Purchase Solution

# Multiple choice- bonds, TVM

Not what you're looking for?

Complete question in the attached file.

1. Suppose you have the 2001 income statement for a firm, along with the 12/31/2000 and 12/31/2001 balance sheets. How would you calculate net capital spending?
A) Ending net fixed assets (2001) minus beginning net fixed assets (2000) plus 2001 depreciation
B) Beginning net fixed assets (2000) minus ending net fixed assets (2001) plus 2001 depreciation
C) Beginning net fixed assets (2000) plus ending net fixed assets (2001) minus 2001 depreciation
D) Ending net fixed assets (2001) minus beginning net fixed assets (2000) plus 2001 taxes paid
E) Ending net fixed assets (2001) plus beginning net fixed assets (2000) minus 2001 taxes paid

Use the following to answer questions 1a and 1b:

1-a. What is earnings before interest and taxes for 2001?
A) \$ 30
B) \$ 45
C) \$ 60
D) \$ 75
E) \$120

1-b. What is cash flow to creditors for 2001?
A) \$35
B) \$25
C) \$15
D) \$ 5
E) -\$15

2. You have the following data for a company. What is the return on assets (ROA)? Return on equity = 15%; Earnings before taxes = \$50,000; Total asset turnover = 1.2; Profit margin = 7.5%; Tax rate = 35%.
A) 9%
B) 8%
C) 7%
D) 6%
E) 5%

Use the following to answer question 3:

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 = 273; Year 2 = 279; Year 3 = 302; Year 4 = 320; Year 5 = 344

3. Between the end of year 2 and the end of year 3, the number of eating establishments grew at a rate of _______ compounded annually.
A) 5.2%
B) 6.7%
C) 7.6%
D) 8.2%
E) 9.3%

4. An account was opened with an investment of \$2,000 10 years ago. The ending balance in the account is \$3,500. If interest was compounded annually, what rate was earned on the account?
A) 2.66%
B) 3.22%
C) 3.95%
D) 4.81%
E) 5.76%

5. You received a \$1 savings account earning 6% on your 1st birthday. How much will you have in the account on your 30th birthday if you don't withdraw any money before then?
A) \$3.56
B) \$4.90
C) \$5.42
D) \$5.90
E) \$6.13

6. Moe purchases a \$50 annual perpetuity for which payments begin in one year. Larry purchases a \$50 annual perpetuity for which payments begin immediately. If a 12.5% interest rate is appropriate for both cash flow streams, which of the following statements is true?
A) Moe's perpetuity is worth \$50 more than Larry's.
B) Larry's perpetuity is worth \$50 more than Moe's.
C) The perpetuities are of equal value today.
D) Larry's perpetuity is worth \$44.44 more than Moe's.
E) Moe's perpetuity is worth \$44.44 more than Larry's.

7. You notice a local consumer finance company is offering 24% APR loans, but compounds interest continuously. What is the EAR?
A) 24.00%
B) 27.12%
C) 33.61%
D) 12.00%
E) 18.71%

8. You have \$100,000 to invest. Your bank offers one-year certificates of deposit with a stated rate of 3.50% compounded quarterly. What rate compounded semiannually would provide you with the same amount of money at the end of one year?
A) 3.485%
B) 3.500%
C) 3.505%
D) 3.510%
E) 3.515%

9. J&J Manufacturing just issued a bond with a \$1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what is the present value of the bond's face value?
A) \$ 235.41
B) \$ 341.15
C) \$ 815.56
D) \$1,000.00
E) \$1,050.97

10. Suppose you purchase a zero coupon bond with face value \$1,000, maturing in 25 years, for \$180. What is the implicit interest, in dollars, in the first year of the bond's life?
A) \$ 2.86
B) \$ 9.84
C) \$12.78
D) \$19.27
E) \$30.00

11. Define what is meant by interest rate risk. Assume you are the manager of a \$100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

12. Whitesell Athletic Corporation's bonds have a face value of \$1,000 and a 9% coupon paid semiannually; the bonds mature in 8 years. What current yield would be reported in The Wall Street Journal if the yield to maturity is 7%?
A) 4%
B) 5%
C) 6%
D) 7%
E) 8%

13. Bond A has a coupon rate of 8% and a yield to maturity of 8%. Bond B has a coupon rate of 5% and a yield to maturity of 5%. If Bond A has 8 years to maturity, then Bond B:
A) Has 5 years to maturity.
B) Has more than 5, but less than 8 years to maturity.
C) Has 8 years to maturity.
D) Has more than 8 years to maturity.
E) Any of the above might be correct.

##### Solution Summary

The solution provides answers and explanations on multiple choice questions on income statement, Ending net fixed assets, earnings before interest and taxes, cash flow to creditors, return on assets, compounding, interest rates, perpetuity, APR, EAR, present value of the bond's face value, zero coupon bond, implicit interest rate, interest rate risk, current yield, years to maturity.

##### Solution Preview

1. Suppose you have the 2001 income statement for a firm, along with the 12/31/2000 and 12/31/2001 balance sheets. How would you calculate net capital spending?
A) Ending net fixed assets (2001) minus beginning net fixed assets (2000) plus 2001 depreciation
B) Beginning net fixed assets (2000) minus ending net fixed assets (2001) plus 2001 depreciation
C) Beginning net fixed assets (2000) plus ending net fixed assets (2001) minus 2001 depreciation
D) Ending net fixed assets (2001) minus beginning net fixed assets (2000) plus 2001 taxes paid
E) Ending net fixed assets (2001) plus beginning net fixed assets (2000) minus 2001 taxes paid

Use the following to answer questions 1a and 1b:

1-a. What is earnings before interest and taxes for 2001?
A) \$ 30
B) \$ 45
C) \$ 60
D) \$ 75
E) \$120

= Sales - COGS - Depreciation= 320-200-45=75

1-b. What is cash flow to creditors for 2001?
A) \$35
B) \$25
C) \$15
D) \$ 5
E) -\$15
Increase in COGS=25
Decrease in current liability=10
Cash flow =-(25-10)=-15

2. You have the following data for a company. What is the return on assets (ROA)? Return on equity = 15%; Earnings before taxes = \$50,000; Total asset turnover = 1.2; Profit margin = 7.5%; Tax rate = 35%.
A) 9%
B) 8%
C) 7%
D) 6%
E) 5%
Sales= 50,000/7.5%= 666,666
Sales / Assets turnover= Assets=666,666/1.2=555,555
ROA= 50000/555,555=9 %

##### Learning Lean

Importance of Critical Thinking

##### MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

##### Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

##### Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce