1.What is the future value of $700 deposited for one year earning 4 percent interest rate annually?
$728
2. A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm’s inventory stay on the premises?
127.75 days
3. Market Value versus Book Value Acme Bricks balance sheet lists net fixed assets as $40 million. The fixed assets could currently be sold for $50 million. Acme’s current balance sheet shows current liabilities of $15 million and net working capital of $12 million. If all the current accounts were liquidated today, the company would receive $77 million cash after paying $15 million in liabilities. What is the book value of Acme’s assets today? What is the market value of these assets?
$67 million, $142 million
4. You are considering a stock investment in one of two firms (A and B), both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the debt-to-equity ratio for the two firms.
Firm A: 9 times; Firm B: 0.11 times
5. You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9 percent each on your money, how much (in dollars) of the $32,000 must you invest today?
The correct answer is: $20,692.24
6. What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
The correct answer is: $1,197.81
7. Balance Sheet Jack and Jill Corporation’s year-end 2013 balance sheet lists current assets of $250,000, fixed assets of $800,000, current liabilities of $195,000, and long-term debt of $300,000. What is Jack and Jill’s total stockholders’ equity?
The correct answer is: $555,000
8. Joey realizes that he has charged too much on his credit card and has racked up $3,000 in debt. If he can pay $150 each month and the card charges 18 percent APR (compounded monthly), how long will it take him to pay off the debt?
The correct answer is: 23.96 months
9. Assume you deposit $200 in an account at 5% interest rate and leave it in the account for four years. In year 4, the interest on previously received interest component will be equal to
The correct answer is: $3.10
10. A $400 investment has doubled to $800 in six years because of a 12.25 percent return. How much longer will it take for the investment to reach $1100 if it continues to earn 12.25 percent?
The correct answer is: 2.76 years
11. Assume you currently have $3,000. If you deposit this money in a bank account at an annual interest rate of 4%, and in addition deposit $1000 at the end of each year for the next 5 years, how much will you have in the account after 5 years?
The correct answer is: $9,066
12. Free Cash Flow The 2013 income statement for Betty’s Barstools shows that depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million. At the end of the year, the balance of gross fixed assets was $510 million. The increase in net operating working capital during the year was $94 million. Betty’s free cash flow for the year was $625 million. What was the beginning of year balance for gross fixed assets?
The correct answer is: $849 million
13. As the production manager of HPG, Inc., you have received an offer from the supplier who provides the wires used in headsets. Due to poor planning, the supplier has an excess amount of wire and is willing to sell $750,000 worth for only $600,000. You already have one year’s supply of wire on hand. This new wire would be used one year from today. What implied interest rate would your firm be earning if you purchased the wire?
The correct answer is: 25 percent
14. Which of the below is the best description of the concept of Free Cash Flows?
The correct answer is: The amount of cash that can be paid out to investors, while allowing for necessary investments to support the future activities of the business.
15. When computing the future value of an annuity, the higher the compound frequency,
The correct answer is: the higher the future value will be.
16. A strong liquidity position means that ______________.
The correct answer is: the firm is able to meet its short-term obligations
17. Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.
The correct answer is: 12.00 percent
18. The cash paid in capital expenditures to improve fixed assets, listed on the cash flow statement, can best be computed as
The correct answer is: Gross fixed assets from this year minus gross fixed assets from last year.
19. For corporations, maximizing the value of owner’s equity can also be stated as
The correct answer is: maximizing the stock price.
20. You borrow $10,000 and will pay back the entire amount in 10 years. You are charged 6 percent interest per year. How much interest do you pay on this loan?
The correct answer is: $7,908.48
21. Samantha opened a savings account this morning. Her money will earn 5 percent interest. After five years, her savings account will be worth $5,600. Assume she will not make any withdrawals. Given this, which one of the following statements is true?
The correct answer is: Samantha could have deposited less money and still had $5,600 in five years if she could have earned 5.5 percent interest.
22. In the financial crisis that started in 2006, a significant indicator of the U.S. economic decline was:
The correct answer is: rising defaults by subprime mortgage borrowers.
23. Free Cash Flow The 2013 income statement for Betty’s Barstools shows that depreciation expense is $100 million, EBIT is $400 million, and taxes are $120 million. At the end of the year, the balance of gross fixed assets was $510 million. The increase in net operating working capital during the year was $94 million. Betty’s free cash flow for the year was $625 million. What was the beginning of year balance for gross fixed assets?
The correct answer is: $849 million
24. An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in 5 years?
The correct answer is: $341,985.85
25. Lemmon Inc. lists fixed assets of $100 on its balance sheet. The firm’s fixed assets have recently been appraised at $140. The firm’s balance sheet also lists current assets at $15. Current assets were appraised at $16.50. Current liabilities book and market values stand at $12 and the firm’s long-term debt is $40. Calculate the market value of the firm’s stockholders’ equity.
The correct answer is: $104.50
26. The calculation of free cash flow attempts to estimate
The correct answer is: The amount of cash generated by the company that could be distributed to investors without jeopardizing future operations of the company.
27. Which of the below IS NOT included in the calculation of operating income?
The correct answer is: Interest expense
28. negative free cash flows would be the biggest worry for investors of
The correct answer is: A mature company.
29. Which of the following is a use of cash?
The correct answer is: The firm decreases its accrued wages and taxes.
30. Common Equity consists of the following accounts
The correct answer is: Common stock and retained earnings
31. Which of the below represents a cash outflow?
The correct answer is: A decline in accounts payable
32. Which of the activities below is the most likely to result in a series of depreciation expenses over time?
The correct answer is: Acquisition of an office computer.
33. Net Working Capital is computed as
The correct answer is: Current assets minus current liabilities.
34. An income statement shows
The correct answer is: The performance of a company over a period of time.
35. Having more debt relative to equity in the capital structure is good for shareholders at the time
The correct answer is: When their company is making lots of profit.
36. Which of the following is a use of cash?
The correct answer is: The firm decreases its accrued wages and taxes.
37. Financial statements of a corporation can be typically found in
The correct answer is: The annual report.
38. Which of the below represents a cash outflow?
The correct answer is: A decline in accounts payable
39. A balance sheet shows
The correct answer is: The financial position of the company.
40. Which of the activities below is the most likely to result in a series of depreciation expenses over time?
The correct answer is: Acquisition of an office computer.
41. If a company reports a large amount of net income on its income statement during a year, the firm will have
The correct answer is: Any of these scenarios are possible.
42. The cash paid in capital expenditures to improve fixed assets, listed on the cash flow statement, can best be computed as
The correct answer is: Gross fixed assets from this year minus gross fixed assets from last year.
43. Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time—generally one year?
The correct answer is: Income statement
44. All of the statements below are correct EXCEPT:
The correct answer is: Market stock price is useful because it is used to adjust the value of equity on the balance sheet so that the correct market value is provided in the common stock account.
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