saint MGt325 module 4 test 1

Question 1.1.During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO’s free cash flow is ________.(Points : 2.5) -$630,000 -$50,000 $650,000 -$30,000Question 2.2.The tax liability of a corporation with ordinary income of $1,100,000 is ________. Range of taxable income Marginal rate $ 0 to $ 50,000 15% 50,000 to 75,000 25 75,000 to 100,000 34 100,000 to 335,000 39 335,000 to 10,000,000 34 10,000,000 to 15,000,000 35Note: Please refer to Table 2.1 or PowerPoint Slide 2-34(Points : 2.5) $362,250 $340,000 $374,000 $390,000Question 3.3.A beta coefficient of +1 represents an asset that ________.(Points : 2.5) is more responsive than the market portfolio has the same response as the market portfolio is less responsive than the market portfolio is unaffected by market movementQuestion 4.4.A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm’s bond will sell for ________ today.(Points : 2.5) $1,000 $716.67 $840.73 $1,123.33Question 5.5.Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.(Points : 2.5) fixed dividend payments greater returns from their investment in the firm’s stock all profits to be paid out in dividends warrants to be attached to the stock issueQuestion 6.6.Which of the following is a source of cash flows?(Points : 2.5) increase in marketable securities increase in accounts payable decrease in notes payable repurchase of stockQuestion 7.7.Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a constant growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.’s common stock is ________.(Points : 2.5) $28.00 $56.00 $22.40 $18.67Question 8.8.A corporation sold a fixed asset for $100,000. This is ________.(Points : 2.5) an investment cash flow and a source of funds an operating cash flow and a source of funds an operating cash flow and a use of funds an investment cash flow and a use of fundsQuestion 9.9.The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.(Points : 2.5) $ 50 $200 $518 $ 77Question 10.10.A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm’s preferred stock is(Points : 2.5) $120 $10 $12 $100Question 11.11.Under which of the following legal forms of organization is ownership readily transferable?(Points : 2.5) sole proprietorships partnerships limited partnerships corporationsQuestion 12.12.Operating profit is known as ________.(Points : 2.5) earnings after interest and taxes earnings before interest and taxes earnings before depreciation and taxes earnings after taxQuestion 13.13.Holders of equity capital ________.(Points : 2.5) own the firm receive interest payments receive guaranteed income have loaned money to the firmQuestion 14.14.Which of the following is a strength of a corporation?(Points : 2.5) low taxes limited liability low organization costs less government regulationQuestion 15.15.Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?(Points : 2.5) $120,000 $ 38,640 $ 67,800 $ 72,560Question 16.16.Making financing decisions includes ________.(Points : 2.5) determining the appropriate mix of short-term and long-term financing deciding on which individual securities to select for investment analyzing quarterly budget and performance reports improving the productivity of manufacturing productsQuestion 17.17.The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.(Points : 2.5) $178,571 $285,000 $350,000 $219,298Question 18.18.A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks.(Points : 2.5) yield curve supply function risk-return profile aggregate demand curveQuestion 19.19.Which of the following activities of a finance manager determines the types of assets the firm holds?(Points : 2.5) budget allocation investment decisions financing decisions analyzing and planning cash flowsQuestion 20.20.For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________.(Points : 2.5) net increase of $5,000 in cash and marketable securities net decrease of $5,000 in cash and marketable securities net decrease of $15,000 in cash and marketable securities net increase of $25,000 in cash and marketable securitiesQuestion 21.21.An efficient market is one where ________.(Points : 2.5) prices of stocks move up and down widely without apparent reason prices of stocks remain low for long periods of time prices of stocks are unaffected by market news the price of a security is an unbiased estimate of its true valueQuestion 22.22.The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called ________.(Points : 2.5) valuation securitization private placement capital restructuringQuestion 23.23.Managerial finance ________.(Points : 2.5) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement involves the design and delivery of advice and financial products recognizes funds on an accrual basis devotes the majority of its attention to the collection and presentation of financial dataQuestion 24.24.Which of the following is a marketable security?(Points : 2.5) mutual funds Treasury bill provident fund forward contractsQuestion 25.25.The primary concern of creditors when assessing the strength of a firm is its ________.(Points : 2.5) profitability leverage short-term liquidity share priceQuestion 26.26.Retained earnings on the balance sheet represents the ________.(Points : 2.5) net profit after taxes amount of proceeds in excess of the par value received from the original sale of common stock net profit after taxes minus preferred dividends cumulative total of all earnings reinvested in the firmQuestion 27.27.A debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms is called a(n) ________.(Points : 2.5) common stock corporate bond indenture preferred stockQuestion 28.28.The primary goal of a financial manager is ________.(Points : 2.5) minimizing risk maximizing profit maximizing wealth minimizing returnQuestion 29.29.A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is ________.(Points : 2.5) $240,000 $250,000 $270,000 $300,000Question 30.30.A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered as ________.(Points : 2.5) an investment cash flow a financing cash flow a financing cash flow and investment cash flow, respectively a financing cash flow and operating cash flow, respectivelyQuestion 31.31.If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy.(Points : 2.5) risk-seeking risk-indifferent risk-averse risk-neutralQuestion 32.32.Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?(Points : 2.5) $19,292 $14,938 $40,000 $144,104Question 33.33.Bonds are ________.(Points : 2.5) a series of perpetual short-term debt instruments a form of equity financing that pays interest long-term debt instruments used to raise large sums of money a hybrid form of financing used to raise large sums of money from a diverse group of lendersQuestion 34.34.Investment banks are institutions that ________.(Points : 2.5) perform all activities of commercial banks and retail banks are exempted from Securities and Exchange Commission regulations engage in trading and market making activities are only limited to capital market activitiesQuestion 35.35.The future value of $100 received today and deposited at 6 percent for four years is ________.(Points : 2.5) $126 $ 79 $124 $116Question 36.36.Risk aversion is the behavior exhibited by managers who require ________.(Points : 2.5) an increase in return, for a given decrease in risk an increase in return, for a given increase in risk no changes in return, for a given increase in risk decrease in return, for a given increase in riskQuestion 37.37.Given a financial manager’s preference for faster receipt of cash flows, ________.(Points : 2.5) a longer depreciable life is preferred to a shorter one a shorter depreciable life is preferred to a longer one the manager is not concerned with depreciable life, because depreciation is a noncash expense the manager is not concerned with depreciable life, because once purchased, depreciation is considered a sunk costQuestion 38.38.From a corporation’s point of view, a disadvantage of issuing preferred stock is ________.(Points : 2.5) that it increases financial leverage that it has to give fixed payments as well as voting rights to the holders its excellent merger security that the dividends are not tax-deductibleQuestion 39.39.Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm’s net profit after taxes?(Points : 2.5) $66,000 $49,000 $44,000 $83,000Question 40.40.A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders’ investment of $750,000 has a return on equity of ________.(Points : 2.5) 20 percent 15 percent 3 percent 4 percentQuestion 41.41.Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________.(Points : 2.5) 36.5; 10 10; 36.5 36.0; 10 30; 36.0Question 42.42.Which of the following is a means of selling bonds or stocks to the public?(Points : 2.5) private placement public offering organized selling direct placementQuestion 43.43.A firm has the following accounts and financial data for 2014:Sales revenues: $3,060Account receibale: $500Interest expenses: $126Total operating expenses: $600Account payable: $240Cost of goods sold: $1,800Preferred stock dividends: $18Tax rate: 40%Number of shares of common stock outstanding: 1,000The firm’s earnings per share for 2014 is ________.(Points : 2.5) $0.5335 $0.5125 $0.3204 $0.3024Question 44.44.Which of the following is true of risk?(Points : 2.5) Risk and return are inversely proportionate to each other. Higher the risk associated with a security the lower is its return. Risk is a measure of the uncertainty surrounding the return that an investment will earn. Riskier investments tend to have lower returns as compared to T-bills which are risk free.