A+ Answers of the following Questions

1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3)
decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production
 

2. (TCO 1) Working capital management includes which of the following? (Points : 3)
establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
 

3. (TCO 1) Market value reflects which of the following: (Points : 3)
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above

1. (TCO 1) Which of the following is true regarding income statements?
It shows the revenue and expenses, based upon selected accounting methods.
It reveals the net cash flows of a firm over a stated period of time.
It reflects the financial position of a firm as of a particular date.
It records revenue only when cash is received for the product or service provided.
It records expenses based on the recognition principle.
 

2. (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato’s Pizza net income?   
$157,950
$322,000
$243,000
$200,000

 
3. (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the marginal tax rate?
35%
39%
34%
32%

1. (TCO 3) Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment? (Points : 3)
Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the investment.
Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.
Mark would have earned more interest if he had invested in an account paying annual interest.
Mark will earn less and less interest each year over the life of the investment.
 

2. (TCO 3) Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments? (Points : 3)
$61,800
$53,500
$113,400
$97,200

 
3. (TCO 3) Your neighbor just received a credit offer in an e-mail. The company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he accepts this offer, how long will it take him to pay off the loan? (Points : 3)
81.00 months
81.50 months
83 months
82.17 months
90.70 months

1. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $5,000, $3,000, and $8,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3)
The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and $16,000
The project should be rejected because its present value is negative
 

2. (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows:
Year       Software Company          Engineering Company
1             $5,000   $15,000
2             $3,000   $8,000
3             $4,000   $9,000
4             $3,600   $11,000
If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)
$33,200
$34,500
$42,000
$43,500

 
3. (TCO 3) North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why? (Points : 3)
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower.

1. (TCO 3) Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Tim? (Points : 3)
7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
 

2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity? (Points : 3)
unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month
 

3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points : 3)
$1315
$1300
$756
$1000