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WorksheetsCorp Fin exam 2
Total questions: 83
Worksheet time: 14hrs 50mins
Pressure to increase current asset buildup often results from:
a decline in sales growth.
rapidly expanding sales.
increased demands of short-term creditors.
None of the options are true.
Working capital management is primarily concerned with the management and financing of:
cash and inventory only.
current assets and current liabilities.
current assets.
receivables and payables.
A financial executive devotes the most time to:
long-range planning.
capital budgeting.
short-term financing.
working capital management.
The concept of a self-liquidating asset implies that:
the working capital associated with a product will be liquidated within a one-year period.
all the product will be sold, receivables collected, and bills paid over the time period specified.
assets associated with the production of a product will be liquidated over the depreciable life of the assets.
self-liquidating assets will be financed by long-term sources of capital.
Companies that sell electricity are characterized by
fluctuating production to match sales.
seasonal sales.
low inventories due to computer inventory management.
fluctuating production to match sales and seasonal sales.
When actual sales are greater than forecasted sales
A) inventory will decline.
B) production schedules might have to be revised upward.
C) accounts receivable will rise.
D) All of the options are true.
A conservatively financed firm would
use long-term financing for all fixed assets and short-term financing for all other assets.
finance a portion of permanent assets and short-term assets with short-term debt.
use equity to finance fixed assets, use long-term debt to finance permanent assets, and use short-term debt to finance fluctuating current assets.
use long-term financing for three items: permanent current assets, fixed assets, and a portion of the short-term fluctuating assets. Then use short-term financing for all other short-term assets.
The term structure of interest rates
is an indication of investors' expectations about inflation and future interest rates.
will be downward sloping if short-term interest rates are higher than long-term rates.
will be upward sloping under normal conditions.
All of the options are true.
Which of the following statements regarding yield curves is true?
A) Yields on corporate debt securities will move in the same direction as government securities.
B) Yields on corporate debt securities are considered a greater financial risk and will have higher interest rates than government debt securities.
C) Yield curves for corporate securities change daily to reflect current competitive conditions.
D) All of the options above are correct.
The term structure of interest rates is influenced by
inflation.
money supply.
Federal Reserve activities.
All of the options are correct.
The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the
expectations hypothesis.
market segmentation theory.
liquidity premium theory.
market credit crunch theory.
Yield curves change daily to reflect
changing conditions in the money and capital markets.
new inflation expectations.
changing conditions in the overall economy.
All of the options are correct.
Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the
expectations hypothesis.
market segmentation theory.
liquidity premium theory.
theory of industry supply and demand for bonds.
An inverted yield curve would suggest that
interest rates are expected to rise.
interest rates are expected to fall.
inflation is expected to rise in the future.
long-term rates are being pushed up by Federal Reserve policy.
Kuznets Rental Center requires $500,000 in financing over the next two years. Kuznets can borrow long-term debt at 8 percent interest per year for two years. Alternatively, Kuznets can borrow short-term debt at 6 percent interest in the first year and 9 percent interest in the second year. Assuming Kuznets pays off the interest at the end of each year, which of the following statements is true?
Kuznets will end up paying more in total interest under the long-term financing plan.
Kuznets will end up paying less in total interest under the long-term financing plan.
Kuznets will pay less in the first year under the long-term financing plan.
Kuznets will pay less in the second year under the short-term financing plan.
An aggressive, risk-oriented firm will likely borrow
long-term and carry low levels of liquidity.
short-term and carry low levels of liquidity.
long-term and carry high levels of liquidity.
short-term and carry high levels of liquidity.
Risk exposure due to heavy short-term borrowing can be compensated for by carrying:
highly liquid assets.
many illiquid assets.
longer term, more profitable current assets.
more receivables to increase cash flow.
An aggressive working capital policy would have which of the following characteristics?
A high ratio of long-term debt to fixed assets
A low ratio of short-term debt to fixed assets
A high ratio of short-term debt to long-term sources of funds
A short average collection period
The following are the expected one-year T-bill rates for the next four years: 3%, 4%, 5%, and 6%. According to the basic model of the expectations hypothesis, what would you expect the rate for three-year securities to be?
4%
4.5%
6%
3.75%
The following are the expected one-year T-bill rates for the next four years: 2%, 3%, 4%, and 5%. According to the basic model of the expectations hypothesis, what would you expect the rate for four-year securities to be?
4.5%
4.25%
3%
3.5%
Riley Company is considering a short-term or long-term financing plan of $4,000,000 assets. It expects the following one-year interest rates over the next three years: 6.5%, 7.75%, and 9%. The long-term interest rate will be 7.5% during those three years. What will be the difference in interest costs over the three years?
Long-term interest will be $630,000 more than short-term interest.
Long-term interest will be $30,000 less than short-term interest.
Long-term interest will be $140,000 less than short-term interest.
None of the options are true.
Genetech has $4,000,000 in assets. It has decided to finance 30% with long-term financing (9% rate) and 70% with short-term financing (7%) rate. What will be its annual interest costs?
$78,000
$126,000
$440,000
$304,000
Genetech has $5,000,000 in assets. It has decided to finance 20% with long-term financing (8% rate) and 80% with short-term financing (7%) rate. Assuming a 21% tax rate, what will its annual after-tax interest costs be?
$181,000
$247,000
$282,400
$284,400
Genetech has $4,000,000 in assets. It has decided to finance 30% with long-term financing (9% rate) and 70% with short-term financing (7%) rate. Assuming a 21% tax rate, what will its annual after-tax interest costs be?
$147,000
$182,400
$240,160
When the yield curve is downward sloping, generally a financial manager should:
expect an economic boom.
utilize long-term financing.
increase investment and the level of financing overall.
utilize short-term financing.
Under what conditions must a distinction be made between money to be received today and money to be received in the future?
A period of recession
When idle money can earn a positive return
When there is no risk of nonpayment in the future
When current interest rates are different from expected future rates
As the compounding rate becomes lower and lower, the future value of inflows approaches:
0.
the present value of the inflows.
infinity.
More information is needed to answer the question.
Time value of money considers which of the following item(s) that change the value of money?
Inflation
Interest
Currency changes
If you invest $10,000 today at 10% interest, how much will you have in 10 years?
$13,860
$25,940
$3,860
$80,712
In determining the future value of a single amount, one must consider the
periodic payments at a given interest rate and time.
future value at a given interest rate and time.
future periodic payments discounted at a given interest rate and time.
present value at a given interest rate and time.
As the discount rate becomes higher and higher, the present value of inflows approaches
0.
minus infinity.
plus infinity.
More information is needed.
How much must you invest today at 8% interest in order to see your investment grow to $8,000 in 10 years?
$3,070
$3,704
$3,105
$17,272
How much must you invest today at 10% interest in order to see your investment grow to $5,000 in 3 years?
$3,050
$3,555
$7,105
$3,755
To save for her newborn son’s college education, Lea will invest $1,000 at the end of each year for the next 20 years. The interest rate is 10%. What is the future value?
$8,514
$2,980
$63,440
$57,275
To save for a new car, Samuel will invest $3,000 at the end of each year for the next 5 years. The interest rate is 8%. What is the future value?
$15,000
$2,980
$17,601
$13,518
The interest factor (IF) for the future value of an ordinary annuity is 4.641 at 10% for four years. If we wish to accumulate $8,000 by the end of four years, how much should the annual payments be?
$2,500
$2,000
$1,724
$37,128
Ethan is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?
$4,212
$12,263
$5,000
$5,637
Isaac invests $5,000 in a money market account at his local bank. He receives annual interest of 8% compounded for four years. How much total return will his investment earn during this time period?
$3,675
$1,800
$6,254
$8,570
Tanner wants to buy a Dell computer that will cost $3,000 three years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn an 8% annual return. How much should he set aside at the end of each year?
$627
$924
$9.738
Oz wants to build a house in ten years. He estimates that the total cost will be 150,000.Ifhecanputaside 10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?
Between 8% and 10%
Between 6% and 8%
Above 10%
Between 4% and 6%
Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars?
Present value of an annuity
Present value of a single amount
Future value of an annuity
Future value of a dollar
Jayden is selling his house for 200,000.Heboughtitfor 164,000 ten years ago. What is the annual return on his investment?
2%
Between 3% and 4%
10%
Less than 1%
Mr. Bubble wants to sell his bubble machine for 1,000,000,butitmighttakeawhilebeforeitisvaluedthathigh.Heboughtitfor 149,000 and is earning annual interest of 10% on the machine. How long will Mr. Bubble have to wait before the machine is valued at $1,000,000?
About 20 years
About 10 years
About 30 years
About 15 years
Increasing the number of periods will increase all of the following except:
the present value of an annuity.
the present value of $1.
the future value of $1.
the future value of an annuity.
Kenya has 210,000andwantstoretire.Whatapproximatereturnmusthermoneyearnsoshemayreceiveannualbenefitsof 30,000 for the next 10 years?
Greater than 10%
Between 8% and 10%
Between 6% and 8%
Lower than 6%
Beck borrowed $150,000 to buy a house. His loan cost was 16% annually because of his bad credit score. He promised to repay the loan in 5 years on a quarterly basis. How much are the quarterly payments?
$11,453
$45,811
$13,113
$11,038
A home buyer signed a 20-year, 8% mortgage for $72,500. How much should the annual loan payments be?
$7,358.40
$6,500.00
$8,200.00
$5,900.00
A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement, you will have $73,425. The plan anticipates earning 8% interest. Given the following information, how much will you be able to take out on an annual basis while you are retired?
$1,435
$13,070
$7,479
$13,102
After 10 years, some shares of stock originally purchased for 500totalweresoldfor 900 total. What was the yield on the investment? Choose the closest answer.
10%
4%
8%
6%
Sureka has just invested 10,000forherdaughter(age7).Themoneywillbeusedforherdaughter′seducation10yearsfromnow.Shecalculatesthatshewillneed 21,598 for her daughter's education by the time she goes to school. What rate of return will Sureka need to achieve this goal? Choose the closest answer.
10%
8%
4%
The future value of a $500 investment today at 8% annual interest compounded semiannually for five years is
$805.
$814.
$740.
$923.
Asher would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest in each of the following years to achieve his goal?
$13,241
$133,239
$10,727
$52,450
Sydney saved $10,000 during her first year of work after college and plans to invest it for her retirement in 20 years. How much will she have available for retirement if she can make 8% on her investment?
$2,150
$457,620
$46,610
$217,250
Ezra would like to save $2,000,000 by the time he retires in 30 years. If he believes that he can achieve a 6% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal?
$37,500
$5,790
$25,298
If Pia has saved 1,000,000uponretirement,howmuchmoneycansheliveoneachyearifshecanearn4 0 when she expects to die 30 years after retirement?
$40,000
$20,953
$17,830
$57,830
Luca has 50,000toinvesttodayandwouldliketodeterminewhetheritisrealisticforhertoachievehergoalofbuyingahomefor 150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?
Above 10%
Between 8% to 10%
Exactly 10%
Below 8%
Naomi would like to evaluate the performance of her portfolio over the past 10 years. What compound annual rate of return has she achieved if she invested 12,000tenyearsagoandnowhas 25,000?
Between 4% and 6%
Above 10%
Between 8% and 10%
Between 6% and 8%
In a general sense, the value of any asset is the _______.
present value of future cash flows
sum of past expenses
market price at purchase
total amount of dividends received
A bond that has a yield to maturity greater than its coupon interest rate will sell for a price
below par.
at par.
above par.
that is equal to the face value of the bond plus the value of all interest payments.
An increase in the riskiness of a particular security would NOT affect
the risk premium for that security.
the premium for expected inflation.
the total required return for the security.
investors' willingness to buy the security.
If the inflation premium for a bond goes up, the sales price of the bond
is unaffected.
goes down.
goes up.
More information is needed for an answer.
Which of the following is not considered a factor to influence the bondholders required rate of return?
Risk premium
Other investments by the bondholder
The longer the time to maturity the
greater the bond price increase from an increase in interest rates.
less the bond price increase from an increase in interest rates.
greater the bond price increase from a decrease in interest rates.
less the bond price decrease from a decrease in interest rates.
A higher interest rate (discount rate) would
reduce the price of corporate bonds.
reduce the price of preferred stock.
reduce the price of common stock.
all of these options are true.
A 10-year bond pays 5% on a face value of $1,000. If similar bonds are currently yielding 10%, what is the market value of the bond? Use annual analysis. Use time value of money tables in Appendix B and Appendix D.
$693.25
$386.00
$3,390.85
$1,386.09
An issue of preferred stock is paying an annual dividend of $1.50. The growth rate for the firm's common stock is 5%. What is the preferred stock price if the required rate of return is 7%?
$21.43
$30.00
An issue of preferred stock is paying an annual dividend of $2.50. The growth rate for the firm's common stock is 5%. What is the preferred stock price if the required rate of return is 8%?
$21.43
$31.25
$2.50
None of these options are correct.
The growth rate for the firm's common stock is 7%. The firm's preferred stock is paying an annual dividend of $3. What is the preferred stock price if the required rate of return is 8%?
$3.00
$37.50
$50.00
None of these options
The growth rate for the firm's common stock is 6%. The firm's preferred stock is paying an annual dividend of $4. What is the preferred stock price if the required rate of return is 7%?
$4.00
$47.50
$57.14
None of these options
The value of a common stock is based on its
past performance.
historic dividends.
value of future benefits to the holder.
A common stock that pays a constant dividend can be valued as if it were
a corporate bond.
a stock paying a growing dividend.
preferred stock.
a discount bond.
The dividend on preferred stock is most similar to
a common stock with no growth in dividends.
a common stock with a constant growth in dividends.
a common stock with a variable growth in dividends.
a certificate of deposit.
Preferred stock valuation uses a constant dividend while common stock can receive dividends based on fixed growth or dividends based on earnings. Why is this statement true?
Preferred stock receives just as much dividends as common stock.
Since not many companies use preferred stock, they just made the calculations easier.
Preferred stock receives dividends based on a set amount where common stock can receive dividends either equal to preferred stock or based on earnings.
Common stock dividends usually grow faster than preferred stock dividends.
An issue of common stock’s most recent dividend is $1.75. Its growth rate is 5.7%. What is its price if the market’s rate of return is 7.7%?
$24.63
$87.50
$92.50
An issue of common stock is selling for 57.20.Theyear−enddividendisexpectedtobe 2.32, assuming a constant growth rate of 4%. What is the required rate of return?
10.3%
10.1%
8.1%
None of these options are correct
If expected dividends grow at 7% and the appropriate discount rate is 9%, what is the value of a stock with an expected dividend one year from now of $1.00?
$62.88
$19.41
$29.12
$50.00
If expected dividends grow at 6% and the appropriate discount rate is 10%, what is the value of a stock with an expected dividend one year from now of $1.00?
$25.00
$19.41
$29.12
$40.00
If expected dividends grow at 5.25% and the appropriate discount rate is 7.5%, what is the value of a stock with an expected dividend one year from now of $1.00?
$33.33
$22.22
$50.00
$44.44
If a company's stock price (P₀) goes up, and nothing else changes, Kₑ (the required rate of return) should
go up.
go down.
remain unchanged.
More information is needed for an answer.
An issue of common stock has just paid a dividend of $2.00. Its growth rate is equal to 4%. If the required rate of return is 7%, what is its current price?
$19.04
$80.00
$69.33
None of these options are correct.
An issue of common stock is expected to pay a dividend of 3attheendoftheyear.Itsgrowthrateisequalto3 40. What is the required rate of return on the stock?
Between 7% and 10%
Between 10% and 12%
Between 12% and 14%
Between 14% and 17%
The required return by investors is directly influenced by all of the following EXCEPT:
A) Inflation
B) U.S. Treasury rates
C) Dividends
D) Risk
As a bond approaches its maturity date, its sales price approaches:
the price of comparable bonds.
U.S. Treasury bond prices.
the par value.
the par adjusted for yield to maturity.
