Question 3

Considering The Financial Practices and Management from C214, answer question 3 from C.1-C.6

C.1 Firms a and b are in the same industry. Firm a has a gross margin of .45 and firm b has a gross margin of .36. Which conclusion should an analyst draw from comparing firm a to firm b?

1. Firm a has more efficient production process

2. Firm a has lower depreciation expense

3. Firm a has less efficient production process

4. Firm a has higher depreciation expense

C.2 What is an example of an estimate used in recording transactions?

1. Deciding the salvage value of a fixed asset when calculating depreciation expense

2. Deciding whether to sell a fixed asset

3. Deciding the cost of a fixed asset when calculating depreciation expense

4. Deciding whether to expense or depreciate a fixed asset

C.3 A doctor will receive $9,000 per year at the end of the year for 10 years. The annual interest earned on the investment is 6%.

What is the present value of this doctors investment?

1. $64,240

2. $66,241

3. $90,000

4. $118,527

C.4 A banker wants to retire 20 years from today and would like to have an annual income of $300,000 withdrawn at the end of each year for 10 years starting exactly in 20 years. The discount rate is 6%. What is the present value today?

1. $688,473

2. $2,208,025

3. $3,000,000

4. $3,441,000

C.5 What is a subordinated debenture?

1. A bond that is risk free

2. A bond that has a lower claim to the assets of the firm in the event of liquidation

3. A bond that is backed by collateral

4. A bond that has a higher claim to the assets of the firm in the event of liquidation

C.6 What will a bond sell if its coupon rate is higher than the market rate of returns?

1. At risk free rates

2. At a premium

3. At par

4. At discount