Post University FIN 201 Final Exam (Solution 50/50) - 77920

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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. -$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
Solution Description

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 th

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