Post University FIN 201 Final Exam

1) At 11 percent interest, how long
would it take to quadruple your money?
6.55
6.64
13.09
13.28
13.56

2) Which one of the following will
decrease if a firm can decrease its operating costs, all else constant?
Return on equity
Return on assets
Profit margin
Equity multiplier
Price-earnings ratio

3) Chelsea Fashions is expected to pay
an annual dividend of $0.80 a share next year. The market price of the stock is
$22.40 and the growth rate is 5 percent. What is the firm’s cost of equity?
7.58 percent
7.91 percent
8.24 percent
8.57 percent
9.00 percent

4) According to the Rule of 72, you can
do which one of the following?
Double your money in five years at 7.2
percent interest
Double your money in 7.2 years at 8
percent interest
Double your money in 8 years at 9
percent interest
Triple your money in 7.2 years at 5
percent interest
Triple your money at 10 percent interest
in 7.2 years

5) If a firm has a debt-equity ratio of
1.0, then its total debt ratio must be which one of the following?
0.0
0.5
1.0
1.5
2.0

6) Shareholders’
equity:
Increases in value anytime total assets
increases.
Is equal to total assets plus total
liabilities.
Decreases whenever new shares of stock
are issued.
Includes long-term debt, preferred
stock, and common stock.
Represents the residual value of a firm.

7) Which one of the following statements
correctly states a relationship?
Time and future values are inversely
related, all else held constant.
Interest rates and time are positively
related, all else held constant
An increase in the discount rate
increases the present value, given positive rates.
An increase in time increases the future
value given a zero rate of interest.
Time and present value are inversely
related, all else held constant.

8) A loan where the borrower receives money
today and repays a single lump sum on a future date is called a(n) _____ loan
amortized
continuous
balloon
pure discount
interest-only

9) Which one of following is the rate
at which a stock’s price is expected to appreciate?
current yield
total return
dividend yield
capital gains yield
coupon rate

10) What is the net present value of a project that has an initial cash
outflow of $34,900 and the following cash inflows? The required return is 15.35
percent.
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-$3,383.25
-$2,784.62
-$2,481.53
$52,311.08
$66,416.75

11) You are investing $100 today in a
savings account at your local bank. Which one of the following terms refers
to the value of this investment one year from now?
future value
present value
principal amounts
discounted value
invested principal

12) A business created as a distinct legal entity and treated as a legal
“person” is called a:
Corporation.
Sole proprietorship.
General partnership.
Limited partnership.
Unlimited liability company.

13) When the present value of the cash
inflows exceeds the initial cost of a project, then the project should be:
Accepted because the internal rate of
return is positive.
Accepted because the profitability
index is greater than 1.
Accepted because the profitability
index is negative.
Rejected because the internal rate of
return is negative.
rejected because the net present value
is negative

14) An amortized loan:
requires the principal amount to be
repaid in even increments over the life of the loan
May have equal or increasing amounts
applied to the principal from each loan payment.
Requires that
all interest be repaid on a monthly basis while the principal is repaid at
the end of the loan term.
Requires that all payments be equal in
amount and include both principal and interest.
Repays both the principal and the
interest in one lump sum at the end of the loan term.

15) The
difference between the price that a dealer is willing to pay and the price at
which he or she will sell is called the:
Equilibrium.
Premium.
Discount.
Call price.
Spread.

16) Which one
of the following methods of project analysis is defined as computing the value
of a project based upon the present value of the project’s anticipated cash
flows?
Constant
dividend growth model
Discounted
cash flow valuation
Average
accounting return
Expected
earnings model
Internal rate
of return

17) Mary just
purchased a bond which pays $60 a year in interest. What is this $60 called?
Coupon
Face value
Discount
Call premium
Yield

18) What are
the distributions to shareholders by a corporation called?
Retained
earnings
Net income
Dividends
Capital
payments
Diluted
profits

19) Which one
of the following is defined as a firm’s short-term assets and its short-term
liabilities?
Working
capital
Debt
Investment
capital
Net capital
Capital
structure

20) An
ordinary annuity is best defined by which one of the following?
Increasing
payments paid for a definitive period of time
Increasing
payments paid forever
Equal payments
paid at regular intervals over a stated time period
Equal payments
paid at regular intervals of time on an ongoing basis
Unequal
payments that occur at set intervals for a limited period of time

21) Which one
of the following terms is used to describe a loan that calls for periodic
interest payments and a lump sum principal payment?
Amortized loan
Modified loan
Balloon loan
Pure discount
loan
Interest-only
loan

22) Which of
the following questions are addressed by financial managers?

I. How should
a product be marketed?
II. Should
customers be given 30 or 45 days to pay for their credit purchases?
III. Should
the firm borrow more money?
IV. Should the
firm acquire new equipment?

I and IV only
II and III
only
I, II, and III
only
II, III, and
IV only
I, II, III,
and IV

23) You want to
be on the board of directors of Wisely Foods. Since you are the only
shareholder that will vote for you, you will need to own more than half of the
outstanding shares of stock if you are to be elected to the board. What is the
type of voting called that requires this level of stock ownership to be
successfully elected under these conditions?
Democratic
Cumulative
Straight
Deferred
Proxy

24) Tracy
invested $1,000 five years ago and earns 4 percent interest on her investment.
By leaving her interest earnings in her account, she increases the amount of
interest she earns each year. The way she is handling her interest income is
referred to as which one of the following?
Simplifying
Compounding
Aggregation
Accumulation
Discounting

25) A monthly
interest rate expressed as an annual rate would be an example of which one of
the following rates?
Stated rate
Discounted
annual rate
Effective
annual rate
Periodic
monthly rate
Consolidated
monthly rate

26) The
decision to issue additional shares of stock is an example of which one of the
following?
Working
capital management
Net working
capital decision
Capital
budgeting
Controller’s
duties
Capital
structure decision
27) The
average of a firm’s cost of equity and after-tax cost of debt that is weighted
based on the firm’s capital structure is called the:
Reward to risk
ratio.
Weighted
capital gains rate.
Structured
cost of capital.
Subjective
cost of capital.
Weighted
average cost of capital.

28) Wayco
Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity
of 14.3 percent, and a cost of preferred stock of 8.5 percent. The firm has
220,000 shares of common stock outstanding at a market price of $27 a share.
There are 25,000 shares of preferred stock outstanding at a market price of $41
a share. The bond issue has a face value of $550,000 and a market quote of
101.2. The company’s tax rate is 37 percent. What is the firm’s weighted
average cost of capital?

10.18 percent
10.84 percent
11.32 percent
12.60 percent
12.81 percent

29) A project
has an initial cost of $27,400 and a market value of $32,600. What is the
difference between these two values called?
Net present
value
Internal
return
Payback value
Profitability
index
Discounted
payback

30) Which one
of the following terms is defined as the management of a firm’s long-term
investments?
Working
capital management
Financial
allocation
Agency cost
analysis
Capital
budgeting
Capital
structure

31) Which one of the following is computed by dividing next year’s
annual dividend by the current stock price?
Yield to
maturity
Total yield
Dividend yield
Capital gains
yield
Growth rate

32) Alex
invested $10,500 in an account that pays 6 percent simple interest. How much
money will he have at the end of four years?
$12,650
$12,967
$13,020
$13,256
$13,500

33) The length
of time between the sale of inventory and the collection of the payment for
that sale is called the:
Operating
cycle.
Inventory
period.
Accounts
receivable period.
Accounts
payable period.
Cash cycle.

34) Your
grandmother has promised to give you $5,000 when you graduate from college. She
is expecting you to graduate two years from now. What happens to the present
value of this gift if you delay your graduation by one year and graduate three
years from now?
Remains
constant
Increases
Decreases
Becomes
negative
Cannot be
determined from the information provided

35) Wind Power
Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The
face amount of each bond is $1,000. These bonds are currently selling for 114
percent of face value. What is the company’s pre-tax cost of debt?
3.98 percent
4.42 percent
4.71 percent
5.36 percent
5.55 percent

36) Rachel’s
has a $50,000 line of credit with Uptown Bank. The line of credit calls for an
interest rate of 8 percent and a compensating balance of 4 percent. The
compensating balance is based on the total amount borrowed and will be held in
an interest-free account. What is the effective annual interest rate if the
firm borrows $35,000 for one year?
7.76 percent
8.00 percent
8.17 percent
8.33 percent
8.42 percent

37) The cash
flow of a firm which is available for distribution to the firm’s creditors and
stockholders is called the:
Operating cash
flow.
Net capital
spending.
Net working
capital.
Cash flow from
assets.
Cash flow to
stockholders.

38) Which one
of the following is a source of cash?
Increase in
accounts receivable
Decrease in
notes payable
Decrease in
common stock
Increase in
accounts payable
Increase in
inventory

39) An agent
who maintains an inventory from which he or she buys and sells securities is
called a:
Broker.
Trader.
Capitalist.
Principal.
Dealer.

40) You cannot
attend the shareholder’s meeting for Alpha United so you authorize another
shareholder to vote on your behalf. What is the granting of this authority
called?
Altering
Cumulative
voting
Straight
voting
Indenture agreement
Voting by
proxy

41) The length
of time between the purchase of inventory and the receipt of cash from the sale
of that inventory is called the:
Operating
cycle.
Inventory
period.
Accounts
receivable period.
Accounts
payable period.
Cash cycle.

42) Phil can
afford $180 a month for 5 years for a car loan. If the interest rate is 8.6
percent, how much can he afford to borrow to purchase a car?
$7,750.00
$8,348.03
$8,752.84
$9,266.67
$9,400.00

43) Which one
of the following is computed by dividing next year’s annual dividend by the
current stock price?
Yield to
maturity
Total yield
Dividend yield
Capital gains
yield
Growth rate

44) The
decision to issue additional shares of stock is an example of which one of the
following?
Working
capital management
Net working
capital decision
Capital
budgeting
Controller’s
duties
Capital
structure decision

45) An
ordinary annuity is best defined by which one of the following?
Increasing
payments paid for a definitive period of time
Increasing
payments paid forever
Equal payments
paid at regular intervals over a stated time period
Equal payments
paid at regular intervals of time on an ongoing basis
Unequal
payments that occur at set intervals for a limited period of time

46) Which one
of the following is a capital budgeting decision?
Determining
how many shares of stock to issue
Deciding
whether or not to purchase a new machine for the production line
Deciding how
to refinance a debt issue that is maturing
Determining
how much inventory to keep on hand
Determining
how much money should be kept in the checking account

47) Travis invested $9,250 in an
account that pays 6 percent simple interest. How much more could he have earned
over a 7-year period if the interest had compounded annually?
$741.41
$773.58
$802.16
$833.33
$858.09

48) Net
working capital is defined as:
Total
liabilities minus shareholders’ equity.
Current
liabilities minus shareholders’ equity.
Fixed assets
minus long-term liabilities.
Total assets
minus total liabilities.
Current assets
minus current liabilities.

49) Bert owns
a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called?
Coupon
Face value
Discount
Yield
Dirty price

50) Which one
of the following will increase the value of a firm’s net working capital?
Using cash to
pay a supplier
Depreciating
an asset
Collecting an
accounts receivable
Purchasing
inventory on credit
Selling
inventory at a profit

 

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