PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest. How much did he loan out to his brother? (Round to the nearest dollar.)

PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest. How much did he loan out to his brother? (Round to the nearest dollar.)

A) $2,713
B) $2,250
C) $2,404
D) $2,545


Answer: C

FV of multiple cash flows: International Shippers, Inc., have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)

FV of multiple cash flows: International Shippers, Inc., have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)

A) $4,214,360
B) $4,551,446
C) $3,900,865
D) $4,875,212


Answer: B

FV of multiple cash flows: Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)

FV of multiple cash flows: Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)

A) $27,150
B) $29,900
C) $30,455
D) $31,504


Answer: D

FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of $3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to the nearest dollar.)

FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of $3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to the nearest dollar.)

A) $11,120
B) $10,944
C) $10,812
D) $12,770


Answer: A

FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows starting at the end of the year—$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the nearest dollar.)

FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows starting at the end of the year—$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the nearest dollar.)

A) $644,406.10
B) $732,114
C) $685,312
D) $900,810


Answer: A

FV of multiple cash flows: Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows:

FV of multiple cash flows: Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows:

1 2 3 4 5
$643,547 $678,214 $775,908 $778,326 $735,444

If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.)


A) $3,889,256
B) $4,227,118
C) $5,214,690
D) $4, 809,112


Answer: B

Rate of growth: Link Net, Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2010. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Link Net, Inc.'s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent)

Rate of growth: Link Net, Inc. just generated earnings per share of $3.75 for the fiscal year ending September 30, 2010. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate will Link Net, Inc.'s earnings per share be growing over this 5-year period? (Round off to the nearest 1/10 percent)

A) 15.7%
B) 18.5%
C) 21.3%
D) 13.4%


Answer: B

Number of Periods it Takes an Investment to Grow a Certain Amount: Sally Wilson is planning her retirement. She is presently investing in a 401(k) but needs an additional $500,000 to reach her retirement goal. As luck would have it, Sally just won a brand new car that is worth $36,000 in a raffle. If Sally were to sell the car and invest the $36,000 proceeds at a rate of 6.50%, compounded annually, how long will it be before Sally could retire? (Round off to the nearest 1/10 of a year)

Number of Periods it Takes an Investment to Grow a Certain Amount: Sally Wilson is planning her retirement. She is presently investing in a 401(k) but needs an additional $500,000 to reach her retirement goal. As luck would have it, Sally just won a brand new car that is worth $36,000 in a raffle. If Sally were to sell the car and invest the $36,000 proceeds at a rate of 6.50%, compounded annually, how long will it be before Sally could retire? (Round off to the nearest 1/10 of a year)

A) 36.6 years
B) 41.8 years
C) 52.2 years
D) 24.0 years


Answer: B

Present Value: Juan and Carla Herman plan to buy a time-share in six years in the amount of $16,860. In order to have adequate funds to do so, the Herman's want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Carla need to deposit today to achieve their goal? (Round off to the nearest dollar.)

Present Value: Juan and Carla Herman plan to buy a time-share in six years in the amount of $16,860. In order to have adequate funds to do so, the Herman's want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Carla need to deposit today to achieve their goal? (Round off to the nearest dollar.)

A) $19,138
B) $ 8,885
C) $12,055
D) $14,243


Answer: C

Future Value: Herbert Hall just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Herbert can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.)

Future Value: Herbert Hall just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Herbert can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.)

A) $237,416
B) $ 71,550
C) $184,622
D) $162,113


Answer: D

Time to attain goal: Cheryl Merriweather wants to invest in a bank CD that will pay her 7.8 percent annually. If she is investing $11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.)

Time to attain goal: Cheryl Merriweather wants to invest in a bank CD that will pay her 7.8 percent annually. If she is investing $11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.)

A) 5 years
B) 7 years
C) 2 years
D) 4 years


Answer: D

Time to attain goal: Ryan Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)

Time to attain goal: Ryan Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually. How many years will it take for his investment to grow to $10,000? (Round off to the nearest year.)

A) 8 years
B) 11 years
C) 10 years
D) 12 years


Answer: C

Time to attain goal: Franklin Foods announced that its sales were $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

Time to attain goal: Franklin Foods announced that its sales were $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million? (Round off to the nearest year.)

A) 7 years
B) 6 years
C) 8 years
D) 10 years


Answer: B

Time to attain goal: Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.)

Time to attain goal: Elegant Designers have generated sales of $625,000 for the current year. If they can grow their sales at a rate of 12 percent every year, how long will they take to triple their sales? (Round off to the nearest year.)

A) 8 years
B) 7 years
C) 10 years
D) 9 years


Answer: C

Time to attain goal: Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it be before he can double his investment? Use the Rule of 72 and round to the nearest year.

Time to attain goal: Your uncle is looking to double his investment of $10,000. He claims he can get earn 14 percent on his investment. How long will it be before he can double his investment? Use the Rule of 72 and round to the nearest year.

A) 5 years
B) 14 years
C) 10 years
D) None of the above


Answer: A

Growth rate: Vidmar Agencies is a fast-growing advertising agency. Currently, their sales are at $700,000. They expect their sales to grow at an annual rate of 35 percent in the next two years, followed by an annual rate of 25 percent in years 3 through 7. Finally, their growth rate would slow down to 10 percent in years 8-10. What will be their sales as of year 10? (Round to the nearest dollar.)

Growth rate: Vidmar Agencies is a fast-growing advertising agency. Currently, their sales are at $700,000. They expect their sales to grow at an annual rate of 35 percent in the next two years, followed by an annual rate of 25 percent in years 3 through 7. Finally, their growth rate would slow down to 10 percent in years 8-10. What will be their sales as of year 10? (Round to the nearest dollar.)

A) $1,698,023
B) $2,843,323
C) $3,893,280
D) $5,181,956


Answer: D

Growth rate: Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.)

Growth rate: Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.)

A) $319,157
B) $241,329
C) $911,546
D) $689,259


Answer: C

Growth rate: Cleargen, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.)

Growth rate: Cleargen, a detergent manufacturer, has announced this year's net income as $832,500. It expects its net earnings to grow at a rate of 15 percent per year for the next two years, before dropping to 12 percent for each of the following two years. What is the firm's net income after four years? (Round to the nearest dollar.)

A) $1,381,071
B) $1,266,128
C) $1,233,099
D) $1,072,260

Answer: A

Growth rate: Petry Corp. is a growing company with sales of $1.25 million this year. The firm expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Petry's sales at the end of five years? (Round to the nearest percent.)

Growth rate: Petry Corp. is a growing company with sales of $1.25 million this year. The firm expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Petry's sales at the end of five years? (Round to the nearest percent.)

A) $2,160,000
B) $3,515,625
C) $1,875,000
D) $2,929,688


Answer: B

Growth rate: Trojan Traps manufactures an innovative mouse trap. Sales this year are $325,000. The company expects its sales to go up to $500,000 in five years. What is the expected growth rate in sales for this firm? (Round to the nearest percent.)

Growth rate: Trojan Traps manufactures an innovative mouse trap. Sales this year are $325,000. The company expects its sales to go up to $500,000 in five years. What is the expected growth rate in sales for this firm? (Round to the nearest percent.)

A) 9%
B) 11%
C) 6%
D) 12%


Answer: A

Interest rate: Trayne Rice has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)

Interest rate: Trayne Rice has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)

A) 19%
B) 21%
C) 13%
D) 16%


Answer: A

Interest rate: Pedro Martinez wants to invest $25,000 in a spa that his sister is starting. He will triple his investment in six years. What is the rate of return that Pedro is being promised? (Rounded to the nearest percent.)

Interest rate: Pedro Martinez wants to invest $25,000 in a spa that his sister is starting. He will triple his investment in six years. What is the rate of return that Pedro is being promised? (Rounded to the nearest percent.)

A) 18%
B) 20%
C) 12%
D) 25%


Answer: B

Interest rate: Ray Seo has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

Interest rate: Ray Seo has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return earned on this investment?

A) 9.3%
B) 8.7%
C) 11.1%
D) 10.4%


Answer: D

Interest rate: Rachael Steele wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Rachael go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.)

Interest rate: Rachael Steele wants to borrow $6,000 for a period of four years. She has two choices. Her bank is offering to lend her the amount at 7.25 percent compounded annually. She can also borrow from her firm and will have to repay a total of $8,130.93 at the end of four years. Should Rachael go with her bank or the firm, and what is the interest rate if she borrows from her firm? (Round to the nearest percent.)

A) Bank: 9%
B) Firm: 7%
C) Bank: 8%
D) Firm: 6%


Answer: C

Interest rate: Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to the nearest percent.

Interest rate: Your tuition for the coming year is due today. You borrow $8,000 from your uncle and agree to repay in the three years an amount of $9,250. What is the interest rate on this loan? Round to the nearest percent.

A) 5%
B) 6%
C) 7%
D) 8%


Answer: A

Multiple compounding (PV): Joan Alexander wants to go on a cruise in three years. She could earn 8.2 percent compounded monthly in an account if she were to deposit the money today. She needs to have $10,000 in three years. How much will she have to deposit today? (Round to the nearest dollar.)

Multiple compounding (PV): Joan Alexander wants to go on a cruise in three years. She could earn 8.2 percent compounded monthly in an account if she were to deposit the money today. She needs to have $10,000 in three years. How much will she have to deposit today? (Round to the nearest dollar.)

A) $6,432
B) $7,826
C) $8,148
D) $7,763


Answer: B

Multiple compounding (PV): Darius Miller is seeking to accumulate $50,000 in six years to invest in a real estate venture. He can earn 6.35 percent annual interest with monthly compounding in a private investment. How much will he have invest today to reach his goal? (Round to the nearest dollar.)

Multiple compounding (PV): Darius Miller is seeking to accumulate $50,000 in six years to invest in a real estate venture. He can earn 6.35 percent annual interest with monthly compounding in a private investment. How much will he have invest today to reach his goal? (Round to the nearest dollar.)

A) $37,527
B) $47,015
C) $34,193
D) $31,648


Answer: C

Multiple compounding (PV): Marcie Witter is saving for her daughter's college education. She wants to have $50,000 available when her daughter graduates from high school in four years. If the investment she is considering will pay 8.25 percent compounded monthly, how much will she have to invest today to reach her target? (Round to the nearest dollar.)

Multiple compounding (PV): Marcie Witter is saving for her daughter's college education. She wants to have $50,000 available when her daughter graduates from high school in four years. If the investment she is considering will pay 8.25 percent compounded monthly, how much will she have to invest today to reach her target? (Round to the nearest dollar.)

A) $35,987
B) $49,659
C) $41,275
D) $36,450


Answer: A

Multiple compounding (PV): You need to have $15,000 in five years to payoff a home equity loan. You can invest in an account that pays 5.75 percent compounded quarterly. How much will you have to invest today to attain your target in five years? (Round to the nearest dollar.)

Multiple compounding (PV): You need to have $15,000 in five years to payoff a home equity loan. You can invest in an account that pays 5.75 percent compounded quarterly. How much will you have to invest today to attain your target in five years? (Round to the nearest dollar.)

A) $4,903
B) $11,275
C) $14,184
D) $12,250


Answer: B

Multiple compounding (PV): Rick Rodriquez plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

Multiple compounding (PV): Rick Rodriquez plans to invest some money today so that he will receive $7,500 in three years. If the investment he is considering will pay 3.65 percent compounded daily, how much will he have to invest today?

A) $5,276
B) $6,722
C) $6,897
D) $7,140


Answer: B

Present value: John Hsu wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

Present value: John Hsu wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

A) $54,233
B) $63,837
C) $91,324
D) $40,351


Answer: D

Present value: Becky Sayers wants to buy a house in six years. She hopes to be able to put down $25,000 at that time. If the bank CD she wants to invest in will pay 7.5 percent annually, how much will she have to invest today? (Round to the nearest dollar.)

Present value: Becky Sayers wants to buy a house in six years. She hopes to be able to put down $25,000 at that time. If the bank CD she wants to invest in will pay 7.5 percent annually, how much will she have to invest today? (Round to the nearest dollar.)

A) $18,472
B) $13,987
C) $16,199
D) $23,256

Answer: C

Present value: Derek's friend, Jackson, is asking to borrow today with a promise to repay $7,418.87 in four years. If Derek could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Jackson today? (Round to nearest dollar.)

Present value: Derek's friend, Jackson, is asking to borrow today with a promise to repay $7,418.87 in four years. If Derek could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Jackson today? (Round to nearest dollar.)

A) $6,000
B) $7,035
C) $6,500
D) $7,150


Answer: A

Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

A) $22,680
B) $26,454
C) $16,670
D) $19,444


Answer: C

Present value: Tommie Harris is considering an investment that pays 6.5 percent annually. How much must he invest today such that he will have $25,000 in seven years? (Round to the nearest dollar.)

Present value: Tommie Harris is considering an investment that pays 6.5 percent annually. How much must he invest today such that he will have $25,000 in seven years? (Round to the nearest dollar.)

A) $23,474
B) $38,850
C) $26,625
D) $16,088


Answer: D

Compounding: Richard Delgado invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest-on-interest be after two years?

Compounding: Richard Delgado invested $10,000 in a money market account that will pay 5.75 percent compounded daily. How much will the interest-on-interest be after two years?

A) $1,218.63
B) $1,150.00
C) $33.06
D) $68.63


Answer: D

Compounding: Dat Nguyen is depositing $17,500 in an account paying an annual interest rate of 8.25 percent compounded monthly. What is the interest-on-interest after six years?

Compounding: Dat Nguyen is depositing $17,500 in an account paying an annual interest rate of 8.25 percent compounded monthly. What is the interest-on-interest after six years?

A) $8,662.50
B) $10,925
C) $2,497.63
D) $1,092.48


Answer: C

Compounding: Chung Lee wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

Compounding: Chung Lee wants to invest $3,000 in an account paying 5.25 percent compounded quarterly. What is the interest on interest after four years?

A) $695.98
B) $65.98
C) $630.00
D) None of the above


Answer: B

Compounding: Joachim Noah is investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest-on-interest if interest is compounded?

Compounding: Joachim Noah is investing $5,000 in an account paying 6.75 percent annually for three years. What is the interest-on-interest if interest is compounded?

A) $1,012.50
B) $1,082.38
C) $82.38
D) $69.88


Answer: D

Compounding: Trish Harris has deposited $2,500 today in an account paying 6 percent interest annually. What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest-on-interest in five years?

Compounding: Trish Harris has deposited $2,500 today in an account paying 6 percent interest annually. What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest-on-interest in five years?

A) $750; $95.56
B) $150; $845.56
C) $150; $95.56
D) $95.56; $845.56


Answer: A

Multiple compounding periods (FV): Hector Cervantes started on his first job last year and plans to save for a down payment on a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 6.25 percent on a monthly basis. How much will he have at the end of 10 years?

Multiple compounding periods (FV): Hector Cervantes started on his first job last year and plans to save for a down payment on a house in 10 years. He will be able to invest $12,000 today in a money market account that will pay him an interest of 6.25 percent on a monthly basis. How much will he have at the end of 10 years?

A) $12,640
B) $22,383
C) $24,839
D) None of the above


Answer: B

Multiple compounding periods (FV): Carlyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Carlyn have at the end of seven years? (Round to the nearest dollar.)

Multiple compounding periods (FV): Carlyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Carlyn have at the end of seven years? (Round to the nearest dollar.)

A) $5,091
B) $3,548
C) $5,130
D) $5,075


Answer: C

Multiple compounding periods (FV): Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which one will have the highest future value if she plans to invest for three years?

Multiple compounding periods (FV): Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which one will have the highest future value if she plans to invest for three years?

A) 3.5% compounded daily
B) 3.25% compounded monthly
C) 3.4% compounded quarterly
D) 3.75% compounded annually


Answer: A

Multiple compounding periods (FV): Normandy Textiles had a cash inflow of $1 million, which it needs for a long-term investment at the end of one year. It plans to deposit this money in a bank CD that pays daily interest at 3.75 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)

Multiple compounding periods (FV): Normandy Textiles had a cash inflow of $1 million, which it needs for a long-term investment at the end of one year. It plans to deposit this money in a bank CD that pays daily interest at 3.75 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)

A) $1,211,375
B) $1,000,103
C) $1,037,500
D) $1,038,210


Answer: D

Multiple compounding periods (FV): Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?

Multiple compounding periods (FV): Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?

A) $5,434
B) $5,441
C) $5,107
D) $5,216


Answer: B

Future value: Brittany Willis is looking to invest for retirement, which she hopes will be in 20 years. She is looking to invest $22,500 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.)

Future value: Brittany Willis is looking to invest for retirement, which she hopes will be in 20 years. She is looking to invest $22,500 today in U.S. Treasury bonds that will earn interest at 6.25 percent annually. How much will she have at the end of 20 years? (Round to the nearest dollar.)

A) $68,870
B) $50,625
C) $75,642
D) None of the above


Answer: D

Future value: Wes Ottey would like to buy a condo in Florida in six years. He is looking to invest $75,000 today in a stock that is expected to earn a return of 18.3 percent annually. How much will he have at the end of six years? (Round to the nearest dollar.)

Future value: Wes Ottey would like to buy a condo in Florida in six years. He is looking to invest $75,000 today in a stock that is expected to earn a return of 18.3 percent annually. How much will he have at the end of six years? (Round to the nearest dollar.)

A) $205,575
B) $157,350
C) $184,681
D) None of the above


Answer: A

Future value: Carlos Lopes is looking to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years? (Round to the nearest dollar.)

Future value: Carlos Lopes is looking to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How much will he have at the end of three years? (Round to the nearest dollar.)

A) $8,870
B) $8,000
C) $8,681
D) None of the above


Answer: A

Future value: Ning Gao is planning to buy a house in five years. She is looking to invest $25,000 today in an index mutual fund that will provide her a return of 12 percent annually. How much will she have at the end of five years? (Round to the nearest dollar.)

Future value: Ning Gao is planning to buy a house in five years. She is looking to invest $25,000 today in an index mutual fund that will provide her a return of 12 percent annually. How much will she have at the end of five years? (Round to the nearest dollar.)

A) $45,000
B) $28,000
C) $44,059
D) None of the above


Answer: C

Future value: You are interested in investing $10,000, a gift from your grandparents, for the next four years in a mutual fund that will earn an annual return of 8 percent. What will your investment be worth at the end of four years? (Round to the nearest dollar.)

Future value: You are interested in investing $10,000, a gift from your grandparents, for the next four years in a mutual fund that will earn an annual return of 8 percent. What will your investment be worth at the end of four years? (Round to the nearest dollar.)

A) $10,800
B) $13,605
C) $13,200
D) None of the above


Answer: B

Return on Equity: In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round off to the nearest 0.1%)

Return on Equity: In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round off to the nearest 0.1%)

A) 13.1%
B) 14.6%
C) 22.5%
D) 18.7%


Answer: A

DuPont equation: Sorenstam Corp has an equity multiplier of 2.34 times, total assets of $4,512,895, a ROE of 17.5 percent, and a total assets turnover of 3.1 times. Calculate the firm's ROA.

DuPont equation: Sorenstam Corp has an equity multiplier of 2.34 times, total assets of $4,512,895, a ROE of 17.5 percent, and a total assets turnover of 3.1 times. Calculate the firm's ROA.

A) 6.23%
B) 4.53%
C) 7.48%
D) 5.79%


Answer: C

DuPont equation: Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income?

DuPont equation: Saunders, Inc., has a ROE of 18.7 percent, an equity multiplier of 2.53, sales of $2.75 million, and a total assets turnover of 2.7 times. What is the firm's net income?

A) $75,281.80
B) $514,250.00
C) $51,425.00
D) $7,528.10


Answer: A

DuPont equation: Andrade Corp has debt of $2,834,950, total assets of $5,178,235, sales of $8,234,121, and net income of $812,355. What is the firm's return on equity?

DuPont equation: Andrade Corp has debt of $2,834,950, total assets of $5,178,235, sales of $8,234,121, and net income of $812,355. What is the firm's return on equity?

A) 7.1%t
B) 34.7%
C) 28.1%
D) 43.2%


Answer: B

Profitability ratios: Tigger Corp. has reported the financial results for year-end 2006. Based on the information given, calculate the firm's gross profit margin and operating profit margin.

Profitability ratios: Tigger Corp. has reported the financial results for year-end 2006. Based on the information given, calculate the firm's gross profit margin and operating profit margin.

Net sales = $4,156,700 Net income = $778,321
Cost of goods sold = $2,715,334 EBIT = $1,356,098

A) 34.7%; 32.6%
B) 32.6%; 18.72%
C) 34.7%; 18.72%
D) None of the above


Answer: A

DuPont equation: GenTech Pharma has reported the following information: Sales/Total assets = 2.89; ROA = 10.74%; ROE = 20.36% What are the firm's profit margin and equity multiplier?

DuPont equation: GenTech Pharma has reported the following information:
Sales/Total assets = 2.89; ROA = 10.74%; ROE = 20.36%
What are the firm's profit margin and equity multiplier?

A) 7.1%; 0.53
B) 7.1%; 1.90
C) 3.7%; 0.53
D) 3.7%; 1.90


Answer: D

Profitability ratio: Juventus Corp has total assets of $4,744,288, total debt of $2,912,000, and net sales of $7,212,465. Their net profit margin for the year is 18 percent. What is Juventus's ROA?

Profitability ratio: Juventus Corp has total assets of $4,744,288, total debt of $2,912,000, and net sales of $7,212,465. Their net profit margin for the year is 18 percent. What is Juventus's ROA?

A) 25.6%
B) 18%
C) 27.4%
D) None of the above


Answer: C

Market-value ratios: Perez Electronics Corp. has reported that its net income for 2006 is $1,276,351. The firm has 420,000 shares outstanding and a P-E ratio of 11.2 times. What is the firm's share price?

Market-value ratios: Perez Electronics Corp. has reported that its net income for 2006 is $1,276,351. The firm has 420,000 shares outstanding and a P-E ratio of 11.2 times. What is the firm's share price?

A) $34.05
B) $3.68
C) $11.20
D) $36.80


Answer: A

Market-value ratio: RTR Corp. has reported a net income of $812,425 for the year. The company's share price is $13.45, and the company has 312,490 shares outstanding. Compute the firm's price-earnings ratio.

Market-value ratio: RTR Corp. has reported a net income of $812,425 for the year. The company's share price is $13.45, and the company has 312,490 shares outstanding. Compute the firm's price-earnings ratio.

A) 4.87 times
B) 8.12 times
C) 5.17 times
D) None of the above


Answer: C

Leverage ratio: Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio?(Round to nearest whole percent)

Leverage ratio: Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio?(Round to nearest whole percent)

A) 2.31; 1.31
B) 1.75; 0.75
C) 0.75; 1.75
D) 1.31; 2.31


Answer: A

Leverage ratio: What will be a firm's equity multiplier given a debt ratio of 0.45?

Leverage ratio: What will be a firm's equity multiplier given a debt ratio of 0.45?

A) 1.82
B) 1.28
C) 2.22
D) None of the above


Answer: A

Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

A) 0.60
B) 1.47
C) 1.74
D) 0

Answer: B

Coverage ratios: Fahr Company had depreciation expenses of $630,715, interest expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006. What are the times interest earned and cash coverage ratios for this company?

Coverage ratios: Fahr Company had depreciation expenses of $630,715, interest expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006. What are the times interest earned and cash coverage ratios for this company?

A) 19.4 times; 12.7 times
B) 17.3 time; 11.4 times
C) 13.8 times; 19.4 times
D) None of the above


Answer: C

Coverage ratios: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the year is $1,434,500. What is its cash coverage ratio?

Coverage ratios: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the year is $1,434,500. What is its cash coverage ratio?

A) 15.42 times
B) 18.34 times
C) 14.15 times
D) None of the above


Answer: C

Coverage ratio: Trident Corp. has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times interest earned?

Coverage ratio: Trident Corp. has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times interest earned?

A) 13 times
B) 12 times
C) 11 times
D) None of the above


Answer: B

Efficiency ratio: Deutsche Bearings has total sales of $9,745,923, inventories of $2,237,435, cash and equivalents of $755,071, and days' sales outstanding of 49 days. If the firm's management wanted its DSO to be 35 days, by how much will the accounts receivable have to change?

Efficiency ratio: Deutsche Bearings has total sales of $9,745,923, inventories of $2,237,435, cash and equivalents of $755,071, and days' sales outstanding of 49 days. If the firm's management wanted its DSO to be 35 days, by how much will the accounts receivable have to change?

A) $373,816.23
B) -$373,816.23
C) -$379,008.12
D) $379,008.12


Answer: B

Efficiency ratio: Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold?

Efficiency ratio: Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold?

A) $2,074,557
B) $2,745,640
C) $274,560
D) None of the above


Answer: A

Efficiency ratio: Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm's accounts receivables turnover and days' sales outstanding?

Efficiency ratio: Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm's accounts receivables turnover and days' sales outstanding?

A) 0.24 times; 78.5 days
B) 4.26 times; 85.7 days
C) 5.2 times; 61.3 days
D) None of the above


Answer: B

Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days' sales in inventory?

Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days' sales in inventory?

A) 65.2 days
B) 64.3 days
C) 61.7 days
D) 57.9 days


Answer: A

Efficiency ratio: Jason Traders has sales of $833,587, a gross profit margin of 32.4 percent, and inventory of $178,435. What is the company's inventory turnover ratio?

Efficiency ratio: Jason Traders has sales of $833,587, a gross profit margin of 32.4 percent, and inventory of $178,435. What is the company's inventory turnover ratio?

A) 4.67 times
B) 3.16 times
C) 4.1 times
D) None of the above

Answer: B

Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables?

Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables?

A) $881,234
B) $13,403,567
C) $1,340,357
D) $81,234

Answer: A

Efficiency ratio: If Randolph Corp. has accounts receivables of $654,803 and net sales of $1,932,349, what is its accounts receivable turnover?

Efficiency ratio: If Randolph Corp. has accounts receivables of $654,803 and net sales of $1,932,349, what is its accounts receivable turnover?

A) 0.34 times
B) 1.78 times
C) 2.95 times
D) None of the above


Answer: C

Liquidity ratio: Ronaldinho Trading Co. is required by its bank to maintain a current ratio of at least 1.75, and its current ratio now is 2.1. The firm plans to acquire additional inventory to meet an unexpected surge in the demand for its products and will pay for the inventory with short-term debt. How much inventory can the firm purchase without violating its debt agreement if their total current assets equal $3.5 million?

Liquidity ratio: Ronaldinho Trading Co. is required by its bank to maintain a current ratio of at least 1.75, and its current ratio now is 2.1. The firm plans to acquire additional inventory to meet an unexpected surge in the demand for its products and will pay for the inventory with short-term debt. How much inventory can the firm purchase without violating its debt agreement if their total current assets equal $3.5 million?

A) $0
B) $777,777
C) $1 million
D) None of the above


Answer: B

Liquidity ratio: Zidane Enterprises has a current ratio of 1.92, current liabilities of $272,934, and inventory of 197,333. What is the firm's quick ratio?

Liquidity ratio: Zidane Enterprises has a current ratio of 1.92, current liabilities of $272,934, and inventory of 197,333. What is the firm's quick ratio?

A) 0.72
B) 1.20
C) 1.92
D) None of the above


Answer: B

Liquidity ratio: Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio?

Liquidity ratio: Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio?

A) 1.83
B) 0.73
C) 1.67
D) None of the above

Answer: A

Liquidity ratio: Lionel, Inc., has current assets of $623,122, including inventory of $241,990, and current liabilities of 378,454. What is the quick ratio?

Liquidity ratio: Lionel, Inc., has current assets of $623,122, including inventory of $241,990, and current liabilities of 378,454. What is the quick ratio?

A) 1.65
B) 0.64
C) 1.01
D) None of the above


Answer: C

Federal Income Tax: United Brands Corp. just completed their latest fiscal year. The firm had sales of $16,650,000. Depreciation and amortization was $832,500, interest expense for the year was $825,000, and selling general and administrative expenses totaled $1,665,000 for the year, and cost of goods sold was $9,990,000 for the year. Assuming a federal income tax rate of 34%, what was the United Brands net income after-tax?

Federal Income Tax: United Brands Corp. just completed their latest fiscal year. The firm had sales of $16,650,000. Depreciation and amortization was $832,500, interest expense for the year was $825,000, and selling general and administrative expenses totaled $1,665,000 for the year, and cost of goods sold was $9,990,000 for the year. Assuming a federal income tax rate of 34%, what was the United Brands net income after-tax?

A) $2,202,750
B) $1,745,325
C) $3,505,100
D) $2,813,000


Answer: A

Statement of Cash Flows - Cash from Financing Activities: Natural Lite, Inc. reported the following items during fiscal 2010. The firm purchased marketable securities of $87,500, paid down a long-term loan in the amount of $650,000, purchased $4,250,000 of new equipment. The firm also sold $6,250,000 of common stock, paid $350,225 in dividends to its common shareholders, and repurchased $1,250,000 of common stock in the open market. What is the net cash provided by financing activities? (Round off to the nearest)

Statement of Cash Flows - Cash from Financing Activities: Natural Lite, Inc. reported the following items during fiscal 2010. The firm purchased marketable securities of $87,500, paid down a long-term loan in the amount of $650,000, purchased $4,250,000 of new equipment. The firm also sold $6,250,000 of common stock, paid $350,225 in dividends to its common shareholders, and repurchased $1,250,000 of common stock in the open market. What is the net cash provided by financing activities? (Round off to the nearest)

A) $4,575,210
B) $1,733,285
C) $3,999,775
D) $2,467,915


Answer: C

EBIT: Arco Steel, Inc. generated total sales of $45,565,200 during fiscal 2010. Depreciation and amortization for the year totaled $2,278,260, and cost of goods sold was $27,339,120. Interest expense for the year was $9,641,300 and selling, general, and administrative expenses totaled $4,556,520 for the year. What is Arco's EBIT for 2010?

EBIT: Arco Steel, Inc. generated total sales of $45,565,200 during fiscal 2010. Depreciation and amortization for the year totaled $2,278,260, and cost of goods sold was $27,339,120. Interest expense for the year was $9,641,300 and selling, general, and administrative expenses totaled $4,556,520 for the year. What is Arco's EBIT for 2010?

A) $9,641,300
B) $11,391,300
C) $13,275,030
D) $18,490,000


Answer: B

Chartworth Associates' financial statements indicated that the company has EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5%. The company is likely to owe $822,512 in taxes. What are the marginal and average tax rates for this company?

Chartworth Associates' financial statements indicated that the company has EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5%. The company is likely to owe $822,512 in taxes. What are the marginal and average tax rates for this company?

Tax Rate Taxable Income

15% $0 to $50,000
25 50,001 - 75,000
34 75,001 - 100,000
39 100,001 - 335,000
34 335,001 - 10,000,000
35 10,000,001 - 15,000,000
38 15,000,001 - 18,333,333
35 More than $18,333,333


A) 34%, 35%
B) 35%, 34%
C) 34%, 34%
D) none of the above


Answer: C

Chartworth Associates' financial statements indicated that the company had EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5 percent. Calculate the amount of taxes the company is likely to owe.

Chartworth Associates' financial statements indicated that the company had EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5 percent. Calculate the amount of taxes the company is likely to owe.

Tax Rate Taxable Income

15% $0 to $50,000
25 50,001 - 75,000
34 75,001 - 100,000
39 100,001 - 335,000
34 335,001 - 10,000,000
35 10,000,001 - 15,000,000
38 15,000,001 - 18,333,333
35 More than $18,333,333

A) $1,069,607
B) $1,037,732
C) $822,512
D) none of the above


Answer: C

Trimeton Corporation announced that in the year ended June 30, 2008, its earnings before taxes amounted to $2,367,045. Calculate its taxes using the following table.

Trimeton Corporation announced that in the year ended June 30, 2008, its earnings before taxes amounted to $2,367,045. Calculate its taxes using the following table.

Tax Rate Taxable Income

15% $0 to $50,000
25 50,001 - 75,000
34 75,001 - 100,000
39 100,001 - 335,000
34 335,001 - 10,000,000
35 10,000,001 - 15,000,000
38 15,000,001 - 18,333,333
35 More than $18,333,333


A) $804,795
B) $690,895
C) $713,145
D) none of the above


Answer: A

What is the firm's cash flow from financing activities?

What is the firm's cash flow from financing activities?

A) -$66,405
B) $61,656
C) -$61,656
D) -$182,057


Answer: D

What is the firm's cash flow from investing activities?

What is the firm's cash flow from investing activities?

A) $0
B) $46,124
C) -$46,124
D) none of the above


Answer: C

What is the firm's cash flow from operating activities?

What is the firm's cash flow from operating activities?

A) $304,322
B) $299,176
C) $192,602
D) none of the above


Answer: B

What is the cash flow from operating activities generated during this quarter by the firm?

Super Grocers, Inc., provided the following financial information for the quarter ending September 30, 2006:

Depreciation and amortization - $133,414 Net income - $341,463
Increase in receivables - $ 112,709 Increase in inventory - $81,336
Increase in accounts payables - $62,411
Decrease in marketable securities - $31,225

What is the cash flow from operating activities generated during this quarter by the firm?

A) $308,458
B) $374,468
C) -$374,468
D) -$308,458


Answer: B

Trident Manufacturing Company's treasurer identified the following cash flows during this year as significant. It had repaid existing debt to the tune of $425,110, while raising additional debt capital of $750,000. It also repurchased stock in the open markets for a total of $63,250. It paid $233,144 in dividends to its shareholders. What is the net cash provided (used) by financing activities?

Trident Manufacturing Company's treasurer identified the following cash flows during this year as significant. It had repaid existing debt to the tune of $425,110, while raising additional debt capital of $750,000. It also repurchased stock in the open markets for a total of $63,250. It paid $233,144 in dividends to its shareholders. What is the net cash provided (used) by financing activities?

A) $28,496
B) $91,746
C) -$28,496
D) -$91,746


Answer: A

During 2008, Towson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisition by $109,455, and had marketable securities to the tune of $14,215 mature. What is the net cash provided (used) in investing activities?

During 2008, Towson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisition by $109,455, and had marketable securities to the tune of $14,215 mature. What is the net cash provided (used) in investing activities?

A) $132,085
B) $145,940
C) -$132,085
D) none of the above


Answer: C

Parrino Corporation has announced that its net income for the year ended June 30, 2008, is $1,824,214. The company had an EBITDA of $ 5,174,366, and its depreciation and amortization expense was equal to $1,241,790. The company's average tax rate is 34 percent. What is the amount of interest expense for the firm?

Parrino Corporation has announced that its net income for the year ended June 30, 2008, is $1,824,214. The company had an EBITDA of $ 5,174,366, and its depreciation and amortization expense was equal to $1,241,790. The company's average tax rate is 34 percent. What is the amount of interest expense for the firm?

A) $2,763,961
B) $939,747
C) $1,187,720
D) $1,168,615


Answer: D

Triumph Trading Company provided the following information to its auditors. For the year ended March 31, 2008, the company had revenues of $1,122,878, operating expenses (excluding depreciation and leasing expenses) of $612,663, depreciation expenses of $231,415, leasing expenses of $126,193, and interest expenses equal to $87,125. If the company's tax rate was average 34 percent, what is its net income after taxes?

Triumph Trading Company provided the following information to its auditors. For the year ended March 31, 2008, the company had revenues of $1,122,878, operating expenses (excluding depreciation and leasing expenses) of $612,663, depreciation expenses of $231,415, leasing expenses of $126,193, and interest expenses equal to $87,125. If the company's tax rate was average 34 percent, what is its net income after taxes?

A) $43,218
B) $65,482
C) $152,607
D) none of the above


Answer: A

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation?

Simplex Healthcare had net income of $5,411,623 after paying taxes at 34 percent. The firm had revenues of $20,433,770. Their interest expense for the year was $1,122,376, while depreciation expense was $2,079,112. What was the firm's operating expenses excluding depreciation?

A) $8,199,429
B) $9,032,853
C) $9,321,805
D) none of the above


Answer: B

Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after taxes?

Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm's net income after taxes?

A) $120,140
B) $248,475
C) $79,292
D) $40,848


Answer: C

Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South Carolina. At the end of the current fiscal year, the company had net working capital of $157,903. The company showed accounts payables of $94,233, accounts receivables of $83,112, inventory of $171,284, and cash and marketable securities of $12,311. What amount of notes payables does the firm have?

Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South Carolina. At the end of the current fiscal year, the company had net working capital of $157,903. The company showed accounts payables of $94,233, accounts receivables of $83,112, inventory of $171,284, and cash and marketable securities of $12,311. What amount of notes payables does the firm have?

A) $14,571
B) $26,882
C) $15,471
D) none of the above


Answer: A

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145. The net working capital of the firm is

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145. The net working capital of the firm is

A) $68,931
B) $63,510
C) $69,655
D) none of the above


Answer: B

Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This year the company had cash and marketable securities worth $335,485, accounts payables worth $1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes payable worth $313,663, and other current assets of $121,427. What is the company's net working capital?

Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This year the company had cash and marketable securities worth $335,485, accounts payables worth $1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes payable worth $313,663, and other current assets of $121,427. What is the company's net working capital?

A) $3,596,632
B) $1,801,784
C) $2,123,612
D) $1,673,421


Answer: C

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

A) $1,844,022
B) $2,303,010
C) $2,123,612
D) $803,010


Answer: D

Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountants. The company had current assets of $145,332, net fixed assets of $356,190, and other assets of $4,176. The firm has long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current liabilities does this firm have?

Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountants. The company had current assets of $145,332, net fixed assets of $356,190, and other assets of $4,176. The firm has long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current liabilities does this firm have?

A) $94,792
B) $505,678
C) $171,217
D) none of the above


Answer: A

Galan Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts receivables of $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of $22,000, and retained earnings of $14,008. How much long-term debt does the firm have?

Galan Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts receivables of $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of $22,000, and retained earnings of $14,008. How much long-term debt does the firm have?

A) $54,342
B) $76,342
C) $12,314
D) $18,334


Answer: D

Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $ 412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. How much retained earnings does the firm have?

Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $ 412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. How much retained earnings does the firm have?

A) $ 405,648
B) $243,648
C) $167,918
D) $573,566


Answer: C

The profitability index is useful in a capital rationing situation because

The profitability index is useful in a capital rationing situation because

A) it helps identify projects by the amount of value created per dollar invested.
B) if followed, then it is only necessary to take the projects with the highest PI first.
C) it will rank the best project to be taken in an absolute manner.
D) none of the above.


Answer: A

The capital market may not be able to fund all of a firm's positive NPV project because

The capital market may not be able to fund all of a firm's positive NPV project because

A) the capital market will always speculate that it is not going to get a fair return.
B) even the capital market has a constraint for the amount of capital that it can supply a firm.
C) it can be difficult for outside investors to accurately assess the risks and returns associated with the firm's projects.
D) none of the above.


Answer: C

Capital constraints can occur due to

Capital constraints can occur due to

A) difficulties in accurately assessing the risks and returns associated with a firm's projects.
B) the capital market's inability to fund all of a firm's projects due to a lack of funds.
C) the capital market's policy of not funding all of a firm's projects.
D) none of the above.


Answer: A

The process of identifying the bundle of projects that creates the greatest total value and allocating the available capital to the projects is known as

The process of identifying the bundle of projects that creates the greatest total value and allocating the available capital to the projects is known as

A) risk analysis.
B) budgeting.
C) rationing.
D) capital rationing.


Answer: D

A change in sales price of a product sold by a firm will probably involve a reduction in the number of units sold, as well as the possibility of a change in the cost structure of the firm's product in question. If a firm were interested in the entire price change effect on the NPV of a project, then it would be interested in

A change in sales price of a product sold by a firm will probably involve a reduction in the number of units sold, as well as the possibility of a change in the cost structure of the firm's product in question. If a firm were interested in the entire price change effect on the NPV of a project, then it would be interested in

A) sensitivity analysis.
B) scenario analysis.
C) simulation analysis.
D) none of the above.


Answer: B

Which of the following project risk analyses is best able to analyze the effect of a single set of circumstances, with correlated inputs, on the NPV of a project?

Which of the following project risk analyses is best able to analyze the effect of a single set of circumstances, with correlated inputs, on the NPV of a project?

A) sensitivity analysis
B) scenario analysis
C) simulation analysis
D) none of the above


Answer: B

Which of the following project risk analyses is best able to analyze the effect of a single input, uncorrelated with other inputs, on the NPV of a project?

Which of the following project risk analyses is best able to analyze the effect of a single input, uncorrelated with other inputs, on the NPV of a project?

A) sensitivity analysis.
B) scenario analysis.
C) simulation analysis.
D) none of the above.

Answer: A

Which of the following methods of project risk analysis requires a computer?

Which of the following methods of project risk analysis requires a computer?

A) sensitivity analysis.
B) scenario analysis.
C) simulation analysis.
D) none of the above.


Answer: C

Rouf-Mart has analyzed a new type of all-in-one retail center where the NPV of the project has an expected value with a distribution that yields a standard deviation of $25 million. Rouf-Mart came to this conclusion by analyzing the individual input distributions for the project. This analysis is called.

Rouf-Mart has analyzed a new type of all-in-one retail center where the NPV of the project has an expected value with a distribution that yields a standard deviation of $25 million. Rouf-Mart came to this conclusion by analyzing the individual input distributions for the project. This analysis is called.

A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.


Answer: C

Rouf-Mart has analyzed a new type of all-in-one retail center where the NPV of the project has an expected value with a distribution that yields a standard deviation of $25 million. Rouf-Mart came to this conclusion by analyzing the individual input distributions for the project. This analysis is called.

Rouf-Mart has analyzed a new type of all-in-one retail center where the NPV of the project has an expected value with a distribution that yields a standard deviation of $25 million. Rouf-Mart came to this conclusion by analyzing the individual input distributions for the project. This analysis is called.

A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.


Answer: C

An analysis in which each of the inputs and assumptions for a project takes on a separate assumed distribution whereby a computer draws on each of those input and assumption distributions to create a distribution for the NPV of the entire project is called

An analysis in which each of the inputs and assumptions for a project takes on a separate assumed distribution whereby a computer draws on each of those input and assumption distributions to create a distribution for the NPV of the entire project is called

A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.


Answer: C

If a project holds an 80 percent probability of high demand and a 20 percent probability of low demand, then the expected value of the net present value of the two different demand assumptions would give us a weighted average net present value for the project. Such an analysis is called

If a project holds an 80 percent probability of high demand and a 20 percent probability of low demand, then the expected value of the net present value of the two different demand assumptions would give us a weighted average net present value for the project. Such an analysis is called

A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.

Answer: B

Scenario analysis can help a firm to

Scenario analysis can help a firm to

A) understand the degree of uncertainty that a different set of project-affecting circumstances may hold.
B) eliminate all of the uncertainty that a different set of project-affecting circumstances may hold.
C) transform a risky project into a risk-free project.
D) none of the above.


Answer: A

A firm is considering two distinct set of circumstances that assume high inflation and low inflation. In the high inflationary set of circumstances, the price per unit will be affected as well as the variable and fixed costs. If the low-inflation set of circumstances is considered the baseline, then the analysis concerning the high inflationary circumstances could be considered

A firm is considering two distinct set of circumstances that assume high inflation and low inflation. In the high inflationary set of circumstances, the price per unit will be affected as well as the variable and fixed costs. If the low-inflation set of circumstances is considered the baseline, then the analysis concerning the high inflationary circumstances could be considered

A) a sensitivity analysis.
B) a scenario analysis.
C) a Monte Carlo simulation.
D) none of the above.


Answer: B

At times, when a firm is considering an alternative such that a set of variables affecting a project are interrelated, then analysis that considers this interrelation could be performed. This is called

At times, when a firm is considering an alternative such that a set of variables affecting a project are interrelated, then analysis that considers this interrelation could be performed. This is called

A) a sensitivity analysis.
B) a scenario analysis.
C) a Monte Carlo simulation.
D) none of the above.


Answer: B

If a firm wanted to find the effect of a change in the variable cost per unit of production on the net present value of a project, then the firm might perform

If a firm wanted to find the effect of a change in the variable cost per unit of production on the net present value of a project, then the firm might perform

A) a sensitivity analysis.
B) a scenario analysis.
C) a Monte Carlo simulation.
D) none of the above.


Answer: A

If a firm were interested in knowing the effect of a single input change on the net present value of a project, then the firm would most likely want to perform

If a firm were interested in knowing the effect of a single input change on the net present value of a project, then the firm would most likely want to perform

A) a Monte Carlo simulation.
B) scenario analysis.
C) sensitivity analysis.
D) none of the above.


Answer: C

Gilligan's Boat Tours finds that if it were to increase its price by 10 percent, it would have a 6 percent reduction in the NPV of its new 3-Hour Tour. Gilligan's analysis could be described as

Gilligan's Boat Tours finds that if it were to increase its price by 10 percent, it would have a 6 percent reduction in the NPV of its new 3-Hour Tour. Gilligan's analysis could be described as

A) a Monte Carlo simulation.
B) scenario analysis.
C) sensitivity analysis.
D) none of the above.


Answer: B

Depreciation and amortization are treated like fixed costs

Depreciation and amortization are treated like fixed costs

A) in the calculation of the degree of pretax cash flow operating leverage.
B) in the calculation of the degree of accounting operating leverage.
C) for cash flow purposes.
D) none of the above.


Answer: A

_______ is a measure of the sensitivity of EBITDA or EBIT to changes in revenue.

_______ is a measure of the sensitivity of EBITDA or EBIT to changes in revenue.

A) Total leverage
B) Financial leverage
C) Operating leverage
D) None of the above


Answer: C

The degree of pretax cash flow operating leverage provides us with

The degree of pretax cash flow operating leverage provides us with

A) a measure of how sensitive pretax operating cash flows are to changes in revenue.
B) a measure of how sensitive accounting operating profits are to changes in revenue.
C) a measure of how sensitive NOPAT is to changes in revenue.
D) none of the above.


Answer: A

If a firm is about to operate in an environment in which there will be a great deal of variability in the level of revenues, then the firm

If a firm is about to operate in an environment in which there will be a great deal of variability in the level of revenues, then the firm

A) should structure its cost structure to have high fixed costs and higher total variable costs.
B) should structure its cost structure to have high fixed costs and consequently lower per unit variable costs.
C) should structure its cost structure to have low fixed costs and consequently higher per unit variable costs.
D) None of the above.


Answer: C

A firm with a higher proportion of fixed costs will create

A firm with a higher proportion of fixed costs will create

A) a higher degree of sensitivity of EBITDA to a change in revenues.
B) a lower degree of sensitivity of EBITDA to a change in revenues.
C) no discernible difference of a change in sensitivity of EBITDA to a change in revenues.
D) a firm with a much more stable net income stream as a function of revenues.


Answer: A

Another name for EBITDA is

Another name for EBITDA is

A) pretax operating cash flow.
B) operating cash flow.
C) net income before tax.
D) net income.


Answer: A

Revenue minus variable and fixed costs best describes

Revenue minus variable and fixed costs best describes

A) EBIT.
B) EBITDA.
C) NOPAT.
D) none of the above.


Answer: B

EBITDA stands for

EBITDA stands for

A) earnings before interest, taxes, and amortized depreciation.
B) earnings before interest, taxes, depreciation, and amortization.
C) earnings before interest and taxes.
D) none of the above.

Answer: B

Which of the following statements is true?

Which of the following statements is true?

A) Only 20 percent of interest income is taxable income for a corporation.
B) Dividend income is fully taxable income.
C) Interest paid on debt obligations is a tax-deductible business expense.
D) Dividends paid to stockholders are a tax-deductible business expense.


Answer: C

Which of the following best represents cash flows to investors?

Which of the following best represents cash flows to investors?

A) Cash flow from operating activity, plus cash flow generated from net working capital.
B) Earnings before interest and taxes times 1 minus the firm's tax rate.
C) Net income, minus dividends paid to preferred stockholders.
D) Cash flow from operating activity, minus cash flow invested in net working capital, minus cash flow invested in long-term assets.


Answer: D

Which of the following is a cash flow from investing activities?

Which of the following is a cash flow from investing activities?

A) Cash payment of dividends to shareholders.
B) Cash from sale of products.
C) Purchase of plant, and equipment.
D) Rent received from industrial property owned.


Answer: C

Which of the following presents a summary of the changes in a firm's balance sheet from the beginning of an accounting period to the end of that accounting period?

Which of the following presents a summary of the changes in a firm's balance sheet from the beginning of an accounting period to the end of that accounting period?

A) The statement of retained earnings.
B) The statement of working capital.
C) The statement of cash flows.
D) The statement of net worth.


Answer: C

Which of the following is an income statement item?

Which of the following is an income statement item?

A) Accumulated depreciation.
B) Accrued taxes.
C) Retained earnings.
D) Selling and administrative expenses.


Answer: D

Which of the following statements is not a limitation associated with market valuation of balance sheet accounts?

Which of the following statements is not a limitation associated with market valuation of balance sheet accounts?

A) It can be difficult to identify the market value of an asset, particularly if there are few transactions involving comparable assets.
B) The estimates of market value can involve complex financial modeling, and the resulting numbers can be open to manipulation and abuse.
C) Marking to market provides decision makers with a better chance of making the correct economic decision, given the information available.
D) Mark-to-market accounting can become inaccurate if market prices deviate from the "fundamental" values of assets and liabilities.


Answer: C

Which of the following is the best example of how a market-value balance sheet item differs from the firm's book-value balance sheet item?

Which of the following is the best example of how a market-value balance sheet item differs from the firm's book-value balance sheet item?

A) A firm issued long-term bonds five-years ago that currently sell for par value.
B) A firm sold common stock twenty-years ago for $20.00 share. The firm's common stock is currently selling for $96.50 per share.
C) A firm has $5 million of accrued liabilities on the books.
D) A firm issued preferred stock ten-years ago. These shares of preferred stock currently are selling for par value.

Answer: B

When is the appropriate time to harvest an asset?

When is the appropriate time to harvest an asset?

A) That point in time where harvesting the asset yields the largest internal rate of return.
B) That point in time where harvesting the asset yields the smallest payback.
C) That point in time where harvesting the asset yields the largest accounting rate of return.
D) That point in time where harvesting the asset yields the largest net present value.


Answer: D

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885.

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885.

Which machine should be purchased and why?


A) Machine C, because it has the highest IRR.
B) Machine D, because it has the highest NPV.
C) Machine A, because it has the most positive EAC.
D) Machine B, because it has the shortest useful life.


Answer: C

Which of the following is an example of a fixed cost?

Which of the following is an example of a fixed cost?

A) Cost of equipment purchased for an assembly line to be used in the production of a new product.
B) Assembly costs associated with the production of a new product.
C) Labor costs associated with the production of a new product.
D) Shipping costs associated with the sale of a new product.


Answer: A

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

A) Fixed costs.
B) Sunk costs.
C) Depreciation and amortization.
D) Variable costs.


Answer: B

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

General Mills just is undertaking an analysis on a new cereal. The firm realizes that if they come out with a new product it would affect sales of existing products? What is the best course of action for General Mills in this analysis?

A) Treat the reduction of sales from existing cereals as a sunk cost.
B) Account for the reduction of sales from existing cereals in the projection of cash flows on the new product.
C) Include the allocated costs of the new cereal in the sales of the pre-existing products.
D) Ignore the fact that sales of other products will be affected.


Answer: B

Which of the following statements is true?

Which of the following statements is true?

A) The calculation of free cash flow does not include the impact of income taxes.
B) Accounting earnings are an unreliable measure of the costs and benefits of a project.
C) The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as the incremental principle.
D) Depreciation expense should not be included in the calculation of incremental net operating profits after-tax.


Answer: B

Which of the following statements is correct?

Which of the following statements is correct?

A) Incremental net operating profits after-tax should include sunk costs associated with a project.
B) Incremental net operating profits after-tax should include the effects of financing costs associated with a project.
C) Incremental net operating profits after-tax should exclude the effects of depreciation costs associated with a project.
D) Incremental net operating profits after-tax should exclude the effects of financing costs associated with a project.


Answer: D

Norman, Inc. is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project with an NPV of $2,278. Project A has an equivalent annual cash flow of $730 and Project B has an equivalent annual cash flow of $750. Which project should the firm select?

Norman, Inc. is considering two mutually exclusive projects. Project A is a six-year project with a NPV of $3,000 and Project B is a four-year project with an NPV of $2,278. Project A has an equivalent annual cash flow of $730 and Project B has an equivalent annual cash flow of $750. Which project should the firm select?

A) Choose Project A because it has the higher NPV.
B) Choose Project B because it has the lower NPV.
C) Choose Project B because it has the higher equivalent annual cash flow.
D) Choose Project A because it has the lower equivalent annual cash flow.


Answer: C

The proper time to harvest an asset is when

The proper time to harvest an asset is when

A) the percentage NPV increase of harvesting a project at a future point in time is at the last date where the increase is greater than the cost of capital.
B) the percentage NPV increase of harvesting a project at a future point in time is at the first date where the increase is less than the cost of capital.
C) the percentage NPV increase of harvesting a project at a future point in time is at the first date where the increase is greater than the cost of capital.
D) none of the above.




Answer: A

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

A) Harvest immediately.
B) Harvest in year 1.
C) Harvest in year 2.
D) Harvest in year 3.


Answer: B

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project would increase over an immediate harvest by 25 percent. A year 2 harvest would create an NPV increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7 percent over that of year 2. If the cost of capital is 12 percent for Windy, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

Windy Burgers is trying to determine when to harvest a herd of cows that it currently owns. If it harvests the herd in year 1, the NPV of the project would increase over an immediate harvest by 25 percent. A year 2 harvest would create an NPV increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7 percent over that of year 2. If the cost of capital is 12 percent for Windy, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

A) Harvest immediately.
B) Harvest in year 1.
C) Harvest in year 2.
D) Harvest in year 3.


Answer: C

If you are deciding whether to take one project or another, where the projects have different useful lives, then you could utilize

If you are deciding whether to take one project or another, where the projects have different useful lives, then you could utilize

A) a repeated investment analysis to decide which project is better for the firm.
B) an equivalent annual annuity analysis to decide which project is better for the firm.
C) either of the above.
D) none of the above.


Answer: C

In order for a project to generate a positive net working capital cash flow at the conclusion of a project,

In order for a project to generate a positive net working capital cash flow at the conclusion of a project,

A) the project must have generated a cumulative negative cash flow during the life of the project.
B) the project must have generated a cumulative positive cash flow during the life of the project.
C) the project must have generated a cumulative negative cash flow at the conclusion of the project.
D) the project could not have generated a positive cash flow at the opening of the project.


Answer: A

When compared to the straight-line depreciation method, MACRS has

When compared to the straight-line depreciation method, MACRS has

A) a greater proportion of its depreciation early in the life of the asset.
B) a lesser proportion of its depreciation early in the life of the asset.
C) an equal proportion of its depreciation early in the life of the asset.
D) none of the above.


Answer: A

For a U.S. corporation with income above $20 million,

For a U.S. corporation with income above $20 million,

A) the average tax rate is less than the marginal tax rate.
B) the average tax rate is equal to the marginal tax rate.
C) the average tax rate is greater than the marginal tax rate.
D) none of the above.


Answer: B

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called

A tax system in which taxpayers pay a progressively larger share of their income in taxes as their income rises is called

A) a flat tax system.
B) a progressive tax system.
C) a digressive tax system.
D) a political tax system.


Answer: B

If you are discounting a project's cash flows using the nominal cost of capital, then that means that you have taken the following into account:

If you are discounting a project's cash flows using the nominal cost of capital, then that means that you have taken the following into account:

A) the real rate of return
B) the expected rate of inflation
C) both of the above
D) none of the above


Answer: C

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal rate of return be?

If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal rate of return be?

A) 14.00%
B) 33.00%
C) 23.12%
D) all of the above


Answer: C

If inflation is anticipated to be 10 percent during the next year while a nominal rate of 20 percent will be earned on U.S. Treasury bills, then what is the accurate real rate of return on these securities?

If inflation is anticipated to be 10 percent during the next year while a nominal rate of 20 percent will be earned on U.S. Treasury bills, then what is the accurate real rate of return on these securities?

A) 20.00%
B) 10.00%
C) 9.09%
D) None of the above


Answer: C

__________ represent dollars stated in terms of constant purchasing power.

__________ represent dollars stated in terms of constant purchasing power.

A) Nominal dollars
B) Real dollars
C) Inflated dollars
D) None of the above


Answer: B

Which of the following is the best example of a sunk cost?

Which of the following is the best example of a sunk cost?

A) Future payments on a leased building.
B) Future research and development costs.
C) Historical research and development costs.
D) Historical noncash expenses.


Answer: C

If a firm has the option of leasing some factory space to another firm or utilizing it for another product line, then if the firm chose the product line how should it handle the lost lease payments on the factory space?

If a firm has the option of leasing some factory space to another firm or utilizing it for another product line, then if the firm chose the product line how should it handle the lost lease payments on the factory space?

A) Ignore it.
B) Include it as an opportunity cost.
C) Include half of it as additional revenue for the project.
D) None of the above.


Answer: B

Whenever a project has a negative impact on an existing project's cash flows, then that effect should

Whenever a project has a negative impact on an existing project's cash flows, then that effect should

A) be ignored.
B) be ignored if the project is evaluated using the correct cost of capital.
C) be included as a negative revenue amount on the new project's cash flow analysis.
D) be included if the impact is limited to noncash expenditures.


Answer: C

A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the firm is in the 40 percent marginal tax rate?

A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the firm is in the 40 percent marginal tax rate?

A) $2.4 million
B) $3.4 million
C) $4.6 million
D) $5.0 million


Answer: B

Brown Mack, Inc., currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that $6 million of overhead expenses should be allocated to the two equal-sized divisions. If Brown Mack starts a third manufacturing division, of equal size to the other two divisions, then what overhead cost should the new division take into account on its capital budgeting cash flow analysis?

Brown Mack, Inc., currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that $6 million of overhead expenses should be allocated to the two equal-sized divisions. If Brown Mack starts a third manufacturing division, of equal size to the other two divisions, then what overhead cost should the new division take into account on its capital budgeting cash flow analysis?

A) $0
B) $2 million
C) $3 million
D) $6 million


Answer: A

Corporate overhead allocations should only be taken into account on project analysis if

Corporate overhead allocations should only be taken into account on project analysis if

A) the firm is currently covering all of its overhead allocations.
B) the firm is currently unable to cover all of its overhead allocations.
C) the overhead allocations involve cash expenditures.
D) none of the above.


Answer: D

Which of the following should not be included in a project's cash flow calculations?

Which of the following should not be included in a project's cash flow calculations?

A) cash expenses
B) cash revenues
C) allocated expenses
D) none of the above


Answer: C

The impact of a project on a firm's overall value depends on

The impact of a project on a firm's overall value depends on

A) a firm's accounting earnings.
B) a firm's cash flow.
C) a project's cash flow.
D) none of the above.


Answer: C

Additions to tangible assets, intangible assets ,and current assets can be described as

Additions to tangible assets, intangible assets ,and current assets can be described as

A) cash flows associated with investments.
B) operating cash flows.
C) free cash flows.
D) none of the above.


Answer: A

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

A) average tax rate
B) marginal tax rate
C) lowest marginal tax rate
D) none of the above


Answer: B

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as

A) the stand-alone principle.
B) the dependent principle.
C) the independent principle.
D) none of the above.


Answer: A

In order to calculate free cash flow by starting with incremental cash flow from operations, we should

In order to calculate free cash flow by starting with incremental cash flow from operations, we should

A) subtract the incremental capital expenditures and add the incremental additions to working capital.
B) add the incremental capital expenditures and the incremental additions to working capital.
C) subtract the incremental capital expenditures and the incremental additions to working capital.
D) None of the above.


Answer: C

_______ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

_______ refers to the cash flow that a project is expected to generate after all operating expenses and taxes have been paid.

A) Incremental cash flow from operations
B) Operating income
C) EBITDA
D) None of the above


Answer: A

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted.

A) periodic
B) ending cash flows
C) incremental
D) none of the above


Answer: C

The ___________ is intended to reconcile changes in the balance sheet cash accounts.

The ___________ is intended to reconcile changes in the balance sheet cash accounts.

A) capital budgeting cash flow calculation
B) accounting statement of cash flows
C) accounting statement of income
D) none of the above


Answer: B

The NPV of a project is estimated by

The NPV of a project is estimated by

A) discounting the expected cash flows of a project in the future.
B) discounting only the certain cash flows of a project in the future.
C) discounting the variance of the expected cash flows of a project in the future.
D) none of the above.


Answer: A

The cash flows used in capital budgeting calculations are based on.

The cash flows used in capital budgeting calculations are based on.

A) historical estimates.
B) forecasts of future cash revenues, expenses, and investment outlays.
C) forecasts of net income.
D) forecasts of retained earnings available for financing projects.


Answer: B

Which of the following is true about the Net Present Value method?

Which of the following is true about the Net Present Value method?

A) The NPV does not utilize time value of money concepts.
B) The NPV assumes that all cash flows are reinvested at the firm's discount rate (the firm's cost of capital).
C) The NPV allows projects to be ranked by rate of return.
D) The NPV is a rate of return that is acceptable to the firm.


Answer: B

Which one of the following cash flow patterns is NOT an unconventional cash flow pattern?

Which one of the following cash flow patterns is NOT an unconventional cash flow pattern?

A) A positive initial cash flow is followed by negative future cash flows.
B) Future cash flows from a project could include both positive and negative cash flows.
C) A negative initial cash flow is followed by positive future cash flows.
D) A cash flow stream looks similar to a conventional cash flow stream except for a final negative cash flow.


Answer: C

In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if

In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if

A) the projects are independent.
B) the cash flows pattern is unconventional.
C) the projects are mutually exclusive.
D) both b and c.


Answer: D

When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if

When evaluating capital projects, the decisions using the NPV method and the IRR method will agree if

A) the projects are independent.
B) the cash flow pattern is conventional.
C) the projects are mutually exclusive.
D) both a and b.


Answer: D

The internal rate of return is

The internal rate of return is

A) the discount rate that makes the NPV greater than zero.
B) the discount rate that makes the NPV equal to zero.
C) the discount rate that makes the NPV less than zero.
D) both a and c.


Answer: B

Which one of the following statements about IRR is NOT true?

Which one of the following statements about IRR is NOT true?

A) The IRR is the discount rate that makes the NPV greater than zero.
B) The IRR is a discounted cash flow method.
C) The IRR is an expected rate of return.
D) None of the above.


Answer: A

Disadvantages of the payback method include the following.

Disadvantages of the payback method include the following.

A) It ignores the time value of money.
B) It is inconsistent with the goal of maximizing shareholder wealth.
C) It ignores cash flows beyond the payback period.
D) All of the above.


Answer: D

Advantages of the payback method include the following.

Advantages of the payback method include the following.

A) The technique is simple for managers to compute and interpret.
B) It is a good measure of liquidity risk.
C) Both a and b,
D) None of the above.


Answer: C

Which one of the following statements about the discounted payback method is NOT true?

Which one of the following statements about the discounted payback method is NOT true?

A) The discounted payback method represents the number of years it takes a project to recover its initial investment.
B) The discounted payback method calls for the project to be accepted if the payback period is greater than a target period.
C) The discount payback method is a risk indicator.
D) The expected cash flows from the project are discounted at the cost of capital.


Answer: B

Which ONE of the following statements about the payback method is true?

Which ONE of the following statements about the payback method is true?

A) The payback method is consistent with the goal of shareholder wealth maximization
B) The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
C) There is no economic rational that links the payback method to shareholder wealth maximization.
D) None of the above statements are true.


Answer: C

To accept a capital project when using NPV,

To accept a capital project when using NPV,

A) the project NPV should be less than zero.
B) the project NPV should be greater than zero.
C) both a and b.
D) none of the above.


Answer: B

The net present value

The net present value

A) uses the discounted cash flow valuation technique.
B) will provide a direct measure of how much the firm value will change because of the capital project.
C) is consistent with shareholder wealth maximization goal.
D) all of the above.


Answer: D

In computing the NPV of a capital budgeting project, one should NOT

In computing the NPV of a capital budgeting project, one should NOT

A) estimate the cost of the project.
B) discount the future cash flows over the project's expected life.
C) ignore the salvage value.
D) make a decision based on the project's NPV.


Answer: C

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) Accepting a positive-NPV project increases shareholder wealth.
B) Accepting a negative-NPV project decreases shareholder wealth.
C) Accepting a zero NPV project has a negative impact on shareholder wealth.
D) Managers are indifferent about accepting or rejecting a zero NPV project.


Answer: C

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) Accepting a positive-NPV project increases shareholder wealth.
B) Accepting a negative-NPV project has no impact on shareholder wealth.
C) Accepting a negative-NPV project decreases shareholder wealth.
D) Managers are indifferent about accepting or rejecting a zero NPV project.


Answer: B

Capital rationing implies that

Capital rationing implies that

A) funding resources exceed funding needs.
B) funding needs exceed funding resources.
C) funding needs equal funding resources.
D) none of the above.


Answer: B

Capital rationing implies that

Capital rationing implies that

A) the firm does not have enough resources to fund all of the available projects.
B) funding needs equal funding resources.
C) the available capital will be allocated equally to all available projects.
D) none of the above.


Answer: A

The cost of capital is

The cost of capital is

A) the minimum return that a capital budgeting project must earn for it to be accepted.
B) the maximum return a project can earn.
C) the return that a previous project for the firm had earned.
D) none of the above.


Answer: A

If both projects are positive-NPV projects, then the firm should

If both projects are positive-NPV projects, then the firm should

A) accept both projects because they are independent projects.
B) select the higher NPV project because they are mutually exclusive.
C) accept both projects because they are contingent projects.
D) Not enough information is given to make a decision.


Answer: A

The firm's decision will be to

The firm's decision will be to

A) accept both projects because they are independent projects.
B) accept both projects because they are contingent projects.
C) pick the one that adds the most value because they are mutually exclusive projects.
D) pick neither project.


Answer: A

Contingent projects would imply that

Contingent projects would imply that

A) the acceptance of one project is dependent on the acceptance of the other.
B) the projects can be either mandatory or optional.
C) Both a and b.
D) None of the above.


Answer: C

Two projects are considered to be contingent projects if

Two projects are considered to be contingent projects if

A) selecting one would automatically eliminate accepting the other.
B) the acceptance of one project is dependent on the acceptance of the other.
C) rejection of one project does not eliminate the selection of the other.
D) None of the above.


Answer: B

Two projects are considered to be mutually exclusive if

Two projects are considered to be mutually exclusive if

A) the projects perform the same function.
B) selecting one would automatically eliminate accepting the other.
C) Both a and b.
D) None of the above.


Answer: C

Two projects are considered to be independent if

Two projects are considered to be independent if

A) selecting one would have no bearing on accepting the other.
B) their cash flows are unrelated.
C) Both a and b.
D) None of the above.


Answer: C

Which of the following are aspects of independent projects?

Which of the following are aspects of independent projects?

A) Their cash flows are related.
B) Their cash flows are unrelated.
C) Selecting one would automatically eliminate accepting the other.
D) None of the above.


Answer: B

Which of the following is NOT true about capital budgeting.

Which of the following is NOT true about capital budgeting.

A) It involves identifying projects that will add to the firm's value.
B) It involves large capital investments.
C) The large capital investments can be reversed at any time.
D) It allows the firm's management to analyze potential business opportunities and decide on which ones to undertake.


Answer: C

Which of the following statements is false with respect to the present value of a future amount?

Which of the following statements is false with respect to the present value of a future amount?

A) The higher the discount rate, the lower the present value of a single sum for a given time period.
B) The relation between present value and time is exponential.
C) The greater the time period, the lower the present value of a single sum for a given interest rate.
D) The lower the discount rate, the lower the present value of a single sum for a given time period.


Answer: D

Which of the following statements is true?

Which of the following statements is true?

A) The longer the time period that funds are invested, the greater the future value, regardless of investment rate.
B) The lower the discount rate that funds are invested at, the greater the future value.
C) The shorter the time period that funds are invested, the greater the future value, regardless of investment rate.
D) The higher the interest rate, the slower the value of an investment will grow.


Answer: A

Which of the following statements is true?

Which of the following statements is true?

A) A dollar received today is worth more than a dollar to be received in the future because future dollars are not affected by inflation.
B) A dollar to be received in the future is worth more than a dollar received today because of the positive impact of rates of return.
C) A dollar received today is worth more than a dollar to be received in the future because funds received today can be invested to earn a return.
D) A dollar to be received in the future is worth more than a dollar received today because it would have less risk associated with it.


Answer: C

Your aunt is looking to invest a certain amount today. Which of the following choices should she opt for?

Your aunt is looking to invest a certain amount today. Which of the following choices should she opt for?

A) three-year CD at 6.5% annual rate
B) three-year CD at 6.75% annual rate
C) three-year CD at 6.25% annual rate
D) three-year CD at 7% annual rate


Answer: D

Using lower interest rates will

Using lower interest rates will

A) decrease the future value of any investment.
B) increase the future value of any investment.
C) not affect the future value of the investment.
D) None of the above.


Answer: A

Using lower discount rates will

Using lower discount rates will

A) not affect the present value of the future cash flow.
B) increase the present value of any future cash flow.
C) decrease the present value of any future cash flow.
D) None of the above.


Answer: B

Using higher interest rates will

Using higher interest rates will

A) not affect the future value of the investment.
B) increase the future value of any investment.
C) decrease the future value of any investment.
D) None of the above.


Answer: B

Using higher discount rates will

Using higher discount rates will

A) not affect the present value of the future cash flow.
B) increase the present value of any future cash flow.
C) decrease the present value of any future cash flow.
D) None of the above.


Answer: C

The Rule of 72

The Rule of 72

A) can be used to determine the amount of time it takes to double an investment.
B) is fairly accurate for interest rates between 25 and 50 percent.
C) states that the time to double your money (TDM) approximately equals 72/i, where 72 represents the years it takes to double your investment.
D) None of the above describe the Rule of 72.


Answer: A

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) Present value calculations involve bringing a future amount back to the present.
B) The future value is often called the discounted value of future cash payments.
C) The present value factor is more commonly called the discount factor.
D) The higher the discount rate, the lower the present value of a dollar.


Answer: B

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) Present value calculations involve bringing a future amount back to the present.
B) The present value (PV) is often called the discounted value of future cash payments.
C) The present value factor is more commonly called the discount factor.
D) All of the above are true statements.


Answer: D

The process of converting future cash flows to what its present value is

The process of converting future cash flows to what its present value is

A) time value of money.
B) discounting.
C) compounding.
D) none of the above.


Answer: B

The process of converting an amount given at the present time into a future value is called

The process of converting an amount given at the present time into a future value is called

A) time value of money.
B) discounting.
C) compounding.
D) None of the above.


Answer: C

Which one of the following statements is true?

Which one of the following statements is true?

A) Individuals prefer to consume goods right away rather than in the future.
B) Individuals prefer to consume goods in the future rather than right away.
C) The time of consumption is irrelevant to individuals.
D) None of the above.


Answer: A

Future value measures

Future value measures

A) what one or more cash flows are worth at the end of a specified period.
B) what one or more cash flows that is to be received in the future will be worth today.
C) both a and b
D) None of the above


Answer: A

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The value of a dollar invested at a positive interest rate grows over time.
B) The further in the future you receive a dollar, the less it is worth today.
C) A dollar in hand today is worth more than a dollar to be received in the future.
D) The further in the future you receive a dollar, the more it is worth today.


Answer: D

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The time value money refers to what the value of the stream of future cash flows today is.
B) A dollar received today is worth more than a dollar received tomorrow.
C) A dollar received tomorrow is worth less than a dollar received today.
D) A dollar received today is worth less than a dollar received tomorrow.


Answer: D

The time value of money refers to the issue of

The time value of money refers to the issue of

A) what the value of the stream of future cash flows is today.
B) why a dollar received tomorrow is worth more than a dollar received today.
C) why a dollar received tomorrow is worth the same as a dollar received today.
D) None of the above.


Answer: A

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The correct way to annualize an interest rate is to compute the effective annual interest rate (EAR).
B) The APR is the annualized interest rate using simple interest.
C) The correct way to annualize an interest rate is to compute the annual percentage rate (APR).
D) You can find the interest rate per period by dividing the quoted annual rate by the number of compounding periods.


Answer: C

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The Truth-in-Lending Act was passed by Congress to ensure that the true cost of credit was disclosed to consumers.
B) The Truth-in-Savings Act was passed to provide consumers an accurate estimate of the return they would earn on an investment.
C) The above two pieces of legislation require by law that the APR be disclosed on all consumer loans and savings plans.
D) All of the above are true statements.


Answer: D

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The APR is the appropriate rate to do present and future value calculations.
B) The EAR is the appropriate rate to do present and future value calculations.
C) The EAR is the true cost of borrowing and lending.
D) The EAR takes compounding into account.


Answer: A

The true cost of lending is the

The true cost of lending is the

A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) none of the above.


Answer: B

The true cost of borrowing is the

The true cost of borrowing is the

A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) periodic rate.


Answer: B

Which one of the following statements is TRUE about the effective annual rate (EAR)?

Which one of the following statements is TRUE about the effective annual rate (EAR)?

A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.
B) The EAR conversion formula accounts for the number of compounding periods and, thus, effectively adjusts the annualized interest rate for the time value of money.
C) The EAR is the true cost of borrowing and lending.
D) All of the above are true.


Answer: D

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called

A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.


Answer: D

A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called

A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called

A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.


Answer: B