Principles of Managerial Finance Spring 2017 Section 6 2:30 TR Exam 1 VERSION A BE SURE TO PUT THE SECTION NUMBER AND VERSION ON YOUR SCANTRON FORM

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1 FIN 301 Prof. Thistle Principles of Managerial Finance Spring 2017 Section 6 2:30 TR Exam 1 VERSION A BE SURE TO PUT THE SECTION NUMBER AND VERSION ON YOUR SCANTRON FORM

2 FIN 301 Prof. Thistle Principles of Managerial Finance Spring 2017 Section 6 2:30 TR Exam 1 VERSION A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) All of the following operate as financial intermediaries EXCEPT 1) A) public universities. B) insurance companies. C) mutual funds. D) commercial banks. 2) Which of the following financial instruments entails the most risk and potentially the highest returns for investors? 2) A) Common stock B) Debt with a maturity of less than one year C) Preferred stock D) Bonds 3) Which of the following is true about bonds? 3) A) They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year. B) Their interest rate always varies with the Consumer Price Index. C) At maturity of the bond, the investor receives the market price of the bond. D) They are obligations from the investor to the corporation. 4) Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firmʹs net income? 4) A) $7,775,000 B) $255,223 C) $2,616,000 D) $4,721,000 1

3 Table 1 Smith Company Balance Sheet and selected Income Statement data Assets: Cash and marketable securities $300,000 Accounts receivable 2,215,000 Inventories 1,837,500 Prepaid expenses 24,000 Total current assets $3,286,500 Fixed assets 2,700,000 Less: accumulated depreciation 1,087,500 Net fixed assets $1,612,500 Total assets $4,899,000 Liabilities: Accounts payable $240,000 Notes payable 825,000 Accrued taxes 42,500 Total current liabilities $1,107,000 Long term debt 975,000 Ownerʹs equity 2,817,000 Total liabilities and ownerʹs equity $4,899,000 Net sales (all credit) $6,375,000 Less: Cost of goods sold 4,312,500 Selling and administrative expense 1,387,500 Depreciation expense 135,000 Interest expense 127,000 Earnings before taxes $412,500 Income taxes 225,000 Net income $187,500 Common stock dividends $97,500 Change in retained earnings $90,000 5) Based on the information in Table 1, the net profit margin is 5) A) 2.94%. B) 5.33%. C) 4.61%. D) 1.97%. 6) Based on the information in Table 1, the debt ratio is 6) A) B) C) D) ) Based on the information in Table 1, the current ratio is 7) A) B) C) D) ) Which of the basic financial statements is best used to answer the questions ʺWhat does the company own and how is it financed?ʺ 8) A) Balance sheet B) Statement of shareholderʹs equity C) Income statement D) Cash flow statement 2

4 9) Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firmʹs EBIT? 9) A) $58,000,000 B) $15,552,000 C) $5,110,000 D) $4,630,000 10) If you want to have $1,700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly (round to the nearest $10). 10) A) $1,130 B) $1,140 C) $1,110 D) $1,120 11) If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10%, and round to the nearest $10. 11) A) $8,300 B) $9,700 C) $9,100 D) $8,900 12) A friend plans to buy a big screen TV/entertainment system and can afford to set aside $1,320 toward the purchase today. If your friend can earn 5.0%, compounded yearly, how much can your friend spend in four years on the purchase? Round off to the nearest $1. 12) A) $1,444 B) $1,604 C) $1,283 D) $1,764 13) A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 12% of the unpaid balance. What is the amount of the monthly payments? 13) A) $ B) $ C) $ D) $ ) Which of the basic financial statements is best used to answer the question, ʺHow profitable is the business?ʺ 14) A) Income statement B) Statement of shareholderʹs equity C) Accounts receivable aging schedule D) Balance sheet 15) What is the present value of $27 received at the end of each year for five years? Assume a discount rate of 9%. The first payment will be received one year from today (round to the nearest $1). 15) A) $88 B) $105 C) $114 D) $42 16) You are considering the purchase of XYZ Companyʹs common stock which will pay a $1.00 per share dividend one year from the date of purchase. The dividend is expected to grow at the rate of 4% per year. If the appropriate discount rate for this investment is 14%, what is the price of one share of this stock? 16) A) $25.00 B) $7.14 C) $10.00 D) Cannot be determined without maturity date 3

5 17) Which of the following best describes the goal of the firm? 17) A) Risk minimization B) Profit maximization C) The maximization of the total market value of the firmʹs common stock D) None of the above 18) What is the value on 1/1/14 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $1.00. Date Cash Received Amount of Cash 1/1/16 $100 1/1/17 $200 1/1/18 $300 1/1/19 $400 1/1/20 $500 18) A) $880 B) $968 C) $1,065 D) $1,500 19) Which of the following is most likely to motivate executives to maximize shareholder wealth? 19) A) Compensating them with stock options that can only be exercised after five years B) Tying annual bonuses to increases in annual profits C) Tying bonuses to cost reductions and meeting budget goals D) Offering them relatively high salaries 20) Which of the following statements best represents what finance is about? 20) A) How political, social, and economic forces affect corporations B) The study of how people and businesses make investment decisions and how to finance those decisions C) Reducing risk D) Maximizing profits 21) The principal reason for preparing common size statements is 21) A) to make meaningful comparisons between firms that are not the same size. B) to eliminate the effects of inflation. C) to make meaningful comparisons between firms in different industries. D) to make meaningful comparisons between different fiscal years. 22) You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment? 22) A) 19% B) 4.7% C) 47% D) 12.8% 23) The market for short term debt is known as 23) A) the bond market. B) the notes market. C) the capital market. D) the money market. 24) What is the annual compounded interest rate of an investment with a stated interest rate of 6% compounded quarterly for seven years (round to the nearest.1%)? 24) A) 6.1% B) 51.7% C) 10.9% D) 6.7% 4

6 25) Your firm has the following balance sheet statement items: total current liabilities of $805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long term debt of $200,000. What is the amount of the firmʹs net working capital? 25) A) $25,000 B) $325,000 C) $770,000 D) $80,000 26) Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firmʹs gross profit? 26) A) $5,000,110 B) $18,000,000 C) $6,632,000 D) $15,225,000 27) If you invest $750 every six months at 8% compounded semi annually, how much would you accumulate at the end of 10 years? 27) A) $10,193 B) $21,731 C) $22,334 D) $10,065 28) The true owners of the corporation are the 28) A) board of directors of the firm. B) preferred stockholders. C) common stockholders. D) holders of debt issues of the firm. 29) Financial managers use the time value of money to 29) A) compare cash flows of different projects. B) make business decisions. C) determine the price of common stock. D) both A and B. E) all of the above. 30) Which of the following parties would be interested in an analysis of the firmʹs financial statements? 30) A) Investors B) Creditors C) The firmʹs managers D) all of the above 31) What is the present value of a 5 year ordinary annuity with annual payments of $200 (at the end of each year), evaluated at a 15 percent interest rate? A) $ B) $ C)$1, D) $1, ) An investment offers a 7% annual rate for the next 5 years. In order to maximize the future value of your investment, which of the following do you prefer? A) Daily compounding. B)Monthly compounding. C) Quarterly (every 3 months) compounding. D) Annual compounding. 5

7 1) A 2) A 3) A 4) C 5) A 6) A 7) C 8) A 9) C 10) D 11) C 12) B 13) C 14) A 15) B 16) C 17) C 18) B 19) A 20) B 21) A 22) A 23) D 24) A 25) D 26) D 27) C 28) C 29) D 30) D 31) A 32) A 6

Principals of Managerial Finance Fall 2017 EXAM 1 VERSION B

FIN 301 Prof. Thistle Principals of Managerial Finance Fall 2017 EXAM 1 VERSION B MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A friend plans