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Exam 2 Solved MC Questions - Introductory Financial Management | FIN 370, Exams of Finance

Material Type: Exam; Professor: Young; Class: Introductory Financial Management; Subject: Finance; University: Central Washington University; Term: Unknown 2009;

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Exam2 FIN370 Winter 2009 Key
Version B
1. A common-size income statement:
I. expresses all values as a percent of total assets.
II. should reflect a relatively constant cost of goods sold unless a firm changed the percent that it uses to mark
up the wholesale price to get the retail price.
III. expresses net income as 100 percent.
IV. can be used to compare the performance of a firm both over time and against its industry.
a. II, III, and IV only
b. I and III only
c. III and IV only
D. II and IV only
e. I, II, and III only
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 003 #8
SECTION: 3.1
TOPIC: COMMON-SIZE STATEMENT
TYPE: CONCEPTS
2. The condominium at the beach that you want to buy costs $249,500. You plan to make a cash down payment
of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly
mortgage payment?
A. $2,291.89
b. $3,412.67
c. $3,287.46
d. $4,145.68
e. $2,809.10
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 005 #45
SECTION: 5.2
TOPIC: ANNUITY PAYMENT
TYPE: PROBLEMS
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Exam2 FIN370 Winter 2009 Key

Version B

  1. A common-size income statement: I. expresses all values as a percent of total assets. II. should reflect a relatively constant cost of goods sold unless a firm changed the percent that it uses to mark up the wholesale price to get the retail price. III. expresses net income as 100 percent. IV. can be used to compare the performance of a firm both over time and against its industry. a. II, III, and IV only b. I and III only c. III and IV only D. II and IV only e. I, II, and III only BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 003 # SECTION: 3. TOPIC: COMMON-SIZE STATEMENT TYPE: CONCEPTS
  2. The condominium at the beach that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? A. $2,291. b. $3,412. c. $3,287. d. $4,145. e. $2,809. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY PAYMENT TYPE: PROBLEMS
  1. Anthony's Appliances pays a constant quarterly dividend of $.35 per share. How much are you willing to pay for one share if you require a 9 percent rate of return? A. $15. b. $7. c. $11. d. $19. e. $3. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: STOCK PRICE TYPE: PROBLEMS
  2. The present value of an annuity will decrease when either the: a. interest rate increases or the number of periods increases. b. interest rate declines or the amount of the annuity payment increases. C. amount of the annuity payment decreases or the interest rate increases. d. interest rate increases or the amount of the annuity payment increases. e. number of periods increases or the interest rate decreases. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY PRESENT VALUE TYPE: CONCEPTS
  3. Given an interest rate of zero percent, the future value of a lump sum invested today will always: a. be equal to $0. b. decrease if the investment time period is shortened. c. be greater than the initial investment amount. D. remain constant, regardless of the investment time period. e. decrease if the investment time period is lengthened. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 004 # SECTION: 4. TOPIC: FUTURE VALUE TYPE: CONCEPTS
  1. The interest rate per period multiplied by the number of periods in a year is called the: a. perpetual rate. b. effective annual rate. C. annual percentage rate. d. compounded rate. e. simple rate. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUAL PERCENTAGE RATE TYPE: DEFINITIONS
  2. The annual interest on a bond divided by the bond's market price is called the: a. total yield. B. current yield. c. yield to maturity. d. yield to call. e. required yield. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: CURRENT YIELD TYPE: DEFINITIONS
  3. Locksmith's is expected to pay an annual dividend of $.75 this month. The stock is selling for $10.90 a share and has a required return of 11 percent. What is the growth rate of the dividend? a. 4.27 percent b. 3.85 percent C. 4.12 percent d. 3.94 percent e. 3.62 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: DIVIDEND GROWTH MODEL TYPE: PROBLEMS
  1. The yield to maturity on a bond is: a. equal to the coupon rate divided by the current market price. b. another name for the coupon rate. C. the current required market rate. d. equal to the annual interest divided by the face value. e. another name for the current yield. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: YIELD TO MATURITY TYPE: DEFINITIONS
  2. Which of the following affect the current price of a stock? I. dividend growth rate II. required return III. dividend paid this year IV. expected dividend next year a. I, II, III, and IV b. II and IV only c. II, III, and IV only D. I, II, and IV only e. I and III only BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: STOCK PRICE TYPE: CONCEPTS
  3. Dustin is considering an investment that will pay $3,000 a year for 10 years, starting 1 year from today. How much should Dustin pay for this investment if he wishes to earn a 9 percent rate of return? A. $19,252. b. $20,415. c. $18,349. d. $21,213. e. $17,985. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY PRESENT VALUE TYPE: PROBLEMS
  1. The financial statements of Classic Collectables reflect cash of $15,800, accounts receivable of $31,600, accounts payable of $40,100, inventory of $54,700, long-term debt of $60,000, and net fixed assets of $99,500. The firm estimates that if it wanted to cease operations today it could sell the inventory for $39,000 and the fixed assets for $77,000. What is the market value of the assets? a. $201, b. $181, c. $101, D. $163, e. $63, BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 002 # SECTION: 2. TOPIC: MARKET VALUE TYPE: PROBLEMS
  2. Crabtree, Inc. has an operating cash flow of $164,900, depreciation expense of $93,100, and taxes paid of $80,400. A partial listing of its balance sheet accounts is as follows: What is the amount of Crabtree's cash flow from assets? a. $49, b. $107, c. $200, d. $69, E. $120, BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 002 # SECTION: 2. TOPIC: CASH FLOW FROM ASSETS TYPE: PROBLEMS
  1. The tax rate applicable to the next dollar of taxable income is called the _____ tax rate. a. absolute b. next c. total D. marginal e. average BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 002 # SECTION: 2. TOPIC: MARGINAL TAX RATE TYPE: DEFINITIONS
  2. Sander's Supplies has paid a constant dividend of $2.15 a share for the past 20 years. Yesterday, the firm announced that the dividend will increase next year by 5 percent and will stay at the level for three years, after which time the dividends will increase by 4 percent annually. The required return on this stock is 9 percent. What is the current value per share? A. $41. b. $48. c. $54. d. $56. e. $43. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 007 # SECTION: 7. TOPIC: UNEQUAL DIVIDENDS TYPE: PROBLEMS
  3. A 6 percent $1,000 bond matures in 4 years, pays interest semiannually, and has a yield to maturity of 6. percent. What is the current market price of the bond? a. $768. B. $970. c. $910. d. $801. e. $869. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: BOND PRICE TYPE: PROBLEMS
  1. If shareholders are granted a preemptive right they will be: a. able to determine who the candidates should be for any open seats on the board. B. given the first right to purchase any new shares of stock that are issued. c. granted shares that receive additional voting privileges. d. paid dividends prior to the preferred shareholders during the preemptive period. e. given the choice of receiving dividends in cash or in additional shares of stock. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: PREEMPTIVE RIGHT TYPE: CONCEPTS
  2. The voting system whereby a shareholder can cast all of his or her votes for a single candidate for the board of directors is called _____ voting. a. aggregate b. condensed c. proxy d. straight E. cumulative BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: CUMULATIVE VOTING TYPE: DEFINITIONS
  3. Which one of the following statements is correct? a. The present value of an annuity is unaffected by the number of the annuity payments. b. The present value of an annuity increases when the interest rate increases. c. The future value of an annuity is unaffected by the amount of each annuity payment. d. The future value of an annuity increases when the interest rate decreases. E. The present value of an annuity increases when the interest rate decreases. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY PRESENT VALUE TYPE: CONCEPTS
  1. The 8.5 percent annual coupon bonds of Eberly, Inc. are selling for $930.12. The bonds have a face value of $1,000 and mature in 9 years. What is the yield to maturity? a. 4.84 percent b. 5.24 percent c. 8.12 percent d. 9.31 percent E. 9.70 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: YIELD TO MATURITY TYPE: PROBLEMS
  2. Which of the following correctly describe a dealer market? I. Dealers match buyers with sellers. II. Dealers buy and sell for themselves at their own risk. III. Dealer trading occurs over-the-counter. IV. Dealer transactions occur on a trading floor. a. I, II, and III only b. I and IV only c. I and III only d. II and IV only E. II and III only BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 001 # SECTION: 1. TOPIC: DEALER MARKET TYPE: CONCEPTS
  3. Global Enterprises has just signed a $3 million contract. The contract calls for a payment of $.5 million today, $.9 million one year from today, and $1.6 million two years from today. What is this contract really worth if Global Enterprises can earn 12 percent on its money? a. $2.21 million B. $2.58 million c. $2.49 million d. $2.30 million e. $2.39 million BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: PRESENT VALUE TYPE: PROBLEMS
  1. The coupon rate for a bond is best defined as the: a. annual interest divided by the current market price. B. annual interest divided by the face value. c. annual interest divided by the clean market price. d. annual coupon divided by the dirty market price. e. semi-annual interest divided by the par value. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: COUPON RATE TYPE: DEFINITIONS
  2. A debenture is: a. unsecured debt that generally matures in less than ten years. b. long-term debt secured by real estate. c. any type of debt that is short-term in nature. D. unsecured debt that generally matures in ten years or more. e. long-term debt secured by fixed assets of the borrower. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: DEBENTURE TYPE: DEFINITIONS
  3. The common stock of Bethel Baked Goods is valued at $8.76 a share. The company increases its dividend by 1.5 percent annually and expects its next dividend to be $.65 per share. What is the required rate of return on this stock? a. 9.03 percent b. 10.17 percent C. 8.92 percent d. 6.64 percent e. 7.53 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: DIVIDEND GROWTH MODEL TYPE: PROBLEMS
  1. The goal of financial management is to increase the: A. current market value per share. b. future value of the firm's total equity. c. book value of equity. d. dividends paid per share. e. number of shares outstanding, thereby increasing the market value of equity. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 001 # SECTION: 1. TOPIC: GOAL OF FINANCIAL MANAGEMENT TYPE: CONCEPTS
  2. The 7 percent coupon bonds of the Media Printing Co. are selling for 102 percent of par value. The bonds mature in 6 years and pay interest semiannually. These bonds have current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent. A. 6.86; 6.59; 6. b. 6.86; 6.23; 6. c. 6.59; 6.65; 6. d. 6.37; 6.59; 6. e. 6.37; 6.23; 6. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 006 # SECTION: 6. TOPIC: BOND YIELDS TYPE: PROBLEMS
  3. A $1,000 face value bond quoted as 102.16 sells for _____ and a bond quoted as 99:08 sells for _____. A. $1,021.60; $992. b. $1020.16; $992. c. $1,021.60; $990. d. $1025.00; $992. e. $1020.16; $990. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 006 # SECTION: 6. TOPIC: BOND QUOTE TYPE: CONCEPTS
  1. Boots Roofing just paid its annual dividend of $.90 a share. The firm recently announced that all future dividends will be increased by 3.5 percent annually. What is one share of this stock worth to you if you require a 12 percent rate of return? A. $10. b. $10. c. $10. d. $10. e. $10. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 007 # SECTION: 7. TOPIC: DIVIDEND GROWTH MODEL TYPE: PROBLEMS
  2. A series of equal cash flows that occur at the beginning of each time period for a limited number of time periods is called a(n): a. beginning annuity. b. perpetuity due. C. annuity due. d. perpetuity. e. ordinary annuity. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY DUE TYPE: DEFINITIONS
  3. Payments of $100 a month for 24 months are defined as a(n): A. annuity. b. ordinary cash flow. c. discounted cash flow. d. consol. e. perpetuity. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: ANNUITY TYPE: DEFINITIONS
  1. A bond has a $1,000 face value, a market price of $1,115, and pays interest payments of $90 every year. What is the coupon rate? a. 6.75 percent B. 9.00 percent c. 8.25 percent d. 7.39 percent e. 4.50 percent BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: COUPON RATE TYPE: PROBLEMS
  2. Trevor's Tires is offering a set of 4 premium tires on sale for $550. The credit terms are 24 months at $ per month. What is the interest rate on this offer? a. 9.48 percent b. 11.59 percent c. 10.62 percent d. 13.18 percent E. 12.74 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 005 # SECTION: 5. TOPIC: INTEREST RATE TYPE: PROBLEMS
  3. Which one of the following is a form of bond issue wherein interest payments are made directly to the owners of record? A. registered b. coupon c. bearer d. street name e. secured BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 # SECTION: 6. TOPIC: REGISTERED FORM TYPE: DEFINITIONS