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Finance 300 Exam #1 Spring 1999
Multiple choice - 4 points each - 72 total points – PUT ALL ANSWERS ON ANSWER PAGE
- All of the following are advantages of a corporation except:
a. Easier access to raising capital b. Limited liability c. Double taxation d. All are advantages for a corporation
- IBM has decided that they wish to issue stock to fund a new project. When the stock is issued it will be sold on the:
a. NYSE b. NASDAQ c. primary market d. secondary market
- Cash flows in different periods should not be compared unless:
a. interest rates are expected to remain stable b. the cash flows occur no more than one year from each other c. high rates of interest can be earned on the cash flows d. the cash flows have been discounted to a common date
- Suppose your father has just retired and has a retirement nest egg currently worth $1,000,000. If he plans to take out $101,853 at the end of each of the next 20 years beginning one year from today so that his nest egg is worth nothing after making the 20th withdrawal, what interest rate must his nest egg earn?
a. 8% b. 10% c. 12% d. 14% e. 16%
- Which of the following appears to be the most appropriate goal for corporate management?
a. Maximizing market value of the company’s shares. b. Maximizing the company’s market share. c. Maximizing the current profits of the company. d. Minimizing the company’s liabilities.
- You need to accumulate $25,000 in 10 years. How much will you have to invest right now if your rate of return is 6% compounded semi-annually?
a. $11,409. b. $11,579. c. $13,841. d. $13,960.
- All other factors held constant, present value _______ as the number of discounting periods per year increases, and an increase in the number of compounding periods per year ________ the future value.
a. increases, increases b. increases, decreases c. decreases, increases d. decreases, decreases
- What is the present value of a perpetuity which will pay $1,000 per year beginning one year from now if the appropriate interest rate is 7%?
a. $11, b. $12, c. $14, d. $16,
- You need to accumulate $10,000. To do so, you plan to make deposits of $1,500 per year, with the first payment being made one year from now. The investment earns 8% compounded annually. Your last deposit will be less than $1,500 if less is needed to round out to $10,000. How large will your last deposit be?
a. $ 496 b. $ 770 c. $1, d. $1,
- Firms A and B have debt/total asset ratios of 75% and 50% and returns on total assets of 10% and 15% respectively. Which firm has the greatest return on equity?
a. Firm A b. Firm B c. they are both the same d. not enough information available to tell
Use the following information for questions 16 and 17 Timmons Co. has had sales this year of $1,000,000. Their selling and administrative expense was $220,000, COGS was $425,000, Interest Expense of $20,000, outstanding debt was $150,000 and depreciation was $75,000. Timmons has a 40% corporate tax rate.
- What is Timmons Net Income for the year?
a. $ 156, b. $ 168, c. $ 575, d. $1,000,
- What is Timmons Operating Cash Flow for the year?
a. $231, b. $243, c. $251, d. $263,
- You are to receive $10,000 per year for the next 47 years. If the appropriate discount rate is 10%, what is the present value of this set of cash flows?
a. $78,157. b. $82,928. c. $92,457. d. $98,866.
Partial Credit Problems - 28 points total - show all work (10 points) The Thomas Construction Company has projected next year’s sales to be $6,000,000. Construct a pro forma balance sheet given the following information. COGS are 50% of sales and credit sales are 60% of total sales.
Current Ratio 1. Debt Ratio 60% Inventory Turnover 6 Accts. Rec. Period 60 days Fixed Asset Turnover 2 Times Interest Earned 8. Profit Margin. Return on Assets 30%
Pro Forma Balance Sheet
(8 points) Construct a loan amortization loan for a four year loan of $100,000 with an interest rate of 8% and equal payments each year.
ANSWER KEY EXAM #1 Spring 1999
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Problem #
Cash $1,300,000 Current Liabilities $ 1,600, Accounts Receivable 600, Inventory 500,000 Long Term Debt 1,640, Total Curr. Assets 2,400, Fixed Assets 3,000,000 Total Debt 3,240, Equity 2,160, Total Assets $ 5,400,000 Total Debt & Equity $ 5,400,
EBIT = $375, Net Income = $1,620,
Problem # $64,990.
Problem # Beginning Balance Payment Interest
Principal Payment
Ending Balance 100,000.00 30,192.24 8,000.00 22,192.24 77,807. 77,807.76 30,192.24 6,224.62 23,967.62 53,840. 53,840.14 30,192.24 4,307.21 25,885.03 27,955. 27,955.11 30,192.24 2,236.41 27,955.83 0.
