N QUESTION 20 Which of the following is true about financial statements a Since financial statements are prepared following GAAP, they can be directly compared across companies b Audited financial statements can directly be compared because the auditors make sure all financial statements follow GAAP c GAAP allows accountants to choose different methods and estimates, so financial statement cannot be compared directly d Assets are reported in the balance sheet at their current market values N QUESTION 21 Which of the following statements is true about standardized (common size) financial statements a They enhance comparison of financial statements of different size companies b They show balance sheet and income statement items as a percent of total assets c They show balance sheet and income statement items as a percent of sales d They show company financial figures as a percent of the industry figures N QUESTION 22 Which of the following financial ratios are short term creditors interested in the most a Profitability b Asset management c Liquidity d Growth N QUESTION 23 Assume a company implemented a new supply chain management system and increased its inventory turnover ratio from 6 to 8 times without affecting sales Which of the following will be the likely result of this change a Profit margin on sales increases b Debt ratio decreases c Current ratio increases d Return on assets increases N QUESTION 24 Current asset and current liability items for Gamma Company are given below $ Amounts $ Amounts Cash 50,000 Accounts payable 120,000 Accounts Receivable 130,000 Accruals payable 30,000 Inventories 120,000 The current ratio and the quick ratio for Gamma are respectively a 2 5 and 1 5 b 2 5 and 2 0 c 2 0 and 1 2 d 2 0 and 1 5 N QUESTION 25 Consider the following figures for a company 5 years ago current Industry Average Annual Sales $584 m $657 m $2,920 m Accounts Receivable $48 m $63 m $200 m Which of the following statements is correct about the companys receivables management a The company is better than industry average b The company is worse than it was five years ago c The company improved relative to five years ago d The company is worse than industry average but it improved relative to five years ago N QUESTION 26 Baja Companys agreement with creditors states that its times interest earned (TIE) ratio not fall below 5 times It is on a borderline and wants to improve Which of the following actions is likely to improve its TIE ratio a Increase its cash balance b Cut its dividend payout ratio c Increase its long term debt and reduce short term debt d Cut operating costs N QUESTION 27 A companys return on equity is 9 , its profit margin is 3 and its total assets turnover is 1 5 times What is its debt to asset ratio a 200 b 100 c 50 d 25 N QUESTION 28 If a companys return on equity is 10 and its dividend payout ratio is 40 , what is its sustainable growth rate a 6 4 b 4 2 c 10 0 d 3 0 N QUESTION 29 Which of the following statements is true about the use of debt a The use of debt decreases risk b The use of debt decreases expected return on equity c The use of debt increases expected return on equity if return on investment is greater than the interest rate d The use of debt decreases return on assets N QUESTION 30 Assume industry average market to book ratio is 6 times A company has total assets of $2 million and total debt of $800,000 It wants to go public by issuing 500,000 shares At what price per share should it issue the shares a $33 60 b $24 00 c $14 40 d $4 00 N QUESTION 31 The following condensed balance sheet is for Bach Company for the current fiscal year The current year sales total $600,000 and net income is $30,000 Bachs dividend payout ratio is 40 Cash $50,000 A Payable $75,000 A Receivable 80,000 Accruals 10,000 Inventories 60,000 Notes Payable 25,000 Total Current Assets $190,000 Total Current Liabilities $110,000 Fixed assets, net 110,000 Long term Debt 50,000 Common Stock 80,000 Retained Earnings 60,000 Total Assets $300,000 Total Liab Equity $300,000 For the coming fiscal year, the company expects sales growth of 20 Assuming the company is operating at full capacity and hence increase in sales results in increase in all assets, calculate the external funds need (EFN) for the coming year a $600 b $16,400 c $21,400 d $23,400 N QUESTION 32 Refer to problem 31 above Assume the firm has unused capacity So only current assets change spontaneously with changes in sales What will be the external funds needed (EFN) with this assumption a $600 b $16,400 c $21,400 d $23,400 N QUESTION 33 Refer to problem 31 32 Assume Bach has unused capacity It wants to change its dividend payout ratio such that its EFN will be zero What should be its dividend payout ratio a 20 b 32 c 52 d 42 N QUESTION 34 Assume you want to buy yourself a Lamborghini Urus in 10 years for $1 million If interest rate is 6 compounded annually, approximately how much do you need to set aside today to achieve this plan a $1,000,000 b $943,396 c $558,395 d $600,000 N QUESTION 35 Assume you want to buy Lamborghini in 10 years for $1 million Interest rate is 6 per year You plan to save every month to achieve your goal How much should be the monthly saving over the next 120 months (10 years) if interest is compounded monthly a $8,333 b $6,102 c $13,333 d $3,333 N QUESTION 36 Assume a bank quotes interest rate of 9 on deposits over the next five years In which compounding frequency will the deposit grow the fastest a Monthly b Weekly c Daily d Continuously N QUESTION 37 Publishers Clearing House declared that you won $100 million But it is payable in equal installments over the next 10 years, i e , $10 million at the end of every year If interest rate is 5 compounded annually, what is the present value of the winning a $77,217,349 b $95,238,095 c $100,000,000 d $125,778,925 N QUESTION 38 Assume Jack has a student loan with current balance of $12,500 Interest rate on the loan is 9 compounded monthly If he makes monthly payments of $311, how many years does it take him to completely pay off the loan a 3 35 b 3 65 c 3 86 d 4 00 N QUESTION 39 Approximately, at what interest rate will a sum of money double in 12 years a 8 b 7 c 6 d 5 N QUESTION 40 A credit card has annual interest rate quote of 18 on cash advances If interest is compounded monthly on unpaid balances, what is the effective annual rate a 18 b 19 56 c 21 35 d 29 75 N QUESTION 41 A home mortgage of $300,000 is payable monthly over 20 years Interest rate is 3 compounded monthly What is the approximate amount of each monthly payment a $1,664 b $1,250 c $1,331 d $1,000 N QUESTION 42 Refer to the mortgage loan in question 41 What will be the balance of the mortgage immediately after the 100 th payment a $196,330 b $175,000 c $133,600 d $200,000 N QUESTION 43 Professor Smith wants to establish a scholarship fund that pays $3,000 every year for indefinite period to outstanding students in FINC6601 He has to raise the needed funds for the scholarship If interest rate is 8 per year, how much should he raise a $3,000 b $24,000 c $37,500 d $36,000 N QUESTION 44 A mining venture is expected to generate cash flows of $50,000 $75,000 and $90,000 over the next 3 years respectively After that the mine will be finished and no cash flow is expected If interest rate is 10 compounded annually, what is the value of the venture a $215,000 b $161,533 c $175,056 d $178,224 N QUESTION 45 Which of the following statements is true about ordinary annuity and annuity due, holding other things constant a Present value of ordinary annuity is greater than that of annuity due b Future value of ordinary annuity is greater than that of annuity due c Present values of ordinary annuity and annuity due are equal d Present value and future value of annuity due are greater than those of ordinary annuity N QUESTION 46 Assume you contribute a fixed percent of your salary to a retirement plan every year The next contribution is $1,000 and because your salary grows by 5 every year, your contribution also grows by 5 If the interest rate is 10 , how much will you have in the account at the end of 10 years a $7,440 b $11,000 c $19,297 d $20,000 N QUESTION 47 XYZ Company changes its inventory management by adopting a new supply chain system The new system will reduce total inventory need by 25 without affecting sales Which of the following is the likely outcome of this change a its investment in net working capital increases b its return on equity increases c its quick ratio increases d its times interest earned ratio increases N QUESTION 48 A firms actual growth rate is lower than its sustainable growth rate Which of the following actions could be a remedy to align sustainable growth rate to actual growth rate a cutting dividend payout ratio b paying off debt and reducing financial leverage c increasing the use of accounts payable d all of the above N QUESTION 49 Assume Jose made a deal to purchase a $300,000 house with a 30 year mortgage at interest rate of 6 He can afford to pay only $1,000 per month and agreed to make a balloon payment of the balance at the end of the 30th year Approximately, how much will the balloon payment be a $802,258 b $133,208 c $166,792 d $1,004,515 N QUESTION 50 Bob has a student loan of $20,000 that should be paid monthly over 5 years Interest rate is 6 Bob decides to pay $390 every month, which is a little more than the required constant annuity payment As a result, his final payment will be less How much will his final payment be a $390 b $387 c $157 d $233 N QUESTION 51 In a fully amortized loan with fixed periodic payments a the principal portion decreases over time b the principal portion is constant over time c the interest portion increases over time d the interest portion decreases over time

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N QUESTION 20 Which of the following is true about financial statements? a. Since financial statements are prepared following GAAP, they can be directly compared

QUESTION 20

Which of the following is true about financial statements?
a. Since financial statements are prepared following GAAP, they can be directly compared across companies.
b. Audited financial statements can directly be compared because the auditors make sure all financial statements follow GAAP.
c. GAAP allows accountants to choose different methods and estimates, so financial statement cannot be compared directly.
d. Assets are reported in the balance sheet at their current market values.

QUESTION 21

Which of the following statements is true about standardized (common size) financial statements?
a. They enhance comparison of financial statements of different size companies.
b. They show balance sheet and income statement items as a percent of total assets.
c. They show balance sheet and income statement items as a percent of sales.
d. They show company financial figures as a percent of the industry figures.

QUESTION 22

Which of the following financial ratios are short-term creditors interested in the most?
a. Profitability
b. Asset management
c. Liquidity
d. Growth

QUESTION 23

Assume a company implemented a new supply chain management system and increased its inventory turnover ratio from 6 to 8 times without affecting sales. Which of the following will be the likely result of this change?
a. Profit margin on sales increases
b. Debt ratio decreases
c. Current ratio increases
d. Return on assets increases

QUESTION 24

Current asset and current liability items for Gamma Company are given below.
$ Amounts $ Amounts
Cash 50,000 Accounts payable 120,000
Accounts Receivable 130,000 Accruals payable 30,000
Inventories 120,000
The current ratio and the quick ratio for Gamma are respectively
a. 2.5 and 1.5
b. 2.5 and 2.0
c. 2.0 and 1.2
d. 2.0 and 1.5

QUESTION 25

Consider the following figures for a company.
5 years ago current Industry Average
Annual Sales $584 m $657 m $2,920 m
Accounts Receivable $48 m $63 m $200 m
Which of the following statements is correct about the companys receivables management?
a. The company is better than industry average
b. The company is worse than it was five years ago
c. The company improved relative to five years ago
d. The company is worse than industry average but it improved relative to five years ago

QUESTION 26

Baja Companys agreement with creditors states that its times interest earned (TIE) ratio not fall below 5 times. It is on a borderline and wants to improve. Which of the following actions is likely to improve its TIE ratio?
a. Increase its cash balance
b. Cut its dividend payout ratio
c. Increase its long-term debt and reduce short-term debt
d. Cut operating costs

QUESTION 27

A companys return on equity is 9%, its profit margin is 3% and its total assets turnover is 1.5 times. What is its debt to asset ratio?
a. 200%
b. 100%
c. 50%
d. 25%

QUESTION 28

If a companys return on equity is 10% and its dividend payout ratio is 40%, what is its sustainable growth rate?
a. 6.4%
b. 4.2%
c. 10.0%
d. 3.0%

QUESTION 29

Which of the following statements is true about the use of debt?
a. The use of debt decreases risk
b. The use of debt decreases expected return on equity
c. The use of debt increases expected return on equity if return on investment is greater than the interest rate
d. The use of debt decreases return on assets

QUESTION 30

Assume industry average market-to-book ratio is 6 times. A company has total assets of $2 million and total debt of $800,000. It wants to go public by issuing 500,000 shares. At what price per share should it issue the shares?
a. $33.60
b. $24.00
c. $14.40
d. $4.00

QUESTION 31

The following condensed balance sheet is for Bach Company for the current fiscal year. The current year sales total $600,000 and net income is $30,000. Bachs dividend payout ratio is 40%.
Cash $50,000 A/Payable $75,000
A/Receivable 80,000 Accruals 10,000
Inventories 60,000 Notes Payable 25,000
Total Current Assets $190,000 Total Current Liabilities $110,000
Fixed assets, net 110,000 Long-term Debt 50,000
Common Stock 80,000
Retained Earnings 60,000
Total Assets $300,000 Total Liab. & Equity $300,000
For the coming fiscal year, the company expects sales growth of 20%. Assuming the company is operating at full capacity and hence increase in sales results in increase in all assets, calculate the external funds need (EFN) for the coming year
a. -$600
b. $16,400
c. $21,400
d. $23,400

QUESTION 32

Refer to problem 31 above. Assume the firm has unused capacity. So only current assets change spontaneously with changes in sales. What will be the external funds needed (EFN) with this assumption?
a. -$600
b. $16,400
c. $21,400
d. $23,400

QUESTION 33

Refer to problem 31 & 32. Assume Bach has unused capacity. It wants to change its dividend payout ratio such that its EFN will be zero. What should be its dividend payout ratio?
a. 20%
b. 32%
c. 52%
d. 42%

QUESTION 34

Assume you want to buy yourself a Lamborghini Urus in 10 years for $1 million. If interest rate is 6% compounded annually, approximately how much do you need to set aside today to achieve this plan?
a. $1,000,000
b. $943,396
c. $558,395
d. $600,000

QUESTION 35

Assume you want to buy Lamborghini in 10 years for $1 million. Interest rate is 6% per year. You plan to save every month to achieve your goal. How much should be the monthly saving over the next 120 months (10 years) if interest is compounded monthly?
a. $8,333
b. $6,102
c. $13,333
d. $3,333

QUESTION 36

Assume a bank quotes interest rate of 9% on deposits over the next five years. In which compounding frequency will the deposit grow the fastest?
a. Monthly
b. Weekly
c. Daily
d. Continuously

QUESTION 37

Publishers Clearing House declared that you won $100 million! But it is payable in equal installments over the next 10 years, i.e., $10 million at the end of every year. If interest rate is 5% compounded annually, what is the present value of the winning?
a. $77,217,349
b. $95,238,095
c. $100,000,000
d. $125,778,925

QUESTION 38

Assume Jack has a student loan with current balance of $12,500. Interest rate on the loan is 9% compounded monthly. If he makes monthly payments of $311, how many years does it take him to completely pay off the loan?
a. 3.35
b. 3.65
c. 3.86
d. 4.00

QUESTION 39

Approximately, at what interest rate will a sum of money double in 12 years?
a. 8%
b. 7%
c. 6%
d. 5%

QUESTION 40

A credit card has annual interest rate quote of 18% on cash advances. If interest is compounded monthly on unpaid balances, what is the effective annual rate?
a. 18%
b. 19.56%
c. 21.35%
d. 29.75%

QUESTION 41

A home mortgage of $300,000 is payable monthly over 20 years. Interest rate is 3% compounded monthly. What is the approximate amount of each monthly payment?
a. $1,664
b. $1,250
c. $1,331
d. $1,000

QUESTION 42

Refer to the mortgage loan in question 41. What will be the balance of the mortgage immediately after the 100^th payment?
a. $196,330
b. $175,000
c. $133,600
d. $200,000

QUESTION 43

Professor Smith wants to establish a scholarship fund that pays $3,000 every year for indefinite period to outstanding students in FINC6601. He has to raise the needed funds for the scholarship. If interest rate is 8% per year, how much should he raise?
a. $3,000
b. $24,000
c. $37,500
d. $36,000

QUESTION 44

A mining venture is expected to generate cash flows of $50,000; $75,000 and $90,000 over the next 3 years respectively. After that the mine will be finished and no cash flow is expected. If interest rate is 10% compounded annually, what is the value of the venture?
a. $215,000
b. $161,533
c. $175,056
d. $178,224

QUESTION 45

Which of the following statements is true about ordinary annuity and annuity due, holding other things constant?
a. Present value of ordinary annuity is greater than that of annuity due.
b. Future value of ordinary annuity is greater than that of annuity due.
c. Present values of ordinary annuity and annuity due are equal.
d. Present value and future value of annuity due are greater than those of ordinary annuity.

QUESTION 46

Assume you contribute a fixed percent of your salary to a retirement plan every year. The next contribution is $1,000 and because your salary grows by 5% every year, your contribution also grows by 5%. If the interest rate is 10%, how much will you have in the account at the end of 10 years?
a. $7,440
b. $11,000
c. $19,297
d. $20,000

QUESTION 47

XYZ Company changes its inventory management by adopting a new supply chain system. The new system will reduce total inventory need by 25% without affecting sales. Which of the following is the likely outcome of this change?
a. its investment in net working capital increases
b. its return on equity increases
c. its quick ratio increases
d. its times interest earned ratio increases

QUESTION 48

A firms actual growth rate is lower than its sustainable growth rate. Which of the following actions could be a remedy to align sustainable growth rate to actual growth rate?
a. cutting dividend payout ratio
b. paying off debt and reducing financial leverage
c. increasing the use of accounts payable
d. all of the above

QUESTION 49

Assume Jose made a deal to purchase a $300,000 house with a 30-year mortgage at interest rate of 6%. He can afford to pay only $1,000 per month and agreed to make a balloon payment of the balance at the end of the 30th year. Approximately, how much will the balloon payment be?
a. $802,258
b. $133,208
c. $166,792
d. $1,004,515

QUESTION 50

Bob has a student loan of $20,000 that should be paid monthly over 5 years. Interest rate is 6%. Bob decides to pay $390 every month, which is a little more than the required constant annuity payment. As a result, his final payment will be less. How much will his final payment be?
a. $390
b. $387
c. $157
d. $233

QUESTION 51