1. Which of these can be used by interested parties to identify changes in corporate performance?
Common-size financial statements
Industrialized financial statements
Sanitized financial statements
None of these
2. A deposit of $300 earns interest rates of 7 percent in the first year and 10 percent in the second year. What would be the second year future value?
3. A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?
4. Which ratio measures the number of dollars of sales produced per dollar of inventory?
5. Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?
Ricky never pays off the card.
6. What is the present value of a $7,000 payment made in six years when the discount rate is 4 percent?
7. What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?
8. We call the process of earning interest on both the original deposit and on the earlier interest payments:
9. A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5 percent APR interest rate. After the second year, the mortgage interest charged increases to 8 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year?
5.00 percent, 8.00 percent respectively
5.12 percent, 8.30 percent respectively
12.59 percent, 12.65 percent respectively
4.89 percent, 7.72 percent respectively
10. Approximately what interest rate is needed to double an investment over four years?
11. What annual interest rate would you need to earn if you wanted a $200 per month contribution to grow to $14,700 in five years?
12. What is the future value of $700 deposited for one year earning 4 percent interest rate annually?
13. When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining:
the annual payments required.
whether the present value or the future value is a cash outflow.
the annual rate earned.
whether the present value or the future value is a cash inflow.
14. If you start making $115 monthly contributions today and continue them for six years, what is their present value if the compounding rate is 12 percent APR? What is the present value of this annuity?
15. Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?
Debt management ratios
16. What is the present value of a $200 payment made in 3 years when the discount rate is 8 percent?
17. You are considering a stock investment in one of two firms (A and B), both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the equity multiplier for the two firms.
Firm A: 10 times; Firm B: 1.11 times
Firm A: 10 times; Firm B: 9.99 times
Firm A: 15 times; Firm B: 1.00 times
Firm A: 20 times; Firm B: 1.11 times
18. Determine the interest rate earned on a $450 deposit when $475 is paid back in one year.
19. Which of the following is NOT true when developing a time line?
Cash inflows are designated with a positive number
The time line shows the magnitude of cash flows at different points in time.
Cash outflows are designated with a positive number.
The cost is known as the interest rate.
20. Which of the following refer to ratios that measure the relationship between a firm’s liquid (or current) assets and its current liabilities?
21.Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $4,800 each year into your new employer’s plan. If the rolled-over money and the new contributions both earn a 7 percent return, how much should you expect to have when you retire in 38 years?
22. Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?
23. A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $2,500 per month for the next two years and then $3,000 per month for another two years after that. If the bank is charging customers 6.5 percent APR, how much would it be willing to lend the business owner?
24. Which of the following measures the operating return on the firm’s assets, irrespective of financial leverage and taxes?
Return on assets
Basic earnings power ratio
Return on equity
25. With regard to money deposited in a bank, future values are:
are completely independent of present values.
equal to future values.
larger than present values.
smaller than present values.
26. Which is true? Ratio analysis:
can provide useful information on a firm’s past but not current position
can provide useful information on a firm’s past and current position, but should never be used to forecast future performance.
can provide useful information on a firm’s current position and hint at future performance.
can provide useful information on a firm’s current position but should never be used to forecast future performance
27. Which ratio measures a firm’s ability to pay short-term obligations with its available cash and market securities?
Quick or acid test
28. Loan amortization schedules show:
the interest paid per period only.
both the principal balance and interest paid per period.
the principal balance paid per period only.
the present value of the payments due.
29. To compute the present or future value of an annuity due, one computes the value of an ordinary annuity and then:
divides it by (1 – i).
multiplies it by (1 + i).
multiplies it by (1 – i).
divides it by (1 + i).
30. A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm’s inventory stay on the premises?
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