Midterm Practice Finance 351
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Corporate Finance midterm practice for chapters 1-10 in Finance Applications & Theory, by Cornett.
- 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 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 net income?
- 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.Chapman's Home Inspection, Inc.'s 2009 income statement lists the following income and expenses: EBIT = $750,000, Interest expense of $115,000, and taxes of $190,000. Chapman's has no preferred stock outstanding and 200,000 shares of common stock outstanding. Calculate the 2009 earnings per share.
- 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 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 net income is
- A.
210,000
- B.
350,000
- C.
720,000
- D.
800,000
- E.
None of the above
- 20.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 operating margin is
- 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.
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