11 Jan Use the payback decision

Post FIN201 Unit 1 Quiz Latest 2017 June

Attempt 1

The biggest disadvantage of the sole proprietorship is:

unlimited liability.

double taxation.

total control.

limited access to capital.

The agency relationship in corporate finance refers to:

when the corporate hires an advertising agency to market their new product or service.

when the board of directors are elected to staggered terms.

when the board of directors oversee the CEO.

when the shareholders hire a manager to run their company.

Income Statement Barnyard, Inc.’s 2008 income statement lists the following income and expenses: EBIT = $505,000, Interest expense = $57,500, and Net income = $322,500. What is the 2008 Taxes reported on the income statement?

$447,500

$125,000

There is not enough information to calculate 2008 Taxes.

$182,500

Balance Sheet You are evaluating the balance sheet for Cypress Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $690,000, Accounts receivable = $890,000, Inventory = $590,000, Accrued wages and taxes = $131,000, Accounts payable = $209,000, and Notes payable = $1,090,000. What is Cypress’s net working capital?

$1,430,000

$2,170,000

$3,600,000

$740,000

Which of the following is NOT a function of the board of directors?

Design compensation contracts for the CEO.

Provide reports to the auditors.

Hire the CEO.

Evaluate the CEO.

Statement of Cash Flows In 2008, Upper Crust had cash flows from investing activities of ?$225,000 and cash flows from financing activities of ?$155,000. The balance in the firm’s cash account was $95,000 at the beginning of 2008 and $110,000 at the end of the year. What was Upper Crust’s cash flow from operations for 2008?

$15,000

$380,000

$110,000

$395,000

When a firm alters its capital structure to include more or less debt (and, in turn, less or more equity), it impacts which of the following?

The residual cash flows available for stock holders

The number of shares of stock outstanding

The earnings per share (EPS)

All of the choices

Income Statement Bullseye, Inc.’s 2008 income statement lists the following income and expenses: EBIT = $903,000, Interest expense = $89,500, and Net income = $574,500. What is the 2008 Taxes reported on the income statement?

$239,000

There is not enough information to calculate 2008 Taxes.

$813,500

$328,500

The overall goal of the financial manager is to:

maximize shareholder wealth.

minimize total costs.

maximize net income.

maximize earnings per share.

Attempt 2

1. The agency relationship in corporate finance refers to:

when the shareholders hire a manager to run their company.

when the board of directors oversee the CEO.

when the board of directors are elected to staggered terms.

when the corporate hires an advertising agency to market their new product or service.

2. Which of the following is NOT a function of the board of directors?

Provide reports to the auditors.

Design compensation contracts for the CEO.

Evaluate the CEO.

Hire the CEO.

3. The biggest disadvantage of the sole proprietorship is:

total control.

double taxation.

limited access to capital.

unlimited liability.

4. Statement of Cash Flows In 2008, Upper Crust had cash flows from investing activities of ?$270,000 and cash flows from financing activities of ?$163,000. The balance in the firm’s cash account was $86,000 at the beginning of 2008 and $118,000 at the end of the year. What was Upper Crust’s cash flow from operations for 2008?

$465,000

$118,000

$433,000

$32,000

5. Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?

Income statement

Balance sheet

Statement of cash Flows

Statement of retained Earnings

6. Income Statement Bullseye, Inc.’s 2008 income statement lists the following income and expenses: EBIT = $903,500, Interest expense = $88,000, and Net income = $574,500. What is the 2008 Taxes reported on the income statement?

$329,000

$815,500

There is not enough information to calculate 2008 Taxes.

$241,000

7. When a firm alters its capital structure to include more or less debt (and, in turn, less or more equity), it impacts which of the following?

The residual cash flows available for stock holders

The number of shares of stock outstanding

The earnings per share (EPS)

All of the choices

8. Balance Sheet You are evaluating the balance sheet for Cypress Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $520,000, Accounts receivable = $720,000, Inventory = $420,000, Accrued wages and taxes = $42,000, Accounts payable = $120,000, and Notes payable = $920,000. What is Cypress’s net working capital?

$578,000

$1,082,000

$1,660,000

$2,742,000

9. Income Statement Barnyard, Inc.’s 2008 income statement lists the following income and expenses: EBIT = $506,500, Interest expense = $48,000, and Net income = $327,000. What is the 2008 Taxes reported on the income statement?

There is not enough information to calculate 2008 Taxes.

$458,500

$131,500

$179,500

10. Balance Sheet Jack and Jill Corporation’s year-end 2009 balance sheet lists current assets of $246,000, fixed assets of $796,000, current liabilities of $193,000, and long-term debt of $296,000. What is Jack and Jill’s total stockholders’ equity?

$553,000

$1,042,000

$489,000

There is not enough information to calculate total stockholder’s equity.

Post FIN201 Unit 3 Quiz

What annual rate of return is earned on a $5,000 investment when it grows to $9,500 in five years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

How many years will it take $2 million to grow to $5 million with an annual interest rate of 7 percent?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

What is the value in year 15 of a $250 cash flow made in year 3 if interest rates are 11 percent?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

A loan is offered with monthly payments and a 10 percent APR. What’s the loan’s effective annual rate (EAR)?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Future Value of an Annuity What is the future value of a $1,100 annuity payment over 9 years if the interest rates are 7 percent?

$13,175.79

$2,022.31

$10,120.48

$10,593.00

If the present value of an ordinary, 6-year annuity is $8,500 and interest rates are 9.5 percent, what’s the present value of the same annuity due?(Round your answer to 2 decimal places.)

Which cash flow would you rather pay, $425 today or $500 in two years if interest rates are 10 percent?

Pay $425 today

Pay $500 in two years

What annual rate of return is implied on a $2,500 loan taken next year when $3,500 must be repaid in year 4?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

A deposit of $350 earns the following interest rates:

a.

8 percent in the first year.

b.

6 percent in the second year.

c.

5.5 percent in the third year.

What would be the third year future value?(Round your answer to 2 decimal places.)

What is the future value of a $700 annuity payment over six years if interest rates are 10 percent?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Post FIN201 Unit 5 Quiz

Portfolio Beta You have a portfolio with a beta of .92. What will be the new portfolio beta if you keep 70 percent of your money in the old portfolio and 30 percent in a stock with a beta of 1.52?

1.10

1.00

2.44

1.22

Average Return The past five monthly returns for PG Company are 2.00 percent, -3.0 percent, 5.00 percent, 4.5 percent, and 2.7 percent. What is the average monthly return?

11.23%

17.23%

3.45%

2.25%

Portfolio Beta You own $1,900 of City Steel stock that has a beta of 1.67. You also own $6,700 of Rent-N-Co (beta = 1.97) and $5,700 of Lincoln Corporation (beta = 1.07). What is the beta of your portfolio (closest to)?

1.57

1.00

3.52

4.71

Portfolio Return Year-to-date, Company O had earned a -3.70 percent return. During the same time period, Company V earned 9.6 percent and Company M earned 7.85 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?

6.715%

13.75%

3.755%

21.15%

Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:

Economic State

Probability

Return

Fast Growth

.1

29%

Slow Growth

.8

14%

Recession

.1

-29%

14.3%

14.0%

11.2%

17.0%

Investment Return HillCom Corp stock was $75.30 per share at the end of last year. Since then, it paid a $2.80 per share dividend last year. The stock price is currently $78.30. If you owned 200 shares of HillCom, what was your percent return?

7.70%

3.72%

7.41%

3.58%

Investment Return MedTech Corp stock was $51.65 per share at the end of last year. Since then, it paid a $1.15 per share dividend. The stock price is currently $63.20. If you owned 100 shares of MedTech, what was your percent return?

20.09%

24.59%

18.20%

22.27%

Average Return The past five monthly returns for PG Company are 1.50 percent, -2.0 percent, 4.50 percent, 4.0 percent, and 2.2 percent. What is the average monthly return?

10.23%

14.23%

2.85%

2.05%

CAPM Required Return A company has a beta of 1.06. If the market return is expected to be 11.1 percent and the risk-free rate is 3.55 percent, what is the company’s required return?

11.55%

15.32%

11.77%

15.10%

Portfolio Weights An investor owns $17,000 of Adobe Systems stock, $20,000 of Dow Chemical, and $30,000 of Office Depot. What are the portfolio weights of each stock?

Adobe System = 0.25, Dow Chemical = 0.30, Office Depot = 0.45

Adobe System = 0.27, Dow Chemical = 0.33, Office Depot = 0.40

Adobe System = 0.33, Dow Chemical = 0.33, Office Depot = 0.33

Adobe System = 0.30, Dow Chemical = 0.25, Office Depot = 0.45

Post FIN201 Unit 7 Quiz

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time

0

1

2

3

4

5

6

Cash Flow

-1,070

100

500

700

700

300

700

Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

$1,019.57, accept

$2,089.57, accept

$926.88, accept

$-303.12, reject

Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

accept A, reject B

accept both A and B

reject A, accept B

accept neither A nor B

Compute the NPV for Project X with the cash flows shown below if the appropriate cost of capital is 11 percent.

Time:

0

1

2

3

4

5

Cash flow:

-140

-140

0

230

205

180

$143.91

$205.35

$410.04

$129.65

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 11 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time:

0

1

2

3

Project A Cash Flow

-33,000

23,000

43,000

14,000

Project B Cash Flow

-43,000

23,000

33,000

63,000

Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

accept A, reject B

accept neither A nor B

reject A, accept B

accept both A and B

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time

0

1

2

3

4

5

6

Cash Flow

-820

150

490

690

690

290

690

Use the PI decision rule to evaluate this project; should it be accepted or rejected?

-140.00%, reject

1.40%, accept

1.40%, reject

140.04%, accept

$1,148.32/$820 = 1.4004 = 140.04% accept

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 14 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time

0

1

2

3

4

5

6

Cash Flow

-960

160

440

640

640

240

640

Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

2.76 years, accept

2.87 years, accept

3.15 years, reject

3.13 years, reject

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time:

0

1

2

3

Project A Cash Flow

-20,000

10,000

30,000

1,000

Project B Cash Flow

-30,000

10,000

20,000

50,000

Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?
rev: 12_04_2012

accept neither A nor B

accept both A and B

reject A, accept B

accept A, reject B

Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 13 percent and the maximum allowable discounted payback is 3 years.

Time:

0

1

2

3

4

5

Cash flow:

-970

470

510

430

330

180

3.08 years, reject

3.52 years, reject

5.08 years, reject

2.52 years, accept

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent.

Time:

0

1

2

3

4

5

Cash flow:

-82

-82

0

107

82

57

44.28%, accept

8.00%, reject

31.80%, accept

26.08%, accept

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

Time

0

1

2

3

4

5

6

Cash Flow

-980

180

420

620

620

220

620

Use the payback decision rule to evaluate this project; should it be accepted or rejected?

4.00 years, reject

2.61 years, reject

1.29 years, accept

0 years, accept