BUSN
5200 Week 1 to 8 Quizzes Solution
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BUSN 5200 Quiz for week 1
Note: In the
questions below, the correct answer is identified with an asterisk
1. In a corporation,
the Chief Financial Officer (CFO) usually reports to the:
a. Treasurer
b. Controller
c. Chief Operating
Officer (COO)
d. VP of Financial
Planning
2. The primary factor
that separates the corporate form of business from partnerships and sole
proprietorships is:
a. Corporations are
larger than partnerships and sole proprietorships
b. The owners of
corporations get to keep all the company’s profits
c. The owners of
corporations run the business and have unlimited liability
d. Corporations are
“legal persons” separate and distinct from their owners
3. The primary goal
of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize expected
total corporate profit.
b. Maximize expected
EPS.
c. Minimize the
chances of losses.
d. Maximize the stock
price per share.
e. Maximize expected
net income.
4. By maximizing the
earnings of the firm we will ensure that the price per share of common stock is
maximized, hence shareholders' wealth will also be maximized.
a. True
b. False
5. Which of the
following is the best measure of the wealth of a firm's stockholders?
a. The firm's Net
Income during the past year
b. Expected Earnings
per Share during the coming year
c. Book Value (or Net
Worth) as recorded on the balance sheet
d. The price of the
firm's stock on the open market
6. Consider the
following firms:
Net Income Stock Price
at Stock Price at
this year Beg of
Year End of Year
Firm A:
$10,000,000 $20 $10
Firm B:
$(10,000,000) $10 $20
a. The manager of Firm A is doing a better job than B
b. The manager of Firm B is doing a better job than A
c. Neither manager is doing a good job
d. Both managers are doing a good job
7. The practice of
locating a U.S. Firm’s corporate headquarters in Bermuda because Bermuda does
not have a corporate income tax is:
a. Illegal
b. Irresponsible
c. Definitely
unethical
d. Legal, but might
be considered unethical by some
8. In corporations,
the goals of management and the goals of the stockholders are
a. Always the same
b. Always different
c. Might be different
d. Must be different
9. The corporate
website for McDonalds Corporation is:
10. The CEO of
McDonalds Corporation is:
a. Mr. Jim Skinner
b. Mr. Ray Kroc
c. Mr. Don Thompson
d. Ms. Jan Fields
e. Mr. Fred Turner
BUSN 5200 Quiz
for week 2
Note: In the
questions below, the correct answer is identified with an asterisk
1. The area of
accounting called Financial accounting deals with:
a. producing financial statements for the
organization
b. costs, budgets, production rates, labor
rates, prices, and so on
c. providing third party reviews of other firms’
financial statements
d. maximizing the wealth of the firm’s owners
2. GAAP stands for:
a. Guaranteed Accounting Accuracy Program
b. Global Access to Accounting Processing
c. Government Accountability And Payment
d. Generally Accepted Accounting Principles
3. Assume Macy’s sells $20,000 worth of men’s
suits in December 2013. The customers
all put the purchases on their Macy’s charge accounts and pay for the suits in
January, 2014. If Macy’s uses Accrual
Accounting how much in Sales will they record in December 2013?
a. $0
b. $10,000
c. $20,000
d. $40,000
4. On a company’s
balance sheet, Total Liabilities plus Total Equity always equals Total Assets
a.
True
b.
False
5. Family Market
bought 1000 cases of beans in 2012 that it still has in a warehouse. The amount spent for the beans would be
recorded on Family’s 2012 income statement as inventory expense.
a.
True
b.
False
6. The Retained
Earnings account on the balance sheet lists wages that have been earned by
employees that have not yet been paid to them.
a.
True
b.
False
7. In 2012 the Simon the Pieman corporation had
$10 million in sales, $5.2 million in operating costs, and $200,000 in interest
expense. It also paid 40% of it's pre‑tax
income to the U.S. government as income tax expense. Simon’s Net After‑tax Income for 2012 was:
a.
$1,840,000
b. $600,000
c.
$4,600,000
d.
$2,760,000
8. How much did
McDonalds have in Total Assets at the end of 2012? (in
millions)
a. $4,922.1
b. $18.602.5
c. $15,293.6
d. $35,386.5
9. What was
McDonalds’ Total Revenue in 2012? (in millions)
a. $18,602.5
b. $27,567.0
c. $8,964.5
d. $5,464.8
10. How much cash was
provided by McDonalds’ operating activities in 2012? (in
millions)
a. $5,464.8
b. $6,966.1
c. $0.4
d. $2,336.1
End of quiz
BUSN 5200 Quiz for week 3
Note: In the
questions below, the correct answer is identified with an asterisk
1. (See Exhibit 2-2 on page 58 in your BUSN 5200
Custom text Version 2) Assume Main
Street Store’s Net Sales in 2010 were $1,000,000 and it’s Net Income in 2010
was $17,000. Thus, between 2010 and 2011
Main Street Store’s net sales increased 20%.
During the same period what percentage did net income increase?
a. 5.6%
b. 17.0%
c. 5.9%
d. 94.4%
2. (See Exhibit 2-2 on page 58 in your BUSN 5200 Custom text Version 2) In 2011 Main Street Store’s largest expense
was:
a. Net Sales
b. Cost of Goods Sold
c. Interest Expense
d. Income Tax
3. (See Exhibit 2-1 on page 56 in your BUSN 5200 Custom text Version 2) As of August 31, 2011, what percentage of
Main Street Store’s assets were financed with debt (that is, liabilities)?
a. 20.9%
b. 36.6%
c. 15.6%
d. 100%
4. (See Exhibit 2-1 on page 56 in your BUSN 5200 Custom text Version 2) What was Main Street Store’s Net Worth at the end of August, 2011?
a. $320,000
b. $117,000
c. $34,000
d. $203,000
5. (See Exhibit 2-4 on page 62 in your BUSN 5200 Custom text Version 2) Which of the following categories produced
most of Main Street Store’s cash in
2011?
a. Cash Flows from Operations $(161,000)
b. Cash Flows from Investing Activities
$(40,000)
c. Cash Flows from Financing Activities
6. (See Exhibit 2-4 on page 62 in your BUSN 5200 Custom text Version 2) What did Main Street Store spend most of its
cash on in 2011?
a. Buying equipment
b. Paying off debt
c. Increasing inventory
d. Paying dividends
7. (See Exhibit 2-4 on page 62 in your BUSN 5200 Custom text Version 2) What happened to Main Street Store’s Cash
Account in 2011?
a. It increased
b. It decreased
c. It stayed the same
d. You can’t tell without further information
8. Which of the
following is true about McDonalds Corporation?
a. Between 2010 and 2011 total revenue increased
by a higher percentage than net income.
b. Between 2010 and 2011 total revenue increased
by a lower percentage than net
income.
c. McDonalds’ sales decreased between 2010 and
2011.
d. McDonalds’ net income decreased between 2010
and 2011.
9. McDonalds’ net
worth (in millions) at the end of 2011 was:
a. $16.6
b. $0
c. $14,390.2
d. 32,989.9
10. Which of the
following is true about McDonalds in 2011?
a. The corporation lost money.
b. The corporation paid no taxes.
c. The corporation paid no dividends.
d. The corporation was authorized to issue
preferred stock, but none was issued.
End of quiz
BUSN 5200 Quiz for week 4
Note: In the
questions below, the correct answer is identified with an asterisk
1. A firm with a
Current Ratio of 2.0 is twice as profitable as a firm with a Current Ratio of
1.0.
a.
True
b.
False
2. All other factors
being equal, a company that uses debt financing will have a higher return on
equity (ROE) ratio than one that does not.
a.
True
b.
False
3. In general, firms
want their Times Interest Earned ratio to be as low as possible.
a.
True
b.
False
4. A company whose
Total Asset Turnover ratio is 1.0 is using its assets more efficiently than one
whose ratio is 2.0.
a.
True
b.
False
5. If a firm's
current ratio is less than 1.0, it indicates that:
a.
The firm had negative net income for the year
b.
The firm will be unable to pay its short‑term loans which come due this
year
liabilities
c. Current Assets are less than Current
Liabilities
d.
The firm is insolvent
6. A firm which has a
relatively large amount of cash, accounts receivable, and inventory on its
books and a relatively small amount of current liabilities would be considered:
a.
liquid
b.
profitable
c.
risky
d.
nuts
7. Refer to the
following income statement for the Classic Cappuccino Corporation (CCC) to
answer the question that follows:
Total Revenue $50,000
Operating Expenses 25,000
Depreciation 1,000
Operating Profit 24,000
Interest Expense 1,000
Before‑Tax Profit 23,000
Taxes 6,900
After‑Tax Profit $16,100
CCC’s Net
Profit Margin is:
a.
16.1%
b.
23.0%
c.
32.2%
d.
$161,000
8. If a firm's PE
ratio was 22, you would know that:
a. Profits over Earnings = 22
b. The firm will probably not have any trouble
meeting its debt obligations this year
c. The firm's stock price is expected to
increase 22%
d. Investors are willing to pay 22 times the
firm's EPS for a share of the firm's stock
9. Which of the
following ratios would a potential creditor be most interested in?
a. Times Interest Earned
b. Economic Value Added (EVA)
c. Return on Equity (ROE)
d. Net Profit Margin
10. The Du Pont
equation allows you to gain additional insight into a firm’s
a. Liquidity
b. Sources of ROE
c. Sales potential
d. Sources of income
End of quiz
BUSN 5200 Quiz for week 5
Note: In the
questions below, the correct answer is identified with an asterisk
1. A budget is a
formal written statement of management’s plans for the future expressed in
financial terms.
a. True
b. False
2. The basic
budgeting process consists of four steps:
(1) List the
items to be included in the budget
(2) Summarize
what is known about how each item in the budget is expected to change in the
future.
(3) Apply the
expected changes to each budget item to produce the budget
(4) Follow-up
a. True
b. False
3. If your sales this
year were $37,250,000 and you were forecasting 17 percent growth for next year,
then your next year's sales would be $54,250,000.
a.
True
b. False
4. If ratios computed
on forecasted "pro forma" financial statements are out of acceptable
tolerances, it is an indication that the forecast is faulty and must be redone.
a. True
b. False
5. Consider the
following financial data:
Year Sales
2005 $3,892
2006 3,904
2007 6,094
2008 6,337
2009 5,075
The company's
average annual sales growth rate from 2005 through 2009 was:
a. 10.1%
b. 30.4%
c. 6.9%
d. 5.5%
6. Assume that your
firm wants its Inventory Turnover ratio next year to be 7x. Cost of goods Sold is forecasted to be
$6,992. What will the forecasted
inventory balance have to be to achieve a Turnover ratio of 7x?
a. $999
b. $6,985
c. $48,944
d. Can't tell without further information
7. Kenney Corporation
recently reported the following income statement for 2009 (numbers are in
millions of dollars):
2010
Sales $7,000 x 1.10 = $7,700
Total
operating costs 3,000 x 1.10 = 3,300
EBIT 4,000 4,400
Interest 200 200
Earnings
before tax (EBT) 3,800 4,200
Taxes
(40%) 1,520 1,680
Net
income $2,280 $2,520
Dividends (50%) 1,260
Addition
to retained earnings $1,260
The company forecasts that its sales will increase by 10
percent in 2010 and its operating costs will increase in proportion to
sales. The company’s interest expense is
expected to remain at $200 million, and the tax rate will remain at 40
percent. The company plans to pay out 50
percent of its net income as dividends, the other 50 percent will be additions
to retained earnings. What is the forecasted addition to retained earnings for
2010?
a. $1,140
b. $1,260
c. $1,440
d. $1,790
e. $1,810
8. If you constructed
a set of pro forma financial statements for 2010 and found that projected Total
Assets exceeded projected Total Liabilities and Equity by $11,250, you would
know that:
a. your
forecasting method is inaccurate
b. your
forecasting assumptions or calculations must be in error, because projected
Assets
and projected Liabilities and Equity must
always balance
c. you must
arrange for $11,250 in additional financing
d. your
firm will have $11,250 of excess funds available in 2010
9. Consider the
following condensed Income Statement:
2009 2010
Sales $8,000,000 x 1.15 = $9,200,000
COGS 6,500,000 x 1.15 = 7,475,000
Gross Profit 1,500,000 $1,725,000
Sales
growth in 2010 is expected to be 15%
If COGS is assumed to vary directly with sales, then Gross
Profit for 2010 will be:
a.
$7,475,000
b. $1,725,000
c.
$1,200,000
d.
$1,500,000
10. Jill's Wigs Inc.
had the following balance sheet last year:
Forecast this year
Cash $ 800 x
2 = $1,600
Accounts
receivable 450 x 2 = 900
Inventory 950 x 2 =
1,900
Net fixed
assets 34,000 34,000
Total
assets $36,200 $38,400
Accounts
payable $ 350 x
2 = $ 700
Accrued
wages 150 x 2 = 300
Notes
payable 2,000 2,000
Mortgage 26,500 26,500
Common
stock 3,200 3,200
Retained
earnings 4,000 +
$1,000 = 5,000
Total
liabilities & equity $36,200 $37,700
AFN = $38,400 - $37,700 = $700
Jill has just invented a non-slip wig for men which she
expects will cause sales to double from $10,000 to $20,000, increasing net
income to $1,000. On Jill’s balance
sheet the cash, accounts receivable, and inventory accounts, and the accounts
payable and accrued wages accounts all vary directly with sales (that is, when
sales changes these accounts change by the same percentage). Jill also feels that she can handle the
increase in sales without adding any fixed assets. (1) Will Jill need any outside capital if she
pays no dividends? (2) If so, how much?
a. No; zero
b. Yes; $7,700
c. Yes; $1,700
d. Yes; $700
e. No; there will
be a $700 surplus.
End of quiz
BUSN 5200 Quiz for week 6
Note: In the
questions below, the correct answer is identified with an asterisk
1. When we say why we
say money has time value, we mean:
a. It takes time to make money
b. Time is money
c. Money to be received or paid at one time is
not of the same value as money to
be received or paid at another time
d. A dollar to be paid today is worth less than
a dollar to be paid next week
2. It is important
for managers to be familiar with time value of money concepts because
a. You need them to measure the value of future
cash
b. It is illegal to manage a firm without them
c. Time value of money concepts affect how much
managers are paid
d. They must be considered when making
managerial decisions
3. In a rare moment
of generosity, you give your nephew $100 on his first birthday. Your nephew’s mother, however, knew about the
time value of money, so she invested the gift in a 20-year 7% CD. (At maturity the CD pays back the principal
plus accumulated interest at 7% a year.)
If your nephew cashes in the CD at maturity, how much will he receive?
a. $107
b. $358
c. $387
d. $2,140
4. You deposit $2,000
in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15
years?
a.
$2,030.21
b.
$5,000.00
c.
$8,091.12
d.
$8,354.50
e.
$9,020.10
5. You can earn 8
percent interest, compounded annually.
How much must you deposit today to withdraw $10,000 in 6 years?
a.
$5,402.69
b.
$6,301.70
c.
$6,756.76
d.
$8,432.10
e.
$9,259.26
6. From a financial
point of view, which is the best choice:
to receive $10,000 now, or a note that promises $15,000 five years from
now? Five‑year interest rates are 8%.
a.
$10,000 now
b.
$15,000
7. Examining your
finances, you decide that you can afford to invest $1,200 each year toward your
retirement fund. If you invest the money at the end of each year at 9%
interest, and you retire in 20 years, how much will be in your fund at that
time?
a. $6,725
b. $10,954
c. $24,000
d. $61,392
8. You are in charge
of a new Missouri State Lottery. The
lottery rules say that winners are to be paid $10 million in the form of 10
annual payments of $1 million each.
Assuming that the interest rate is 10% and the payments are to be made
at the end of each of the next 10 years, how much money does your lottery
organization have to deposit in an account today in order to make the required
payments to a lottery winner?
a.
$10,000,000
b.
$3,855,433
c.
$6,144,567
d.
$9,090,909
9. In November 2007
you bought 100 shares of Microsoft stock for $35.375 a share. In November 2009 you sold your stock for
$92.5625 a share. What was your average
annual rate of return on your Microsoft investment? (disregard dividends and commissions)
a. 262%
b. 62%
c. 585%
d. 1.6%
10. You may have
heard of zero coupon bonds (zero-coupon bonds pay their owners $1,000 at
maturity and involve no other cash flows other than the purchase price). If you bought a zero coupon bond for $300,
held the bond for 10 years, and then cashed it in for $1,000 at the end of the
10th year, what average annual rate of return would you realize on your
investment?
a.
30%
b.
233%
c.
113%
d.
1.28%
e. 12.79%
End of quiz
BUSN 5200 Quiz for week 7
Note: In the
questions below, the correct answer is identified with an asterisk
1. (Monthly
compounding) How much would you have to
invest today at 12% annual interest, compounded monthly, in order to end up
with $1,000 in your investment account at the end of 12 months?
a. $887.45
b. $892.86
c. $256.68
d. $990.10
2. (Annualizing a
rate) The effective annual rate (EAR) of
1% interest per month is:
a. 12%
b. 12.68%
c. 1%
d. Not enough information to determine
3. (Annualizing a
rate) Your bank advertises 12 month CDs
with a stated annual interest rate of 12%, compounded monthly. What is the effective annual rate (EAR) on
the CD?
a. 1%
b. 12%
c. 12.68%
d. 144%
4. (PV of annuity
due) You are in charge of a new Missouri
State Lottery. The lottery rules say
that winners are to be paid $10 million in the form of 10 annual payments of $1
million each. Assuming that the interest
rate is 10% and the payments are to be made at the beginning of each of
the next 10 years, how much money does your lottery organization have to
deposit in an account today in order to make the required payments to a lottery
winner?
a.
$10,000,000
b.
$6,759,024
c.
$6,144,567
d.
$9,090,909
5. (Rate of return of
annuity) If the Bank of America agreed
to lend you $50,000 for 10 years in return for 10 annual payments of $7,791
(each payment due at the end of each year), what annual percent rate of
interest are you being charged?
a.
about 20%
b.
about 16%
c.
about 9%
d. 5.4%
6. (Rate of return of
annuity) Joe's Dockyard is financing a
new boat with an amortizing loan of $24,000 which is to be repaid in 10 annual
installments of $4,247.62 each. What annual interest rate is Joe paying on the
loan?
a. 18.9%
b.
17.7%
c.
14.0%
d. 12.0%
7. (Loan
payments) Tom's Toyotas has a 2004 4
Runner on sale for $16,995. If you could borrow that amount from Tom's Credit
Union at 7% for 4 years, what would be your monthly loan payments?
a.
$232.30
b. $378.85
$
c. $406.97 $
d.
$5,017.40
8. (PV of a
perpetuity) The PV of an endless stream
of annual payments (the payments in the stream continue to be paid forever) of
$1,200 each to an investor with a required rate of return of 10% is:
a. $1,000
a.
$1,200
b.
$12,000
d. $10,000
9. (FV of an uneven
cash flow stream) What's the future
value (FV) of the following cash flow stream:
(discount rate = 10%)
Year Cash Flow FV @ end of year 3
1 100 FV = 100(1+.10)2 =
$121
2 200 FV = 200(1+.10)1 =
$220
3 300 FV = 300(1+.10)0 = $300
Total FV = $641
a. $600
b. $660
b. $641
c. $799
10. (PV of uneven
cash flow stream) What's the present
value (PV) of the following cash flow stream:
(discount rate = 10%)
Year Cash Flow PV
of cash flow
a. $451
b. $482
c. $545
d. $600
End of quiz
BUSN 5200 Quiz for week 8
Note: In the
questions below, the correct answer is identified with an asterisk
1. In essence, capital budgeting is the process
of:
a.
Deciding what to do with the firm’s money
b.
Deciding how much capital the firm needs
c.
Deciding where to get the money for capital investment projects
d.
Deciding when to invest in a new project
2. Which of the following cash flows is an
“incremental cash flow” for the purposes of capital budgeting?
a.
Expenditures on plant and equipment for a new project
b.
R& D expenditures for a new project during the last three years
c.
Dividend payments
d.
Reduction of a competitor’s sales as a result of the your company’s
introduction of a new product
3. In capital budgeting, the payback period is
the:
a.
Amount of time it takes to receive all the future cash flows from a
project
b.
Amount of time it takes to pay back any money borrowed to finance the
project
c.
Amount of time it take for the project to be completed
d.
Amount if time it takes to recoup the initial investment for the
project
4. The Seattle Corporation has been presented
with an investment opportunity which will yield cash flows of $30,000 per year
in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in
Year 10. This investment will cost the
firm $150,000 today, and the firm's cost of capital is 10 percent. At what point will the initial investment be
paid back?
a. at the
end of the 4th year Cumulative
cash flows:
b. at the
end of the 5th year
c. at the
end of the 6th year
d. at the
end of the 7th year
5. Consider the following income statement and
answer the question that follows:
Sales (100 units) $200 P x 100 = $200, P = $2
Variable costs ($.20
ea) 20
Fixed Costs 80
EBIT 100
Interest Expense 30
EBT 70
Income tax 24
Net Income 46
What is the firm’s Breakeven Point in
units?
a.
1
b.
45
c.
56
d.
2,000
6. The net
present value of an investment is its present value minus its future value.
a.
True
b.
False
7. If the NPV of a
proposed project is positive, the NPV amount represents:
a. The amount of profit the firm will make if it
adopts the project
b. The amount of cash that the project will
produce if adopted
c. The amount of value that will be added to the
firm if the project is adopted
d. The project’s expected rate of return
8. Joe the cut-rate
bond dealer has offered to sell you a ten year zero-coupon bond for $300. (Remember, zero-coupon bonds pay their owners
$1,000 at maturity and involve no other cash flows other than the purchase
price.) If your required rate of return
for cut-rate bonds is 20%, what is the NPV of Joe's deal?
a.
about $161
b.
about -$138
c.
about $700
d.
about -$200
e.
about $1096
9. When using the IRR
method to evaluate investments, those with positive IRRs are accepted and those
with negative IRRs are rejected.
a.
True
b.
False
10. You've decided to
give up playing the stock market and buy some zero-coupon bonds from Joe the
cut-rate bond dealer instead. (Remember,
zero-coupon bonds because they pay off a known amount, $1,000, at
maturity and involve no other cash flows other than the purchase price.) Assume
your required rate of return is 12%. If
you buy some 10-year zero coupon bonds for $400 each today will the bonds meet
your return requirements?
a.
Yes IRR =
(FV/PV)(1/n) - 1
IRR
= ($1,000/$400)(1/10) - 1
b. No * IRR
= 2.50.1 - 1
IRR
= 1.09596 - 1
c. It depends IRR = .09596, or about
9.6%, which is less than your
12%
required rate of return
End of quiz
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