finance questions (please read before contacting me

finance.docx

Home >Business & Finance homework help >finance questions (please read before contacting me

QUESTION 1

1. The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world.

True

False

1 points

QUESTION 2

1. Free cash flow is the amount of cash that if withdrawn would harm the firm's ability to operate and to produce future cash flows.

True

False

1 points

QUESTION 3

1. Which of the following items is NOT normally considered to be a current asset?

		Accounts receivable.
		Inventory.
		Bonds.
		Cash.
		Short-term, highly-liquid, marketable securities.

1 points

QUESTION 4

1. Which of the following statements is CORRECT?

		The more depreciation a firm reports, the higher its tax bill, other things held constant.
		People sometimes talk about the firm's cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line."
		Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow.
		Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.
		Depreciation is not a cash charge, so it does not have an effect on a firm's reported profits.

1 points

QUESTION 5

1. Which of the following statements is CORRECT?

		In the statement of cash flows, a decrease in accounts receivable is subtracted from net income in the operating activities section.
		Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
		In the statement of cash flows, a decrease in accounts payable is subtracted from net income in the operating activities section.
		In the statement of cash flows, depreciation is subtracted from net income in the operating activities section.
		In the statement of cash flows, a decrease in inventories is subtracted from net income in the operating activities section.

1 points

QUESTION 6

1. A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?

		The firm's operating income (EBIT) would increase.
		The firm's taxable income would increase.
		The firm's cash flow would increase.
		The firm's tax payments would increase.
		The firm's reported net income would increase.

1 points

QUESTION 7

1. Which of the following statements is CORRECT?

		Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.
		After-tax operating income is calculated as EBIT(1 − T) + Depreciation.
		Two firms with identical sales and operating costs but with different amounts of debt and tax rates will have different operating incomes by definition.
		If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.
		Retained earnings as reported on the balance sheet represent cash and, therefore, are available to distribute to stockholders as dividends or any other required cash payments to creditors and suppliers.

1 points

QUESTION 8

1. Wu Systems has the following balance sheet. How much net operating working capital does the firm have?

Cash	$ 100	Accounts payable	$ 200
Accounts receivable	650	Accruals	350
Inventory	550	Notes payable	350
Current assets	$1,300	Current liabilities	$ 900
Net fixed assets	1,000	Long-term debt	600
		Common equity	300
		Retained earnings	500
Total assets	$2,300	Total liab. & equity	$2,300

		$675
		$750
		$825
		$908
		$998

1 points

QUESTION 9

1. C. F. Lee Inc. has the following income statement. How much after-tax operating income does the firm have?

Sales	$2,850.00
Costs	1,850.00
Depreciation	192.00
EBIT	$ 808.00
Interest expense	285.00
EBT	$ 523.00
Taxes (35%)	183.05
Net income	$ 339.95

		$427.78
		$450.29
		$473.99
		$498.94
		$525.20

1 points

QUESTION 10

1. Hartzell Inc. had the following data for 2011, in millions: Net income = $600; after-tax operating income [EBIT(1 − T)] = $700; and Total assets = $2,000. Information for 2012 is as follows: Net income = $825; after-tax operating income [EBIT(1 − T)] = $925; and Total assets = $2,500. How much free cash flow did the firm generate during 2012?

		$383
		$425
		$468
		$514
		$566

1 points

QUESTION 11

1. Casey Motors recently reported the following information:

•	Net income = $600,000.
•	Tax rate = 40%.
•	Interest expense = $200,000.
•	Total investor-supplied operating capital employed = $9 million.
•	After-tax cost of capital = 10%.

2. What is the company's EVA?

		−$171,000
		−$180,000
		−$189,000
		−$198,450
		−$208,373

1 points

QUESTION 12

1. Exhibit 4.1 The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's current ratio?

		0.99
		1.10
		1.23
		1.36
		1.50

1 points

QUESTION 13

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's quick ratio?

		0.51
		0.64
		0.76
		0.92
		1.10

1 points

QUESTION 14

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's days sales outstanding? Assume a 365-day year for this calculation.

		39.07
		41.13
		43.29
		45.57
		47.97

1 points

QUESTION 15

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's total assets turnover?

		1.12
		1.40
		1.75
		2.10
		2.52

1 points

QUESTION 16

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's inventory turnover ratio?

		5.47
		5.74
		6.03
		6.33
		6.65

2 points

QUESTION 17

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's TIE?

		2.20
		2.45
		2.72
		3.02
		3.33

2 points

QUESTION 18

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's debt/assets ratio?

		48.55%
		53.95%
		59.94%
		66.60%
		74.00%

2 points

QUESTION 19

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's ROA?

		3.62%
		3.98%
		4.37%
		4.81%
		5.29%

2 points

QUESTION 20

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's ROE?

		13.21%
		13.91%
		14.60%
		15.33%
		16.10%

2 points

QUESTION 21

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's BEP?

		7.50%
		7.90%
		8.31%
		8.73%
		9.16%

2 points

QUESTION 22

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's profit margin?

		1.51%
		1.67%
		1.86%
		2.07%
		2.27%

2 points

QUESTION 23

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's operating margin?

		3.12%
		3.46%
		3.85%
		4.28%
		4.75%

2 points

QUESTION 24

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's dividends per share?

		$1.14
		$1.27
		$1.39
		$1.53
		$1.68

2 points

QUESTION 25

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's EPS?

		$3.26
		$3.43
		$3.62
		$3.80
		$3.99

2 points

QUESTION 26

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's P/E ratio?

		12.0
		12.6
		13.2
		13.9
		14.6

2 points

QUESTION 27

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's book value per share?

		$22.29
		$23.47
		$24.70
		$26.00
		$27.30

2 points

QUESTION 28

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's market-to-book ratio?

		0.87
		1.02
		1.21
		1.42
		1.67

2 points

QUESTION 29

Balance Sheet (Millions of $)
Assets	2012
Cash and securities	$ 2,500
Accounts receivable	11,500
Inventories	16,000
Total current assets	$30,000
Net plant and equipment	$20,000
Total assets	$50,000
Liabilities and Equity
Accounts payable	$ 9,500
Notes payable	7,000
Accruals	5,500
Total current liabilities	$22,000
Long-term bonds	$15,000
Total debt	$37,000
Common stock	$ 2,000
Retained earnings	11,000
Total common equity	$13,000
Total liabilities and equity	$50,000

Income Statement (Millions of $)	2012
Net sales	$87,500
Operating costs except depreciation	81,813
Depreciation	1,531
Earnings bef interest and taxes (EBIT)	$ 4,156
Less interest	1,375
Earnings before taxes (EBT)	$ 2,781
Taxes	973
Net income	$ 1,808

Other data:
Shares outstanding (millions)	500.00
Common dividends	$632.73
Int rate on notes payable & L-T bonds	6.25%
Federal plus state income tax rate	35%
Year-end stock price	$43.39

2. Refer to Exhibit 4.1. What is the firm's equity multiplier?

		3.85
		4.04
		4.24
		4.45
		4.68

2 points

QUESTION 30

1. Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years?

		$22,598.63
		$23,788.03
		$25,040.03
		$26,357.92
		$27,675.82

3 points

QUESTION 31

1. Your aunt has $500,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000 at the beginning of each year, beginning immediately. She also wants to have $50,000 left to give you when she ceases to withdraw funds from the account. For how many years can she make the $45,000 withdrawals and still have $50,000 left in the end?

		15.54
		16.36
		17.22
		18.08
		18.99

3 points

QUESTION 32

1. What's the future value of $1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly?

		$1,537.69
		$1,618.62
		$1,699.55
		$1,784.53
		$1,873.76

3 points

QUESTION 33

1. What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

		$ 969
		$1,020
		$1,074
		$1,131
		$1,187

3 points

QUESTION 34

1. Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the card's EFF%?

		18.58%
		19.56%
		20.54%
		21.57%
		22.65%

3 points

QUESTION 35

1. Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Midwest Bank also offers to lend you the $50,000, but it will charge an annual rate of 7.0%, with no interest due until the end of the year. How much higher or lower is the effective annual rate charged by Midwest versus the rate charged by Riverside?

		0.52%
		0.44%
		0.36%
		0.30%
		0.24%

3 points

QUESTION 36

1. Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year. What is the effective annual rate on the loan?

		8.24%
		8.45%
		8.66%
		8.88%
		9.10%

3 points

QUESTION 37

1. Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate?

		15.27%
		16.08%
		16.88%
		17.72%
		18.61%

3 points

QUESTION 38

1. Your uncle will sell you his bicycle shop for $250,000, with "seller financing," at a 6.0% nominal annual rate. The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years, and then make an additional final (balloon) payment of $50,000 at the end of the last month. What would your equal monthly payments be?

		$4,029.37
		$4,241.44
		$4,464.67
		$4,699.66
		$4,947.01

3 points

QUESTION 39

1. Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years. How much interest would you have to pay in the first year?

		$1,200.33
		$1,263.50
		$1,330.00
		$1,400.00
		$1,470.00

3 points

QUESTION 40

1. Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?

		12.31%
		12.96%
		13.64%
		14.36%
		15.08%

3 points

QUESTION 41

1. Your subscription to Investing Wisely Weekly is about to expire. You plan to subscribe to the magazine for the rest of your life, and you can renew it by paying $85 annually, beginning immediately, or you can get a lifetime subscription for $850, also payable immediately. Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant, how many years must you live to make the lifetime subscription the better buy?

		7.48
		8.80
		10.35
		12.18
		14.33

3 points

QUESTION 42

1. Your sister turned 35 today, and she is planning to save $7,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

		$58,601
		$61,686
		$64,932
		$68,179
		$71,588

3 points

QUESTION 43

1. You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24th month, you will have $13,000 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

		7.62%
		8.00%
		8.40%
		8.82%
		9.26%

3 points

QUESTION 44

1. Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 11.0% but with equal end-of-month payments. What percentage of the 2ndmonthly payment will go toward the repayment of principal?

		73.67%
		77.55%
		81.63%
		85.93%
		90.45%

3 points

QUESTION 45

1. One of the four most fundamental factors that affect the cost of money as discussed in the text is the current state of the weather. If the weather is dark and stormy, the cost of money will be higher than if it is bright and sunny, other things held constant.

True

False

2 points

QUESTION 46

1. One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation. If inflation is expected to be relatively high, then interest rates will tend to be relatively low, other things held constant.

True

False

2 points

QUESTION 47

1. One of the four most fundamental factors that affect the cost of money as discussed in the text is the risk inherent in a given security. The higher the risk, the higher the security's required return, other things held constant.

True

False

2 points

QUESTION 48

1. The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) the skill level of the economy's labor force.

True

False

2 points

QUESTION 49

1. Kop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 4.40%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 1.70% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?

		2.04%
		2.14%
		2.26%
		2.38%
		2.50%

2 points

QUESTION 50

1. 5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds. What is the real risk-free rate, r*?

		2.59%
		2.88%
		3.20%
		3.52%
		3.87%

2 points

Click Save and Submit to save and submit. Click Save All Answers to save all answers.

ave and Submit