1. Profit maximization stresses the efficient use of timing and risks.
2. Financial assets are tangible assets such as houses, equipment, and inventories.
3. The sustainable rate of growth represents the rate at which a firm's sales can grow if it wants to maintain its present financial ratios and does not want to resort to a sale of new equity shares.
4. Business risk refers to the relative disperses in the firm's expected earnings after interest and taxes.
5. New capital-budgeting projects are always new products taken to market.
6. The stock of cash is a type of inventory.
7. If an asset is sold above depreciated value, it may be used to offset gains and thus result in tax savings.
8. Free cash flow is the cash flow in excess of that required to fund all projects with positive and negative net present value when discounted at the relevant cost of capital.
9. The Euro eliminated exchange costs and exchange rate fluctuations.
10. The foreign exchange market is like the New York Stock Exchange because they are both physical entities.
MULTIPLE CHOICES. Choose the one alternative that best completes the statement or answers the question. Please provide any back-up of your calculations on a separate worksheet so that credit can be assigned.
11. Which of the following measure an organization's liquidity?
a. Acid test ratio
b. debt to equity ratio
c. return on equity
d. Dupont Analysis
12. If I invest $1000 at an interest rate of 2% what would the future value be after 5 years?
13. Burns Promotions Plus has an annuity that pays $2500 at the beginning of the next 4 years what is the future value of the annuity if the interest rate is 5%?
14. Grover's Vinyl Siding has a $2000 loan that needs to be repaid in 3 equal installments at the end of the next three years with an interest rate of 6%; what would the requested payment be?
15. Plexus Pictures collects 70% of its sales during the month of sales, 20% one month after the sales and 10% two months after the sale. The company expects sales of $15,000 in August; $25,000 in September; $10,000 in October; and $50,000 in November How much money will they collect in October?
16. The significance of a ratio can only be truly appreciated Except when:
a. It is compared with other ratios in the same set of financial statements.
b. It is compared with the same ratio in previous financial statements (trend analysis).
c. It is compared with a standard of performance (industry average)
d. It is compared with other ratios in different sets of financial statement.
17. Which is not a type of ratio?
b. Inventory Valuation
18. Burns Promotions Plus has a cost of revenue of $219,793 million for the fiscal year ended January 31, 2008. It had an inventory balance of $29,447 million at the end of this fiscal year. Based on this information what is the number of days inventory for the year 2007 (ending January 31, 2008).
a. 23.3 days
b. 35.9 days
c. 42.3 days
d. 48.9 days
18. Burns Promotions Plus has a cost of revenue of $219,793 million for the fiscal year ended January 31, 2008. It had an inventory balance of $29,447 million at the end of this fiscal year. Based on this information what is the inventory turnover for the year 2007 (ending January 31, 2008).
a. 3.23 times
b. 4.56 times
c. 7.46 times
d. 8.75 times
19. What is working capital?
a. An indicator whether the company will be able to meet its current obligations.
b. Tells you the relationship of current assets to current liabilities.
c. Indicates the relationship between amounts of assets that can be quickly be turned into cash versus the amount of current liability.
d. It measures the return to the owners.
20. Euro was introduced because of the following EXCEPT?
a. It made it easier for goods, people, and services to travel across national borders.
b. It helped to eliminate cost differences for goods in different countries.
c. It made it easier to compare prices and eliminate discrepancies.
d. The value of the Euro remains constant.
The problems deal with selected issues in Finance. Among the problems include the calculation of different sets of ratios, and discounting.
Callaghan Motors' bonds have 10 years remaining to maturity.
I am having a really hard time fully understanding how to workout these questions. I would like your assistance, so I may understand how to workout other assignments.
7-1 Bond valuation Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 8 percent; and the yield to maturity is 9 percent. What is the bond's current market price?
7-2 Current yield and yield to maturity A bond has a $1,000 par value, 10 years to maturity,
a 7 percent annual coupon, and sells for $985.
a. What is its current yield?
b. What is its yield to maturity (YTM)?
c. Assume that the yield to maturity remains constant for the next 3 years. What willthe price be 3 years from today?
7-3 Bond valuation Nungesser Corporation's outstanding bonds have a $1,000 par value, a 9 percent semiannual coupon, 8 years to maturity, and an 8.5 percent YTM. What is the bond's price?
7-8 Yield to call Six years ago, the Singleton Company issued 20-year bonds with a 14 percent annual coupon rate at their $1,000 par value. The bonds had a 9 percent call premium, with 5 years of call protection. Today, Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Explain why the investor should or should not be happy that Singleton called them.
7-10 Current yield, capital gains yield, and yield to maturity Hooper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8 percent annual coupon rate and were issued 1 year ago at their par value of $1,000, but due to changes in interest rates, the bond's market price has fallen to $901.40. The capital gains yield last year was _9.86 percent.
a. What is the yield to maturity?
b. For the coming year, what is the expected current yield and the expected capital gains yield?
c. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?