1. Question 1

   CONSIDER THE FOLLOWING DATA GIVEN FOR THE FIN 301 CORPORATION:

   ITEM 2009 2008

   CURRENT ASSETS $500,000 $400,000

   ACCOUNTS PAYABLE $100,000 $150,000

   NOTES PAYABLE $300,000 $350,000

   ACCRUALS $120,000 $160,000

   GROSS FIXED ASSETS $5,000,000 $4,000,000

   EBIT $3,000,000

   DEPRECIATION EXP. $200,000

   TAX RATE 40%

   THE FIRM'S NET CURRENT ASSET INVESTMENT FOR 2009 WAS ________.

   $180,000

   $220,000

   $200,000

   $190,000

   .

   4 points

   Question 2

   WHICH OF THE FOLLOWING WOULD CAUSE AN INCREASE IN THE CURRENT RATIO?

   I. AN INCREASE IN ACCRUALS

   II. AN INCREASE IN SALES

   III. A DECREASE IN SHORT-TERM NOTES PAYABLE

   IV. AN INCREASE IN MARKETABLE SECURITIES

   V. A DECREASE IN ACCRUALS.

   III AN IV

   III, IV AND V

   I, II AND III

   II AND IV

   .

   4 points

   Question 3

   THE FIN 301 CORPORATION HAS A RETURN ON EQUITY OF 28% AND AN EQUITY MULTIPLIER OF 8. THE FIRM'S RETURN ON ASSETS MUST BE _______.

   3.5%

   5%

   2.9%

   4.2%

   .

   4 points

   Question 4

   WHICH OF THE FOLLOWING CAUSES PRESENT VALUES TO FALL?

   I. AN INCREASE IN THE DISCOUNT RATE

   II. A DECREASE IN THE DISCOUNT RATE

   III. AN INCREASE IN THE FUTURE VALUE

   IV. A DECREASE IN THE FUTURE VALUE

   V. AN INCREASE IN THE AMOUNT OF TIME TO RECEIVE THE FUTURE VALUE

   VI. A DECREASE IN THE AMOUNT OF TIME TO RECEIVE THE FUTURE VALUE

   II AND III

   I, IV AND V

   VI ONLY

   II, III AND VI

   .

   4 points

   Question 5

   A PERPETUAL ANNUITY HAS A PRESENT VALUE OF $15,000 AND PAYS $1,250 PER YEAR FOREVER. THE ANNUAL RETURN OFFERED BY THIS ANNUITY MUST BE __________.

   7.98%

   8.33%

   9.25%

   12.42%

   .

   4 points

   Question 6

   CONSIDER THE FOLLOWING DATA GIVEN FOR THE FIN 301 CORPORATION:

   ITEM 2009 2008

   CURRENT ASSETS $500,000 $400,000

   ACCOUNTS PAYABLE $100,000 $150,000

   NOTES PAYABLE $300,000 $350,000

   ACCRUALS $120,000 $160,000

   GROSS FIXED ASSETS $5,000,000 $4,000,000

   EBIT $3,000,000

   DEPRECIATION EXP. $200,000

   TAX RATE 40%

   THE FIRM'S NET FIXED ASSET INVESTMENT FOR 2009 WAS ________.

   $500,000

   $2,000,000

   $1,000,000

   $1,500,000

   .

   4 points

   Question 7

   YOU WOULD LIKE TO ACCUMULATE $5,000,000 BY THE TIME YOU RETIRE 48 YEARS FROM NOW. IF YOU EXPECT TO EARN A 12% ANNUAL RATE OF RETURN, WHAT MONTHLY PAYMENTS MUST YOU MAKE STARTING ONE MONTH FROM NOW TO ACHIEVE YOUR GOAL?

   $582.61

   $328.25

   $207.37

   $162.66

   .

   4 points

   Question 8

   YOU DEPOSIT $250,000 INTO A SAVINGS ACCOUNT PAYING 2.5% COMPOUNDED CONTINUOUSLY. HOW MUCH WILL YOU HAVE IN 10 YEARS?

   $321,006.35

   $359,174.71

   $298,482.48

   $504,296.18

   .

   4 points

   Question 9

   ASSUMING A POSITIVE NET INCOME AND ALL OTHER THINGS REMAINING THE SAME, A FIRM'S ROE RISES AS _______.

   I. IT'S EQUITY MULTIPLIER (AKA FINANCIAL LEVERAGE MULTIPLIER) RISES

   II. ITS EQUITY MULTIPLIER FALLS

   III. ITS TOTAL ASSET TURNOVER FALLS

   IV. ITS TOTAL ASSET TURNOVER RISES

   V. ITS DEBT RISES

   VI. ITS DEBT FALLS

   II, III AND VI

   I, IV AND V

   II AND III

   I AND VI

   .

   4 points

   Question 10

   THE ABC CORPORATION HAS AN ROE OF 30%, AN EQUITY RATIO OF .20 (THE FIRM HAS NO PREFERRED STOCK) AND A TOTAL ASSET TURNOVER OF .90. THE FIRM'S NET PROFIT MARGIN MUST BE _______.

   6.67%

   5.56%

   7.78%

   4.45%

   .

   4 points

   Question 11

   FREE QUESTION. MARK TRUE.

   True

   False

   .

   4 points

   Question 12

   CONSIDER THE FOLLOWING DATA GIVEN FOR THE FIN 301 CORPORATION:

   ITEM 2009 2008

   CURRENT ASSETS $500,000 $400,000

   ACCOUNTS PAYABLE $100,000 $150,000

   NOTES PAYABLE $300,000 $350,000

   ACCRUALS $120,000 $160,000

   GROSS FIXED ASSETS $5,000,000 $4,000,000

   EBIT $3,000,000

   DEPRECIATION EXP. $200,000

   TAX RATE 40%

   THE FIRM'S FREE CASH FLOW FOR 2009 WAS ________.

   $810,000

   $630,000

   $480,000

   $750,000

   .

   4 points

   Question 13

   ALEXANDER HAMILTON, THE FIRST SECRETARY OF THE TREASURY, DEPOSITED $1,000 IN A SAVINGS ACCOUNT IN 1804 JUST BEFORE HE WAS KILLED IN A DUEL BY THE THEN VICE PRESIDENT AARON BURR. IF WE ASSUME THE DEPOSIT WAS MADE FEBRUARY 17 OF THAT YEAR AND THE DEPOSIT HAS EARNED A RATE OF RETURN OF 5% SINCE THAT TIME, THE AMOUNT OF THE DEPOSIT TODAY WOULD BE________.

   $28,167,791.97

   $48,030,792.83

   $10,384,297.37

   $25,392,741.28

   .

   4 points

   Question 14

   YOU WOULD LIKE TO HAVE $3 MILLION WHEN YOU RETIRE. TOWARD THAT END, YOU PLAN TO INVEST $300 PER MONTH FOR THE NEXT 40 YEARS. WHAT RATE OF RETURN MUST YOU ACHIEVE TO REACH YOUR GOAL?

   8.79%

   11.48%

   10.58%

   9.38%

   .

   4 points

   Question 15

   SUPPOSE YOU DEPOSIT $250 INTO YOUR 401(K) EACH MONTH AND EARN A RATE OF RETURN OF 8%. HOW MUCH WILL YOU HAVE IN 35 YEARS?

   $9,818.43

   $323,836.18

   $573,470.62

   $1,253,429.58

   .

   4 points

   Question 16

   THE JSU CORPORATION HAS A RETURN ON ASSETS OF 4% AND A DEBT RATIO OF .75. THE FIRM HAS NO PREFERRED STOCK. THE FIRM'S ROE MUST BE ________.

   16%

   20%

   18%

   22%

   .

   4 points

   Question 17

   THE FIN 301 CORPORATION'S INVENTORY TURNOVER JUST FELL; H0WEVER, THERE WAS NO CHANGE IN SALES. THIS MOST LIKELY ALSO MEANS:

   I. THE FIRM'S CURRENT RATIO JUST ROSE

   II. THE FIRM'S CURRENT RATIO JUST FELL

   III. THE FIRM'S QUICK RATIO JUST ROSE

   IV. THE FIRM'S QUICK RATIO JUST FELL

   I AND III

   II AND III

   II AND IV

   I AND IV

   .

   4 points

   Question 18

   FREE QUESTION. MARK TRUE.

   True

   False

   .

   4 points

   Question 19

   WHICH OF THE FOLLOWING ARE APPROPRIATE USES OF THE FIRM'S FREE CASH FLOW?

   I. MAKE WEALTH-INCREASING INVESTMENTS FOR SHAREHOLDERS

   II. MAKE DIVERSIFYING ACQUISITIONS AT THE CORPORATE LEVEL

   III. PAY DIVIDENDS TO STOCK HOLDERS

   IV. INCREASE CEO COMPENSATION

   V. PURCHASE THE FIRM'S STOCK IN THE SECONDARY MARKET

   I, IV AND V

   I, II AND IV

   II AND IV ONLY

   I, III AND V

   .

   4 points

   Question 20

   THE FUTURE VALUE OF AN ANNUITY ______ AND THE PRESENT VALUE OF AN ANNUITY _____ AS THE NUMBER OF ANNUITY PAYMENTS FALLS.

   FALLS; RISES

   FALLS; FALLS

   RISES; RISES

   RISES; FALLS

   .

   4 points

   Question 21

   TODAY IS YOUR BIRTHDAY. SUPPOSE YOU CAN COMFORTABLE INVEST $500 PER MONTH IN YOUR 401(K) PLAN. FURTHER SUPPOSE YOU ARE 23 YEARS OLD TODAY AND PLAN TO RETIRE WHEN YOU ARE 63 YEARS OLD AND THAT YOU EXPECT TO EARN AN ANNUAL RATE OF RETURN OF 9%. HOW MUCH MORE WILL YOU HAVE ON YOUR 63rd BIRTHDAY IF YOU START MAKING PAYMENTS ONE MONTH FROM NOW THAN IF YOU START MAKING PAYMENTS 15 YEARS AND ONE MONTH FROM NOW?

   $1,780,099.17

   $2,196,261.26

   $528,196.49

   $228,385.17

   .

   4 points

   Question 22

   WHEN THE INTEREST OR DISCOUNT RATE FALLS, FUTURE VALUES ______ AND PRESENT VALUES _______.

   FALL; RISE

   RISE; RISE

   FALL; FALL

   RISE; FALL

   .

   4 points

   Question 23

   THE FIN 301 CORPORATION HAS SALES OF $5,000,000, A GROSS PROFIT MARGIN OF 40% AND AN OPERATING PROFIT MARGIN OF 15%. THE FIRM'S OPERATING EXPENSES MUST BE _______.

   $750,000

   $1,000,000

   $1,500,000

   $1,250,000

   .

   4 points

   Question 24

   CONSIDER THE FOLLOWING DATA GIVEN FOR THE FIN 301 CORPORATION:

   ITEM 2009 2008

   CURRENT ASSETS $500,000 $400,000

   ACCOUNTS PAYABLE $100,000 $150,000

   NOTES PAYABLE $300,000 $350,000

   ACCRUALS $120,000 $160,000

   GROSS FIXED ASSETS $5,000,000 $4,000,000

   EBIT $3,000,000

   DEPRECIATION EXP. $200,000

   TAX RATE 40%

   THE FIRM'S OPERATING CASH FLOW FOR 2009 WAS ________.

   $3,000,000

   $1,500,000

   $2,000,000

   $2,500,000

   .

   4 points

   Question 25

   WHAT IS THE MOST YOU WOULD PAY TODAY TO RECEIVE A SINGLE SUM OF $100,000 10 YEARS FROM NOW. ASSUME A DISCOUNT RATE OF 15%. ALSO ASSUME YOU ARE RATIONAL.

   $38,372.18

   $24,718.47

   $52,196.61

   $42,385.37