Assessment

Note: It is recommended that you save your response as you complete each question.

Question 1 (2 points)
Which organizational form accounts for 90 percent of the revenues of all firms in the United
States?
Question 1 options:
a)

sole proprietorship

b)

partnership

c)

corporation

d)

a and b

Question 2 (2 points)
Which of the following factors or activities can be controlled by the management of a firm?
Question 2 options:
a)

The level of economic activity.

b)

Stock market conditions.

c)

The level of interest rates.

d)

Capital budgeting.

Question 3 (2 points)
Which of the following business organizational forms subjects the owner(s) to unlimited
liability?
Question 3 options:
a)

sole proprietorship

b)

partnership

c)

corporation

d)

a and b

Question 4 (2 points)
A society's ideas about what actions are right and wrong are
Question 4 options:
a)

morals.

b)

unwritten laws.

c)

laws.

d)

ethics.

Question 5 (2 points)
Which of the following individuals is typically most responsible for managing a large
corporation's financial function?
Question 5 options:
a)

The Chairman of the board.

b)

The CFO.

c)

The CBO.

d)

The CEO.

Question 6 (2 points)
The price of borrowing money is called
Question 6 options:
a)

inflation.

b)

return.

c)

interest.

d)

all of the above.

Question 7 (2 points)
The nominal rate of interest is made up of
Question 7 options:

a)

the real rate of interest.

b)
c)

compensation for inflation.

a commodity cross-index return.

d)

both a and b above.

Question 8 (2 points)
The NYSE is an example of
Question 8 options:
a)

an over-the-counter market exchange.

b)
c)

an organized exchange.
an electronic market exchange.

d)

all of the above.

Question 9 (2 points)
Direct financing occurs when
Question 9 options:
a)

an lender-savers borrows directly from a borrower-spenders.

b)

a borrower-spenders borrows directly from a lender-savers.

c)

a borrower-spenders borrows from the federal government.

d)

an lender-savers borrows from the federal government.

Question 10 (2 points)
Money market instruments are generally issued by
Question 10 options:
a)

firms in dire need of cash to maintain their credit rating.

b)

firms of the highest credit rating.

c)

firms of the lower credit ratings.

d)

all of the above.

Question 11 (2 points)
Which one of the following is NOT true about goodwill?
Question 11 options:
a)

When goodwill appears on a firm's balance sheet, it reduces the firm's net worth by that
amount.

b) It represents the value of all unrecorded assets acquired in a merger.

c)

It is an intangible asset.

d) It equals the premium paid over the fair market value of the assets acquired in a merger.

Question 12 (2 points)
Thunderbird Amusement ParkBalance Sheet as of June 30
Assets
Cash
Accounts receivables
Inventory
Total current assets
Net fixed assets
Total assets

2007
$ 13,221
31,323
77,244
$121,788
344,712
$466,500

2008
$ 11,729
37,909
91,617
$141,255
390,836
$532,091

$ 38,549
12,004
21,934
$ 72,487
78,445
125,000
190,568
$466,500

$ 42,881
16,753
16,788
$ 76,422
61,290
175,000
219,379
$532,091

Liabilities and Stockholders' Equity

Accounts payable
Notes payable
Deferred taxes
Total current liabilities
Long-term debt
Common stock
Retained earnings
Total liabilities and stockholders' equity

The company had a net income of $248,462, and depreciation expenses were equal to $72,487.
Reference: Ref 3-1

What is the firm's cash flow from financing activities?

Question 12 options:
a)

$61,656

b)

$61,656

c)

$66,405

d)

-$182,057

Question 13 (2 points)
Which of the following is an income statement item?
Question 13 options:
a)

Retained earnings.

b)

Accumulated depreciation.

c)

Selling and administrative expenses.

d)

Accrued taxes.

Question 14 (2 points)
Which one of the following does NOT belong on an income statement?
Question 14 options:
a)

depreciation and amortization

b)

goodwill

c)

nonrecurring expenses

d)

extraordinary items

Question 15 (2 points)
Which of the following is NOT true about treasury stock?
Question 15 options:
a) It can be reissued under stock option and other employee benefit plans.
b)
c)
d)

It increases the net worth of the company.

It is the firm's own shares repurchased in the market by the firm.
It lowers the value of the company.

Question 16 (2 points)

Super Grocers, Inc., provided the following financial information for the quarter ending
September 30, 2006:
Depreciation and amortization $133,414
Increase in receivables $ 112,709
Increase in accounts payables $62,411
Decrease in marketable securities $31,225

Net income $341,463

Increase in inventory $81,336

What is the cash flow from operating activities generated during this quarter by the firm?
Question 16 options:
a)

$308,458

b)

$374,468

c)

$308,458

d)

$374,468

Question 17 (2 points)
Which of the following is a cash flow from investing activities?
Question 17 options:
a)
b)
c)
d)

Cash payment of dividends to shareholders.

Purchase of plant, and equipment.
Cash from sale of products.
Rent received from industrial property owned.

Question 18 (2 points)
Annual reports are prepared by a firm's management to
Question 18 options:
a)

highlight the performance of its chief competitors.

b)

provide a forecast of the economy in the coming years.

c) provide overview of the firm's financial and operating performance.

d) communicate to shareholders the firm's failures in the previous year.

Question 19 (2 points)

Thunderbird Amusement ParkBalance Sheet as of June 30

Assets
Cash
Accounts receivables
Inventory
Total current assets
Net fixed assets
Total assets

2007
$ 13,221
31,323
77,244
$121,788
344,712
$466,500

2008
$ 11,729
37,909
91,617
$141,255
390,836
$532,091

$ 38,549
12,004
21,934
$ 72,487
78,445
125,000
190,568
$466,500

$ 42,881
16,753
16,788
$ 76,422
61,290
175,000
219,379
$532,091

Liabilities and Stockholders' Equity

Accounts payable
Notes payable
Deferred taxes
Total current liabilities
Long-term debt
Common stock
Retained earnings
Total liabilities and stockholders' equity

The company had a net income of $248,462, and depreciation expenses were equal to $72,487.
Reference: Ref 3-1

What is the firm's cash flow from operating activities?

Question 19 options:
a)

$304,322

b)

$299,176

c)

$192,602

d)

none of the above

Question 20 (2 points)
Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This
year the company had cash and marketable securities worth $335,485, accounts payables worth
$1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes
payable worth $313,663, and other current assets of $121,427. What is the company's net
working capital?
Question 20 options:
a)

$1,673,421

b)

$3,596,632

c)

$2,123,612

d)

$1,801,784

Question 21 (2 points)
Coverage ratio: Trident Corp. has debt of $3.35 million with an interest rate of 6.875 percent.
The company has an EBIT of $2,766,009. What is its times interest earned?
Question 21 options:
a)

13 times

b)

12 times

c)

11 times

d)

None of the above

Question 22 (2 points)
Profitability ratio: Juventus Corp has total assets of $4,744,288, total debt of $2,912,000, and
net sales of $7,212,465. Their net profit margin for the year is 18 percent. What is Juventus's
ROA?
Question 22 options:
a)

25.6%

b)
c)
d)

18%
27.4%
None of the above

Question 23 (2 points)
Explain the different ways that a firm's ratios can be benchmarked.
Question 23 options:

Question 24 (2 points)
Liquidity ratio: Lionel, Inc., has current assets of $623,122, including inventory of $241,990,
and current liabilities of 378,454. What is the quick ratio?

Question 24 options:
a)

1.65

b)

0.64

c)

1.01

d)

None of the above

Question 25 (2 points)
Liquidity ratio: Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of
$73,913, and accounts payables of $469,553. What is the firm's current ratio?
Question 25 options:
a)

1.83

b)

0.73

c)

1.67

d)

None of the above

Question 26 (2 points)
A firm's management analyzes financial statement's so that:
Question 26 options:
they can get feedback on their investing, financing, and working capital decisions by
identifying trends in the various accounts that are reported in the financial statements.
similar to shareholders, they can focus on profitability, dividend, capital appreciation,
b)
and return on investment.
a)

c)

they can get more stock options.

d)

a and b.

Question 27 (2 points)
Compounding: Joachim Noah is investing $5,000 in an account paying 6.75 percent annually
for three years. What is the interest-on-interest if interest is compounded?
Question 27 options:
a)

$1,082.38

b)

$1,012.50

c)

$69.88

d)

$82.38

Question 28 (2 points)
The time value of money refers to the issue of
Question 28 options:
a)

what the value of the stream of future cash flows is today.

b) why a dollar received tomorrow is worth more than a dollar received today.
c) why a dollar received tomorrow is worth the same as a dollar received today.
d)

None of the above.

Question 29 (2 points)
Your aunt is looking to invest a certain amount today. Which of the following choices should she
opt for?
Question 29 options:
a)

three-year CD at 6.5% annual rate

b)

three-year CD at 7% annual rate

c)

three-year CD at 6.75% annual rate

d)

three-year CD at 6.25% annual rate

Question 30 (2 points)
Future value: You are interested in investing $10,000, a gift from your grandparents, for the
next four years in a mutual fund that will earn an annual return of 8 percent. What will your
investment be worth at the end of four years? (Round to the nearest dollar.)
Question 30 options:
a)

$10,800

b)

$13,605

c)

$13,200

d)

None of the above

Question 31 (2 points)
Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in
three years. How much will he have to invest today in an account paying 8 percent annually to
achieve his target? (Round to nearest dollar.)
Question 31 options:
a)

$22,680

b)

$16,670

c)

$26,454

d)

$19,444

Question 32 (2 points)
Multiple compounding (PV): Marcie Witter is saving for her daughter's college education. She
wants to have $50,000 available when her daughter graduates from high school in four years. If
the investment she is considering will pay 8.25 percent compounded monthly, how much will she
have to invest today to reach her target? (Round to the nearest dollar.)
Question 32 options:
a)

$49,659

b)

$41,275

c)

$36,450

d)

$35,987

Question 33 (2 points)
FV of multiple cash flows: Shane Matthews has invested in an investment that will pay him
$6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent,
what is the future value of the cash flows he will receive? (Round to the nearest dollar.)
Question 33 options:
a)

$31,504

b)

$29,900

c)

$27,150

d)

$30,455

Question 34 (2 points)
The future value of an annuity due is equal to the future value of an ordinary annuity.
Question 34 options:
True
False

Question 35 (2 points)
FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows starting at the
end of the year$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6
percent, find the future value of these cash flows. (Round to the nearest dollar.)
Question 35 options:
a)

$685,312

b)

$644,406.10

c)

$732,114

d)

$900,810

Question 36 (2 points)
The present value of an annuity due is equal to the present value of an ordinary annuity.
Question 36 options:
True
False

Question 37 (2 points)
PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest rate of
5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years
as complete repayment of the loan with interest. How much did he loan out to his brother?
(Round to the nearest dollar.)
Question 37 options:
a)

$2,545

b)

$2,250

c)

$2,404

d)

$2,713

Question 38 (2 points)
Effective annual rate: Desire Cosmetics borrowed $152,300 from a bank for three years. If the
quoted rate (APR) is 11.75 percent, and the compounding is daily, what is the effective annual
rate (EAR)? (Round to one decimal place.)
Question 38 options:
a)

11.6%

b)

12.5%

c)

14.3%

d)

11.75%

Question 39 (2 points)
Which of the following investment classes had the greatest average return based on recent
historical data?
Question 39 options:
a)

Small U.S. Stocks

b)

Large U.S. Stocks

c)
d)

Long-Term Government Bonds

Intermediate-Term Government Bonds

Question 40 (2 points)
Use the following table to calculate the expected return for the asset.
Return
0.1
0.2
0.25
Question 40 options:

Probability
0.25
0.5
0.25

a)

18.75%

b)

17.50%

c)

20.00%

d)

15.00%

Question 41 (2 points)
The yield to maturity of a bond is the discount rate that makes the present value of the coupon
and principal payments
Question 41 options:
a)

equal to zero.

b)

exceed the price of the bond.

c)

less than the price of the bond.

d)

equal to the price of the bond.

Question 42 (2 points)
Zero coupon bonds: The U.S. Treasury has issued 10-year zero coupon bonds with a face value
of $1,000. Assume that coupon payments are normally semiannual. What will be the current
market price of these bonds if the opportunity cost for similar investments in the market is 6.75
percent? (Round to the nearest dollar.)
Question 42 options:
a)

$604

b)

$515

c)

$684

d)

$860

Question 43 (2 points)
Which of the following statements is true about convertible bonds?
Question 43 options:
a) Firms that issue convertible bonds can do so at a lower interest rate.
b) The typical issue of convertible bonds allows the holder of the bond to convert it to

preferred stock.
The most significant disadvantage to a corporation of issuing convertible bonds is that
c)
they increase the cash that the firm must use to make interest payments.
The typical conversion ratio is set so that the firm's stock price must appreciate 5% or
d)
less before it is profitable for the holder to convert the bond to stock.

Question 44 (2 points)
In an efficient capital market,
Question 44 options:
security prices fully reflect the knowledge and expectations of all investors at a
particular point in time.
investors and financial managers have no reason to believe the securities are not priced
b)
at or near their true value.
a)

c) prices of securities adjust as new information becomes available to the market.

d)

All of the above are true.

Question 45 (2 points)
Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest
rate for similar bonds is currently 9 percent. Assuming annual payments, what is the present
value of the bond? (Round to the nearest dollar.)
Question 45 options:
a)

$990

b)

$872

c)

$945

d)

$1,066

Question 46 (2 points)
Preferred stock is sometimes regarded like a debt security because
Question 46 options:
a)
b)

preferred dividend payments like bond interest payments are fixed amounts regardless
of the firm's earnings.
legally preferred stock is a debt security.

c)

preferred dividends are deductable from taxable income just like interest payments on
bonds.

d) preferred stock holders receive a residual value and not a stated value.

Question 47 (2 points)
In comparison to the NYSE,
Question 47 options:
a)

NASDAQ has less companies listed.

b)

total share volume is lower on the NASDAQ.

c)

firms listed on the NASDAQ tend to be smaller.

d) NASDAQ firms exceed NYSE listed firms in total capitalization.

Question 48 (2 points)
Zero growth: Zephyr Electricals is a company with no growth potential. Its last dividend was
$4.50, and it expects no change in future dividends. What is the current price of the company's
stock given a discount rate of 9 percent?
Question 48 options:
a)

$50.00

b)

$500.00

c)

$40.50

d)

$45.00

Question 49 (2 points)
Constant growth: Ryder Supplies has its stock currently selling at $63.25. The company is
expected to grow at a constant rate of 7 percent. If the appropriate discount rate is 17 percent,
what is the expected dividend, a year from now?
Question 49 options:
a)

$3.25

b)

$6.33

c)
d)

$10.75
$4.43

Question 50 (2 points)
Constant growth: You are interested in investing in a company that expects to grow steadily at
an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year.
If your required rate of return is 10 percent, what is the most you would be willing to pay for this
stock? (Round to the nearest dollar.)
Question 50 options:
a)

$61

b)

$24

c)

$58

d)

$23