TAMUC Fin504 exams WEEK 6 EXAM

Question 1. Question
: Assume that the following relationships
for B. Huang:

Total Asset Turnover Ratio =2
ROA =3%
ROE =5%

What is the debt to assets ratio assuming that the firm uses
only debt and common equity and all liabilities are long term debt?

10%

20%

30%

40%

50%

Question 2. Question
: When considering the risk of
receiving cash flows, financial managers must be aware that:

investors want higher returns for perceived
greater risk.

investors want a lower valued firm to
discourage future investors which might dilute their existing control.
investors expect dividends and capital gains
regardless of the risks associated with achieving them.
investors always want lower returns so that
the risk is minimized.

Points Received: 3 of 3
Comments:

Question 3. Question
: If the exchange rate from U.S.
dollars to Canadian dollars is $0.80/Canadian dollar, then the exchange rate
from Canadian dollars to U.S. dollars is

0.80 Canadian $/US dollar

$1.25 Canadian $/US dollar

$1.20 Canadian $/US dollar

$8.00 Canadian $/US dollar

Points Received: 3 of 3
Comments:

Question 4. Question
: ICU has current assets of
$800,000 and net fixed assets of $1,400,000. The firm expects its sales to
climb 25 percent next year from its current level of $3,500,000. ICU’s only
current liability is accounts payable of $1,200,000. If both current assets and
current liabilities will increase proportionately with sales, what additional
financing will be needed by ICU next year? Assume ICU has a net profit margin
of 6 percent. An increase in net fixed assets of $500,000 will be required. The
firm pays out 50 percent of its earnings as dividends.

$400,000

$358,750

$178,750

Question 5. Question
: Cash budgeting can be employed
effectively by management to

identify potential cash flow problems in
advance

aid them in capital budgeting

control retained earnings

coordinate cash and deferred expenses

Question 6. Question
: The primary reason for the
divergence between the shareholder wealth maximization goal and the actual
goals pursued by management has been attributed to

separation of social responsibility and
stakeholders’ concerns
separation of ownership and control

separation of personal welfare and long-run
profit goals

the granting of “golden parachute”
contracts

Points Received: 3 of 3
Comments:

Question 7. Question
: The interest rate at which
banks in the Eurocurrency market lend to each other is known as the ____.

Eurocurrency currency rate (ECR)

London interbank offer rate

exchange rate

interest rate parity

Points Received: 3 of 3
Comments:

Question 8. Question
: When an investor purchases
shares in a no-load common stock mutual fund, she is using a(n)

primary intermediary

financial intermediary

over-the-counter market

broker

Points Received: 0 of 3
Comments:

Question 9. Question
: A firm’s current ratio is 1.5
and its quick ratio is 1.0. If its current liabilities are $10,000, what are
its inventories?

$ 5,000

$10,000

$15,000

$20,000

Question 10. Question
: In six years, your daughter
will be going to college. You wish to have a fund that will provide her $10,000
per year (end of year) for each of her four years in college. How much must you
put into that fund today if the fund will earn 10 percent in each of the 10
years?

$29,744.65

$29,783.76

$17,878.80

$21,651.10

Comments:

Question 11. Question
: The following ratio(s) that
would probably not be used to assess the profitability of a firm is:

return on stockholders’ equity

return on total assets

times interest earned

both return on stockholders’ equity and
return on total assets

Points Received: 3 of 3
Comments:

Question 12. Question
: The two most important
disciplines on which financial management relies are

accounting and production

accounting and marketing

economics and marketing

accounting and economics

Points Received: 3 of 3
Comments:

Question 13. Question
: All of the following are
financial intermediaries EXCEPT:

commercial banks

investment companies

thrift institutions

loan sharks

Points Received: 0 of 3
Comments:

Question 14. Question
: What is the holding period
return to an investor who bought 100 shares of Oil Slick stock nine months ago
for $36 per share, received two $50 dividend checks, and sold the stock today
at $38 a share.

5.56%

8.33%

11.11%

6.94%

Question 15. Question
: You bought 100 shares of Risky
Venture stock six months ago for $14 per share and sold it yesterday for $12.
The company paid a total of $0.24 per share in dividends to you during the time
you held the stock. What was your holding period return?

-25.14%

-16.67%

-12.57%

16.00%

Question 16. Question
: What is the present value of
the following net cash flows if the discount rate is 12%:
Year Cash Flow
1-5 $10,000
each year
6-10 $15,000 each
year
11-15 $17,000 each
year

$151,400

$ 86,462

$144,037

$ 79,252

Question 17. Question
: The U.S. financial markets are
said to be highly informationally efficient. This means

they process stock trades accurately and
quickly

the market provides quick access to a firm’s
financial statements
they quickly reflect information relevant to
determining stock value
accurate stock quotes are quickly available
to all investors

Question 18. Question
: Mr. Moore is 35 years old
today and is beginning to plan for his retirement. He wants to set aside an
equal amount at the end of each of the next 25 years so that he can retire at
age 60. He expects to live to the maximum age of 80 and wants to be able to
withdraw $25,000 per year from the account on his 61st through 80th birthdays.
The account is expected to earn 10 percent per annum for the entire period of
time. Determine the size of the annual deposits that must be made by Mr. Moore.

$212,850

$23,449

$2,164

$8,514

Question 19. Question
: What is the cost of sales for
a firm with a gross profit margin of 30 percent, a net profit margin of 4
percent, and earnings after taxes of $20,000?

$200,000

$350,000

$150,000

$125,000

Question 20. Question
: Giving top management ____ is
one method that ensures managers will act in the interest of shareholders in
merger decisions.

“golden parachute” contracts

excellent pay

executive perks

job security

Question 21. Question
: Jones Company sales last year
were $25 million and its total assets were $8 million. Accounts payable were $2
million and common stock and retained earnings were $5 million. Jones sales are
forecasted to be $30 million this year, earnings after tax are expected to be
3% of sales, and dividends of $250,000 are expected to be paid. Assuming that
the ratio of assets to sales and current liabilities to sales remain the same
this year as last year, determine the amount of additional financing required.

$550,000

$1,200,000

$300,000

None of the above

Points Received: 3 of 3
Comments:

Question 22. Question
: If the discount rate is 12%,
what is the present value of the following cash flows:
Year Cash Flow
1 $10,000
2 $11,000
3 $12,000
4 $13,000
5 $14,000
6-15 $15,000 each
year

$144,618

$127,923

$127,197

$ 90, 537

Question 23. Question
: If you invest $10,000 in a
4-year certificate of deposit (CD) paying 10 percent interest compounded
annually, determine how much the CD will be worth at the end of 4 years.

$13,600

$45,730

$14,640

$15,958

Question 24. Question
: Agency problems may give rise
to costs that ____ the market value of firms.

increase

decrease

do not affect

are not important to

Points Received: 3 of 3
Comments:

Question 25. Question
: Comet Powder Company has
purchased a piece of equipment costing $100,000. It is expected to generate a
ten-year stream of benefits amounting to $16,273 per year. Determine the rate
of return Comet expects to earn from this equipment.

16.3%

62.7%

10%

20%

Points Received: 3 of 3
Comments:

Question 26. Question
: Which of the following is
correct regarding the forms of market efficiency?
I. In an efficient capital market stock prices provide an
unbiased estimate of the true value of an enterprise.
II. In an efficient capital market, stock prices reflect the
present value of the firm’s expected cash flows.

I only

II only

Both I and II

Neither I nor II

Points Received: 3 of 3
Comments:

Question 27. Question
: Using a cash budget is more
useful than the percentage of sales method because:
I. It can more precisely estimate the amount of financing
needed.
II. It can better estimate the time of financing need.

I only

II only

Both I and II

Neither I nor II

Points Received: 3 of 3
Comments:

Question 28. Question
: Nuking Gnats Pest Service,
Inc. has a debt ratio of 50% and an equity multiplier of 2. What is Nuking
Gnats’ stockholders’ equity if total debt is $100,000?

$100,000

$150,000

$200,000

$50,000

Comments:

Question 29. Question
: Agency costs include all of
the following except:

expenditures to monitor management’s actions

providing stock as part of management’s
compensation

flotation costs

bonding expenditures

Points Received: 3 of 3
Comments:

Question 30. Question
: What is the future value of a
$10,000 college tuition fund if the nominal rate of interest is 12 percent
compounded monthly for five years?

$17,623.42

$18,170

$16,105.10

$16,122.26

Question 31. Question
: ____ markets deal in long-term
securities having maturities greater than one year.

Credit

Money

Commodity futures

Capital

Points Received: 3 of 3
Comments:

Question 32. Question
: Air Atlantic (AA) has been
offered a 3-year old jet airliner under a 12-year lease arrangement. The lease
requires AA to make annual lease payments of $500,000 at the beginning of each
of the next 12 years. Determine the present value of the lease payments if the
opportunity cost of funds is 14 percent.

$2,830,000

$13,635,500

$6,000,000

$3,226,200

Points Received: 3 of 3
Comments:

Question 33. Question
: Given the following
information, calculate the inventory for Big Show Videos: Quick ratio = 1.2;
Current assets = $12,000; Current ratio = 2.5

$4,800

$6,240

$7,200

$5,660