DeVry BUSN 379 Midterm Exam

Click on the link below for the solution:

https://devryfinalexams.com/products/busn-379-midterm-exam/
1.
Question :
proprietorship?
Student Answer:

(TCO 1) What is the goal of financial management for a sole

decrease long-term debt to reduce the risk to the owner

maximize net income given the resources of the firm

maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production

2.

Question :

Student Answer:

(TCO 1) Working capital management includes which of the following?

establishing the inventory level

deciding when to pay suppliers

determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above

3.

Question :

(TCO 1) Book values are different from market values because:

Student Answer:
Book values reflect the value of the asset based on generallyaccepted accounting principles.
Book values are used in the companys balance sheet.
Book values do not reflect the amount someone is willing to pay today for an asset.
All of the above
None of the above

4.

Question :

Student Answer:
flows of a firm.

(TCO 1) The income statement reflects:

Income and expenses at the time when those items affect the cash

Income and expenses in accordance with GAAP.

The cash flows in accordance with GAAP.
The flow of cash into and out of a firm during a stated period of time.
The flow of cash into and out of a firm as of a particular date.

5.
Question :
(TCO 1) Tatos Pizza has sales of $625,000. They paid $43,000 in interest
during the year and depreciation was $79,000. Administrative costs were $100,000 and other
costs were $160,000. Assuming a tax rate of 35 percent, what is Tatos Pizza net income?
Student Answer:
$322,000

$157,950

$243,000
$200,000

6.
Question :
(TCO 1) Home Best Hardware had $315,000 in taxable income last year.
Using the tax rates provided in Table 2.3, what are the companys income taxes?
Student Answer:

$122,850

$106,100
$94,500
None of the above

7.
Question :
(TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008,
and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to
$468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS
figure for 2009?
Student Answer:
$1.44
$0.77
$0.69

$1.30

8.
Question :
(TCO 1) The financial statement that summarizes a firms operations over
a period of time is called a(n):
Student Answer:

income statement.

cash flow statement.

production report.
balance sheet.
periodic operating statement.

9.
Question :
(TCO 1) Print Imaging has EBIT of $150,000, interest of $30,000, taxes of
$50,000, and depreciation of $50,000. What is the companys operating cash flow?
Student Answer:

$120,000

$180,000
$170,000
$150,000
$120,000

10. Question :
(TCO 3) You opened a new certificate of feposit with $13,000. Your
broker indicated that this investment pays five percent interest, compounded quarterly. Which
one of the following statements is correct concerning this investment?
Student Answer:
the life of the investment.

You will receive equal interest payments every three months over

You could earn more interest by investing in an account paying five percent simple interest.
You would have earned more interest if you had invested in an account paying annual interest.
You will earn less and less interest each year over the life of the investment.
You will earn more interest in year 3, than you will in year 2.

11. Question :
(TCO 3) Mr. Smith will receive $7,500 a year for the next 14 years from
his trust. If the interest rate on this investment is eight percent, what is the approximate current
value of these future payments?
Student Answer:

$61,800

$53,500
$113,400
$97,200

12. Question :
(TCO 3) Your neighbor just received a credit offer in an e-mail. The
company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If
he accepts this offer, how long will it take him to pay off the loan?
Student Answer:
81.50 months
83 months
82.17 months
90.70 months

81.00 months

13. Question :
(TCO 3) Fine Oak Woodworks is considering a project that has cash flows
of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this
project is 10 percent, which of the following statements is false?
Student Answer:

The current value of the projects inflows is $13,000

The approximate current value of the projects inflows is $11,000

The projects inflows are higher than zero
The project should be accepted because its present value is positive
I

14. Question :
(TCO 4) You are considering an investment that will have the following
cash flows: $54,000, $66,000, $(60,000), $57,000, and $120,000. The appropriate discount rate
is 11 percent. What is the value of this investment? Note that the cash flow in brackets is
negative.
Student Answer:

$160,000

$167,106
$162,500
Cannot be determined because one of the cash flows is negative

15. Question :
(TCO 3) North Bank offers you an APR of 13.17 percent compounded
monthly, and South Bank offers you an effective rate of 13.75 percent on a business loan. Which
bank should you choose and why?
Student Answer:

South Bank because its effective rate is higher.

North Bank because the APR is lower.

South Bank because its effective rate is lower.
North Bank because its effective rate is lower.
1.
Question :
(TCO 3) Which one of the following will increase the future value of a
lump sum invested today?
Student Answer:

decreasing the amount of the lump sum

increasing the rate of interest

paying simple interest rather than compound interest
paying interest only at the end of the investment period
shortening the investment time period

2.
the:

Question :

(TCO 3) The difference between an ordinary annuity and an annuity due is

Student Answer:

number of payments to be made

amount to be paid each time

the timing of the payments
frequency of the payments
interest rate applied to the first payment

3.
Question :
(TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent
interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 11
percent? Assume annual payments.
Student Answer:

$1080

$1085
$925
$1000

4.

Question :

Student Answer:
issued in bearer form.

(TCO 6 and 8) Which one of the following statements is correct?

Bond issuers maintain a listing of bondholders when bonds are

An indenture, is a contract between a corporation and its shareholders.

Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the bond indenture.

5.
Question :
(TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000
and currently sell for $850. The annual coupon payments are $80. If the bonds have 10 years
until maturity, what is the approximate YTM of the bonds?
Student Answer:

10.50%

11.50%
11.75%
12%

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

$100

$400
$7.40
$86.40
None of the above

7.
Question :
(TCO 3) Intelligence Research, Inc. will pay a common stock dividend of
$1.60 at the end of the year. The required rate of return by common stockholders is 13 percent.
The firm has a constant growth rate of seven percent. What is the current price of the stock?
Student Answer:
$32
$27
$29

$23

8.
Question :
(TCO 3) Royal Electric paid a $2 dividend last year. The dividend is
expected to grow at a constant rate of five percent over the next three years. Common
stockholders require a 12 percent return. What are the values of the dividends for years 1, 2 and
3, respectively?
Student Answer:

$2, $2.10 and $2.205

$2, $2.205 and $2.315

$2.10, $2.205, and $2.315
$2.10, $2.205 and $2.456

9.
Question :
(TCO 6) The market where one shareholder sells shares to another
shareholder is called the _____ market.
Student Answer:

primary

main
secondary
principal
dealer

10.

Question :

Student Answer:

(TCO 6) NASDAQ is a(n):

electronic dealer market.

electronic broker market.

market based on specialists.
dealer market with a single market maker.
electronic ECN.

11. Question :
is called the:
Student Answer:

(TCO 6) The annual interest on a bond divided by the bonds market price

yield to maturity.

yield to call.
total yield.
required yield.
current yield.

12. Question :
(TCO 6) Star Industries has one outstanding bond issue. An indenture
provision prohibits the firm from redeeming the bonds during the first two years. This provision
is referred to as a _____ provision.
Student Answer:
market
liquidity
debenture
sinking fund

deferred call

13.

Question :

(TCO 8) Which of the following is true regarding bonds?

Student Answer:

Most bonds do not carry default risk.

Municipal bonds are free of default risk.

Bonds are not sensitive to changes in the interest rates.
Moodys and Standard and Poors provide information regarding a bonds interest rate risk.
None of the above is true

14.

Question :

(TCO 6) Which of the following is not a floating-rate bond?

Student Answer:
index, such as the T-bill.

A bond that adjusts the coupon payments based on an interest rate

An EE Savings Bond issued by the U.S. government.

A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.
TIPS

15. Question :
(TCO 6) Which of the following are not true regarding convertible bonds?
Select all that apply:
Student Answer:

Are extremely rare

Can be exchanged for a fixed number of shares at maturity only

Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
1.
Question :
(TCO 1) Paul is the owner of Pauls Cabinets, which is a sole
proprietorship. The firm cannot pay its bills because a large customer defaulted on payment.
Which one of the following statements is correct given this situation?
Student Answer:
The creditors of Pauls Cabinets can only collect payment if
Pauls Cabinets receives payment from its customer.
The only course of action the creditors of Pauls Cabinets has is to sell the assets of Pauls
Cabinets.
The creditors of Pauls Cabinets can assume the assets of Pauls Cabinets, but only in an amount
that exceeds Pauls investment in the firm.
Paul is personally liable for the entire debt of Pauls Cabinets.
Paul is personally liable for the firms debts, but only to the extent of his investment in Pauls
Cabinets.

2.

Question :

(TCO 1) Trademarks are classified as:

Student Answer:
current liabilities.
long-term debt.
tangible fixed assets.
intangible fixed assets.

short-term assets.

3.
Question :
(TCO 1) Explain agency theory. Provide an example of a potential agency
problem for a corporation, and identify means by which the firm can help reduce or eliminate
that problem.

4.
Question :
(TCO 3) How can we apply the concept of time value of money in
evaluating a mortgage? Present at least two scenarios. Briefly explain your rationale.

5.
Question :
your rationale?

(TCO 8) Are U.S. Treasury securities risk-free? Why or why not? Explain

6.
Question :
(TCO 6) What are some of the features of zero-coupon bonds that make
them attractive to certain investors? Which type of investors will be most interested in these
bonds?

DeVry BUSN 379 Midterm Exam

Click on the link below for the solution:
https://devryfinalexams.com/products/busn-379-midterm-exam/