$1.00 Select the best answer: 1. The decisions
Select the best answer: 1. The decisions that a financial manager makes depends upon a. whether the organization is small or large b. whether the organization is a sole proprietorship or a corporation c. whether it would maximize the value of the owner or owners’ stock d. whether it would maximize the profits of the organization 2. Working capital management involves decisions related to the following: a. Should an existing machine be replaced with a new model b. Negotiating credit terms with suppliers c. Signing a contract to build a new office building d. Recommending plans for a new manufacturing plant 3. Ethical behavior is important for business because a. many companies have a code of ethics b. without ethical behavior employees would not be promoted c. many government regulations require ethical behavior d. without ethical behavior markets would be inefficient 4. The primary goal of a well designed management compensation package is to: A. Ensure that management is satisfied B. Ensure management acts in the stockholders’ best interest C. Reduce the costs of replacing management D. Eliminate management bonuses tied to stock price 5. Which of the following is the most appropriate goal for the firm? A) Profit maximization B) Revenue maximization C) Tax minimization D) Shareholder wealth maximization 6. The external auditor’s ultimate legal responsibility is to the: A. Client’s CEO B. Client’s audit committee C. Client’s CFO D. Client’s controller 7. All of the following are needed in calculating working capital except: a.) Notes payable b.) Accounts receivable c.) Depreciation d.) Accruals e.) All of the above f.) A, B, & C only 8. All of the following would be considered sources of cash except: a.) Sale of bonds to investors b.) An decrease in inventories c) An increase in accounts payable d.) An increase in accounts receivables e.) A & D only f.) A & C only 9. Doctor Foreman runs a junkyard with his granddaughter Susan. For the first year of business, the junkyard reported a net income of $75,240 on an EBITDA of $112,500. Interest expenses were $2,000 and the firm took a depreciation and amortization charge of $6,000. The tax rate paid by Doctor Foreman's business was: A) 25% B) 28% C) 31% D) 34% 10. Which of the following statements best reflects why companies prepare a balance sheet: A) It provides a snapshot of the profitability of a firm B) It provides a snapshot of the cash position of a firm C) It provides a snapshot of the financial position of a firm D) It is required by GAAP 11. Board Bagels, a small cafe in downtown Pittsburgh, had a net sales of $230,000 for the most recent fiscal year, 65% of which were eaten up by its costs. The firm had some baking equipment that cost $45,000 with a salvage value estimated at $5,000 and was being depreciated over 10 years using the straight-line method. Interest on accumulated loans amounted to $12,000 and the cafe had a net tax rate of 25%. What was it's net income? A. $48,375 B. $17,625 C. $48,000 D. $160,500 12. Old Company paid taxes of $ 20,000 and purchased equipment worth $ 25,000 during the year that ended June 30, 2008. The firm had net income of $400,000 during the year ended June 30, 2008. After paying out $25,000 in dividends, the balance went into retained earnings. If the firm’s total retained earnings were $875,000, what was the level of retained earnings on its balance sheet on July 1, 2007? a) $ 480,000 b) $ 520,000 c) $ 920,000 d) $ 500,000 13. Johnson Corporation has announced that its net income for the year ended June 30, 2008, is $1,000,000. The company had an EBITDA of $ 4,900,000, and its depreciation and amortization expense was equal to $1,500,000. The company’s tax rate is 34 percent. What is the amount of interest expense for the Corporation? a) $ 1,590,749 b) $ 1,884, 849 c) $ 880, 659 d) $ 1,489,500 14. A market value balance sheet can provide: a) management with a more exact statement of the firm’s net income b) investor’s with a better understanding of the cost of the firm’s assets c) misleading information on the earnings per share of most firms d) better information on the stockholder’s equity 15. Common-size financial statements include: I. balance sheets with contents divided by total assets II. income statements with contents divided by net sales or revenues III. cash flow statements with contents divided by depreciation and amortization A. I only B. II only C. I and II D. I, II, and III E. none of the choices are examples of common-size financial statements 16. Meaningful peer group analysis requires that members of the peer group: I. are all in a similar industry II. have similar looking ticker symbols III. are of roughly similar size A. I only B. I and II only C. II and III only D. I and III only E. none of the choices are criteria for peer group membership 17. Which of the following are profitability ratios? I. Total Debt / Total Equity II. EBIT / Interest Expense III. Net Income / Net Sales IV. Net Income / Total Equity A. I only B. II only C. II and III only D. III and IV only E. none of the choices are profitability ratios 18. Whaling Boats reports the following account balances: inventory of $16,200, equipment of $36,200, accounts payable of $16,250, cash of $11,200, and accounts receivable of $12,400. How much does the firm have in net working capital? a. $14,500 b. $20,300 c. $39,300 d. $56,500 e. $23,550 19. A firm has a debt-to-equity ratio of 0.25. What is the firm’s debt to total assets ratio? a. 0.2 b. 0.33 c. 0.50 d. 2.00 e. 5.00 20. Peterson Hotel Inc., has Earnings before interest and taxes(EBIT) of $9,827. If it has an interest expense of $477 and a net income of $6,481, what was Peterson HotelÕs tax rate? a. 33.00% b. 35.00% c. 27.55% d. 30.68% e. 34.90% 21. A high price-earnings ratio can best be interpreted to mean that a firm: a. pays higher dividends per share than most comparable firms. b. has relatively high earnings per share as compared to their peers. c. currently provides less net income per dollar paid for one share of stock than most other firms. d. is guaranteed to have higher earnings per share in the near future based on the high current growth rate of the firm. e. is growing at a rapid rate and that all of the net earnings are being distributed to shareholders in the form of dividends. 22. The Roadway Tire Store has net income of $67,200, total assets of $480,000, total equity of $230,000, and total sales of $676,000. What is the common-size percentage for the net income? a. 7.65 percent b. 10.54 percent c. 14.00 percent d. 9.94 percent e. 29.22 percent 23. Sarah’s Bakery has total assets of $214,600, long-term debt of $52,700, total equity of $119,500, fixed assets of $164,400, and sales of $241,900. The profit margin is 6 percent. What is the current ratio? a. 0.77 b. 1.79 c. 2.18 d. 4.07 e. 1.18 24. You plan to invest some money in a bank account. Which of the following banks provides you with the highest effective rate of interest? a. Bank 1; 6.1% with annual compounding. b. Bank 2; 6.0% with monthly compounding. c. Bank 3; 6.0% with annual compounding. d. Bank 4; 6.0% with quarterly compounding. e. Bank 5; 6.0% with daily (365-day) compounding. 25. Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. How much will you have when the CD matures? a. $3,754.27 b.$3,941.99 c. $4,139.09 d. $4,346.04 e. $4,563.341. 26. 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? a. $22,598.63 b. $23,788.03 c. $25,040.03 d. $26,357.92 e. $27,675.82 27. The higher the rate of interest: a. the smaller the future value of an amount invested to-day b. the smaller the present value of a future sum of money c. the larger the present value of a future sum of money d. all of the above 28. You want to withdraw a single sum of $8,000 at the end of 12 years. This withdrawal will deplete the account down to $0. What single sum of money must you deposit to-day if the account earns 5% per year? a. $ 5,000.00 b. $ 4,454.70 c. $ 5,101.20 d. $ $4720.30 29. The statement that one should not add or subtract money unless it occurs at the same point in time is an illustration of: a. Time value of money b. Economy of scale c. Balance sheet equation d. Practice of sound business ethics 30. When the National Basketball Association (NBA) and the Players’ Association were unable to finalize a new contract, NBA team owners locked out players on July 1, 2011. Negotiations continued for weeks thereafter without any progress. With the parties remaining far apart, the NBA canceled all pre-season games and then two weeks of the regular season. NBA Commissioner David Stern felt that he could not budge in negotiations because the NBA team owners collectively lost $300 million in the 2010-11 season under the existing contract. The Players’ Association felt that they should not have to budge either because they calculated the NBA teams would collectively lose $25 million per week that regular season games are not played. On the other hand, NBA players would collectively lose $10 million per week that regular season games were not played. What is the best method for calculating the present value of each side’s position in order to most thoroughly explain the time value of money? A) Simple interest. B) Compound interest with quarterly compounding. C) Compound interest with monthly compounding. D) Compound interest with continuous compounding. 31. In August 2011, Netflix announced significant changes to its pricing plans. The new plans separate DVD-only subscriptions and streaming-only subscriptions, with each basic plan costing $7.99 a month. Previously, Netflix offered customers a basic combo plan for one DVD at a time and unlimited steaming that used to cost $9.99 and now will cost $15.98 a month. You are an existing Netflix subscriber with the basic combo plan. You are furious that Netflix would demand a 60% price increase without adding any benefits to your plan, so you promptly cancel your Netflix subscription. You calculate the present value of your savings over 5 years to be $475.00. If you invest this amount in a 5-year bond that pays 8.5% interest compounded annually, how much interest on interest will you earn? A) $9.43 B) $37.36 C) $40.38 D) $239.24 32. In August 2011, legendary investor Warren Buffett wrote in a New York Times Op-ed, “While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘[carried] interest,’ thereby getting a bargain 15 percent tax rate…. My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.” The tax rate on ordinary income for individuals is 35%. In 2011, Mr. Buffett reported that his income totaled $63 million. Assuming Mr. Buffett’s income increases by 5% per year and the interest rate is 7%, what would be the difference in the present value of his income taxes over the next five years from 2012-2016 if all of his income qualifies as (a) interest versus (b) ordinary income? A) $44.7 million B) $51.7 million C) $59.6 million D) $67.4 million 33. An investor has a stock portfolio. Each stock (listed below) in the portfolio has the following market values and betas. Stock Market Value Beta Coca-Cola $8,085 0.89 Cisco Systems $1,900 1.1 AT&T $12,900 0.60 Northrop Grumman $6,000 1.2 What can an investor expect from this portfolio? a. This portfolio will have higher levels of volatility than the market. b. The portfolio’s unsystematic risk is measured through beta which is 0.84. c. This portfolio has less systematic risk than the market. d. This portfolio has less money invested in low beta stocks and more money invested in high beta stocks. 34. A stock has the same level of systematic risk as the market. The stock has an expected return of 14%. The risk free rate is 5%. Calculate the market risk premium. a. 5% b. 7% c. 9% d. 14% 35. The stocks of Microsoft and Apple have a correlation of 0.6. Microsoft and Apple stock have variances of 30% and 40%. What is their covariance? a. 0.21 b. 0.07 c. 0.72 d. 0.36 36. Ahmed purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to Ahmed from owning the stock? a. 5% b. 44% c. 35% d. 50% 37. If you were to compare the returns of an individual stock to a market index, select the answer below that is most true. a. The returns of the individual stock will show more variability than those of the market index. b. The returns of the individual stock will show less variability than those of the market index. c. The returns of the individual stock will show the same level of variability than those of the market index, if they have the same beta. d. None of the above. 38. You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio? a. 15.2% b. 16.0% c. 16.8% d. 17.6% 39. The expected return for Stock P is 30 percent. If we know the following information about Stock P, then what return will it produce in the OK state of the world? Return Probability Not So Good 0.2 0.25 Ok ? 0.5 Dynamite! 0.4 0.25 A. .3 B. .2 C. .4 D. It is impossible to determine 40. The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the expected return on Briar Tek's stock is 13.80% , then what is Briar Tek's Beta? a. 1.7 b. 1.9 c. 1.8 d. 1.2 41. Which of the following is the best measure of the systematic risk in a portfolio? a. variance b. standard deviation c. covariance d. beta 42. The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset’s returns? Return Probability 0.10 0.25 0.20 0.50 0.25 0.25 a. 0.002969 b. 0.000613 c. 0.015195 d. 0.054486 43. Which of the following statements is most correct? a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. b. If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive. c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital. d. Statements a and c are correct. e. None of the statements above is correct. 44. You are deciding among two mutually exclusive projects. The two projects have the following cash flows: Project A Project B Year Cash Flow Cash Flow 0 -$50,000 -$30,000 1 10,000 6,000 2 15,000 12,000 3 40,000 18,000 4 20,000 12,000 The company’s weighted average cost of capital is 10 percent. What is the net present value (NPV) of the project with the highest internal rate of return (IRR)? a. $ 7,090 b. $ 8,360 c. $11,450 d. $12,510 e. $15,200 45. In Capital Budgeting, the Internal Rate of Return (IRR) method is superior to the Net Present Value (NPV) method because a) IRR yields a percentage where NPV yields a dollar value. b) IRR yields a dollar value where NPV yields a percentage. c) NPV requires a greater amount of estimation than IRR d) IRR is not inherently superior to NPV 46. A company is considering an investment of $5,400,000 that projects a Net Present Value of zero. Which of the following statements is true? a) The Internal Rate of Return is equal to the Required Rate of Return (or Discount Rate). b) The Internal Rate of Return of the investment is zero. c) The investment will result in zero profit. d) There is not enough information given to determine if any of the above statements is true. 47. An investment requires an outflow of $200,000 at time zero and another outflow of $50,000 at the end of the first year. Net after-tax inflows for years 2, 3 and 4 are zero. After tax inflows in years 5, 6 and 7 are $50,000, $300,000 and $300,000, respectively. The required rate of return is 18%. Select the number that is closest to the Net Present Value of the investment: a) $130,862 b) ($15,210) c) $184,790 d) $330,826 48. What is the difference between IRR and NPV? a. IRR is better than NPV b. IRR is when NPV equals zero c. NPV is always greater than IRR d. there is no difference between NPV and IRR e. IRR is always greater than NPV 49. The accounting rate of return is a. project's net income and book value b. project's cash flow data c. project's net income and accounting value d. taxable income from project e. time value of the net income 50. The discounted payback period is a. break-even analysis of project b. the length of time to recover an investment adjusted for TVM c. the cash flows from an investment d. the time it takes to recover your investment e. not easily defined
Answers Attached For Q1 To Q10
- This tutorial was purchased 1 time and rated No Rating by students like you.
- Posted on Oct. 24, 2011 at 08:55:13AM
Preview: ... d For ...
MGMT640_2011.doc (75K) (Preview)
The full tutorial is about 6 words long plus attachments.
MGMT640_2011.doc (75K) (Preview)
MGMT640_2011 - 50 questions Answered
- This tutorial was purchased 4 times and rated No Rating by students like you.
- Posted on Oct. 24, 2011 at 09:38:10AM
Preview: ... d in the wo ...
MGMT640_2011.doc (76K) (Preview)
The full tutorial is about 9 words long plus attachments.
MGMT640_2011.doc (76K) (Preview)
- This tutorial has appended information.