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FIN 301 Prof. Thistle Principals of Managerial Finance Fall 2018 EXAM 1 VERSION A PUT YOUR NAME, SECTION NUMBER AND TEST VERSION ON THE SANTRON FORM MULTIPLE CHOICE. Choose the one alternative that best

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FIN 301 Prof. Thistle Principals of Managerial Finance Fall 2018 EXAM 1 VERSION A PUT YOUR NAME, SECTION NUMBER AND TEST VERSION ON THE SANTRON FORM MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements best represents what finance is about? 1) A) Maximizing profits B) The study of how people and businesses make investment decisions and how to finance those decisions. C) Reducing risk D) How political, social, and economic forces affect corporations 2) If you want to have $875 in 32 months, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10). 2) A) $650 B) $630 C) $660 D) $570 3) The market for short term debt is known as 3) A) the notes market. B) the capital market. C) the bond market. D) the money market. 4) Firms that wish to raise funds for investment purposes issue securities in the 4) A) primary and secondary markets. B) primary markets. C) intermediary markets. D) secondary markets. 5) The true owners of the corporation are the 5) A) common stockholders. B) preferred stockholders. C) board of directors of the firm. D) holders of debt issues of the firm. 6) Which of the basic financial statements is best used to answer the questions ʺWhat does the company own and how is it financed?ʺ 6) A) Cash flow statement B) Statement of shareholderʹs equity C) Income statement D) Balance sheet 7) Which of the following represents an attempt to measure the earnings of the firmʹs operations over a given time period? 7) A) Balance sheet B) Cash flow statement C) Income statement D) None of the above 8) On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals 8) A) Net income available to preferred shareholders. B) Retained earnings. C) Net operating income (EBIT). D) Net profit. 9) What is the present value of an annuity of $27 received at the beginning of each year for the next six years? The first payment will be received today, and the discount rate is 10% (round to nearest $10). 9) A) $100 B) $120 C) $110 D) $130 10) Which of the following best describes the goal of the firm? 10) A) Risk minimization B) Profit maximization C) The maximization of the total market value of the firmʹs common stock D) None of the above 11) A commercial bank will loan you $17,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 6% of the unpaid balance. What is the amount of the monthly payments? 11) A) $ B) $ C) $1, D) $ ) What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1). 12) A) $833 B) $429 C) $3,106 D) $893 Table 1 Smith Company Balance Sheet and selected Income Statement data Assets: Cash and marketable securities $300,000 Accounts receivable 2,215,000 Inventories 1,837,500 Prepaid expenses 24,000 Total current assets $3,286,500 Fixed assets 2,700,000 Less: accumulated depreciation 1,087,500 Net fixed assets $1,612,500 Total assets $4,899,000 Liabilities: Accounts payable $240,000 Notes payable 825,000 Accrued taxes 42,500 Total current liabilities $1,107,000 Long term debt 975,000 Ownerʹs equity 2,817,000 Total liabilities and ownerʹs equity $4,899,000 Net sales (all credit) $6,375,000 Less: Cost of goods sold 4,312,500 Selling and administrative expense 1,387,500 Depreciation expense 135,000 Interest expense 127,000 Earnings before taxes $412,500 Income taxes 225,000 Net income $187,500 Common stock dividends $97,500 Change in retained earnings $90,000 13) Based on the information in Table 1, the debt ratio is 13) A) B) C) D) ) Based on the information in Table 1, the net profit margin is 14) A) 5.33%. B) 1.97%. C) 4.61%. D) 2.94%. 15) Based on the information in Table 1, the average collection period is 15) A) 64 days. B) 71 days. C) 84 days. D) 127 days. 16) Based on the information in Table 1, the current ratio is 16) A) B) C) D) ) If you invest $750 every six months at 8% compounded semi annually, how much would you accumulate at the end of 10 years? 17) A) $10,065 B) $22,334 C) $21,731 D) $10,193 18) You wish to borrow $2,000 to be repaid in 12 monthly installments of $ The annual interest rate is 18) A).04%. B) 22%. C) 4%. D) 24%. 19) You have been offered a credit card with an interest rate of 1.5% per month. This is equivalent to and effective annual rate (EAR) of 19) A) 19.56%. B) 24.00%. C) 12.17%. D) 18.00%. 20) You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years? 20) A) $25,000 B) $31,060 C) $38,720 D) $34,310 21) What is the value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to the nearest $1)? 21) A) $1,038 B) $808 C) $1,010 D) $1,048 22) It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually, and round to the nearest $1, ) A) $766,000 B) $93,000 C) $767,000 D) $850,000 23) What is the value on 1/1/16 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $1.00. Date Cash Received Amount of Cash 1/1/18 $100 1/1/19 $200 1/1/20 $300 1/1/21 $400 1/1/22 $500 23) A) $968 B) $880 C) $1,500 D) $1,065 24) Which of the following financial instruments entails the most risk and potentially the highest returns for investors? 24) A) common stock B) debt with a maturity of less than one year C) preferred stock D) bonds 25) What is the present value of a 5 year ordinary annuity with annual payments of $200 (at the end of each year), evaluated at a 15 percent interest rate? A)$ B) $ C)$1, D) $1, ) An investment offers a 7% annual rate for the next 5 years. In order to maximize the future value of your investment, which of the following do you prefer? A) Daily compounding. B) Monthly compounding. C) Quarterly (every 3 months) compounding. D) Annual compounding. 1) B 2) D 3) D 4) B 5) A 6) D 7) C 8) C 9) D 10) C 11) A 12) B 13) B 14) D 15) D 16) C 17) B 18) C 19) A 20) B 21) D 22) C 23) A 24) A 25) A 26) A

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