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##### FINANCE STUDY GUIDE PROBLEMS

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Question;True/False1. The sole proprietor has unlimited liability, his or her total investment in the business, but nothis or her personal assets, can be taken to satisfy creditors.T/F2. Time-value of money is based on the belief that a dollar that will be received at some futuredate is worth more than a dollar today. T/F3. Holders of equity have claims on both income and assets that are secondary to the claims ofcreditors. T/F4. The possibility that the issuer of a bond will not pay the contractual interest or principalpayments as scheduled is called maturity risk. T/F5. The breakeven point in dollars can be computed by dividing the contribution margin into thefixed operating costs.T/F6. The ________ is the extent of an asset's risk. It is found by subtracting the pessimisticoutcome from the optimistic outcomea)b)c)d)ReturnStandard deviationProbability distributionrange7. ________ measure(s) the risk of a capital budgeting project by estimating the NPVsassociated with the optimistic, most likely, and pessimistic cash flow estimatesa)b)c)d)simulationsrisk-adjusted discount ratessensitivity analysismultiple regression analysis8. If a firm uses an aggressive financing strategy,a)b)c)d)it increases return and increases risk.it increases return and decreases risk.it decreases return and increases risk.it decreases return and decreases risk.9. The two major sources of short-term financing area)b)c)d)a line of credit and accounts payable.accounts payable and accruals.a line of credit and accruals.accounts receivable and notes payable.10. At the operating breakeven point, ________ equals zero.a)b)c)d)sales revenuefixed operating costsvariable operating costsearnings before interest and taxesPROBLEMS (PLEASE SHOW WORK)11. Xiao Li wishes to accumulate $50,000 by the end of 10 years by making equal annual endof-year deposits over the next 10 years. If Xiao Li can earn 5 percent on her investments,how much must she deposit at the end of each year?a) $3,975b) $6,475c) $5,000d) $4,51312. Hayley makes annual end-of-year payments of $6,260.96 on a five-year loan with an 8percent interest rate. The original principal amount wasa) $31,000.b) $30,000.c) $25,000.d) $20,000.13. Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annualcoupon interest rate. The issue has ten years remaining to the maturity date. Bonds of similarrisk are currently selling to yield a 12 percent rate of return. The current value of each Hewittbond is ________.a)b)c)d)$791.00$1,000$1,052.24$1,113.00?14. Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, Aand B. The relevant cash flows for each project are given in the table below. The cost ofcapital for use in evaluating each of these equally risky projects is 10 percent.Initial InvestmentProject A$350,000Project B$425,000Year Cash Inflows (CF)123456$140,000165,000190,000100,00075,00050,000$175,000150,000125,000The NPVs of projects A and B are ________.A) $95,066 and $56,386, respectively.B) $56,386 and $95,066, respectively.C) -$56,386 and -$95,066, respectively.D) none of the above.

Paper#49159 | Written in 18-Jul-2015

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