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Answered: - Need some help understanding some of these concepts. Help

Need some help understanding some of these concepts.? Help detailing them out to understand these would be helpful for upcoming exams.?

1. Refer to the following financial statements:

a. What was the debt-to-equity ratio as of 2008?

b. How many days on average did it take Bayside to sell its inventory? (Use 2008

values)

c. What was the ROE for the company in 2008?

d. What was the equity multiplier for the company in 2008?

2. If you have a choice to earn simple interest on $10,000 for six years at 8% or

annually compounded interest at 7.5% for six years which one will pay more

and by how much?

3. You just won the lottery! As your prize you will receive $1,500 a week for 10

years. If you can earn 8% on your money, what is this prize worth to you

today?

4. You are the beneficiary of a life insurance policy. The insurance company

informs you that you have two options for receiving the insurance proceeds.

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You can receive a lump sum of $50,000 today or receive payments of $641 a

month for ten years. You can earn 6.5% on your money. Which option should

you take and why?

5. What is the present value of $1,100 per year, at a discount rate of 10 percent

if the first payment is received 10 years from now and the last payment is

received 30 years from now?

6. Your employer contributes $150 a week to your retirement plan. Assume that

you work for your employer for another 30 years and that the applicable

discount rate is 5.2 percent. Given these assumptions, what is this employee

benefit worth to you today?

7. You plan on saving $5,200 this year, nothing next year, and $7,500 the

following year. You will deposit these amounts into your investment account

at the end of each year. What will your investment account be worth at the

end of year three if you can earn 8.5 percent on your funds?

8. Kaiser Industries has bonds on the market making semi-annual payments,

with 14 years to maturity, and selling for $1,382.01. At this price, the bonds

yield 7.5 percent. What is the coupon rate?

9. You have $2,500 that you want to use to open a savings account. You have

found five different accounts that are acceptable to you. All you have to do

now is determine which account you want to use such that you can earn the

highest rate of interest possible. Which account should you use? Why? Show

your calculations. (Hint: EAR)

Account

A

B

C

D

E

APR

3.75%

3.70%

3.70%

3.65%

3.66%

Compounding Frequency

Annual

Monthly

Semi-annual

Daily

Quarterly

2

10. Best Lodging has $1,000 face value bonds outstanding. These bonds pay

interest semiannually, mature in 8 years, and have a 6 percent coupon. The

current price is quoted at $1,110. What is the yield to maturity?

11. The Stiller Corporation will pay a $3.80 per share dividend next year. The

company pledges to increase its dividend by 2.4 percent indefinitely. How

much are you willing to pay to purchase this company's stock today if you

require a 6.9 percent return on your investment?

12. Margie opened a used book store and is both the 100 percent owner and the

store's manager. Which type of business entity does Margie own if she is

personally liable for all the store's debts?

A. Sole proprietorship

B. Limited partnership

C. Corporation

D. Joint stock company

E. General partnership

13. The primary goal of financial management is to maximize the:

A. current net income

B. net working capital

C. the number of shares outstanding

D. value of the firm

E. revenue growth

14. An agency problem is prone to exist in public corporations because:

A. of the size of the operations

B. operations are frequently spread over various geographic locations

C. management and owners have different incentives

D. managers are always dissatisfied employees

E. public corporations are mostly headquartered in New York

15. Tim has been promoted and is now in charge of all fixed asset purchases. In

other words, Tim is in charge of:

A. capital structure management

B. asset allocation

C. risk management

D. capital budgeting

E. working capital management

16. Todd will be receiving a $10,000 bonus one year from now. The process of

determining how much that bonus is worth today is called:

A. aggregating

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B. discounting

C. simplifying

D. compounding

E. extrapolating

17. Which one of the following transactions occurred in the primary market?

A. Maria gave 100 shares of Alto stock to her best friend.

B. Gene purchased 300 shares of Alto stock from Ted.

C. South Wind Products sold 1,000 shares of newly issued stock to

Mike.

D. Terry sold 3,000 shares of Uno stock to his brother.

E. The president of Trecco, Inc. sold 500 shares of Trecco stock to his

son.

18. Sara is investing $1,000 today. Which one of the following will increase the

future value of that amount?

A. Shortening the investment time period

B. Paying interest only on the principal amount

C. Paying simple interest rather than compound interest

D. Paying interest only at the end of the investment period rather than

throughout the investment period

E. Increasing the interest rate

19. Janis just won a scholarship that will pay her $500 a month, starting today,

and continuing for the next 48 months. Which one of the following terms best

describes these scholarship payments?

A. Ordinary annuity

B. Annuity due

C. Consol

D. Ordinary perpetuity

E. Perpetuity due

20. Which one of the following is an example of a perpetuity?

A. Income of $1,200 a year forever from a trust fund

B. Retirement pay of $2,200 a month for 20 years

C. Lottery winnings of $1,000 a month for life

D. Car payment of $260 a month for 60 months

E. Apartment rent payment of $800 a month for one year

21. When you discount money you are:

A. agreeing to invest funds at a lower than normal rate of interest

B. computing the present value of a future cash flow

C. offering to accept less value than that to which you are entitled

D. stating the rate of interest you require to invest your funds

E. calculating the future value of a present cash flow

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22. You are comparing two annuities which offer monthly payments for ten

years. Both annuities are identical with the exception of the payment dates.

Annuity A pays on the first of each month while annuity B pays on the last

day of each month. Which one of the following statements is correct

concerning these two annuities?

A. Both annuities are of equal value today.

B. Annuity B is an annuity due.

C. Annuity A has a higher future value than annuity B.

D. Annuity B has a higher present value than annuity A.

E. Both annuities have the same future value as of ten years from

today.

23. Kate wants to invest $1,000 for five years. Which one of the following will

provide her with the smallest future value?

A. 6 percent simple interest

B. 6 percent interest, compounded daily

C. 6 percent interest, compounded monthly

D. 6 percent interest, compounded semi-annually

E. 6 percent interest, compounded annually

24. Which one of the following is a capital structure decision?

A. determining which one of two projects to accept

B. determining how to allocate investment funds to multiple projects

C. determining the amount of funds needed to finance customer

purchases of a new product

D. determining how much debt should be assumed to fund a project

E. determining how much inventory will be needed to support a

project

25. Which one of the following is classified as an intangible fixed asset?

A. accounts receivable

B. production equipment

C. building

D. trademark

E. inventory

26. Which one of the following represents the most liquid asset?

A. $100 account receivable that is discounted and collected for $96

today

B. $100 of inventory which is sold today on credit for $103

C. $100 of inventory which is discounted and sold for $97 cash today

D. $100 of inventory that is sold today for $100 cash

E. $100 accounts receivable that will be collected in full next week

5

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