QUESTION 1

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What are After-tax profits for the year?

3 points

QUESTION 2

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What are After-tax profits for the year?

Please fill in this box using the result of the previous question 1, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

QUESTION 3

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is ROE?

Please show your calculation process to get partial credits.

3 points

QUESTION 4

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is ROE?

Please fill in this box using the result of the previous question 3, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

0 points

QUESTION 5

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is EBIT?

Please show your calculation process to get partial credits.

3 points

QUESTION 6

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is EBIT?

Please fill in this box using the result of the previous question 5, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

QUESTION 7

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is the Coverage Ratio?

Please show your calculation process to get partial credits.

3 points

QUESTION 8

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is the Coverage Ratio?

Please fill in this box using the result of the previous question 7, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

0 points

QUESTION 9

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What are Retained Earnings?

Please show your calculation process to get partial credits.

QUESTION 10

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What are Retained Earnings?

Please fill in this box using the result of the previous question 9, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

0 points

QUESTION 11

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is the balance sheet for the end of the year (start of next year)?

Please show your calculation process to get partial credits.

QUESTION 12

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: What is the balance sheet for the end of the year (start of next year)?

Please fill in this box using the result of the previous question 11, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

QUESTION 13

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: If market value at year-end is at a 50% premium to book value, what is Linda's new market value?

QUESTION 14

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: If market value at year-end is at a 50% premium to book value, what is Linda's new market value?

Please fill in this box using the result of the previous question 13, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

0points

QUESTION 15

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: If the company has 1 million shares, what is price-per-share?

Please show your calculation process to get partial credits.

3 points

QUESTION 16

Linda's Lights balance sheet info for the beginning of 2020:

Owners' Equity27 million

Bank Loan 10 million, 4.5% interest rate

Fixed Assets 10 million

Inventory 23 million

Cash 4 million

Here are info for 2020:

Purchased 220 thousand lamps for $100 each, sold them for $125 each

Incurred additional operating costs of $2 million

Purchased 5 trucks for $100,000 each

Profits tax15%

Dividend payout ratio 30%

Q: If the company has 1 million shares, what is price-per-share?

Please fill in this box using the result of the previous question 15, these two questions are the same.

Note: Please round up your answer to two decimal places

(e.g., if your answer is 170.124 -> you need to write down 170.12 in the blank

if your answer is 170.127 -> you need to write down 170.13 in the blank)

QUESTION 17

A company borrows $1,000,000 from a bank for three months beginning November 4.The interest rate is 12%.How much interest will it owe to the bank?

$30,000

$30,247

$30,333

$30,667

$120,000

3 points

QUESTION 18

If the interest rate the market charges a borrower is 5% and the interest rate the US Treasury pays for the same maturity is 2%, that borrower's risk premium equals:

2%

3%

5%

7%

3 points

QUESTION 19

Suppose a company's revenue suddenly drops.Who among the following is most at risk of not being paid?

wages to employees

interest to banks

dividends to preferred shareholders

rent to landlord

3 points

QUESTION 20

Which of the following adds to the owners' equity of a company?4 points

additional equity investment by existing owners

equity investment by new investors/owners

retained earnings (if positive)

all the above

4 points

QUESTION 21

Steven's Sox Inc has a coverage ratio of 5.Eleanor's Elegant Earrings' coverage ratio is 7.Yet Steve's pays a lower risk premium on its debt than does Eleanor's (for the same maturity).What might explain this?

Steve's is in a more volatile industry.

Eleanor's is in a more volatile industry.

Interest rates are low today.When rates rise, Steven's risk premium will jump Eleanor's.

Steven's interest rate is below that of the U.S. Treasury.Eleanor's rate is above.

Nothing to explain.A lower coverage ration should result in a lower risk premium.

3 points

QUESTION 22

A company produces an ROE of 16% this year with Profits after Taxes of $100,000,000.Is it possible for the company to earn more than $1 million next year yet produce an ROE below 16%?

Yes, if it pays more dividends from the $1 million next year than it does this year.

Yes, if the tax rate is higher next year.

Yes, if the percentage increase in owners' equity next year compared to this year exceeds the percentage

increase in profits.

Of course not!What do you think I am - a fool?!!

3 points

QUESTION 23

A clothing retailer sold all the clothes it purchased from manufacturers this year at a positive profit margin.No customer paid for the clothes - all were sold "on credit" (until next year).The result is _____ profits for the retailer this year.

positive

zero

negative

3 points

QUESTION 24

Suppose a company enjoys an increase in revenue due entirely to an increase in the price of its product.Which of the following increases as a result?Choose Two, 2 points each

variable costs

fixed costs

after-tax profit

profits tax

interest expense

4 points

QUESTION 25

Consider a single cash flow of $220,000 to be paid in ten years and a ten-year annuity paying $20,000 annually for ten years.Suppose both the futurity of the single cash flow and maturity of the annuity are increased to eleven years.What happens to their respective present values, assuming unchanged discount rates and yields?4 points

The present value of the single cash flow rises, but that of the annuity declines

The present value of the single cash flow declines, but that of the annuity rises

The present values of both the single cash flow and the annuity decline

The present value of the single cash flow does not change, but that of the annuity rises

The present values of both the single cash flow and the annuity rise

4 points

QUESTION 26

Toys-4-U Corporation has $60 million in assets and $20 million in debt.Its leverage ratio is

0.5

1.5

1.67

3

6

3 points

QUESTION 27

Robert's Retro Rotary Phones is an antique dealer.Robert's purchased 1,000 phones in 2019 for $250 each and sold 950 for $400.Working on the internet, Robert's has no other costs.On the company's income statement revenue and costs for the year are, respectively:

400,000 & 250,000

380,000 & 237.500

380,000 & 250,000

400,000 & 237,500

3 points

QUESTION 28

Marjory Morningstar Melatonin has a book value of $400 million and 25 million shares outstanding.If it achieves an ROE of 12.5% this year its earnings-per-share will be:

$2

$50

$2.50

$8

3 points

QUESTION 29

A Treasury bond, with a face value of 100 and coupon equal to 3%, is priced at 102.In order for a bond which is to be issued by Coca-Cola with the same maturity to have the same price it must have:

a lower yield-to-maturity

a higher yield-to-maturity

a higher coupon

a lower coupon

3 points

QUESTION 30

Which of the following events will cause a business's ROE to be lower than the year before, all else the same?

its bank charges a lower interest rate

it issued new shares and profits did not change

its price-per-share went up

it increased its dividend payout ratio

the percentage of customer sales that become accounts receivable is greater

3 points

QUESTION 31

Which of the following would result in a company adding more to its cash at the end of the year than otherwise, all else is the same?

a larger proportion of customer sales becoming accounts receivable

it increases its dividend per share

the IRS permits accelerated depreciation of its equipment

all the above

3 points

QUESTION 32

Consider a cash flow of $1,000,000 in 10 years at a 4% rate of discount, annually compounded.In order to have the same present value, but semi-annually compounded at the same rate and futurity, the cash flow must be:

higher

lower

equal

3 points

QUESTION 33

A company's profits decreased this past quarter.Yet it kept its dividend payment the same as last quarter.What happened to its payout ratio?

did not change

rose

fell

3 points

QUESTION 34

Classy Shoes made $1 million in profits after taxes last year (which it distributed as dividends) on $5 million in revenue by manufacturing and selling 40,000 pairs of shoes.This year it manufactures the same number of pairs (at the same cost).But its shoes have become "in," which has allowed it to raise the price per pair without reducing unit sales.Which of the following ratios doesnotchange?

Leverage

ROE

Profit margin

Turnover

3points

QUESTION 35

ABC Company has cash on its balance sheet.It decides to use the cash to purchase the buildingit was renting.Compared to the original situation, ABC's leverage ratio is:

higher

lower

unchanged

3 points

QUESTION 36

The more elastic a company's product (or service), the _________the likelihood that an increase in price will add to its profit:

greater

less

irrelevant to

3 points

QUESTION 37

A company began the year with $200,000 in cash.For the year it achieved $1,000,000 in revenue.Its variable costs are $700,000 and fixed costs (including interest) $350,000.Assume no depreciation (i.e., no equipment).It pays $50,000 in dividends.Which of the following result?

It suffered a net loss of $50,000 and its new book value is lower by $100,000

It suffered a net loss of $50,000 and its new book value is lower by $50,000.

It suffered a net loss of $100,000 and its new book value is lower by $50,000.

It suffered a net loss of $100,000 and its new book value is lower by $100,000

3 points

QUESTION 38

All else the same,greater depreciation deduction allowed by the IRS results in:

lower tax amount; higher after-tax profit

higher tax amount; greater after-tax profit

lower after-tax profit; greater addition to cash

lower before-tax profit; higher after-tax profit

lower after-tax profit; less addition to cash

3 points

QUESTION 39

Which of the following is a correct statement regarding "coverage ratio?"

It measures how much of a company's revenue, as it travels down the "waterfall," is available to pay interest relative to the amount of interest that must be paid.

All else the same, a higher ratio makes creditors feel more secure that they will be paid.

The more volatile the industry that the company is in, the higher the coverage ratio necessary for creditors to feel a certain amount of security.

All of the above

3 points

QUESTION 40

Who are the owners of a corporation?

the shareholders

the managers

the bankers

the employees

3 points

QUESTION 41

A company makes $1 million in after-tax profits for the year.It spends the entire amount on new equipment.Which of the following is true?

Its leverage ratio at the end of the year is higher than it was one year before

Its retained earnings for the year equal zero.

Its book value at the end of the year is $1 million greater than that of one year before.

Its book value at the end of the year is the same as that of one year before.

3 points

QUESTION 42

Cash on the balance sheet allows a company to do which of the following and thereby avoid liquidating (selling) assets or issuing debt?

Finance inventory accumulation

Pay dividends in excess of net profits

Absorb a loss

All the above

3 points

QUESTION 43

A company begins the year with some debt.During the year the company makes a profit and retains some of its earnings, adding to its cash.It otherwise takes no action to alter its balance sheet.What is its new leverage ratio compared to the start of the year?

higher

lower

the same

none of the above

3 points

QUESTION 44

Why are retained earnings considered equity?4 points

Because they are effectively additional investment in the company by existing owners

Because they are effectively an investment in the company by new owners

Because they come about when a bank agrees to exchange its loan for equity in the firm

Because they come about when new owners buy ownership stakes from existing owners

4 points

QUESTION 45

Which of the following is true of Accounts Payable?

They are an asset for the company.

They occur when a company sells fewer units than it produces.

They reduce a company's net change in cash.

They are a form of passive debt.

3 points

QUESTION 46

All else the same, a decrease in the corporate profits tax rate would _______ affect EBITD.

positively

negatively

not

3 points

QUESTION 47

If the risk-free rate increases, which of the following is animpossibleoutcome for a company's interest rate (or the discount rate applied to its future cash flows)?

increases

decreases

remains the same

none of the above

3 points

QUESTION 48

XYZ Company has 10 million shares outstanding.Its market price per share is 30, its book price per share is 25.If its net profits after tax is $60 million, its ROE equals:4 points

20%

24%

83.33%

1.20%