Question

Question 6

1 pts

Assume a firm has a book value of assets equal to two times the book value of owner’s equity. Sales are ten times owner’s equity. The profit margin is two percent. What is the firm’s ROA?

four percent

five percent

eight percent

ten percent

twenty percent

Question 7

1 pts

You need $2,000 to buy a new stereo for your car. If you have $800 to invest at 5% compounded annually, how long will you have to buy the stereo? (You might need to expect a new technology.)

6.58 years.

8.42 years.

14.58 years.

15.75 years.

18.78 years.

Question 8

1 pts

You are considering buying a new car. The sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate an annual interest rate of 10 percent and you wish to pay for the car over a 5-year period, what are your monthly car payments?

$276.21

$318.71

$282.34

$361.20

$299.78

Question 9

What is the most appropriate goal for a publicly-traded company?

Maximize stock price

Maximize sales

Maximize market share

Maximize earnings

Maximize cash flows

Question 10

Byrd Lumber has 1 million shares of common stock outstanding and its stock price is $35 a share. On the balance sheet, the company has $10 million of common equity. What is the company's Market Value Added (MVA)?

-$15,000,000

$5,000,000

$10,000,000

$15,000,000

$25,000,000

Question 11

Advantages of the corporate form of business, over other forms, include all of the following except:

Lower costs of separation of owners from managers, or so-called “agency costs.”

Greater ease of raising capital.

Limited liability of the shareholders for corporate misdeeds.

Greater liquidity of ownership interests.

Greater ability to hire talented management.

Question 12

You are saving for retirement. You hope to have $1,000,000 accumulated in 35 years, making equally-sized annual payments in a “world” with expected returns of 4.5% over that 35 year period. To the nearest dollar, what is the expected size of your annual payments?

$45,000

$29,857

$57,270

$13,577

$12,270

Question 13

You are given the following information: Book value of stockholders' equity = $2.5 million; price/earnings ratio = 10; shares outstanding = 100,000; and market/book ratio = 1.5. Calculate the market price of a share of the company's stock.

$37.50

$25.00

$50.00

$75.00

$16.67

Question 14

The DuPont Identity holds that ROE = PM x T/A T/O x EM. However, after doing some quick algebra, ROE still equals net income divided by owner’s equity. What does the DuPont Identity accomplish with its expansion of the ROE into profit margin, total asset turnover and equity multiplier components?

The identity allows expanding the ROE into the aftertax income.

The identity uses the ROE in describing such things as the costs of Obamacare.

The identity can reveal the impact of new borrowing on employee morale.

The identity separates the ROE into operating, capital budgeting and capital structure components.

The identity is used by bankers in meeting capital requirements under the Dodd Frank Act.

Question 15

A firm’s current market value of equity is $20 million. It has one million shares outstanding. The firm’s equity multiplier is one, and it had sales of $50 million last year. Its profit margin was 5%. What is the firm’s implied price-earnings ratio?

40

5

16

20

8

Question 16

If you deposit $2,000 into an account at the end of each of the next 40 years, at 4.5% interest, how much will you have in the account, to the nearest $1,000, in 40 years?

$184,000

$214,000

$63,000

$122,000

$196,000

Question 17

Your company had net sales of $100,000 over the past year. Half the sales were credit sales. During that time, average receivables were $5,000. What was the average collection period? (Assume a 360-day year)

18 days

27 days

36 days

72 days

60 days

Question 18

You borrow some money on a mortgage loan. Your payments are $750 to start with, on a loan with a 30-year amortization and monthly payments. Your rate is 4% per year, compounded monthly. How much money did you borrow on this loan?

$138,750

$187,500

$123,766

$157,096

$225,000

Question 19

On the loan in number 18, your rate escalates to 9.75% per year, compounded monthly, after two years. Your new rate and payment are calculated on the new balance over the remaining 28 years of the mortgage. What is the difference in interest payments for the second, vs the third, years of your mortgage? In other words, how much more in interest do you pay with this escalating mortgage, in the first year AFTER the interest rate escalates? (Hint: P1=1, and P2=12 for year 1. P1=13 and P2=24 for year 2, etc) Be careful. Think!

$8,938

$8,598

$8,484

$8,363

$8,708

Question 20

You received a $1 savings account earning 6% on your 1st birthday. How much will you have in the account on your 30th birthday if you don't withdraw any money before then?

$4.82

$5.11

$5.42

$5.74

Answer 1

Note: As per answering guidelines, only the first four questions can be answered

Solution- (6)

We are given the following:

Sales= 10 * Owner's equity

Net profit= 2% * Sales

Hence, Net profit= 2% * (10*Owner's equity) {Equation A}

Total Assets= 2 * Owner's equity    {Equation B}

Using Equations A and B, we calculate ROA as follows:

Return on Assets (ROA)= Net profit/Total Assets

Return on Assets (ROA)= {2% * (10*Owner's equity)} / {2 * Owner's equity}

ROA= 10%

Hence the correct option is the fourth option.

Solution- 7

The formula for future value is as follows:

Future Value= Investment*(1+R)ⁿ

2,000 = 800*(1+5%)ⁿ

(1+5%)ⁿ= 2.5

n= 18.78

Hence the correct option is the fifth option.

Solution-8

The formula for calculating emi is as follows:

EMI = (P X R/12) X [(1+R/12) ^N] / [(1+R/12) ^N-1]

where,

P= Principal = 15,000-2,000 = 13,000

R= Annual rate of interest = 10%

N= No. of installments = 12*5 = 60

Hence,

EMI= (13,000 X 10%/12) X [(1+10%/12) ^60] / [(1+10%/12) ^60-1]

EMI= 108.33 X [(1.0083) ^60] / [(1.0083) ^60-1]

EMI= 276.21

Hence the correct option is the first option.

Solution-9

The most appropriate goal for a public traded company or any business for that matter is to maximize the wealth of its shareholders which happens when share price is maximized.

Hence the correct option is the first option.