1. (TCO 1) The goal of financial management is to increase the: (Points : 3) 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 2. (TCO 1) Which of the these activities is not a capital budgeting task? (Points : 3) determining the amount of cash needed on a daily basis to operate a firm identifying assets that produce value in excess of the cost to acquire those assets evaluating the size and timing of future cash flows from a project evaluating the risks associated with a proposed project 3. (TCO 1) Market value is important to the financial manager because: (Points : 3) It reflects the value of the asset, based on generally-accepted accounting principles. Is a crucial component of the balance sheet, and can impact the financial statements. Market value reflects the amount someone is willing to pay today for an asset. The market value of an asset reflects its historical cost. None of the above 4. (TCO 1) Which of the following is true regarding income statements? (Points : 3) 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. None of the above is a true statement. 5. (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 Telemarkets taxes figure? (Points : 3) $100,100 $85,050 $112,700 $72,900 6. (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 companys income taxes? (Points : 3) $122,850 $106,100 $94,500 None of the above 7. (TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008 and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to $468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008? (Points : 3) $1.30 $1.44 $0.77 $0.69 8. (TCO 1) An income statement: (Points : 3) reveals the net cash flows of a firm over a stated period of time. reflects the financial position of a firm as of a particular date. shows the revenue and expenses based upon selected accounting methods. records revenue only when cash is received for the product or service provided. records expenses based on the recognition principle. 9. (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 companys operating cash flow? (Points : 3) $497,200 $480,000 $530,000 $470,000 $450,000 10. (TCO 3) You opened a new certificate of feposit with $13,000. Your broker indicated that this investment pays five percent interest, compounded quarterly. Which one of the following statements is correct concerning this investment? (Points : 3) You will receive equal interest payments every three months over the life of the investment. You could earn more interest by investing in an account paying five percent simple interest. You would have earned more interest if you had invested in an account paying annual interest. You will earn less and less interest each year over the life of the investment. You will earn more interest in year 3, than you will in year 2. 11. (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? (Points : 3) $61,800 $53,500 $113,400 $97,200 12. (TCO 3) Your neighbor just received a credit offer in an e-mail. The company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he accepts this offer, how long will it take him to pay off the loan? (Points : 3) 81.00 months 81.50 months 83 months 82.17 months 90.70 months 13. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $5,000, $3,000, and $8,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3) The current value of the projects inflows is $16,000 The approximate current value of the projects inflows is $13,000 The current value of the projects inflows is somewhere in between $14,000 and $16,000 The project should be rejected because its present value is negative 14. (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 Engineering Company investment? (Points : 3) $33,200 $34,500 $42,000 $43,500 15. (TCO 3) North Bank offers you an APR of 8.62 percent compounded weekly, and South Bank offers you an effective rate of 8.75 percent on a business loan. Which bank should you choose and why? (Points : 3) 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. (TCO 3) Which one of the following will increase the future value of a lump sum invested today? (Points : 3) decreasing the amount of the lump sum increasing the rate of interest paying simple interest rather than compound interest paying interest only at the end of the investment period shortening the investment time period 2. (TCO 3) Which one of the following best exemplifies a perpetuity? (Points : 3) 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 3. (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. (Points : 3) $1315 $1300 $756 $1000 4. (TCO 6 and 8) A bond's indenture agreement will include which of the following? (Points : 3) description of any loan collateral call provisions total amount of the bond issue protective covenants all of the above none of the above 5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,080. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds? (Points : 3) 10.50% 11.50% 11.75% 12% 6. (TCO 3) The preferred stock of Bean Coffee pays an annual dividend of $5.60. It has a required rate of return of eight percent. What is the price of the preferred stock? (Points : 3) $700 $70 $5.20 $6.05 None of the above 7. (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 nine percent. What is the current price of the stock? (Points : 3) $35 $40 $27 $29 8. (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? (Points : 3) $6.62 $6.03 $6.52 $6.85 9. (TCO 6) The market where new securities are offered is called the _____ market. (Points : 3) primary main secondary principal dealer 10. (TCO 6) The smallest firms listed on NASDAQ are in the NASDAQ _____ Market. (Points : 3) National Capital Regional Global Select Global 11. (TCO 6) The yield to maturity on a bond is: (Points : 3) equal to the coupon rate divided by the current market price. another name for the current yield. equal to the annual interest divided by the face value. the current required market rate. another name for the coupon rate. 12. (TCO 6) Star Industries has one outstanding bond issue. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 3) deferred call market liquidity debenture sinking fund 13. (TCO 8) Which of the following is true regarding bonds? (Points : 3) Bonds do not carry default risk. Bonds are sensitive to changes in the interest rates. Moodys and Standard and Poors provide information regarding a bonds interest rate risk. Municipal bonds are free of default risk. None of the above is true 14. (TCO 6) Which of the following is not a floating-rate bond? (Points : 3) A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill. An EE Savings Bond issued by the U.S. government. A bond that does not have any coupons until maturity. A bond that adjusts the coupon and face value payment based on inflation. TIPS 15. (TCO 6) Which of the following is true regarding convertible bonds? Select all that apply: (Points : 3) Are relatively common 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. (TCO 1) Paul is the owner of Paul's Cabinets, which is a sole proprietorship. The firm cannot pay its bills because a large customer defaulted on payment. Which one of the following statements is correct given this situation? (Points : 3) The creditors of Paul's Cabinets can only collect payment if Paul's Cabinets receives payment from its customer. The only course of action the creditors of Paul's Cabinets has is to sell the assets of Paul's Cabinets. The creditors of Paul's Cabinets can assume the assets of Paul's Cabinets, but only in an amount that exceeds Paul's investment in the firm. Paul is personally liable for the entire debt of Paul's Cabinets. Paul is personally liable for the firm's debts, but only to the extent of his investment in Paul's Cabinets. 2. (TCO 1) Which one of the following is classified as a current asset? (Points : 3) land accounts payable equipment inventory note payable 3. (TCO 1) Can you provide some examples of recent, well-known unethical behavior cases? Explain the situation in one or two sentences. (Points : 8) 4. (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. (Points : 8) 5. (TCO 8) Why do firms use protective covenants? Provide two or three examples of protective covenants, and explain how these covenants increase or decrease risk. (Points : 8) 6. (TCO 6) What are some of the benefits of issuing bonds with call and put provisions? Explain your rationale. (Points : 10)