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Midterm Practice Finance 351

48 Questions
Finance Quizzes & Trivia

Corporate Finance midterm practice for chapters 1-10 in Finance Applications & Theory, by Cornett.

Questions and Answers
  • 1. 
    Monitors inside a public firm are
    • A. 

      The SEC

    • B. 

      Auditors

    • C. 

      Executive management

    • D. 

      The board of directors

    • E. 

      None of the above

  • 2. 
    The firms highest level financial manager is usually the
    • A. 

      Chief Financial Officer (CFO)

    • B. 

      Financial Director

    • C. 

      Controller

    • D. 

      Treasurer

    • E. 

      Chief Executive Officer(CEO)

  • 3. 
    What type of retirement plan do most companies offer to their employees?
    • A. 

      A defined benefit plan

    • B. 

      A defined contribution plan

    • C. 

      A lifetime position

    • D. 

      A lump sum payment amount

    • E. 

      None of the above

  • 4. 
    The process of monitoring managers and aligning their interests and incentives with shareholders is called
    • A. 

      Audit committee

    • B. 

      Employee stock options

    • C. 

      Agency problem

    • D. 

      Corporate governance

    • E. 

      None of the above

  • 5. 
    Finance managers goal or objective is
    • A. 

      To increase wealth

    • B. 

      To report the value and status of assets

    • C. 

      To maximize shareholder wealth

    • D. 

      To maximize profits

  • 6. 
    All of the followinf are subareas osf finance listed in the textbook except
    • A. 

      Derivative finance

    • B. 

      International finance

    • C. 

      Financial institutions

    • D. 

      Investments

    • E. 

      All of the above are listed and are subareas of finance

  • 7. 
    If we're discussing business investment (business projects) such as construction of a new assembly line we are most likely describing
    • A. 

      Short-term assets

    • B. 

      Intangible assets

    • C. 

      Current assets

    • D. 

      Real assets

    • E. 

      Financial assets

  • 8. 
    The often difficult effort to get managers to align their interests with shareholders is
    • A. 

      Corporate governance

    • B. 

      Corporation problem

    • C. 

      Managerial restraints

    • D. 

      The agency problem

    • E. 

      None of the above

  • 9. 
    These types of analysts examine a firm's financial strength for debt holders
    • A. 

      Corporate analysts

    • B. 

      Diagnostic analysts

    • C. 

      Equity analysts

    • D. 

      Credit analysts

    • E. 

      None of the above

  • 10. 
    • A. 

      210,000

    • B. 

      240,000

    • C. 

      280,000

    • D. 

      315,000

    • E. 

      None of the above

  • 11. 
    A firm has net sales of $1,500,000, Cost of Goods Sold is $700,000, depreciation expense of $100,000, selling and administrative expenses of $200,000, interest expense of $100,000, and an average tax rate of 40%. What is the firm's operating margin?
    • A. 

      15.8%

    • B. 

      22.5%

    • C. 

      33.3%

    • D. 

      62.5%

    • E. 

      None of the above

  • 12. 
    A firm has net sales of $1,500,000, Cost of Goods Sold is $700,000, depreciation expense of $100,000, selling and administrative expenses of $200,000, interest expense of $100,000, and an average tax rate of 40%. What is the firm's gross profit margin?
    • A. 

      15.8%

    • B. 

      22.5%

    • C. 

      53.3%

    • D. 

      62.5%

    • E. 

      None of the above

  • 13. 
    In a standard cash flow statement dividends paid are included in cash flows from
    • A. 

      Operations

    • B. 

      Investing

    • C. 

      Financing

    • D. 

      Foreign exchange

    • E. 

      All of the above

  • 14. 
    A decrease in a current liability account is considered a(n)
    • A. 

      Investment opportunity

    • B. 

      Bad thing and should be avoided at all cost

    • C. 

      Use of cash

    • D. 

      Source of cash

    • E. 

      None of the above

  • 15. 
    The balance sheet identity states
    • A. 

      Equity = assets - liabilities

    • B. 

      Equity = assets + liabilities

    • C. 

      Assets = liabilities - equity

    • D. 

      Liabilities = assets + equity

    • E. 

      None of the above

  • 16. 
    Power's Mold Removal's year-end 2009 balance sheet lists current assets of $325,000, fixed assets of $550,000, current liabilities of $290,000, and long-term debt of $260,000. Calculate Power's total stockholders' equity.
    • A. 

      615,000

    • B. 

      550,000

    • C. 

      350,000

    • D. 

      325,000

    • E. 

      35,000

  • 17. 
    • A. 

      .45

    • B. 

      .75

    • C. 

      1.25

    • D. 

      2.23

    • E. 

      3.55

  • 18. 
    Financial Leverage is best described as
    • A. 

      The ratio of short-term to long-term debt

    • B. 

      A firm's ability to stretch the impact of its capital

    • C. 

      The extent to which a firm chooses to finance its venture of assets by issuing debt securities

    • D. 

      The most aggressive strategy to maximized shareholder's wealth

    • E. 

      None of the above

  • 19. 
    • A. 

      210,000

    • B. 

      350,000

    • C. 

      720,000

    • D. 

      800,000

    • E. 

      None of the above

  • 20. 
    • A. 

      22%

    • B. 

      30%

    • C. 

      33.3%

    • D. 

      50%

    • E. 

      None of the above

  • 21. 
    A firm has net sales of $5,000,000, cost of goods sold is $3,000,000, depreciation expense of $300,000, selling and administrative expenses of $600,000, interest expense of $200,000, and an average tax rate of 20%.The firm's gross profit margin is
    • A. 

      20%

    • B. 

      30%

    • C. 

      33.3%

    • D. 

      40%

    • E. 

      None of the above

  • 22. 
    A firm has net sales of $5,000,000, cost of goods sold is $3,000,000, depreciation expense of $300,000, selling and administrative expenses of $600,000, interest expense of $200,000, and an average tax rate of 20%. The firm's taxable income is
    • A. 

      1,200,000

    • B. 

      1,000,000

    • C. 

      900,000

    • D. 

      200,000

    • E. 

      Cannot be determined

  • 23. 
    A firm has a gross profit of $1,000,000, selling and administrative expenses of $500,000, depreciation of $100,000 and interest expense of $200,000. What is its operating profit?
    • A. 

      200,000

    • B. 

      250,000

    • C. 

      325,000

    • D. 

      400,000

    • E. 

      None of the above

  • 24. 
    In a standard cash flow statement, cash flows are separated into all of the following efforts except
    • A. 

      Operations

    • B. 

      Investing

    • C. 

      Financing

    • D. 

      Marketing

  • 25. 
    An increase in a current liability account is considered a(n)
    • A. 

      Investment opportunity

    • B. 

      Bad thing and should be avoided at all cost

    • C. 

      Use of cash

    • D. 

      Source of cash

    • E. 

      None of the above

  • 26. 
    An industrial park and office complex is available for sale in Berea. Cash flows from rent amount to $1,000,000 per year, every year for the next ten years. Financing arrangements are made to borrow at 8.25%. Calculate the value of the property.
    • A. 

      4,310,210.50

    • B. 

      6,635,070.66

    • C. 

      8,352,251.25

    • D. 

      14,659,683.80

    • E. 

      None of the above

  • 27. 
    A five year, zero coupon bond with a $1,000 face value sells at auction for $774.26. Calculate the bonds yield to maturity
    • A. 

      5.55%

    • B. 

      5.41%

    • C. 

      5.36%

    • D. 

      5.25%

    • E. 

      None of the above

  • 28. 
    Keybank is offering a savings product that pays 6.37% and compounds daily. Calculate the effective rate of return (EAY)
    • A. 

      6.370%

    • B. 

      6.577%

    • C. 

      6.592%

    • D. 

      6.760%

    • E. 

      None of the above

  • 29. 
    The value of any asset is
    • A. 

      Whatever the current market price is

    • B. 

      The discounted value of all expected cash flows

    • C. 

      A function of supply and demand

    • D. 

      Decided by the New York Stock Exchange model

    • E. 

      None of the above

  • 30. 
    Umberto Fidele holds a special bond that will pay him $100 per year evert year for the next five years. If Umberto uses a discount rate of 7.5% what is the present value of the bond?
    • A. 

      413.52

    • B. 

      409.37

    • C. 

      406.22

    • D. 

      404.59

    • E. 

      None of the above

  • 31. 
     Ms. Patel deposits $200 per month every month for the next 20 years. She uses an account that expects to pay 7.63% compounded monthly. What will be the balance in Ms. Patel's account in 20 years?
    • A. 

      112,531.80

    • B. 

      113,321.52

    • C. 

      114,206.25

    • D. 

      115,500.22

    • E. 

      None of the above

  • 32. 
    You will receive $5,000 per year every year for the next for years beginning at the end of this year. If you use 6% as your discount rate, calculate the present value of this annuity.
    • A. 

      21,061.82

    • B. 

      22,303.21

    • C. 

      25,250.21

    • D. 

      28,326.49

    • E. 

      None of the above

  • 33. 
    You will receive $5,000 per year every year for the next for years beginning at the end of this year. If you use 6% as your discount rate, calculate the present value of this annuity. This is an example of a(n)
    • A. 

      Back load annuity

    • B. 

      Front load annuity

    • C. 

      Annuity due

    • D. 

      Ordinary annuity

    • E. 

      None of the above

  • 34. 
    An investor deposits $5,750 in a certificate of deposti which pays 7.35% and compounds weekly. What will be the balance in seven years?
    • A. 

      9,588.10

    • B. 

      9,593.25

    • C. 

      9,607.25

    • D. 

      9,615.12

    • E. 

      None of the above

  • 35. 
    This ratio measures liquidity
    • A. 

      Debt/equity ratio

    • B. 

      Utilization ratios

    • C. 

      Times interest earned

    • D. 

      Current ratio

    • E. 

      None of the above

  • 36. 
    Penowski Corp. reported COGS for 2009 for $23,000,000. The balance sheet showed $5.6 Million in inventory. Using a 365 day year, how many days did Penowski's inventory stay on the premises.
    • A. 

      4.1 days

    • B. 

      60 days

    • C. 

      77 days

    • D. 

      89 days

    • E. 

      None of the above

  • 37. 
    A provision in a bond contract that gives the issuer the right to pay-off the bond prior to normal maturity is a
    • A. 

      Call provision

    • B. 

      Conversion feature

    • C. 

      Restrictive covenant

    • D. 

      Put provision

    • E. 

      None of the above

  • 38. 
    A corporate bond has an original maturity of ten years, face value of $1,000,000, coupon rate of 4.25%, annual payments, and seven years to maturity. Current yields on similar risk are 6.25%. Value this bond.
    • A. 

      889.34

    • B. 

      744.32

    • C. 

      688.32

    • D. 

      112.64

  • 39. 
    Viewed from a firm;s operating statement the priority of payments is
    • A. 

      Taxes, bond holders, stock holders

    • B. 

      Bondholders, taxes, stockholders

    • C. 

      Stockholders, bondholders, taxes

    • D. 

      None of the above

  • 40. 
    Firm specific risk is often referred to as
    • A. 

      Diversifiable risk

    • B. 

      Non-diversifiable risk

    • C. 

      Systematic risk

    • D. 

      Non-systematic risk

  • 41. 
    An investor purchases a stock on March 4, 2009 for $1,000 and sells it one year later at a price of $1,450. During the period, the investor receives one dividend payment of $35. The investor
    • A. 

      Experiences a realized gain of $1,450

    • B. 

      Experiences an unrealized gain of $1,485

    • C. 

      Experiences a realized gain of $450 and income of $35

    • D. 

      Experiences an unrealized gain of $450 and earned income of $35

  • 42. 
    Jonathan Printing Inc. purchases an industrial paper shredder for $10,000. It is expected to generate cash flows of $2,000 every year for the next 10 years. What is the expected dollar return per year and percent return (yield) on this investment?
    • A. 

      Dollar return of $10,000 - yield of 20%

    • B. 

      Dollar return of $2,000 - yield of 20%

    • C. 

      Dollar return of $2,000 - yield of 100%

    • D. 

      Dollar return of $2,000 - yield of 200%

  • 43. 
    A client invests $500 at the end of each month for 25 years beginning one month from today. The account is expected to earn 7.25% interest compounded monthly. What will the balance be in 25 years?
    • A. 

      400,220.25

    • B. 

      408,325.33

    • C. 

      418,350.25

    • D. 

      421,442.32

  • 44. 
    A client invests $500 at the end of each month for 25 years beginning one month from today. The account is expected to earn 7.25% interest compounded monthly. What will the balance be in 25 years? If inflation is expected to be 5% over the next 25 years, using the real rate of interest, (nominal minus inflation) recalculate the balance, which reflect the FVA's purchasing power in 2008 dollars.
    • A. 

      190,352.25

    • B. 

      198.997.25

    • C. 

      201,101.48

    • D. 

      213,325.25

  • 45. 
    BTR and BTS generated the following investment returns over the last five years:                     BTR                 BTC2005             35%                   27%2006             13%                   28%2007             3%                     25%2008             9%                     5%2009             115%                  2%Calculate the expected return for 2009 (arithmetic mean average) for BTR
    • A. 

      15%

    • B. 

      13.25%

    • C. 

      12.08%

    • D. 

      9.36%

  • 46. 
    BTR and BTS generated the following investment returns over the last five years:                      BTR                 BTC 2005             35%                   27% 2006             13%                   28% 2007             3%                     25% 2008             9%                     5% 2009             115%                  2%Calculate the sample standard deviation for BTR
    • A. 

      15%

    • B. 

      13.25%

    • C. 

      12.08%

    • D. 

      9.36%

  • 47. 
    A bond with a $10,000 par has a 7.25% annual coupon rate. It will mature in 8 years with semi-annual coupon payments. Present annual yields on similar bonds are 6.23%. What should the current price be? Round your answer to the nearest penny.
  • 48. 
    A stock most revently paid a dividend of $1.60 and had a dividend growth rate of 7% over the last few years. If an investor plans to hold the stock through the next three years and estimates the stock price to be $53 at the end of the three years what is the value of the stock with a required rate of return of 10%? Round your answer to the nearest penny.