1. Which of the following would least likely be considered as signaling a potential problem regarding the "quality of earnings" for a firm?

the firm has experienced a significant increase in earnings relative to the industry overall

the firm's accounts receivable account is increasing at a rate faster than the firm's increase in sales.

the firm has announced a delay in their release of financial statements due to a change in auditors

the firm's accounts receivable account is increasing, but at a rate slower than the firm's increase in sales.

all of the above would be considered signals of potential problems regarding he firms' quality of earnings

2. The extended Du Pont equation, a. k. a. the 3 components ROE decomposition equation, (i.e.ROE = (profit margin)x(total asset turnover)x(equity multiplier) is used to

compute the firm's ROE, as the equation states.

decompose the firm's ROE into subcomponents, for a better understanding of the firm's financial health.

determine if the firms is liquid

compute the firm's ROA, as the equation states.

3. Bank A charges 16% APR on auto loans with monthly compounding. What is the Effective Annual Interest Rate (EAR)?

16%, since EAR = APR for monthly compounding

13.3%

1.33%

17.23%

18.12%

insufficient information to answer this question

4. The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce net aftertax cash flows of $44,503 per year. If the firm's cost of capital is 14 percent, what is the project's IRR? (Hint: Is the firm's cost of capital relevant to an IRR calculation? )

8%

14%

18%

5%

12%

5. Which of the following assets' book values would, in general, most accurately represent the assets' true market value?

Specialized inventory that can only be used for specific projects

Inventory that is widely used in many common manufacturing activities

Real estate assets of the firm

Equipment assets of the firm used in production activities.

6. The total economic (true, i.e. true financial value) value of the firm is (Please READ ALL alternatives before answering):

Found on the balance sheet

Equal to the total market value of the stockholders' equity

equal to the total market value of the all of the firm's assets

Equal to the total market value of the owners and creditors' claim on the firm, by the balance sheet equation( aka accounting equation)

both c and d are correct

7. Your subscription to Jogger's World is about to run out and you have the choice of renewing it by sending in the $10 a year regular rate at the end of each year or of getting a lifetime subscription to the magazine by paying $100 today. Your cost of capital is 7 percent. How many years would you have to live to make the lifetime subscription the better buy? Assume payments for the regular subscription are made at the end of each year. (Round up if necessary to obtain a whole number of years.)

10 years

15 years

18 years

20 years

28 years

8. Managerial stock options are an incentive for managers to act in the best interest of:

stockholders

bondholders

employees

government leaders

the public

banker

9. Suppose you deposit $2000 into an account at the end of each of the next 10 years. If the account earns 12%, how much will be in the account at the end of 30 years?

35,097

192,926

338,560

482,665

Insufficient information to compute

10. The simple corporation has an outstanding debt obligation (total of principle and interest due) to the Complex Corporation of $250 (Assume this is Simple's only debt.). It is year end and the total cash flow of Simple from all sources is $325. The contingent payoff to the debt and equity holders of Simple Corporation is:

$250; $75

$250; $325

$75; $250

$325; $250

none of the above