A quiz for MBA finance 570

True/False

Indicate whether the statement is true or false.

____ 1. The major advantage of a general partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

____ 2. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

____ 3. One potential benefit from starting to invest early for retirement is that the investor can expect greater benefits from the compounding of interest.

____ 4. Suppose an investor plans to invest a given sum of money. She can earn an effective annual rate of 5% on Security A, while Security B will provide an effective annual rate of 12%. Within 11 years' time, the compounded value of Security B will be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs daily.)

____ 5. Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Cash	$ 50,000		Accounts payable	$ 100,000
Inventory	200,000		Accruals	100,000
Accounts receivable	250,000		Total CL	$ 200,000
Total CA	$ 500,000		Debt	200,000
Net fixed assets	$ 900,000		Common stock	200,000
			Retained earnings	800,000
Total assets	$1,400,000		Total L & E	$1,400,000

____ 6. On the balance sheet, total assets must always equal total liabilities and equity.

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 7. Which of the following statements is CORRECT?

a.	One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.
b.	Sole proprietorships are subject to more regulations than corporations.
c.	In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.
d.	Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.
e.	Corporations of all types are subject to the corporate income tax.

____ 8. Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field. She will be the sole owner, and she has enough funds to finance the operation. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years. However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established. Which of the legal forms of business organization would probably best suit her needs?

a.	Proprietorship, because of ease of entry.
b.	S corporation, to gain some tax advantages and also to obtain limited liability.
c.	Partnership, but only if she needs additional capital.
d.	Regular corporation, because of the limited liability.
e.	In this situation, the various forms of organization seem equally desirable.

____ 9. What would the future value of $125 be after 8 years at 8.5% compound interest?

a.	$205.83
b.	$216.67
c.	$228.07
d.	$240.08
e.	$252.08

____ 10. Last year Toto Corporation's sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?

a.	$271.74
b.	$286.05
c.	$301.10
d.	$316.16
e.	$331.96

____ 11. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?

a.	$2,245.08
b.	$2,363.24
c.	$2,481.41
d.	$2,605.48
e.	$2,735.75

____ 12. Suppose a U.S. government bond promises to pay $1,000 five years from now. If the going interest rate on 5-year government bonds is 5.5%, how much is the bond worth today?

a.	$765.13
b.	$803.39
c.	$843.56
d.	$885.74
e.	$930.03

____ 13. How much would $5,000 due in 50 years be worth today if the discount rate were 7.5%?

a.	$109.51
b.	$115.27
c.	$121.34
d.	$127.72
e.	$134.45

____ 14. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in Levin's earnings per share (EPS) over the 10-year period?

a.	15.17%
b.	15.97%
c.	16.77%
d.	17.61%
e.	18.49%

____ 15. You plan to invest in securities that pay 9.0%, compounded annually. If you invest $5,000 today, how many years will it take for your investment account to grow to $9,140.20?

a.	4.59
b.	5.10
c.	5.67
d.	6.30
e.	7.00

____ 16. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 8.5% per year. Under these conditions, how much will you have just after you make the 5th deposit, 5 years from now?

a.	$18,368.66
b.	$19,287.09
c.	$20,251.44
d.	$21,264.02
e.	$22,327.22

____ 17. At a rate of 6.25%, what is the present value of the following cash flow stream? $0 at Time 0; $75 at the end of Year 1; $225 at the end of Year 2; $0 at the end of Year 3; and $300 at the end of Year 4?

a.	$411.57
b.	$433.23
c.	$456.03
d.	$480.03
e.	$505.30

____ 18. What's the present value of $1,500 discounted back 5 years if the appropriate interest rate is 6%, compounded semiannually?

a.	$956.95
b.	$1,007.32
c.	$1,060.33
d.	$1,116.14
e.	$1,171.95

____ 19. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

a.	The company repurchases common stock.
b.	The company pays a dividend.
c.	The company issues new common stock.
d.	The company gives customers more time to pay their bills.
e.	The company purchases a new piece of equipment.

____ 20. Considered alone, which of the following would increase a company's current ratio?

a.	An increase in net fixed assets.
b.	An increase in accrued liabilities.
c.	An increase in notes payable.
d.	An increase in accounts receivable.
e.	An increase in accounts payable.

____ 21. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)?

a.	2.03
b.	2.13
c.	2.25
d.	2.36
e.	2.48

____ 22. Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times interest earned (EBIT/Interest Coverage) ratio?

a.	4.72
b.	4.97
c.	5.23
d.	5.51
e.	5.80

____ 23. Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales?

a.	6.49%
b.	6.83%
c.	7.19%
d.	7.55%
e.	7.92%

____ 24. Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750. What was its return on total assets?

a.	7.22%
b.	7.58%
c.	7.96%
d.	8.36%
e.	8.78%

MBA 570 Quiz 1 Chapters 1-4 True/False Indicate whether the statement is true or false. ____ 1. The major advantage of a general partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not. ____ 2. ____ 3. One potential benefit from starting to invest early for retirement is that the investor can expect greater benefits from the compounding of interest. ____ 4. Suppose an investor plans to invest a given sum of money. She can earn an effective annual rate of 5% on Security A, while Security B will provide an effective annual rate of 12%. Within 11 years' time, the compounded value of Security B will be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs daily.) ____ 5. Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value. Cash Inventory Accounts receivable Total CA Net fixed assets Total assets ____ $ $1,400,000 6. 50,000 200,000 250,000 $ 500,000 $ 900,000 Accounts payable Accruals Total CL Debt Common stock Retained earnings Total L & E $ 100,000 100,000 $ 200,000 200,000 200,000 800,000 $1,400,000 On the balance sheet, total assets must always equal total liabilities and equity. Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 7. Which of the following statements is CORRECT? a. One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. b. Sole proprietorships are subject to more regulations than corporations. c. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. d. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. e. Corporations of all types are subject to the corporate income tax. ____ 8. Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field. She will be the sole owner, and she has enough funds to finance the operation. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years. However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established. Which of the legal forms of business organization would probably best suit her needs? a. Proprietorship, because of ease of entry. b. S corporation, to gain some tax advantages and also to obtain limited liability. c. Partnership, but only if she needs additional capital. d. Regular corporation, because of the limited liability. e. In this situation, the various forms of organization seem equally desirable. ____ 9. What would the future value of $125 be after 8 years at 8.5% compound interest? a. $205.83 b. $216.67 c. $228.07 d. $240.08 e. $252.08 10. Last year Toto Corporation's sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later? a. $271.74 b. $286.05 c. $301.10 d. $316.16 e. $331.96 ____ ____ 11. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years? a. $2,245.08 b. $2,363.24 c. $2,481.41 d. $2,605.48 e. $2,735.75 ____ 12. Suppose a U.S. government bond promises to pay $1,000 five years from now. If the going interest rate on 5-year government bonds is 5.5%, how much is the bond worth today? a. $765.13 b. $803.39 c. $843.56 d. $885.74 e. $930.03 ____ 13. a. b. c. d. e. How much would $5,000 due in 50 years be worth today if the discount rate were 7.5%? $109.51 $115.27 $121.34 $127.72 $134.45 ____ 14. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in Levin's earnings per share (EPS) over the 10-year period? a. 15.17% b. 15.97% c. 16.77% d. 17.61% e. 18.49% ____ 15. You plan to invest in securities that pay 9.0%, compounded annually. If you invest $5,000 today, how many years will it take for your investment account to grow to $9,140.20? a. 4.59 b. 5.10 c. 5.67 d. 6.30 e. 7.00 ____ 16. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 8.5% per year. Under these conditions, how much will you have just after you make the 5th deposit, 5 years from now? a. $18,368.66 b. $19,287.09 c. $20,251.44 d. $21,264.02 e. $22,327.22 ____ 17. At a rate of 6.25%, what is the present value of the following cash flow stream? $0 at Time 0; $75 at the end of Year 1; $225 at the end of Year 2; $0 at the end of Year 3; and $300 at the end of Year 4? a. $411.57 b. $433.23 c. $456.03 d. $480.03 e. $505.30 ____ 18. What's the present value of $1,500 discounted back 5 years if the appropriate interest rate is 6%, compounded semiannually? a. $956.95 b. $1,007.32 c. $1,060.33 d. $1,116.14 e. $1,171.95 ____ 19. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? a. The company repurchases common stock. b. The company pays a dividend. c. The company issues new common stock. d. The company gives customers more time to pay their bills. e. The company purchases a new piece of equipment. ____ 20. a. b. c. d. e. Considered alone, which of the following would increase a company's current ratio? An increase in net fixed assets. An increase in accrued liabilities. An increase in notes payable. An increase in accounts receivable. An increase in accounts payable. ____ 21. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)? a. 2.03 b. 2.13 c. 2.25 d. 2.36 e. 2.48 ____ 22. Orono Corp.'s sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times interest earned (EBIT/Interest Coverage) ratio? a. 4.72 b. 4.97 c. 5.23 d. 5.51 e. 5.80 ____ 23. Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000. What was its profit margin on sales? a. 6.49% b. 6.83% c. 7.19% d. 7.55% e. 7.92% ____ 24. Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750. What was its return on total assets? a. 7.22% b. 7.58% c. 7.96% d. 8.36% e. 8.78%