1. Other things held constant, which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities.) (Points : 5)

Fixed assets are sold for cash.

Cash is used to purchase inventories.

Cash is used to pay off accounts payable.

Accounts receivable are collected.

Long-term debt is issued to payoff a short-term bank loan.

2. Which of the following groups probably would not be interested in the financial statement analysis of a firm? (Points : 5)

creditors

management of the firm

stockholders

Internal Revenue Service

All of the above would be interested in the financial statement analysis.

3. Which of the following statements shows the portion of the firm’s earnings that has been saved rather than paid out as dividends? (Points : 5)

balance sheet

income statement

statement of retained earnings

statement of cash flows

proxy statement

4. Aurillo Equipment Company (AEC) projected that its ROE for next year would be just 6%. However, the financial staff has determined that the firm can increase its ROE by refinancing some high interest bonds currently outstanding. The firm’s total debt will remain at $200,000 and the debt ratio will hold constant at 80%, but the interest rate on the refinanced debt will be 10%. The rate on the old debt is 14%. Refinancing will not affect sales which are projected to be $300,000. EBIT will be 11% of sales, and the firm’s tax rate is 40%. If AEC refinances its high interest bonds, what will be its projected new ROE? (Points : 5)

3.0%

8.2%

10.0%

15.6%

18.7%

5. You are given the following information about a firm: The growth rate equals 8 percent; return on assets (ROA) is 10 percent; the debt ratio is 20 percent; and the stock is selling at $36. What is the return on equity (ROE)? (Points : 5)

14.0%

12.5%

15.0%

2.5%

13.5%

6. All other things constant, an increase in a firm’s profit margin would (Points : 5)

increase the additional funds needed for financing a growth in operations.

decrease the additional funds needed for financing a growth in operations.

have no effect on the additional funds needed for financing a growth in operations.

decrease its taxes.

none of the above.

7. As the discount rate increases without limit, the present value of the future cash inflows (Points : 5)

Gets larger without limit.

Stays unchanged.

Approaches zero.

Gets smaller without limit, i.e., approaches minus infinity.

Goes to ern.

8. What is the effective annual return (EAR) for an investment that pays 10 percent compounded annually? (Points : 5)

equal to 10 percent

greater than 10 percent

less than 10 percent

This question cannot be answered without knowing the dollar amount of the investment.

None of the above is correct.

9. Everything else equal, which of the following conditions will result in the lowest present value of an amount to be received in the future? (Points : 5)

annual compounding

quarterly compounding

monthly compounding

daily compounding

10. You have the opportunity to buy a perpetuity which pays $1,000 annually. Your required rate of return on this investment is 15 percent. You should be essentially indifferent to buying or not buying the investment if it were offered at a price of (Points : 5)

$5,000.00

$6,000.00

$6,666.67

$7,500.00

$8,728.50

11. Assume that you can invest to earn a stated annual rate of return of 12 percent, but where interest is compounded semiannually. If you make 20 consecutive semiannual deposits of $500 each, with the first deposit being made today, what will your balance be at the end of Year 20? (Points : 5)

$52,821.19

$57,900.83

$58,988.19

$62,527.47

$64,131.50

12. A bank pays a quoted annual (simple) interest rate of 8 percent. However, it pays interest (compounds) daily using a 365-day year. What is the effective annual rate of return? (Points : 5)

7.86%

7.54%

8.57%

8.33%

9.21%

13. If you buy a factory for $250,000 and the terms are 20 percent down, the balance to be paid off over 30 years at a 12 percent rate of interest on the unpaid balance, what are the 30 equal annual payments? (Points : 5)

$20,593

$31,036

$24,829

$50,212

$6,667

14. You are given the following cash flows. What is the present value (t = 0) if the discount rate is 12 percent?

(Points : 5)

$3,277

$4,804

$5,302

$4,289

$2,804

## Please Help With My Finance Test?

May 28th, 2013 admin