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DeVry BUSN 379 Final Exam 2

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(TCO 1) What is the goal of financial management for a


sole proprietorship?
decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production

(TCO 1) When analyzing alternative capital structures for a


firm, a financial manager must consider which of the
following?
type of loan
amount of funds needed
cost of funds
mix of debt and equity
all of the above

(TCO 1) Market value is important to the financial


manager because:
It reflects the value of the asset, based on generallyaccepted accounting principles.
Is a crucial component of the balance sheet, and can
impact the financial statements.
Market value reflects the amount someone is willing to

pay today for an asset.


The market value of an asset reflects its historical cost.
None of the above

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(TCO 1) Which of the following is true regarding income


statements?
It shows the revenue and expenses, based upon selected
accounting methods.
It reveals the net cash flows of a firm over a stated period
of time.
It reflects the financial position of a firm as of a particular
date.
It records revenue only when cash is received for the
product or service provided.
It records expenses based on the recognition principle.

(TCO 1) Tatos 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 Tatos Pizza net income?
$157,950
$322,000
$243,000
$200,000

(TCO 1) 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?
35%
39%
34%
32%

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(TCO 1) 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?
$2.0
$2.21
$0.50
$0.47

(TCO 1) The financial statement that summarizes a firms


operations over a period of time is called a(n):
income statement.
cash flow statement.
production report.
balance sheet.
periodic operating statement.

(TCO 1) Print Imaging has EBIT of $150,000, interest of


$30,000, taxes of $50,000, and depreciation of $50,000.
What is the companys operating cash flow?
$120,000
$180,000
$170,000
$150,000
$120,000

(TCO 3) Linda invested $15,000 today, in an investment


that pays 6.50 percent interest, compounded semiannually. Which one of the following statements is correct
concerning this investment?
Linda will receive equal interest payments every six
months over the life of the investment.
Linda would have earned more interest if she had invested
in an account paying 6.50 percent simple interest.
Linda will earn more interest in year 5 than she will in year
4.

Linda would have earned more interest if she had invested


in an account paying annual interest.
Linda will earn less and less interest each year over the
life of the investment.

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(TCO 3) 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?
$61,800
$53,500
$113,400
$97,200

(TCO 3) Paper Pro recently purchased a printing machine


costing $97,000. The company financed this purchase at
8.25 percent interest, with monthly payments of
$2,379.45. How many years will it take the firm to pay off
this debt?
3.0 years
4.0 years
4.25 years
4.5 years
5.0 years

(TCO 3) 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?
The current value of the projects inflows is $13,000
The approximate current value of the projects inflows is
$11,000
The projects inflows are higher than zero
The project should be accepted because its present value
is positive

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(TCO 4) 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:
Ye Software Engineerin
ar Company g 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?
$15,600
$12,500
$12,750
$15,000

(TCO 3) North Bank offers you an APR of 13.17


percent compounded monthly, and South Bank offers you
an effective rate of 13.75 percent on a business loan.
Which bank should you choose and why?
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower.

(TCO 3) Tim needs to borrow $5,000 for two years. The


loan will be repaid in one lump sum at the end of the loan
term. Which one of the following interest rates is best for
Tim?
7.5
7.5
8.0
8.0
8.0

percent
percent
percent
percent
percent

simple interest
interest, compounded monthly
simple interest
interest, compounded annually
interest, compounded monthly

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(TCO 3) Which one of the following is an example of an


annuity, but not a perpetuity?
unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month

(TCO 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 11 percent? Assume annual payments.
$1080
$1085
$925
$1000

(TCO 6 and 8) A bonds debenture will include which of the


following?
description of any loan collateral
call provisions
total amount of the bond issue
protective covenants
all of the above
none of the above

(TCO 3) Bonds issued by Blue Sky Airlines have a face


value of $1,000 and currently sell for $1,080. The annual
coupon payments are $125. If the bonds have 20 years
until maturity, what is the approximate YTM of the bonds?
10.50%
11.50%
11.75%
12%

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(TCO 3) The preferred stock of Bean Coffee pays an annual


dividend of $5.60. It has a required rate of return of eight
percent. What is the price of the preferred stock?
$700
$70
$5.20
$6.05
None of the above

(TCO 3) 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 7.5
percent. What is the current price of the stock?
$23
$32
$27

(TCO 3) 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 is the total amount of
dividends stockholders will receive during the next three
years?
$6.62
$6.03
$6.52
$6.85

(TCO 6) Which of the following is true regarding the


primary market?
it is the market where the largest number of shares are
traded on a daily basis.
it is the market in which the largest number of issues are
listed.
it is the market with the largest number of participants.

it is the market where new securities are offered.


it is the market where shareholders trade most frequently
with each other.

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(TCO 6) The smallest firms listed on NASDAQ are in the


NASDAQ _____ Market.
National
Capital
Regional
Global Select
Global

(TCO 6) The annual interest on a bond divided by the


bonds market price is called the:
yield to maturity.
yield to call.
total yield.
required yield.
current yield.

(TCO 6) A sinking fund is an account managed by a bond


trustee for the sole purpose of:
paying interest payments on a semi-annual basis.
redeeming bonds early.
repaying the face value at maturity.
paying the expenses required to reissue outstanding
bonds.
paying the balloon payment at maturity.

(TCO 8) Which of the following is true regarding bonds?


Bonds do not carry default risk.
Bonds are sensitive to changes in the interest rates.
Moodys and Standard and Poors provide information

regarding a bonds interest rate risk.


Municipal bonds are free of default risk.
None of the above is true

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(TCO 6) Which of the following best describes a zerocoupon bond?


A bond that adjusts the coupon payments based on an
interest rate index, such as the T-bill.
A bond that is issued by the U.S. government.
A bond that adjusts the coupon payment date.
A bond that has no coupons and pays a face value at
maturity.
An EE Savings Bond

(TCO 6) Which of the following are not true regarding


convertible bonds? Select all that apply:
Are extremely rare
Can be exchanged for a fixed number of shares at
maturity only
Can be exchanged for a fixed number of shares before
maturity
Allow the holder to require the issuer to buy the bond
back

(TCO 1) Paul is the owner of Pauls Cabinets, which is a


sole proprietorship. The firm cannot pay its bills because a
large customer defaulted on payment. Which one of the
following statements is correct given this situation?
The creditors of Pauls Cabinets can only collect payment
if Pauls Cabinets receives payment from its customer.
The only course of action the creditors of Pauls Cabinets
has is to sell the assets of Pauls Cabinets.
The creditors of Pauls Cabinets can assume the assets of
Pauls Cabinets, but only in an amount that exceeds Pauls
investment in the firm.
Paul is personally liable for the entire debt of Pauls
Cabinets.
Paul is personally liable for the firms debts, but only to

the extent of his investment in Pauls Cabinets.

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(TCO 1) Which of the following is classified as tangible,


fixed assets?
inventory
machinery
patents
cash on hand

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(TCO 1) Explain agency theory. Provide an example of a


potential agency problem for a corporation, and identify
means by which the firm can help reduce or eliminate that
problem.

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(TCO 3) Why does money have time value? Explain your


rationale.

Commen
ts:
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(TCO 8) Why do firms use protective covenants? Provide


two or three examples of protective covenants, and
explain how these covenants increase or decrease risk.

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(TCO 6) What are some of the features of PETS (bonds)


that make them attractive to certain investors?

DeVry BUSN 379 Final Exam 2

Click on the link below for the solution:


https://devryfinalexams.com/products/busn-379midterm-exam-2/

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