FIN 571 Final Exam

1. In a general partnership, the general partners have _____liability and have

_____control over day-to-day operations.
Limited; no
No; total
Unlimited; no
Limited; total
Unlimited; total
2. Which one of these is a correct definition?
Long-term debt is defined as a residual claim on a firms assets.
Net working capital equals current assets plus current liabilities.
Current liabilities are debts that must be repaid in 18 months or less.
Tangible assets are fixed assets such as patents.
Current assets are assets with short lives, such as inventory.
3. The owners of a limited liability company generally prefer: being taxed
personally on all business income.
having liability exposure similar to that of a general partner.
having liability exposure similar to that of a sole proprietor.
being taxed like a corporation.
being taxed like a corporation with liability like a partnership.

4. Which one of the following is least apt to help convince

managers to work in the best interest of the stockholders? pay raises based on
length of service
Implementation of a stock option plan
Threat of a proxy fight
Management compensation tied to the market value of the firms stock
Threat of a takeover of the firm by unsatisfied stockholders
5. a. Compute the future value of $2,000 compounded annually for 20 years at
4 percent. (Do not round intermediate calculations and round your answer to
2 decimal places, e.g., 32.16.)
Future value $_________
b. Compute the future value of $2,000 compounded annually for 15 years at
10 percent. (Do not round intermediate calculations and round your answer to
2 decimal places, e.g., 32.16.)
Future value $_________
c. Compute the future value of $2,000 compounded annually for 25 years at 4
percent. (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Future value $_______
6. For each of the following, compute the present value (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.):
Present Value Years

Interest Rate

Future value

$_________

14

8%

$15,551

$_________

14

$52,557

$_________

30

15

$887,073

$_________

35

$551,164

7. First City Bank pays 8 percent simple interest on its savings

account balances, whereas Second City Bank pays 8 percent

interest compounded annually. If you made a $74,000 deposit in each bank,

how much more money would you earn from your Second City Bank account
at the end of 8 years? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Difference in accounts $_________
8. Winslow, Inc. stock is currently selling for $40 a share. The stock has a
dividend yield of 3.8 percent. How much dividend income will you receive per
year if you purchase 500 shares of this stock?
$1,053
$152
$190
$329
$760
9. You bought 360 shares of stock at a total cost of $7,754.40. You received a
total of $403.20 in dividends and sold your shares for $19.98 a share. What
was your total rate of return?
5.38%
7.24%
-1.29%
3.67%
-2.04%

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10. According to generally accepted accounting principles
(GAAP), revenue is recognized as income when:

 Income taxes are paid on the revenue earned.

The transaction is complete and the goods or services are delivered.
A contract is signed to perform a service or deliver a good.
Payment is requested.
Managers decide to recognize it.
11. Sankey, Inc., has current assets of $4,230, net fixed assets of $25,700,
current liabilities of $3,500, and long-term debt of $14,400. (Do not round
intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity

$_________

How much is net working capital?

Net working capital

$_________

12. The financial statement summarizing a firm's accounting performance

over a period of time is the:
Statement of equity..
Income statement.
Tax reconciliation statement.
Balance sheet.
Statement of cash flows.

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13. Net working capital is defined as:

 Current assets minus current liabilities.

Total assets minus total liabilities.
fixed assets minus long-term liabilities.
Current assets plus stockholders' equity.
Current assets plus fixed assets.
14. Jessica's Boutique has cash of $59, accounts receivable of $62, accounts
payable of $210, and inventory of $140. What is the value of the quick ratio?
.30
1.82
.67
.58
1.24
15. Al's Sport Store has sales of $2,940, costs of goods sold of $2,090, inventory
of $526, and accounts receivable of $445. How many days, on average, does it
take the firm to sell its inventory assuming that all sales are on credit?
90.6
65.3
119.9
91.9
120.4

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16. What is the return on equity for 2009?
14 percent

 17 percent
11 percent
16 percent
19 percent
17. Reliable Cars has sales of $3,790, total assets of $3,350, and a profit
margin of 5 percent. The firm has a total debt ratio of 41 percent. What is the
return on equity?
9.59 percent
12.20 percent
13.80 percent
8.47 percent
5.66 percent
18. A firm has a debt-equity ratio of .41. What is the total debt ratio?
1.44
.31
.29
1.41
.69
19. The return on equity can be calculated as:
ROA Equity multiplier.
ROA Debt-equity ratio.
ROA (Net income / Total assets).
Profit margin ROA Total asset turnover.
Profit margin ROA.

20. One of the primary weaknesses of many financial planning models is that
they:
rely too much on financial relationships and too little on accounting relationships.
are iterative in nature.
ignore the goals and objectives of senior management.
ignore cash payouts to stockholders.
ignore the size, risk, and timing of cash flows.
21. In the financial planning model, the external financing needed (EFN) as
shown on a pro forma balance sheet is equal to the changes in assets:
Minus the change in retained earnings.
Minus the changes in both liabilities and equity.
Minus the changes in liabilities.
Plus the changes in both liabilities and equity.
Plus the changes in liabilities minus the changes in equity.
22. The Winter grass Company has an ROE of 15.1 percent and a payout ratio
of 40 percent.
What is the companys sustainable growth rate? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Sustainable growth rate _________%
23. Assume the following ratios are constant:
Total asset turnover 2.50 Profit margin 5.4% Equity multiplier 1.30 Payout ratio
35% What is the sustainable growth rate?(Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate _________%
24. The length of time between the acquisition of inventory and

its sale is called the: cash cycle.

3accounts payable period.
Accounts receivable period.
Inventory period.
operating cycle.
25. A prearranged, short-term bank loan made on a formal or informal basis,
and typically reviewed for renewal annually, is called a:
compensating balance.
Cleanup loan.
roll-over.
Line of credit.
Letter of credit.
26. The _____ premium is that portion of the bond yield that represents
compensation for potential difficulties that might be encountered should the
bond holder wish to sell the bond prior to maturity.
Default risk
Liquidity
Taxability
Inflation
Interest rate risk

27. How much are you willing to pay for one share of stock if the
company just paid an annual dividend of $1.03, the dividends

increase by 3 percent annually, and you require a rate of return of 15 percent?

$8.84
$6.87
$9.49
$10.40
$8.58
28. The rate at which a stock's price is expected to appreciate (or depreciate)
is called the _____ yield.
Total
Capital gains
Current
Earnings
Dividend

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