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- From: Finance,
- Posted on: Mon 17 Mar, 2014
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Part I

1. Which one of the following actions best matches the primary goal of financial management?

2. Which of the these activities is not a capital budgeting task?

3. Market value is important to the financial manager because:

4. Which of the following is true regarding income statements?

5. Tato's Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato's Pizza net income?

6. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what are the company's income taxes?

7. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the approximate average tax rate?

8. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the marginal tax rate?

9. Pizza A had earnings after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased to $750,000, and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008?

10. Which of the following will be recorded in a balance sheet? Select all that apply:

11. Best Electronics has EBIT of $450,000, interest of $30,000, taxes of $50,000, and depreciation of $80,000. What is the company's operating cash flow?

12. Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment?

13. Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments?

14. Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is false?** **

15. You are considering two investments. Investment I, is in a software company and Investment II, is an engineering company. The investments offer the following cash flows:

Year Software Company Engineering Company

1 $5,000 $15,000

2 $3,000 $8,000

3 $4,000 $9,000

4 $3,600 $11,000

If the appropriate discount rate is 10 percent, what is the approximate present value of the Software Company investment?

16. You are considering an investment that will have the following cash flows: $54,000, $66,000, $(60,000), $57,000, and $120,000. The appropriate discount rate is 11 percent. What is the value of this investment? Note that the cash flow in brackets is negative.** **

17. North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why?

Part II

1. Which of the following will increase the total amount of interest earned on an investment, assuming that all interest is reinvested? Select all answers that apply:

2. Which one of the following is an example of an annuity, but not a perpetuity?

3. Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments.

4. Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years until maturity, what is the approximate YTM of the bonds?

5. Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the current price of the stock? Hint: Yield is the same as required rate of return.

6. Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of seven percent. What is the current price of the stock?

7. Royal Electric paid a $2 dividend last year. The dividend is expected to grow at a constant rate of five percent over the next three years. Common stockholders require a 12 percent return. What are the values of the dividends for years 1, 2 and 3, respectively?

8. Which of the following is true regarding the primary market?

9. The maturity date of a bond is defined as:

10. Which of the following is true regarding bonds?

11. Which of the following best describes a zero-coupon bond?

Part III - Short Answer Questions

1. What are some real-life scenarios where you can apply the time value of money? Present two or three scenarios. Briefly explain your rationale.

2. Explain some of the key risks associated with bonds.

Solution Description

Part I

1. Which one of the following actions best matches the primary goal of financial management?

2. Which of the these activities is not a capital budgeting task?

3. Market value is important to the financial manager because:

4. Which of the following is true regarding income statements?

5. Tato's Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato's Pizza net income?

6. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what are the company's income taxes?

7. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the approximate average tax rate?

8. Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the marginal tax rate?

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