If you invest $8,000 at 12% interest, how much will you have in 7 years? A. $18,016 B. $17,688 C. $80,712 D. $3616 Ali Shah sets aside 2,000 each year for 5 years. He then withdraws the funds on an equal annual basis for the next 4 years. If Ali wishes to determine the amount of the annuity to be withdrawn each year, he should use the following two tables in this order: A. present value of an annuity of $1 future value of an annuity of $1 B. future value of an annuity of $1 present value of an annuity of $1 C. future value of an annuity of $1 future value of a $1 D. future value of an annuity of $1 present value of a $1 The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 5 years is A. $1,469 B. $1,480 C. $1,555 D. $1,520 As the interest rate increases, the present value of an amount to be received at the end of a fixed period A. increases B. decreases C. Not enough information to tell D. remains the same In determining the future value of a single amount, one measures A. the future value of periodic payments at a given interest rate. B. the present value of an amount discounted at a given interest rate. C. the present value of periodic payments at a given interest rate. D. the future value of an amount allowed to grow at a given interest rate. Increasing the number of periods will increase all of the following except A. the present value of an annuity. B. the future value of 1. C. the present value of 1. D. the future value of an annuity From the banker’s point of view, short-term bank credit is an excellent way of financing A. fixed assets. B. repayment of long-term debt. C. permanent working capital needs. D. seasonal bulges in inventory and receivables General Rent-All’s officers arrange a $50,000 loan. The company is required to maintain a minimum checking account balance of 10% of the outstanding loan. This practice is called A. an installment loan. B. a discounted loan. C. a compensating balance. D. a balloon payment Large firms tend to be A. net users of trade credit. B. firms with high levels of profitability. C. net suppliers of trade credit. D. firms with low levels of inventory turnover and accounts receivable turnover. The three primary policy variables to consider when extending credit include all of the following except A. credit standards. B. the terms of trade. C. the level of inflation. D. collection policy. When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine? A. The age of the management team, the dollar amount of sales, net profits, and long-term debt. B. The company’s cash balances, return on equity, and its average tax rates. C. The age of the company, the number of employees, the level of current assets. D. The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies). Which of the following is not a valid reason for holding cash? A. to meet transaction requirements B. to provide a compensating balance for a bank C. to earn the highest return possible D. to satisfy emergency needs for funds An aggressive, risk-oriented firm will likely A. borrow long-term and carry low levels of liquidity. B. borrow short-term and carry high levels of liquidity. C. borrow short-term and carry low levels of liquidity. D. borrow long-term and carry high levels of liquidity. When the yield curve is upward sloping, generally a financial manager should: A. utilize long-term financing B. wait for future financing C. utilize short-term financing D. lease During tight money periods A. long-term rates are higher than short-term rates. B. short-term rates are equal to long-term rates. C. short-term rates are higher than long-term rates. D. the relationship between short and long-term rates remains unchanged The break-even point can be calculated as A. variable costs divided by contribution margin. B. variable cost times contribution margin. C. total costs divided by contribution margin. D. fixed cost divided by contribution margin The degree of operating leverage is computed as A. percent change in volume divided by percent change in operating profit. B. percent change in operating income divided by percent change in volume. C. percent change in EPS divided by percent change in operating income. D. percent change in operating profit divided by percent change in net income. The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for A gross profit. B prepaid expenses. C interest expense. D change retained earnings The percent-of-sales method of financial forecasting A. requires more time than a cash budget approach. B. provides a month-to-month breakdown of data. C. assumes that balance sheet accounts maintain a constant relationship to sales. D. is more detailed than a cash budget approach A firm has current assets of $75,000 and total assets of $375,000. The firm’s sales are $900,000. The firm’s fixed asset turnover is A. 12.0x B. 3.0x C. 5.0x D. 2.4x A quick ratio that is much smaller than the current ratio reflects A. a large portion of current assets is in inventory. a small portion of current assets is in inventory. C. that the firm will have a high return on assets. D. that the firm will have a high inventory turnover. For a given level of profitability as measured by profit margin, the firm’s return on equity will A. decrease as its current ratio increases. B. increase as its debt-to-assets ratio decreases. C. decrease as its times-interest-earned ratio decreases. D. increase as its debt-to assets ratio increases Which of the following is an inflow of cash? A. the purchase of a new factory B. the sale of the firm’s bonds C. the retirement of the firm’s bonds D. funds spent in normal business operations An increase in investments in long-term securities will: A. decrease cash flow from investing activities. B. increase cash flow from financing activities. C. decrease cash flow from financing activities. D. increase cash flow from investing activities. Insider trading occurs when A. corporate officers buy stock in their company. B. lawyers, investment bankers, and others buy common stock in companies represented by their firms. C. any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies. D. someone has information not available to the public which they use to profit from trading in stocks. Sales (30,000 Units) $150,000 Variable costs 100,800 contribution margin $49,200 fixed manufacturing costs 24,000 operating income $25,200 interest 18,000 earnings before taxes $7,200 taxes (30%) 2,160 net income $5,040 shares outstanding 600 Refer to the figure above. This firm’s break-even point is A. 4,800 units B. 7,142 units C. 14,634 units D. 18,000 units ***Marni company*** Balance sheet as of december 31,2007 Assests cash $50,000 accounts receivable 100,000 inventory 200,000 net plant and equipment 650,000 total assets $1,000,000 Liabilites & Stockholders’ Equity Accounts Payable $100,000 Accrued Expenses 90,000 Long-term debt 250,000 common stock 100,000 paid-in capital 50,000 retained earnings 410,000 total liabilities & stockholders’ equity 1,000,000 Income Statement For the Year ended Dec 31,2007 sales (all on credit) $2,000,000 cost of goods sold 1,750,000 gross profit 250,000 sales and administrative expense 30,000 fixed lease expenses 10,000 depreciation 60,000 operating profit 150,000 interest expense 25,000 profit before taxes 125,000 taxes (40%) 50,000 net income $75,000 Refer to the figure above. The firm’s fixed asset turnover ratio is A. 1.5x. B. 3.1x. C. 0.1x. D. 2x. Tew Company Balance Sheet As of December 31, 2007 Assets Cash $20,000 Accounts Receivable 80,000 Inventory 50,000 Net Plant & Equipment 250,000 total assets $400,000 Liabilities & Stockholders’ Equity Accounts Payable $40,000 Accrued Expenses 60,00 Long-term debt 130,00 common stock 100,000 paid-in capital 10,00 retained earnings 60,000 Total Liabilities and Stockholders’ Equity $400,000 TEW Comapny Income Statement Sales (all on credit) $500,000 cost of goods sold 200,000 gross profit 300,000 sales & administrative expense 20,000 fixed lease expenses 10,000 depreciation 40,000 operating profit 230,000 interest expense 20,000 profit before taxes 210,000 taxes (35%) 73,500 net income $136,500 Refer to the figure above. The firm’s debt to asset ratio is A. 33%. B. 58%. C. 48%. D. 25%.