Fin Top Hat Review Questions Mid Term

Question 1

What is Young, Inc.’s operating cash flow for 2010? (Operating Cash Flow)

Answer 1

Operating Cash Flow = Earnings Before Interest and Taxes + Depreciation - Taxes

Question 2

What was the Young, Inc.’s net capital spending for 2010? (Net Capital Spending)

Answer 2

Net Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation

Question 3

What was Young’s, Inc.’s change in net working capital for 2010? (Net Working Capital)

Answer 3

Change in Net Working Capital = Ending Net Working Capital - Beginning Net Working Capital

Question 4

What was Young, Inc.’s cash flow from assets during 2010? (Cash Flow from Assets)

Answer 4

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Additions to Net Working Capital

Question 5

What is Stansfield Corporation’s sustainable growth rate? (Sustainable Growth Rate)

Answer 5

Sustainable Growth Rate = [ROE x b]/[1 - (ROE x b)]

Question 6

Andy promises Opie that he will give Opie $25,000 upon his graduation from college at Mayberry U. How much must Andy invest today to make good on his promise, if Opie is expected to graduate in 18 years, and Andy can earn 6% on his money? (Present Value)

Answer 6

Present Value = Future Value/(1 + r)t

Question 7

You need $1,800 to buy a new stereo for your car. If you have $400 to invest at 10% compounded annually, how long will you have to wait to buy the stereo? (Time)

Answer 7

Rule of 72: 72/r = t or 72/t = r

Question 8

You received a $1 savings account earning 8% (compounded annually) on your 1st birthday (hint: at the end of your 1st year). How much will you have in the account on your 65th birthday if you don’t withdraw any money by then? (Future Value)

Answer 8

Future Value = Present Value x (1 + r)t

Question 9

Your grandfather placed $4,000 in a trust fund for you. In 10 years, the fund will be worth $8,000. What is the rate of return on the trust fund (compounded annually)? (Rate)

Answer 9

Rule of 72: 72/r = t or 72/t = r

Question 10

What is present value of cash flow 2000, -2000, 2000, -2000. Assume a discount rate of 12%. (Discounted Cash Flow)

Question 11

You are choosing between investments offered by two different banks. One promises a return of 10% for three years in simple interest, while the other offers a return of 10% for three years in compound interest. You should: (Simple vs Compound Interest)

Answer 11

Compound

Question 12

You are 21, retire at 65 with $1,000,000, earn 10% per year compounded annually, what must you invest TODAY to reach your goal?

Question 13

Grandpa puts $50,000 into a bank account for you earning 4% compounded monthly. How much will you have in the account after 4 years if you don’t make Grandpa mad enough to take the money back before then? (Future Value/EAR)

Question 14

You are going to receive $5,000 at the end of each year for four years. If the annual discount rate is 7%, what is the present value of this income stream? (Present Value Annuity)

Question 15

You are considering an investment with a quoted return of 8% per year. If interest is compounded monthly, what is the effective annual return on this investment? (EAR)

Question 16

You have just won the lottery and will receive $1,000 per year forever. What is the present value of this infinite stream of cash flows given an 8% discount rate? (Perpetuity)

Question 17

If you deposit $2,000 at the end of each of the next 10 years into an account paying 6.0% interest, how much will you have in the account in 10 years? (Future Value of Annuity)

Question 18

I. M. Greedy Mortgage Bank offers you a $50,000, nine-year term loan at a 5% annual interest rate to help you buy a home. What will your annual loan payment be? (Mortgage Payment)

Question 19

Using the balance sheet model of the firm, corporate finance may be thought of as the analysis of three primary subject areas. Which of the following groups correctly lists these three areas?

Answer 19

Capital budgeting, capital structure, net working capital

Question 20

Capital structure is:

Answer 20

the mix of long-term debt and equity of a firm.

Question 21

Which of the following should be the goal of the financial manager of a corporation?

Answer 21

To maximize current market value per share of company stock

Question 22

The secondary market is defined as

Answer 22

the market for the exchange of securities that have already been issued by a firm.

Question 23

The _________________ of a corporation include the corporation’s name, its intended life, its business purpose, and the number of shares that can be issued.

Answer 23

Articles of incorporation

Question 24

Limited liability is never a characteristic of which form(s) of organization?

Answer 24

Sole proprietorship

Question 25

Which of the following statements does NOT accurately describe the relationship between book value and market value?

Answer 25

Market value always exceeds book value

Question 26

The ___________ tax bracket is the extra tax that would be paid if one more dollar were earned and the ______________ tax bracket is the tax bill divided by taxable income.

Answer 26

marginal; average

Question 27

Which of the following is NOT a component of the Du Pont identity?

Answer 27

Operating margin

Question 28

In words, what does a profit margin of .12 mean

Answer 28

For each $1 of sales generated, the firm has a net income of twelve cents.

Question 29

The adjusting factor in the creation of a common size income statement is _______________.

Answer 29

sales

Question 30

Which of the following is NOT a common element among financial planning models?

Answer 30

Stock split forecasts

Question 31

Since the capital intensity ratio is the reciprocal of the ___________ ratio, one could say that it is an alternative way to measure the ability of managers to utilize assets effectively.

Answer 31

total asset turnover

Question 32

For financial planning purposes, we generally define the “short run” as __________, and the “long run” (or “planning horizon”) as __________ .

Answer 32

1 year; 2-5 years

Question 33

Current Ratio

Question 34

Debt Equity Ratio

Question 35

Return on Equity

Question 36

External Financing

Question 37

Internal Growth Rate