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MGMT 5123 Final Exam

MGMT 5123 Final Exam

MGMT 5123 Final Exam

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  1. Using the information provided, calculate net income for 2017. Assume a tax rate of 35 percent.
    Year 2017

Inventory ​                             $5,000
Revenues ​                           200,000
Depreciation expense          ​ 5,000
Cost of goods sold ​            100,000
Interest expense ​                 10,000
Operating expenses            ​30,000

  1. ​$35,750
  2. ​$44,000
  3. ​$19,250
  4. ​$50,000
  1. When a company pays a dividend on common stock, it appears as 
  1. a reduction in the amount of retained earnings.
  2. dividend payments have no effect on the financial statements.
  3. an expense on the income statement.
  4. a current liability on the balance sheet

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  1. If you were given the components of current assets and of current liabilities, what ratio(s) could you compute? 
  1. Acid test or quick ratio
  2. Average collection period
  3. Current ratio
  4. Both A and C
  5. All of the above
  1. Smith Company Balance Sheet and selected Income Statement data
  1. 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 1087500
    Net fixed assets $1,612,500
    Total assets $4,899,000
    Liabilities: $240,000
    Accounts payable
    Notes payable 825,000
    Accrued taxes 42,500
    Total current liabilities  $1,107,000
    Long−term debt 975,000
    Owner’s equity 2,817,000
    Total liabilities and owner’s equity $4,899,000
    Net sales (all credit)
    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

Based on the information in Table 1, the net profit margin is

  1. 97%.
  2. 33%.
  3. 61%.
  4. 94%.
  1. Should you prefer to receive $100,000 right now or $10,000 at the end of each of the next 12 years?
  1. $10,000 at the end of each of the next 12 years.
  2. Either alternative is equally valuable.
  3. $100,000 now.
  4. The answer depends on the time value of money
  1. At 8% compounded annually, how long will it take $750 to double?
  1. 5 years
  2. 48 months
  3. 9 years
  4. 12 years
  1. Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina’s plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1.
  1. 3,622
  2. $75
  3. $1,497
  4. $5,281

  1. What is the present value of the following uneven stream of cash flows? Assume a 6% discount rate and endminus−ofminus−period payments. Round to the nearest whole dollar.

Year                                                   Cash Flow
1                                                                $3,000
2                                                                $4,000
3                                                                $5,000

  1. 13,591
  2. $11,461
  3. $12,688
  4. $10,588
  1. You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the stock today for $89.00, what is your rate of return?
  2. 35.00%
  3. 25.00%
  4. 17.50%
  5. 12.50%
  • Madison was hired to design and decorate the offices of a large pharmaceutical company. She accidentally read a report indicating that a new drug had just been approved by the Food and Drug administration. She immediately bought the company’s stock which doubled in price over the following week. This outcome is inconsistent with
  1. The strong form efficient market hypothesis. Her action was probably illegal.
  2. The weakminus−form efficient market hypothesis.
  3. The semiminus−strong form efficient market hypothesis.
  4. All of the above.
  1. You are considering investing in Ford Motor Company. Which of the following is an example of diversifiable risk? 
  1. Risk resulting from an expected recession
  2. Risk resulting from interest rates decreasing
  3. Risk resulting from uncertainty regarding a possible strike against Ford
  4. Risk resulting from the possibility of a stock market crash
  1. A stock’s beta is a measure of its
  1. company minus−specific risk.
  2. Systematic risk.
  3. Diversifiable risk.
  4. Unsystematic risk.
  1. All of the following affect the value of a bond EXCEPT
  1. The recorded value of the firm’s assets.
  2. The coupon rate of interest.
  3. The maturity date of the bon
  4. Investors’ required rate of return
  1. Quirk Drugs sold an issue of 30minus−year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk’s bonds mature, what will happen to the value of the bonds over time?
  1. The bonds will sell at a premium and rise in value until maturity.
  2. The bonds will sell at a discount and fall in value until maturity.
  3. The bonds will sell at a discount and rise in value until maturity.
  4. The bonds will sell at a premium and decline in value until maturity.
  1. KDP’s most recent dividend was $2.00 per share and is selling today in the market for $70. The dividend is expected to grow at a rate of 7% per year for the foreseeable future. If the market return is 10% on investments with comparable risk, should you purchase the stock?
  1. No, because the stock is overpriced $3.33.
  2. Yes, because the stock is underpriced $1.33.
  3. No, because the stock is overpriced $1.33.
  4. Yes, because the stock is underpriced $3.33
  1. Common stockholders expect greater returns than bondholders because
  1. They bear greater risk.
  2. in the event of liquidation, they are only entitled to receive any cash that is left after all creditors are paid
  3. They have no legal right to receive dividends.
  4. all of the above
  1. You have been asked to analyze a capital investment proposal. The project’s cost is $2,775,000. Cash inflows are projected to be $925,000 in Year 1; $1,000,000 in Year 2; $1,000,000 in Year 3; $1,000,000 in Year 4; and $1,225,000 in Year 5. Assume that your firm discounts capital projects at 15.5%. What is the project’s NPV?
  1. $285,106
  2. $582,380
  3. $473,904
  4. $101,247
  1. Use the following information to answer the following question.

Below are the expected after minus−tax cash flows for Projects Y and Z. Both projects have an initial cash outlay of $20,000 and a required rate of return of 17%.

Project Y                                                 Project Z

Year 1                                                     $12,000                                                   $10,000
Year 2                                                     $8,000                                                    $10,000
Year 3                                                     $6,000                                                    0
Year 4                                                     $2,000                                                    0
Year 5                                                     $2,000                                                    0

Payback for Project Y is

  1. Three years.
  2. Two years.
  3. Four years.
  4. One year.
  1. Green Valley Motels has $5 million of debt outstanding with a coupon rate of 8.2%. Currently, the yield to maturity on these bonds is 7.3%. If the firm’s tax rate is 34%, what is the afterminus−tax cost of debt to Hill Town Motels?
  1. 23%%
  2. 75%
  3. 33%
  4. Cannot be determined because the maturity of the bonds is unknown.
  1. Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.’s afterminus−tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Corp.’s weighted average cost of capital?
  1. 84%
  2. 32%
  3. 78%
  4. 56%
  1. Use the following information to answer the following question(s).

Below is an excerpt from Table 19.1, Foreign Exchange Rates (February 12, 2016) that appears in your text. (Sources The Wall Street Journal, Reuters)

Country/Currency   In US$         Per US$
India (Rupee)                 0.01468         68.1301
Britain (Pound)              1.4504             0.6895
Canada (Dollar)              0.7219             1.3853
Switzerland franc           1.0233             0.9772

The direct 3 month forward rate for the U.K. pound is 1.4496; the pound is expected to

  1. Strengthen against the dollar.
  2. Stay the same against the dollar.
  3. Fluctuate randomly against the dollar.
  4. Weaken against the dollar.
  1. The major advantage of the forward market is risk reduction.
  1. True
  2. False
  1. The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%. The nominal rate of interest in Canada is 2.5% and the inflation rate is zero. We would expect
  1. The Canadian dollar to strengthen against the ruble.
  2. The exchange rate between the Canadian dollar and the ruble to stay the same because of purchasing price parity.
  3. The exchange rate between the Canadian dollar and the ruble to stay the same because of interest rate parity.
  4. The ruble to strengthen against the dollar.
  1. Which of the following statements is true?
  1. Interest rate parity indicates that the forward premium or discount should be greater than the differences in the national interest rates for securities of the same maturity.
  2. Purchasing power parity indicates that, in the long run, exchange rates adjust to reflect international differences in inflation so that the purchasing power of each currency tends to remain the same.
  3. The International Fisher Effect indicates that the nominal interest rate should be the same all over the world at all times if the market is efficient.
  4. Both B and
  1. If a country is has high interest rates because of inflation, the forward price of its currency will be higher than the spot price.
  1. True
  2. False

Course: MGMT 5123 Finance & Accounting for Non Finance Managers
School: Southern Wesleyan University

  • : 06/12/2017
  • : 40

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