COMPLETE COURSE BUSN379 COMPLETE COURSE
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Thursday, 5 November 2015

COMPLETE COURSE BUSN379 COMPLETE COURSE

BUSN 379COMPLETE COURSE BUSN379 COMPLETE COURSE

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BUSN 379 Midterm Exam

1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3)

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

2. (TCO 1) Working capital management includes which of the following? (Points : 3)

establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
3. (TCO 1) Market value reflects which of the following: (Points : 3)

The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
4. (TCO 1) Which of the following is true regarding income statements? (Points : 3)

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
5. (TCO 1) Tato’s 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 Tato’s Pizza net income?
(Points : 3)

$157,950
$322,000
$243,000
$200,000
6. (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 marginal tax rate?(Points : 3)

35%
39%
34%
32%
7. (TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008 and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to $468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008? (Points : 3)

$1.30
$1.44
$0.77
$0.69
8. (TCO 1) The income statement reflects: (Points : 3)

income and expenses at the time when those items affect the cash flows of a firm.
income and expenses in accordance with GAAP.
the cash flows in accordance with GAAP.
the flow of cash into and out of a firm during a stated period of time.
the flow of cash into and out of a firm as of a particular date
9. (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 company’s operating cash flow? (Points : 3)

$120,000
$180,000
$170,000
$150,000
$120,000
10. (TCO 3) Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment? (Points : 3)

Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the investment.
Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.
Mark would have earned more interest if he had invested in an account paying annual interest.
Mark will earn less and less interest each year over the life of the investment
11. (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? (Points : 3)

$61,800
$53,500
$113,400
$97,200
12. (TCO 3) Your neighbor just received a credit offer in an e-mail. The company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he accepts this offer, how long will it take him to pay off the loan? (Points : 3)

81.00 months
81.50 months
83 months
82.17 months
90.70 months
13. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $5,000, $3,000, and $8,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3)

The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and $16,000
The project should be rejected because its present value is negative
14. (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:
Year
Software Company
Engineering Company


If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)

$33,200
$34,500
$42,000
$43,500
15. (TCO 3) North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why? (Points : 3)
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
1. (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? (Points : 3)

7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity? (Points : 3)

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
3. (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 16 percent? Assume annual payments. (Points : 3)

$1315
$1300
$756
$1000
4. (TCO 6 and 8) Which one of the following statements is correct? (Points : 3)

Bond issuers maintain a listing of bondholders when bonds are issued in bearer form.
An indenture, is a contract between a corporation and its shareholders.
Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the bond indenture
5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,180. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds? (Points : 3)

10.50%
11.50%
11.75%
12%
6. (TCO 3) Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the current price of the stock? Hint: Yield is the same as required rate of return. (Points : 3)

$100
$133
$102
$86.40
None of the above
7. (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 seven percent. What is the current price of the stock? (Points : 3)

$23
$32
$27
$29
8. (TCO 3) Royal Electric paid a $4 dividend last year. The dividend is expected to grow at a constant rate of six percent over the next four years. Common stockholders require a 13 percent return. What are the values of the dividends for years 1, 2 and 3, respectively? (Points : 3)

$4, $4.5 and $4.8
$4.24, $4.76 and $5.05
$4.24, $4.49, $4.76
$4, $4.50, $5.05
9. (TCO 6) Which of the following is true regarding the primary market? (Points : 3)

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
10. (TCO 6) A member of the NYSE who trades on the floor of the exchange for his or her personal account is called a(n): (Points : 3)

specialist.
independent broker.
floor trader.
stand-alone agent.
dealer
11. (TCO 6) The annual interest on a bond divided by the bond's market price is called the: (Points : 3)

yield to maturity.
yield to call.
total yield.
required yield.
current yield
12. (TCO 6) Star Industries has one outstanding bond issue. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 3)

deferred call
market
liquidity
debenture
sinking fund
13. (TCO 8) Which of the following is true regarding bonds? (Points : 3)

Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.
None of the above is true
14. (TCO 6) Which of the following is not a floating-rate bond? (Points : 3)

A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill.
An EE Savings Bond issued by the U.S. government.
A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.
TIPS
15. (TCO 6) Which of the following is true regarding put bonds? Select all that apply: (Points : 3)

Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before 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
1. (TCO 1) In a general partnership, each partner is personally liable for: (Points : 3)

the partnership debts that he or she personally obtained for the firm.
his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.
the total debts of the partnership, even if he or she was unaware of those debts.
the debts of the partnership, up to the amount he or she invested in the firm.
all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts
2. (TCO 1) Trademarks are classified as: (Points : 3)
short-term assets.
current liabilities.
long-term debt.
tangible fixed assets.
intangible fixed assets
1. (TCO 1) Can you provide some examples of recent, well-known unethical behavior cases? Explain the situation in one or two sentences.
2. What are some real-life scenarios where you can apply the time value of money? Present two or three scenarios. Briefly explain your rationale.
3. Explain some of the key risks associated with bonds.
4. What are some of the features of zero-coupon bonds that make them attractive to certain investors? Which type of investors will be most interested in these bonds?

BUSN 379 Week 8 Final Exam

1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4)
sunk costs should be included

erosion effects should be considered

financing costs need to be included

opportunity costs are irrelevant 
Question 2. 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? (Points : 4)
net present value method

payback method

internal rate of return method

all of these are time-adjusted methods 
Question 3. 3. (TCO 3 and 4) You can ensure that an investment is expected to create value for (Points : 4)
have a PI equal to zero.

produce negative rates of return.

have positive AARs.

have positive IRRs.

have positive NPVs.
Question 4. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent?
Year
0
1
2
3
4
Cash flow
-$32,000
$9,000
$10,000
$15,200
$7,800
(Points : 4)
$1,085.25

$1,193.77

$3,498.28

$4,102.86

$4,513.15
Question 5. 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points : 4)
5.81 years

6.05 years

6.96 years

7.90 years

This project never pays back
Question 6. 6. (TCO 4) The postponement of a project until conditions are more favorable:(Points : 4)
is a valuable option.

is referred to as the option to extend.

could not cause a negative net present value project to become a positive net present value project.

will generally cause the internal rate of return for a project to decline.
Question 7. 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4)
contingency planning.

hard rationing.

soft rationing.

capital constraint.

scenario analysis.
Question 8. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4)
The net present value of the project is approximately $1,011

This project should be accepted because it has a negative net present value

This project’s payback period is 10 years or more

All of the above are true
Question 9. 9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points : 4)
$12,000

$8,574

$19,800

None of the above
Question 10. 10. (TCO 1 and 4) Assume a corporation has earnings before depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company? (Points : 4)
$82,000

$110,000

$42,000

none of these 
Question 11. 11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points : 4)
is diversifiable

is the total risk associated with surprise events

it is measured by beta

it is measured by standard deviation
Question 12. 12. (TCO 8) Which statement is true regarding risk? (Points : 4)
the expected return is usually the same as the actual return

a key to assess risk is determining how much risk an investment adds to a portfolio

risks can always be decreased or mitigated by the financial manager

the higher the risk, the lower the return investors require for the investment 
Question 13. 13. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?
State of Economy
Probability of State of Economy
Rate of Return
Recession
.02
-.06
Normal
.88
.11
Boom
.10
.17
(Points : 4)
7.33 percent

9.82 percent

11.26 percent

11.33 percent 

11.50 percent 
Question 14. 14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock D? (Points : 4)
17.68 percent

17.91 percent

18.42 percent

19.07 percent

19.46 percent
Question 15. 15. (TCO 8) You currently own a portfolio valued at $24,000 that has a beta of 1.1. You have another $8,000 to invest, and would like to invest it in a manner such that the risk of the new portfolio matches that of the overall market. What does the beta of the new security have to be? (Points : 4)
.46

.55

.61

.70

.90
1. (TCO 8) If the financial markets are strong form efficient, then: (Points : 4)
only the most talented analysts can determine the true value of a security.

only company insiders have a marketplace advantage.

technical analysis provides the best tool to gain a marketplace advantage.

no one person has an advantage in the marketplace.

every security offers the same rate of return.
Question 2. 2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 9 percent (after-tax) and common equity at a cost of 16 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points : 4)
between 4.5% and 8%

more than 13%

between 12 and 13%

between 13 and 14%

none of the above
Question 3. 3. (TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to eight percent. If the required rate of return is 13 percent, what is its current price? (Points : 4)
$103.68

$36.92

$96.00

none of these 
Question 4. 4. (TCO 5, 6 and 7) Which of the following is not true regarding the cost of debt? (Points : 4)
It is the return that the firm’s creditors demand on new borrowing.

It is the interest rate that the firm pays on current/existing borrowing.

An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding.

It needs to be converted into an after-tax cost.
Question 5. 5. (TCO 5) Which of the following is not true regarding the cost of retained earnings? (Points : 4)
it is relevant to the WACC

does not require new funds to be raised

has associated flotation costs

has a cost, which is the opportunity cost associated with stockholder funds
Question 6. 6. (TCO 4) A project has the following cash flows. What is the internal rate of return?
Year
0
1
2
3
Cash flow
-$195,600
$99,800
$87,600
$75,300
(Points : 4)
less than 5%

between 5 and 15%

between 15 and 18%

more than 21%
Question 7. 7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm's weighted average cost of capital (WACC)? (Points : 4)
the WACC can be used as the required return for all new projects.

the WACC of a leveraged firm will decrease when the tax rate decreases.

an increase in the market risk premium will tend to decrease a firm's WACC.

the WACC is a starting point for the subjective approach to setting discount rates.

a reduction in the risk level of a firm will tend to increase the firm's WACC.
Question 8. 8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm's cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points : 4)
5.98%

7.06%

8.05%

9.68%

10.10%
Question 9. 9. (TCO 2) Which one of the following occurs if a firm files for Chapter 7 bankruptcy, but does not generally occur if the firm files for Chapter 11 bankruptcy?(Points : 4)
a petition is filed in federal court

administrative fees are incurred

a list of creditors is compiled

pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the firm

a trustee-in-bankruptcy is elected by the creditors
Question 10. 10. (TCO 5) Which of the following statements is false regarding the cost of capital? (Points : 4)
The cost of capital should consider the flotation costs.

All other being equal, it is preferable to use market value weights than book value weights.

The WACC is the most appropriate discount rate for all projects.

Should include the cost of retained earnings.
Question 11. 11. (TCO 2) Select any actions that do not affect the cash account. (Points : 4)
Goods are sold cash

An interest payment on a notes payable is made

A payment due is received from a client

Dividends are paid to shareholders

Inventory is purchased and paid for with credit
Question 12. 12. (TCO 2) Which of the following statements is true? (Points : 4)
There is an opportunity cost associated with not offering credit. 

The costs of the credit application process and the costs expended in the collection process are not carrying costs of granting credit.

Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows.

The optimal credit policy, is the policy that produces the largest amount of sales for a firm.
Question 13. 13. (TCO 2) Which one of the following industries is most apt to have the shortest cash cycle? (Points : 4)
electric utility company

airplane manufacturer

fast-food restaurant

furniture store

clothing manufacturer
Question 14. 14. (TCO 2) Delphinia's has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.
Q1
Q2
Q3
Q4
Sales
$1,800
$1,700
$2,100
$1,900
(Points : 4)
$567

$600

$821

$1,134

$1,200
Question 15. 15. (TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization? (Points : 4)
Because by maximizing the current stock value, you also maximize the company’s profit for the year.

Because this criterion is non-ambiguous.

Because financial managers always act in the best interest of shareholders.

Because it creates short-term gains in the financial statements.
6. (TCO 1) Provide three examples of recent well-known unethical behavior cases. Explain the situation in one or two paragraphs. How do you believe that this behavior affected the firm’s value? (Points : 10)
7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points : 10)
8. (TCO 8) What is the difference between business risk and financial risk? If Company A has a higher business risk than Company B, should its cost of capital be higher? Why or why not? Explain your rationale. (Points : 10)
9. (TCO 2) What are some important factors to consider when conducting a credit evaluation and scoring? (Points : 10)
0. (TCO 6 and 7) Do you believe that it is appropriate for some industries to be more leveraged than others? Explain your rationale. (Points : 10)
1. (TCO 1) Which of the following are capital structure concerns? 



I. how to obtain short-term financing

II. the company's financing mix 

III. the cost of funds

IV. how and where to raise money (Points : 4)
I and II

I, II and III

II, III and IV

I, III and IV

All of the above
Question 2. 2. (TCO 1) Book values are different from market values because: (Points : 4)
Book values reflect the value of the asset based on generally-accepted accounting principles.

Book values are used in the company’s balance sheet.

Book values do not reflect the amount someone is willing to pay today for an asset.

All of the above

None of the above 
Question 3. 3. (TCO 1) Use the following tax table to answer this question:
Taxable Income
Tax Rate
$0-
$50,000
15%
$50,001-
75,000
25
$75,001-
100,000
34
$100,001-
335,000
39
$335,001-
10,000,000
34




John has taxable income of $389,745. What is John’s average tax rate? (Points : 4)
33%

34%

36%

37%

38%
Question 4. 4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 19.50 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4)
Regional Bank, APR

Local Bank, EAR

Regional Bank, EAR

Local Bank, APR
Question 5. 5. (TCO 3) You deposited $11,000 in your bank account today. Which of the following will decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points : 4)
a decrease in the interest rate 

increasing the initial amount of your deposit 

increasing the frequency of the interest payments 

decreasing the length of the investment period 
Question 6. 6. (TCO 3) Amy needs to save $20,000 in cash to buy a new car five years from today. She expects to earn 6.5 percent, compounded annually, on her savings. How much does she need to deposit today, if this is the only money she saves for this purpose? (Points : 4)
$12,468.07

$12,502.14

$14,597.62

$17,044.32

$17,129.01
Question 7. 7. (TCO 3) Paper Pro needed a new store. The company spent $65,000 to refurbish an old shop and create the current facility. The firm borrowed 75 percent of the refurbishment cost at eight percent interest for 11 years. What is the amount of each monthly payment? (Points : 4)
$91.05

$284.13

$556.50

$682.87

$731.60
Question 8. 8. (TCO 3) John borrowed $5,500 four years ago at an annual interest rate of 10 percent. The loan term is seven years. Since he borrowed the money, Sonny has been making annual payments of $550 to the bank. Which type of loan does John have? (Points : 4)
interest-only

pure discount

compounded

amortized

complex
Question 9. 9. (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. (Points : 4)
$1080

$1085

$925

$1000
Question 10. 10. (TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points : 4)
primary

main

secondary

principal

dealer
Question 11. 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4)
Financial leverage increases profits and decreases losses.

Financial leverage has no effect on a firm's return on equity.

Financial leverage, refers to the use of common stock.

Financial leverage magnifies both profits and losses.

Increasing financial leverage will always increase the earnings per share.
Question 12. 12. (TCO 3) What is the approximate yield to maturity for a seven-year bond that pays 11 percent interest on a $1000 face value annually if the bond sells for $952?(Points : 4)
10.5%

10.6%

11.5%

12.1% 
Question 13. 13. (TCO 8) Which of the following is true regarding bonds? (Points : 4)
Most bonds do not carry default risk.

Municipal bonds are free of default risk.

Bonds are not sensitive to changes in the interest rates.

Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.

None of the above is true 
Question 14. 14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate movements? (Points : 4)
zero-coupon, five year

seven percent annual coupon, five year

zero-coupon, 10 year

five percent semi-annual coupon, 10 year

five percent annual coupon, 10 year
Question 15. 15. (TCO 6) A sinking fund is an account managed by a bond trustee for the sole purpose of: (Points : 4)
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.

BUSN 379 COMPLETE COURSE BUSN379 COMPLETE COURSE

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