1.

  The goal of financial management is to maximize the:

  Student Response Correct Answer1. market value of the existing owners’ equity.   2. current dividends.   3. total assets owned by the firm.   4. current net income.  

Score: 1/1

 

2.

  Use these financial statements to answer questions 2 to 4

                                                       Balance Sheet

               2007           2008                                                2007               2008

Cash                           $   310     $   405        Accounts payable         $  2,820    $ 2,570

Accounts receivable        2,640       3,055       Long-term debt                  7,875       8,100

Inventory                         3,275       3,850       Common stock                 5,000       5,250

Net fixed assets             10,960       10,670        Retained earnings            1,490           2,060

Total assets                  $17,185   $17,980      Total liabilities and equity $ 17,185   $17,980

                                                        Income Statement

                                                Net Sales                      $9,610

                                                Costs                              6,310

                                                Depreciation                    1,370

                                                EBIT                               1,930

                                                Interest                                 630

                                                Taxable income              1,300

                                                Taxes                                      455

                                                Net Income                    $     845

What is the operating cash flow for 2008?

  Student Response Correct Answer1. $845   2. $1,930   3. $2,215   4. $2,845   5. None of the above.  

Score: 1/1

 

3.

  What is the cash flow to creditor for 2008?

  Student Response Correct Answer1. -$405   2. -$225   3. $225   4. $405  

Score: 0/1

 

4.

  What is the change in net working capital for 2008?

  Student Response Correct Answer1. $1,235   2. $1,035   3. $1,335   4. $3,405  

Score: 1/1

 

5.

  A firm has net income of $4,000 and a tax rate of 34 percent. The revenue is $15,000, cost of goods sold is $6,000, and interest expense is $400. What is the depreciation expense for the year?

  Student Response Correct Answer1. $1,155   2. $2,470   3. $2,539   4. $4,600  

Score: 1/1

 

6.

  A firm has net working capital of $8,000 and current assets of $12,000. Total assets equal $30,000. What is the book value of the firm if long-term debt is $7,500?

  Student Response Correct Answer1. $10,500   2. $14,500   3. $18,500   4. $18,900  

Score: 1/1

 

7.

  A firm currently has an average tax rate of 20 percent and a marginal tax rate of 25 percent based on its current taxable income of $40,000. What will the firm’s average tax rate be if it increases its taxable income by $2,000?

  Student Response Correct Answer1. 20 percent   2. 20.05 percent   3. 20.24 percent   4. 25 percent  

Score: 1/1

 

8.

  Redding Industrial Supply had common stock of $6,800 and retained earnings of $5,000 at the beginning of the year. At the end of the year, the common stock balance is $7,100 and the retained earnings account balance is $5,500. The net income for the year is $980. What is the retention ratio?

  Student Response Correct Answer1. 17.59 percent   2. 51.02 percent   3. 61.09 percent   4. 81.63 percent  

Score: 1/1

 

9.

  A firm has a debt-equity ratio of .5. What is the equity multiplier if total equity is $4,500?

  Student Response Correct Answer1. .5   2. 1.5   3. 2.0   4. 2.22  

Score: 1/1

 

10.

  A firm has sales of $26,000, depreciation of $2,000, interest expense of $800, cost of goods sold of $15,000, other costs of $5,000, and a tax rate of 34 percent. What is the firm’s profit margin?

  Student Response Correct Answer1. 7.84 percent   2. 7.97 percent   3. 8.12 percent  

4. 8.62 percent  

Score: 1/1

 

11.

  Brown and Co. has a return on assets of 14 percent, an equity multiplier of 1.8, and a dividend payout ratio of 50 percent. What is the firm’s internal rate of growth?

  Student Response Correct Answer1. 7.53 percent   2. 7.68 percent   3. 7.76 percent   4. 7.80 percent  

Score: 1/1

 

12.

  A firm has a return on equity of 14.60 percent and a profit margin of 10 percent. What is the return on assets if the equity multiplier is 1.4?

  Student Response Correct Answer1. 10.43 percent   2. 11.48 percent   3. 11.55 percent   4. 20.16 percent  

Score: 1/1

 

13.

  Nelson Ledges has total equity of $64,800. There are 15,000 shares of stock outstanding at a market price of $11.66 a share. What is the market-to-book ratio?

  Student Response Correct Answer1. .28   2. .37   3. 2.70  

4. 3.63  

Score: 1/1

 

14.

  You currently have $7,200 in your investment account. You can earn an average rate of return of 15 percent per year. How long will you have to wait until your account is worth $50,000?

  Student Response Correct Answer1. 9.47 years   2. 11.28 years   3. 13.87 years   4. 17.51 years  

Score: 1/1

 

15.

  Your savings account is currently worth $1,200. The account pays 5 percent interest compounded annually. How much will your account be worth 6 years from now?

  Student Response Correct Answer1. $1,524.00   2. $1,562.71   3. $1,608.12   4. $1,627.19  

Score: 1/1

 

16.

  Fifteen years ago, your parents opened an investment account with an initial deposit of $5,000. Today, that account is worth $38,000. What average annual rate of return did they earn on their investment?

  Student Response Correct Answer1. 14.48 percent   2. 14.59 percent  

3. 14.78 percent   4. 15.03 percent  

Score: 1/1

 

17.

  Marcia invested $500 with the Simpleton Bank 2 years ago. The bank pays 3 percent simple interest on its savings accounts. What is the total amount of interest Marcia has earned on her account over the past 2 years?

  Student Response Correct Answer1. $17.50   2. $27.00   3. $30.00   4. $52.50  

Score: 1/1

 

18.

  Which one of the following statements is correct, all else held constant?

  Student Response Correct Answer1. There is an inverse relationship between the present value and the

future value. 

2. The future value decreases as the time period increases.   3. The present value decreases as the time period decreases.   4. The interest rate is inversely related to the present value.  

Score: 1/1

 

19.

  Your goal is to earn an annual salary of $100,000 three years from now. You expect to increase your salary by 6.5 percent annually. How much do you need to earn this year if you are going to reach your goal?

  Student Response Correct Answer

1. $72,988.08   2. $82,784.91   3. $87,878.88   4. $84,363.13  

Score: 1/1

 

20.

  You want to buy another vehicle and know you can afford $330 a month for 6 years. The interest rate is 7.75 percent, compounded monthly. How much money can you afford to borrow?

  Student Response Correct Answer1. $12,600.00   2. $13,582.63   3. $16,429.37   4. $18,953.07  

Score: 1/1

 

21.

  The Corner Bank is offering you a credit card with an APR of 13 percent. The bank compounds the interest rate on a monthly basis. What is the effective annual rate?

  Student Response Correct Answer1. 12.68 percent   2. 13.69 percent   3. 13.80 percent   4. 14.03 percent  

Score: 1/1

 

22.

  Over the past 30 years your parents saved money each month for their retirement. They retired this week and expect to live another 30 years. Their investment account is currently valued at

$500,000 and is expected to earn 5 percent annually in the future. How much money can they withdraw annually if they wish to spend all of their money during their lifetime?

  Student Response Correct Answer1. $5,158.75   2. $6,038.59   3. $32,525.72   4. $40,149.59  

Score: 1/1

 

23.

  Suzie has $16,000 in her investment account today. She saves $200 a month and earns 5 percent interest, compounded monthly. How much money will she have in her account three years from now?

  Student Response Correct Answer1. $16,821.87   2. $18,509.53   3. $26,334.22   4. $26,997.91  

Score: 1/1

 

24.

  Tom invested $100 at the beginning of each month for the last 14 years and earned 6 percent interest, compounded monthly. Julia invested $200 at the end of each month for the past 7 years and earned 6 percent interest, compounded monthly. Today, Tom has ______ than Julia.

  Student Response Correct Answer1. $5,546.84 less   2. $5,560.26 less   3. $5,546.84 more   4. $5,560.26more  

Score: 1/1

 

25.

  You just won a prize and will receive $5,000 today plus $5,000 one year from now. What is this prize worth to you today if you can earn 10 percent annually on your investments?

  Student Response Correct Answer1. $9,545.46   2. $9,587.16   3. $10,000.00   4. $10,450.00  

Score: 1/1

 

26.

  A generous benefactor invested money in a scholarship fund ten years ago at an interest rate of 10 percent. Every year, the fund awards $50,000 in scholarships to worthy college students. How much did this benefactor deposit into the account initially? Assume all interest is paid out annually but the principal amount remains untouched.

  Student Response Correct Answer1. $400,000   2. $462,963   3. $500,000   4. $625,000  

Score: 1/1

 

27.

  Super Star, Inc. gives out an "employee of the year" award every year. This employee receives a bonus of $1,000 on the day he or she is selected and another $1,000 for every year he or she remains with the firm, up to a maximum of $20,000 total. At a 6.5 percent discount rate, what is the maximum value of this award at the time the recipient is selected?

  Student Response Correct Answer1. $11,018.51   2. $11,431.84   3. $11,734.71   4. $11,820.85   5. $11,996.08  

Score: 1/1

 

28.

  Angela's Accessories offers credit to its customers and charges interest of 2 percent per month. What is the annual percentage rate?

  Student Response Correct Answer1. 20.18 percent   2. 21.71 percent   3. 24.00 percent   4. 25.36 percent   5. 25.36 percent  

Score: 1/1

 

29.

  Your parents spent $4,500 to buy 300 shares of stock in a new company 20 years ago. The stock has appreciated 11 percent per year on average. What is the current value of those 300 shares?

  Student Response Correct Answer1. $5,400.95   2. $9,900.00   3. $14,400.00   4. $33,435.38   5. $36,280.40  

Score: 1/1

 

30.

  Your brother will receive $450 a month for the next six years from an insurance settlement. The interest rate is 5 percent, compounded monthly, for the first two years and 6.5 percent, compounded monthly, for the final four years. What is this settlement worth to your brother today?

  Student Response Correct Answer1. $17,173.19  

2. $18,975.37   3. $21,537.72   4. $24,364.82   5. $27,430.45  

Score: 1/1

 

31.

  Twenty years ago, you deposited $1,000 into an account. Fifteen years ago, you added an additional $3,000 to your account. You earned 6 percent, compounded annually, for the first 5 years and 10 percent, compounded annually, for the last 15 years. How much money do you have in your account today?

  Student Response Correct Answer1. $4,925.34   2. $5,634.48   3. $13,880.59   4. $18,121.84   5. $19,369.43  

Score: 1/1