- Financial management involves decisions about which of the following?
All of these
2. For corporations, maximizing the value of owner’s equity can also be stated as
maximizing the stock price.
3. The practice generally known as double taxation is due to
corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.
4. Which of the following is an example of aligning managers’ personal interests with those of the owners?
Offer the managers shares of common stock of the firm.
5. This subarea of finance helps facilitate the capital flows between investors and companies.
Financial institutions and markets
6. Which of these are NOT basic approaches to minimizing the agency problem?
All of these are basic approaches to minimizing the agency problem.
7. This sub-area of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings.
financial management
8. Which of the below is the goal that according to most finance professionals corporate managers ought to pursue?
Maximize shareholder wealth
9. The board of directors serves mainly to
Minimize the conflict of interest between managers and shareholders.
10. This subarea of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms’ securities to buy, and how to be paid back in the form that the investor wishes.
Investments
11. This group is elected by stockholders to oversee management in a corporation.
Board of Directors
12. Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?
Dividends
13. The practice generally known as double taxation is due to
corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.
14. The agency relationship in corporate finance refers to _______________________.
when the shareholders hire a manager to run their company
15. The portion of a company’s profits that are kept by the company rather than distributed to the stockholders as cash dividends is referred to as:
retained earnings.
16. Which of the following statements is correct?
If the sole proprietorship gets sued, the owner is liable.
17. The overall goal of the financial manager is to _________________.
Maximize the company’s stock market price
18. As individual legal entities, corporations assume liability for their own debts, so the shareholders hold
only limited liability.
19. Mango Manufacturing has acquired a new machine for $125,000. The machine is expected to have zero salvage value at the end of its useful life, after producing 75,000 units of output. If 15,000 units are produced during the first year of the machine’s use, how much depreciation expense will be recorded for the first year of its operation?
The correct answer is: $25,000
20. Which of the following would be a result of changing from the straight-line to the accelerated (MACRS) method of depreciation?
lower taxable income in the early years of a project’s life.
21. Bansko Inc. has just purchased a new lift for $200,000. The lift’s useful life is 8 years, and the company expects the salvage value at the end of year 8 to be $40,000. Using straight-line depreciation, the annual depreciation expense will be _________, and the book value of the lift at the end of year 5 will be _________.
$20,000; $100,000
22. Mountain Rescue Inc. reported the following for its most recent fiscal year: revenues of $2,500,000, operating expenses of $1,500,000, acquisition of 5 new snowmobiles $50,000, and depreciation expense of $100,000. Therefore, the company’s taxable income is
$900,000.
23. When a $50,000 depreciation expense is incurred
there is no direct impact on the cash flows, but depreciation does impact the amount of cash paid in taxes.
24. Assume that you are presented with an analysis of a possible expansion project. In the analysis, projected net cash flows resulting from the expansion were discounted using the firm’s cost of capital. The net present value of the project was computed to be positive, and therefore the project was recommended to be accepted. In describing the assumptions made, the analyst revealed that the projected cash flows were based entirely on projected quantities sold and current input and product prices, ignoring future price increases likely to be caused by inflation. Which of the below is correct?
The analyst must make sure that real cost of capital was used as a discount rate in the calculation. If not, then the future cash flow estimates must be adjusted using higher future prices as indicated by the estimated inflation rate.
25. One U.S. dollar is trading for 0.90 euros. One pound is trading for 1.5 euros. How many pounds would you get for $100?
60
26. Assume you plan on exchanging dollars for yen and buy shares of common stock of a Japanese company directly on a Japanese stock exchange. Assume the stock does not pay dividends. If the price of the stock you bought is 8% higher next year, and dollar depreciates against yen by 10% over the same time period, then in terms of the dollar your rate of return is equal to approximately
18%
27. Assume the price index in years 2016, 2017, and 2018 is equal to 120, 140, and 130 in the same respective order. Thus, the inflation rate in 2017 is equal to approximately
17%
28. You come across a photograph taken in year 1983. The photo displays a gas station with a gasoline price sign stating $0.76 per gallon. We could say that this price is quoted in __________ dollars. All of the choices below would make the previous statement correct, EXCEPT:
real dollars
29. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78)
Thunder Ice Arena has purchased a new zamboni (ice resurfacer) for $59000. It will be depreciated over 7 years using the straight line depreciation method, with zero salvage value assumed at the end of year 7.
Assuming the ice arena decides to sell the zamboni after 2 years, and is able to sell it for $32000, what will be the after-tax cash amount collected from the sale? The tax rate is assumed to be 24%. DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
34434
30. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78. Make sure if the answer is negative that you include the negative sign in front of your answer, for example -10023)
Big Cone Ice Cream Inc. purchased a new cutting edge slush making machine for $13000. The machine will be depreciated, using the straight-line method, over 7 years to a zero salvage value. The new machine will result in additional annual revenues of $53000, and an annual increase in expenses of $14000. If the tax rate is 16%, what will be the annual after-tax cash flow from the machine? DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
33057
31. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78)
Pallavi receives $12000 from her uncle. She deposits the money in an account and leaves it there for 14 years. Assuming the account earns 9% interest rate, and the inflation rate is 3%, what is the balance in the account at the end of 14 years, expressed in real terms (in terms of today’s purchasing power)? Do not use any approximations in your calculations. DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
26511
32. (NOTE: ENTER YOUR ANSWER IN PERCENT, BUT WITHOUT THE % SIGN, rounded to 2 decimal places, for instance as 7.89, not as 7.89%, or not as 0.0789)
Assuming market interest rate is 9.7% and real interest rate is 3.6%, what is the rate of inflation? Use the exact relationship between the rates, not an approximation. Your answer needs to be exact! DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
5.89
33. Mango Manufacturing has acquired a new machine for $125,000. The machine is expected to have zero salvage value at the end of its useful life, after producing 75,000 units of output. If 15,000 units are produced during the first year of the machine’s use, how much depreciation expense will be recorded for the first year of its operation?
$25,000
34. Mountain Rescue Inc. reported the following for its most recent fiscal year: revenues of $2,500,000, operating expenses of $1,500,000, acquisition of 5 new snowmobiles $50,000, and depreciation expense of $100,000. Therefore, the company’s taxable income is
$900,000.
35. Bansko Inc. has just purchased a new lift for $200,000. The lift’s useful life is 8 years, and the company expects the salvage value at the end of year 8 to be $40,000. Using straight-line depreciation, the annual depreciation expense will be _________, and the book value of the lift at the end of year 5 will be _________.
$20,000; $100,000
36. When a $50,000 depreciation expense is incurred
there is no direct impact on the cash flows, but depreciation does impact the amount of cash paid in taxes.
37. Which of the following would be a result of changing from the straight-line to the accelerated (MACRS) method of depreciation?
lower taxable income in the early years of a project’s life.
38. Assume the price index in years 2016, 2017, and 2018 is equal to 120, 140, and 130 in the same respective order. Thus, the inflation rate in 2017 is equal to approximately
17%
39. One U.S. dollar is trading for 0.90 euros. One pound is trading for 1.5 euros. How many pounds would you get for $100?
60
40. You come across a photograph taken in year 1983. The photo displays a gas station with a gasoline price sign stating $0.76 per gallon. We could say that this price is quoted in __________ dollars. All of the choices below would make the previous statement correct, EXCEPT:
real dollars
41. Assume that you are presented with an analysis of a possible expansion project. In the analysis, projected net cash flows resulting from the expansion were discounted using the firm’s cost of capital. The net present value of the project was computed to be positive, and therefore the project was recommended to be accepted. In describing the assumptions made, the analyst revealed that the projected cash flows were based entirely on projected quantities sold and current input and product prices, ignoring future price increases likely to be caused by inflation. Which of the below is correct?
The analyst must make sure that real cost of capital was used as a discount rate in the calculation. If not, then the future cash flow estimates must be adjusted using higher future prices as indicated by the estimated inflation rate.
42. Assume you plan on exchanging dollars for yen and buy shares of common stock of a Japanese company directly on a Japanese stock exchange. Assume the stock does not pay dividends. If the price of the stock you bought is 8% higher next year, and dollar depreciates against yen by 10% over the same time period, then in terms of the dollar your rate of return is equal to approximately
18%
43. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78)
Thunder Ice Arena has purchased a new zamboni (ice resurfacer) for $67000. It will be depreciated over 6 years using the straight line depreciation method, with zero salvage value assumed at the end of year 6.
Assuming the ice arena decides to sell the zamboni after 3 years, and is able to sell it for $39000, what will be the after-tax cash amount collected from the sale? The tax rate is assumed to be 28%. DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
37460
44. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78. Make sure if the answer is negative that you include the negative sign in front of your answer, for example -10023)
Big Cone Ice Cream Inc. purchased a new cutting edge slush making machine for $11000. The machine will be depreciated, using the straight-line method, over 8 years to a zero salvage value. The new machine will result in additional annual revenues of $47000, and an annual increase in expenses of $28000. If the tax rate is 24%, what will be the annual after-tax cash flow from the machine? DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
14770
45. (NOTE: ENTER YOUR ANSWER WITHOUT THE $ AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78)
Pallavi receives $17000 from her uncle. She deposits the money in an account and leaves it there for 13 years. Assuming the account earns 7% interest rate, and the inflation rate is 1%, what is the balance in the account at the end of 13 years, expressed in real terms (in terms of today’s purchasing power)? Do not use any approximations in your calculations. DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
35996
46. (NOTE: ENTER YOUR ANSWER IN PERCENT, BUT WITHOUT THE % SIGN, rounded to 2 decimal places, for instance as 7.89, not as 7.89%, or not as 0.0789)
Assuming market interest rate is 7.3% and real interest rate is 3.9%, what is the rate of inflation? Use the exact relationship between the rates, not an approximation. Your answer needs to be exact! DO NOT ROUND IN YOUR CALCULATION STEPS (USE CALCULATOR MEMORY FUNCTIONS)
3.27
Other Links:
See other websites for quiz:
Check on QUIZLET