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DEVRY BUSN379 week 4 midterm exam




Question;Finance Wk4 Midterm;1. Question;(TCO 1) The goal of financial;management is to increase the;future value of the firm's total equity.;book value of equity;dividends paid per share;current market value per share;number of shares outstanding, thereby;increasing the market value of equity;Question 2. Question;(TCO 1) When analyzing;alternative capital structures for a firm, a financial manager must consider;which of the following?;type of loan;amount of funds needed;cost of funds;mix of debt and equity;all of the above;Question 3. Question;(TCO 1) Market value reflects;which of the following;The amount someone is willing to pay today for;an asset.;The value of the asset based on;generally-accepted accounting principles.;The asset?s historical cost.;A and B only;None of the above;0 of 3;Comments;Question 4. Question;(TCO 1) Which of the following;is true regarding income statements?;It shows the revenue and expenses, based upon;selected accounting methods.;It reveals the net cash flows of a firm over a;stated period of time.;It reflects the financial position of a firm;as of a particular date.;It records revenue only when cash is received;for the product or service provided.;It records expenses based on the recognition;principle.;Question 5. Question;(TCO1) Telemarket Inc. has;sales of $625,000. They paid $43,000 in interest during the year and;depreciation was $79,000. Administrative costs were $100,000 and other costs;were $160,000. Assuming a tax rate of 35 percent, what is Telemarket?s taxes;figure?;$100,100;$85,050;$112,700;$72,900;Comments;Question 6. Question;(TCO 1) Home Best Hardware had;$315,000 in taxable income last year. Using the tax rates provided in Table;2.3, what are the company?s income taxes?;$122,850;$106,100;$94,500;None of the above;Question 7. Question;(TCO 1) Pizza A had earnings;after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In;year 2009, earnings after taxes increased to $750,000, and 25,000 new shares;were issued for a total of 325,000 shares. What is the EPS figure for 2008?;$2.0;$2.21;$0.50;$0.47;Question 8. Question;(TCO 1) The income statement;reflects;r: income and expenses at the time when;those items affect the cash flows of a firm.;income and expenses in accordance with GAAP.;the cash flows in accordance with GAAP.;the flow of cash into and out of a firm during;a stated period of time.;the flow of cash into and out of a firm as of;a particular date.;Question 9. Question;(TCO 1) Best Electronics has;EBIT of $450,000, interest of $30,000, taxes of $50,000, and depreciation of;$80,000. What is the company?s operating cash flow?;$497,200;$480,000;$530,000;$470,000;$450,000;Question 10. Question;(TCO 3) Mark deposited $1,000;today, in an account that pays eight percent interest, compounded;semi-annually. Which one of the following statements is correct concerning this;investment?;Mark will earn more interest in year 4 than he;will in year 3.;Mark will receive equal interest payments;every six months over the life of the investment.;Mark would have earned more interest if he had;invested in an account paying 8 percent simple interest.;Mark would have earned more interest if he had;invested in an account paying annual interest.;Mark will earn less and less interest each;year over the life of the investment.;Question 11. Question;(TCO 3) Mr. Smith will receive;$7,500 a year for the next 14 years from his trust. If the interest rate on;this investment is eight percent, what is the approximate current value of;these future payments?;$61,800;$53,500;$113,400;$97,200;Question 12. Question;(TCO 3) KED Engineering;acquired an additional business unit for $310,000. The seller agreed to accept;annual payments of $67,000 at an interest rate of 6.5 percent. How many years;will it take KED Engineering to pay for this purchase?;4.70 years;5.68 years;6.21 years;7.84 years;8.12 years;Question 13. Question;(TCO 3) Fine Oak Woodworks is;considering a project that has cash flows of $6,000, $4,000, and $3,000 for the;next three years. If the appropriate discount rate of this project is 10;percent, which of the following statements is true?;The current value of the project?s inflows is;$13,000;The approximate current value of the project?s;inflows is $11,000;The current value of the project?s inflows;cannot be determined;The project should be rejected because its;present value is negative;Question 14. Question;(TCO 4) You are considering;two investments. Investment I, is in a software company and Investment II, is;an engineering company. The investments offer the following cash flows;Year Software;Company Engineering Company;1 $5,000 $15,000;2 $3,000 $8,000;3 $4,000 $9,000;4 $3,600 $11,000;If the appropriate discount rate is 10 percent, what is the;approximate present value of the Software Company investment?;$15,600;$12,500;$12,750;$15,000;Question 15. Question;(TCO 3) North Bank offers you;an APR of 13.17 percent compounded monthly, and South Bank offers you an;effective rate of 13.75 percent on a business loan. Which bank should you;choose and why?;South Bank because its effective rate is;higher.;North Bank because the APR is lower.;South Bank because its effective rate is;lower.;North Bank because its effective rate is;lower.;1. Question: (TCO 3) Tim needs to borrow $5,000 for two years. The loan;will be repaid in one lump sum at the end of the loan term. Which one of the;following interest rates is best for Tim?;7.5 percent simple interest;7.5 percent interest, compounded monthly;8.0 percent simple interest;8.0 percent interest, compounded annually;8.0 percent interest, compounded monthly;Question 2. Question;(TCO 3) Which one of the;following best exemplifies a perpetuity?;a mortgage of $860 a month for 30 years;$2,000 annual payments from a trust fund;indefinitely;social security payments of $2,500 a month for;life;student loan payments of $600 a month for;three years;$250 a month over the life of a lease;Question 3. Question;(TCO 3) Fanta Cola has $1,000;par value bonds outstanding at 12 percent interest. The bonds mature in 25;years. What is the current price of the bond if the YTM is 16 percent? Assume;annual payments.;$1315;$1300;$756;$1000;Question 4. Question;(TCO 6 and 8) A bond's;indenture agreement will include which of the following?;description of any loan collateral;call provisions;total amount of the bond issue;protective covenants;all of the above;none of the above;Question 5. Question;(TCO 3) Bonds issued by Blue;Sky Airlines have a face value of $1,000 and currently sell for $1,180. The;annual coupon payments are $125. If the bonds have 20 years until maturity;what is the approximate YTM of the bonds?;10.50%;11.50%;11.75%;12%;Question 6. Question;(TCO 3) Bean Coffee issued;preferred stock many years ago. It carries a dividend of $8 per share, fixed.;As time has passed, yields have decreased from the original eight percent (at;the time of issuance) to six percent. What was the original issue price? Hint;Yield is the same as required rate of return.;$100;$400;$7.40;$86.40;None of the above;Question 7. Question;(TCO 3) Intelligence Research;Inc. will pay a common stock dividend of $1.60 at the end of the year. The;required rate of return by common stockholders is 13 percent. The firm has a;constant growth rate of seven percent. What is the current price of the stock?;$23;$32;$27;$29;Question 8. Question;(TCO 3) Royal Electric paid a;$2 dividend last year. The dividend is expected to grow at a constant rate of;five percent over the next three years. Common stockholders require a 12;percent return. What is the total amount of dividends stockholders will receive;during the next three years?;$6.62;$6.03;$6.52;$6.85;Question 9. (TCO 6) Which of the following;is true regarding the primary market?;it is the market where the largest number of;shares are traded on a daily basis.;it is the market in which the largest number;of issues are listed.;it is the market with the largest number of;participants.;it is the market where new securities are;offered.;it is the market where shareholders trade most;frequently with each other.;Question 10. Question;(TCO 6) NASDAQ is a(n);electronic dealer market.;electronic broker market.;market based on specialists.;dealer market with a single market maker.;electronic ECN.;Quetion 11. Question;(TCO 6) The maturity date of a;bond is defined as;the first date on which a bond can be called.;the date on which the principal amount is;paid.;20 years after the issue date.;the date on which the next interest payment;will be made.;Question 12. Question;(TCO 6) A sinking fund is an;account managed by a bond trustee for the sole purpose of;paying interest payments on a semi-annual;basis.;redeeming bonds early.;repaying the face value at maturity.;paying the expenses required to reissue;outstanding bonds.;paying the "balloon payment" at;maturity.;Question 13. Question;(TCO 8) Which of the following;is true regarding bonds?;Bonds do not carry default risk.;Bonds are not sensitive to changes in the;interest rates.;Moody?s and Standard and Poor?s provide;information regarding a bond?s interest rate risk.;Municipal bonds are not free of default risk.;None of the above is true;Question 14. Question;(TCO 6) Which of the following;best describes a zero-coupon bond?;A bond that adjusts the coupon payments based;on an interest rate index, such as the T-bill.;A bond that is issued by the U.S. government.;A bond that adjusts the coupon payment date.;A bond that has no coupons and pays a face;value at maturity.;An EE Savings Bond;Question 15. Question;(TCO 6) Which of the following;are not true regarding convertible bonds? Select all that apply;Are extremely rare;Can be exchanged for a fixed number of shares;at maturity only;Can be exchanged for a fixed number of shares;before maturity;Allow the holder to require the issuer to buy;the bond back;1. Question;(TCO 1) Kate is the owner of;Kate's Sun Wear, which is a sole proprietorship. Kate unexpectedly suffered a;fatal heart attack. Which one of the following statements is correct given this;situation?;The proprietorship ended when Kate passed;away.;Kate's Sun Wear will continue on with Kate's;beneficiary automatically replacing Kate as the sole proprietor.;The proprietorship ends when Kate passed on;and all income to that date will be tax-free.;The proprietorship ends when Kate passed on;and all income to that date will be taxed as a separate legal entity.;The proprietorship ends when Kate passed on;and all income earned to that date will be taxed as Kate's personal income.;Question 2. Question;(TCO 1) Which of the following;is classified as tangible, fixed assets?;inventory;machinery;patents;cash on hand;Question 3. Question;(TCO 1) Can you provide some;examples of recent, well-known unethical behavior cases? Explain the situation;in one or two sentences.;Question 4. Question;(TCO 3) How can we apply the;concept of time value of money in evaluating a mortgage? Present at least two;scenarios. Briefly explain your rationale.;Question 5. Question;(TCO 8) Explain some of the;key risks associated with bonds.;Question 6. Question;(TCO 6) What are some of the;features of zero-coupon bonds that make them attractive to certain investors?;Which type of investors will be most interested in these bonds?


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