160; ending AP = 155. What is net cash flow?
A) -20
B) -15
C) 0
D) 5
E) 15

$2.19