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WorksheetsWGU Finance Part 1
Total questions: 58
Worksheet time: 29mins
Trading on the NYSE is executed without a specialist (i.e. a market maker).
True
False
Stocks and bonds are two types of financial instruments
True
False
The matching principle in accrual accounting requires that
Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.
Expenses are matched to the year in which they are incurred
Revenues are matched to the year in which they are booked
. Revenues should be large enough to match expenses
. A high-quality customer just purchased $500,000 worth of product from your company. The contract calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been paid to your supplier. Under accrual based accounting system, you will most likely report:
revenues of $300,000 and expenses of $300,000.
revenues of $300,000 and expenses of $200,000.
revenues of $500,000 and expenses of $300,000.
revenues of $500,000 and expenses of $200,000.
5. A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3, the firm reports retained earnings of $400 and pays dividends of $25. What was net income in 20x3?
300
400
125
100
A basic equation for the balance sheet is:
Equity = Assets – Liabilities
Liabilities = Equity + Assets
Assets = Liabilities – Equity
Assets = Equity – Liabilities
Why is the Balance Sheet known as a permanent statement?
Because the statement is sent to the SEC.
Because the other statements are reset at the end of the fiscal year
Because it is printed out and archived
Because it persists in the minds of the shareholders.
How do you calculate the change in Retained Earnings?
Ending Retained Earnings – Change in Cash
EBIT divided by Total Assets + Dividends
EBIT – Change in Cash – Dividends
Net Income – Dividends
Which of the following is generally true?
Gross Profit and Operating Income are the same
Cost of Goods Sold + Operating Expenses = Net Income
Operating Income and EBIT are the same
EBIT + Income Taxes = Net income
Which Components are part of total assets?
Cash, Accounts Receivable, Short Term Debt
Cash Accounts Receivable, Inventory, Long-term Assets
Accounts Payable, Long Term Assets, Long Term Debt
Accounts Payable, Net Income, Equity
Which components are part of total assets?
Cash, Accounts Receivable, Short Term Debt
Cash Accounts Receivable, Inventory, Long Term Assets
Accounts Payable, Long Term Assets, Long Term Debt
Accounts Payable, Net Income, Equity
Which components are part of Total Liabilities?
Accounts Payable, Accounts Receivable, Short Term Debt
Long Term Debt, Common Stock, Retained Earnings
Bonds, Accounts Payable, Mortgage
Common Stock, Long Term Debt, Short Term Investments
Intel reported the following for 2014:
Net Income 100,000
Depreciation 20,000
Change in A/R 10,000
What is the cash flow from operating activities?
100,000
110,000
120,000
(130,00)
Intel reported the following for 2014:
Gross Equipment (1/1/14) 50,000
Gross Equipment (12/31/14) 65,000
Net income 100,000
Depreciation 20,000
What is the cash flow from investing activities for 2014?
100,000
80,000
(15,000)
15,000
What is the Cash Flow from Operations given the following information?
Net Income: 450,000
Change in Accounts Receivable: 120,000
Change in Inventory: -90,000
Change in PP&E: 60,000
Depreciation Expense: 110,000
Change in Accounts Payable: 50,000
Change in Accrued Expenses: - 75,000
Change in Common Stock: 300,000
$570,000
$410,000
$505,000
$375,000
What is the cash flow from Investing?
increase in Gross PP&E: 125,000
Beginning Net PP&E: 750,000
Ending Net PP&E: 850,000
Depreciation Expense: 25,000
850,000
125,000
150,000
75,000
What is the cash flow from investing?
Beginning Net PP&E: 250,000
Ending Net PP&E: 300,000
Depreciation Expense: 40,000
Change in Long term investments: 100,000
Change in Short Term Investments: 50,000
190,000
150,000
340,000
90,000
What is the cash flow from Financing
Accounts Payable: 100,000
Accrued Expenses: 50,000
Increase in Mortgage Payable: 300,000
Decrease in Bonds Payable: 75,000
Dividends Paid: 80,000
505,000
225,000
230,000
145,000
When Fixed Assets increase what happens to Cash?
Cash stays the same
Cash increases
Cash decreases
Assets decrease
Last year a firm recorded Net PP&E of $4,600 while this year the same firm recorded Net PP&E of $4,500. If the depreciation expense for last year and this year are $500 and $800 respectively, what is the CFI of the company? (assume no asset disposals)
100 outflow
900 outflow
100 inflow
700 outflow
Which is the purpose of the statement of cash flows?
serves as the replacement for the income statement and balance sheet
explains the change in cash balance at one point in time
explains the change in cash balance for one period of time
both a and b
Financial data for intel is given below for 2014:
EBIT 1,000,000
Depreciation 30,000
Change in working capital (10,000)
Net capital expenditures 15,000
tax rate 40%
Compute the Free Cash Flow for 2014
610,000
675,000
625,000
600,000
Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely?
The firm has lower liquidity than the industry average.
The firm has too much inventory thus impairing overall liquidity.
The firm has too little inventory resulting in lost sales or stock-outs.
The firm has low sales volume.
Intel provides the following data for 2014:
· A/R 600
· Inventory 800
· Fixed Assets 1,000
· A/P 500
· Long term debt 900
· Common Stock 400
What is the current ratio?
1.2
1.5
2.0
2.8
If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio?
higher
lower
the same
It doesn't matter
26. A company has cash of 100, accounts receivable of 250, inventory of 300, and accounts payable of 300. What is the quick ratio?
0.33
2.17
1.00
1.17
A company has cash sales of 200 and credit sales of 750. It’s average accounts receivable is 90. What is the A/R turnover? What is the Average Collection Period?
Turnover: 8.33 ACP: .694
Turnover: 10.56 ACP: 43.8
Turnover 8.33 ACP : 43.8
Turnover 10.56 ACP: 24.9
The OIROI (Operating Income Return on Investment) uses what elements on the income statement?
Operating Income, EBIT, Total Liabilities
EBIT, Total Assets
Sales, Total Assets, Equity
Net Margin, Total Current Assets
Why would a company be interested in the TAT (Total Asset Turnover) ratio?
How efficient assets are at producing income
What the turnover of sales is to liabilities
How efficient assets are at producing sales
How efficient assets are to liabilities and equity
If a company has current assets of 80 and fixed assets of 120, if Sales are 150 and EBIT is 35, what is the Fixed Asset Turnover?
5.71
2.29
.80
1.25
If a company has current assets of 90 and fixed assets of 140, if it has debt of 125, what is its debt ratio?
1.12
.54
1.36
1.84
A company has sales of 300, expenses of 200 and interest expense of 25, what is its Times Interest Earned ratio?
2.00
4.00
1.75
3.00
Suppose a firm has a financial leverage ratio of 2.50. What percentage of the firm’s assets is financed by equity?
40%
70%
50%
60%
What is the present value of a stream of cash flows of $125,000 at a discount rate of 7%?
875,000
1,552,667
1,785,714
1,250,000
What is the discount rate of a stream of cash flows of 50,000 that have a present value of 450,000?
.11
.10
.12
.75
What is the cash flow stream for a present value 1,000,000 at 5% paid in equal installments in the future?
35,000
50,000
500,000
20,000
A woman has just found out that a rich great-aunt has bequeathed a trust fund that pays $50,000 to her and to her descendants forever. If the trust fund earns 3.5% interest, what is the amount of the trust fund?
1,782,425
5,000,000
1,428,571
2,529,123
A couple wants to save up for a down payment on a house. They think they need to save 100,000 in five years. If the interest rate is 4% and they start at the end of the year when they both get bonuses from their employers, what do they have to put aside annually?
22,096.37
17,752.61
15,962.84
18,462.71
A person wants to put aside $500 at the beginning of each month for 10 years. If she estimates an interest rate of 5.5%, what will she have in her savings account at the end?
86,437.68
70,154.99
80,118.33
76,905.66
A couple has $25,000 in their retirement savings today. How many years do they have to save at 6%, putting in $1,000 at the beginning of each year to achieve $80,000?
20.0
34.8
22.2
36.7
A mother wants to help her child’s higher education fund. She wishes to have $15,000 available each year for six years. Her child starts college in 15 years and she can save 6% before school starts if she puts her end-of-year bonus into a trust fund and figures that the fund will earn 4% after her child begins her college education. What does she have to put aside annually if the money is withdrawn for college at the beginning of each year attending college?
5,802.74
3,346.19
4,159.87
3513.38
A man has just inherited $250,000. If he invests the money at 4.5%, what can he expect to have at the end of 15 years when he retires?
120,254.27
483,820.61
519,732.04
477,862.41
A company wishes to issue 10 year bonds with a face value of $1,000 and a coupon rate of 5.5%. The market has shifted before the issuance and the bonds will sell at 94% of face value. What is the YTM of the bonds when they are sold?
6.71%
5.50%
6.00%
6.33%
You want to buy a semiannual bond that has 4 years left before maturity. It has a 6% coupon rate and the market yield is currently 5.2%. What is the price you are willing to pay?
1253.89
1028.56
103413
868.95
What is the YTM for a 14-year semiannual bond that pays $35 every six months and has a purchase price of $980.00? Face value is $1,000.
3.75%
7.23%
3.61%
5.25%
What is the price of a 1- year $1,000 bond with a 3% coupon rate if the YTM is 5.2%?
952.48
1068.17
899.42
979.09
A 5% semiannual $1,000 bond matures in 4 years. What is the YTM if the price is $1,069?
1.58
2.92
1.75
3.15
You are interested in a quarterly $1,000 bond that matures in 7 years and has a coupon rate of 6% and a YTM of 8%. What is the price?
1033.21
895.87
901.36
893.59
You want to sell a bond for over $1,000. Can you do that if the coupon rate is 6.5% and the bond yield is 6.8%?
yes
no
You are contemplating buying an annual bond or a semi-annual bond. Is there any difference in the price if the bond has the same data: 1,000 face value with a 4% coupon rate. The bonds mature in 5 years having identical YTMs of 4.8%. Why is there a price difference?
There isn’t a price difference
The payment is lower, so the price will be lower
Price is higher with additional compounding periods
Different payments make the price increase
A $1000 3% bond with a yield of 2.4% matures in 6 years. What is the price if the interest payments are made semiannually?
1,033.34
950.26
1056.20
981.29
An investor wants to maximize the YTM. Which bond would they choose? Bond 1 has a price of $954 with a coupon rate of 7% and a maturity of 4 years. Bond 2 has a price of $972 with a coupon rate of 6.5 percent and a maturity of 6 years. Both have a face value of $1,000 and the coupon payments are paid semiannually.
Bond 1: 8.38 Bond 2: 7.08
Bond 1: 4.17 Bond 2: 3.54
Bond 1: 5.22 Bond 2: 7:08
Bond 1: 8.38 Bond 2: 3.54
53. What is the price of a six-year $1,000 bond with a coupon rate of 7.4% and a YTM of 6.2% that has semiannual payments?
1425.70
1059.37
1003.20
1023.48
An investor wants to make 5% YTM on a bond that is $1,000 face value with a coupon rate of 4.2%. What price would the investor pay if the bond payments are quarterly and the bond matures in 5 years.
967.36
976.42
964.80
955.40
A bond issued with a face value of $1,000 pays a 6% coupon rate semiannually. It matures in four years. Current market interest is 7.5% What is the price?
948.98
949.76
952.43
1051.87
A bond issued with a face value of $1,000 pays a 3% coupon rate and matures in seven years. If an investor wants a yield of 4%, what is the investor willing to pay for the bond?
939.46
1067.04
1033.32
939.98
An investor wants to know what the yield to maturity is for a $1,000 bond with a 5.5% coupon rate that matures in 5 years if the current market price is $955?
7.23
6.59
6.33
6.62
A $1,000 bond matures in six years. It pays $35 every six months. The current market price is 1,075. What is the yield?
2.76
3.12
5.51
6.03
