Financial Accounting Quiz PDF

Tim has been promoted and is now in charge of all fixed long-term asset purchases. In other words, Tim is in charge of: A. capital structure management.( B. asset allocation. C. risk management. D. capital budgeting. E. working capital management. Stadford, Inc. is financed with 40 percent debt and...

Tim has been promoted and is now in charge of all fixed long-term asset purchases. In other words, Tim is in charge of: A. capital structure management.( B. asset allocation. C. risk management. D. capital budgeting. E. working capital management. Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure. Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm's: A. capital structure. B. cash equivalents. C. working capital. D. net assets. E. fixed accounts. Which one of the following is a working capital decision? A. How should the firm raise additional capital to fund its expansion? B. What debt-equity ratio is best suited to the firm? C. What is the cost of debt financing? D. Which type of debt is best suited to finance the inventory? E. How much cash should the firm keep in reserve? Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50- 50 basis. Which type of entity did they create if they have no personal liability for the firm's debts? A. Limited partnership B. Corporation C. Sole proprietorship D. General partnership E. Public company Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A. Sole proprietorship B. Limited partnershipC. Corporation D. Joint stock company E. General partnership Red Roofs, Inc. has current liabilities of $24,300 and accounts receivable of $7,800. The firm has total assets of $43,100 and net fixed assets of $23,700. The owners' equity has a book value of $21,400. What is the amount of the net working capital? A. $5,100 B. -$4,900 C. $6,500 D. $18,800 E. -$2,600 Net working capital = Current Assets – Current Liabilities = ($43,100 - $23,700) - $24,300 = -$4,900 The Toy Store has beginning retained earnings of $28,975. For the year, the company earned net income of $4,680 and paid dividends of $1,600. The company also issued $3,000 worth of new stock. What is the value of the retained earnings account at the end of the year? A. $20,445 B. $22,695 C. $27,375 D. $32,055 E. $35,255 Retained earnings = $28,975 + $4,680 - $1,600 = $32,055 Common-size financial statements present all balance sheet account values as a percentage of: A. the forecasted budget. B. sales. C. total equity. D. total assets. E. last year's account value. 2. Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A. Income statement B. Balance sheetC. Common-size income statement D. Common-size balance sheet E. Statement of cash flows International Travel Services has net income of $48,400, total assets of $219,000, total equity of $154,800, and total sales of $411,700. What is the common-size percentage for the net income? A. 9.00 percent B. 11.76 percent C. 15.53 percent D. 22.10 percent E. 850.62 percent Net income common-size percentage = $48,400/$411,700 = 11.76 percent Peter's Motor Works has total assets of $689,400, long-term debt of $299,500, total equity of $275,000, net fixed assets of $497,800, and sales of $721,500. The profit margin is 4.6 percent. What is the current ratio? A. 0.60 B. 0.91 C. 1.01 D. 1.67 E. 2.16 Current ratio = ($689,400 - $497,800)/($689,400 - $299,500 - $275,000) = 1.67 Todd will be receiving a $10,000 bonus one year from now. The process of determining how much that bonus is worth today is called: A. aggregating. B. discounting. C. simplifying. D. compounding. E. extrapolating. Which of the following will increase the future value of a lump sum investment? I. Decreasing the interest rate II. Increasing the interest rateIII. Increasing the time period IV. Decreasing the amount of the lump sum investment A. I and III only B. I and IV only C. II and III only D. II and IV only E. II, III, and IV only What is the future value of $4,900 invested for 8 years at 7 percent compounded annually? A. $8,397.74 B. $8,419.11 C. $8,511.15 D. $8,513.06 E. $8,520.22 Future value = $4,900 × (1.07)8 = $8,419.11 PV -4900, I/Y 8, N 8, PMT 0, CPT FV = 8419.11 Sam wants to invest $5,000 for 5 years. Which one of the following rates will provide him with the largest future value? A. 5 percent simple interest B. 5 percent interest, compounded annually C. 6 percent interest, compounded annually D. 7 percent simple interest E. 7 percent interest, compounded annually Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested. A. Increase in the time period B. Increase in the interest rate C. Decrease in the future value D. Decrease in the interest rate E. None of theseYour father invested a lump sum 26 years ago at 4.25 percent interest. Today, he gave you the proceeds of that investment which totaled $51,480.79. How much did your father originally invest? A. $15,929.47 B. $16,500.00 C. $17,444.86 D. $17,500.00 E. $17,999.45 Present value = $51,480.79 × [1/(1 +.0425)26] = $17,444.86 You want to have $25,000 saved 6 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent on your savings? Today's deposit is the only deposit you will make to this savings account. A. $524.24 B. $691.18 C. $724.60 D. $745.11 E. $819.02 Present value = $25,000 × [1/(1 +.05)6] = $18,655.38 Present value = $25,000 × [1/(1 +.055)6] = $18,131.15 Difference = $18,655.38 - $18,131.15 = $524.24 You are considering a project which will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a 9 percent discount rate? A. $14,877 B. $15,103 C. $15,429 D. $16,388 E. $16,847 C01: 4500, F01:1, CO2: 4500, F02: 5700, C03: 8000, NPV, I:9 CPT Which one of following is the rate at which a stock's price is expected to appreciate? A. current yield B. total return C. dividend yield D. capital gains yield E. coupon rate The price of a stock at year 4 can be expressed as: A. D0/(R + g4). B. D0 × (1 + R)5. C. D1 × (1 + R)5. D. D4/(R - g). E. D5/(R - g). Food World stock is selling for $13.31 a share based on a 14 percent rate of return. What is the amount of the next annual dividend if the dividends are increasing by 2.8 percent annually? D1 = 13.31 x (0.14 -0.028) = 1.49 Food World just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you require a 14 percent rate of return? P0 = $13.31 P0 = D1/(r-g) = D0(1+g)/(r-g) = 1.45(1+0.028)/(0.14-0.028) = 13.3089 Food World just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is the expected value of this stock five years from now if you require a 14 percent rate of return? P5 = $15.30 P5 = D6/(r-g) = D0(1+g)6/(r-g) = 1.45(1+0.028) 6/(0.14-0.028) A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital? A) $970 B) $720 C) $640 D) $3,110 E) $2,860 Answer: B Explanation: NWC = $680 + 210 + 80 − 250 NWC = $720 Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital? A) −$100 B) $300C) $600 D) $1,700 E) $1,800 Answer: B Explanation: NWC = $4,900 − 3,200 − 1,400 NWC = $300 A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? A) $2,050 B) $2,920 C) $4,130 D) $7,950 E) $6,890 Answer: E Explanation: Current assets = $7,390 − 3,910 Current assets = $3,480 Current liabilities = $3,480 − 560 Current liabilities = $2,920 Total liabilities = $2,920 + 3,970 Total liabilities = $6,890 Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? A) $98,210 B) $81,700 C) $95,200 D) $103,460 E) $121,680 Answer: A Explanation: Net income = ($546,000 − 295,000 − 37,000 − 15,000)(1 −.21) Net income = $157,210 Which one of these identifies the relationship between the return on assets and the return on equity? A) Profit margin B) Profitability determinant C) Balance sheet multiplier D) DuPont identity E) Debt-equity ratio Answer: D Which one of the following accurately describes the three parts of the DuPont identity? A) Equity multiplier, profit margin, and total asset turnover B) Debt-equity ratio, capital intensity ratio, and profit margin C) Operating efficiency, equity multiplier, and profitability ratio D) Return on assets, profit margin, and equity multiplier E) Financial leverage, operating efficiency, and profitability ratio Answer: A Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio? A) 2.25 B).53 C).71 D).89 E) 1.35 Answer: D Explanation: Quick ratio = ($68 + 142)/$235 Quick ratio =.89 If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? A) 0 B).5 C) 1.0 D) 1.5 E) 2.0 Answer: B A firm has a debt-equity ratio of.62, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income? A) $28,079 B) $19,197 C) $50,159 D) $40,451 E) $52,418Answer: C Explanation: ROE =.051(1.24)(1.62) ROE =.1024 Marti's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much will the collection be worth in 2025? A) $13,611.18 B) $18,987.56 C) $14,122.01 D) $11,218.27 E) $14,077.16 Answer: E Formula: FV = $50(1.07677) Calculator: PV -50, I/Y 7.6, N 77, PMT 0, CPT FV FV = $14,077.16 You have a savings account valued at $1,500 today that earns an annual interest rate of 8.7 percent. How much more would this account be worth if you wait to spend the entire balance in 25 years rather than in 20 years? A) $6,306.16 B) $4,658.77 C) $3,311.18 D) $6,907.17 E) $4,117.64 Answer: E Formula: FV = $1,500(1.08725) Calculator: PV -1500, I/Y 8.7, N 25, PMT 0, CPT FV FV = $12,073.41 Formula: FV = $1,500(1.08720) Calculator: PV -1500, I/Y 8.7, N 20, PMT 0, CPT FV FV = $7,955.77 Difference = $12,073.41 − 7,955.77 Difference = $4,117.64 You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annual interest. How many years will it be before you purchase the car, assuming the price of the car remains constant? A) 9.67 years B) 17.18 years C) 12.81 years D) 16.91 years E) 10.84 years Answer: C Formula: $68,000 = $36,840(1.049t) Calculator: FV 6800, PV -36840, PMT 0, I/Y 4.9, CPT N t = N = 12.81 years The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now? A) $2.10 B) $2.05 C) $2.08 D) $2.02 E) $2.15 Answer: C (Constant-growth stock = Constant dividend growth = Dividend growth model) Explanation: D8 = $1.84(1.0135)9 D8 = $2.08 Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? A) $11.23 B) $10.82 C) $10.68 D) $9.68 E) $11.57 Answer: B (Constant-growth stock) Explanation: P0 = [$1.42(1.013)]/(.146 −.013) P0 = $10.82Home Products common stock sells for $36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate? A) 11.43 percent B) 11.06 percent C) 10.87 percent D) 11.18 percent E) 10.95 percent Answer: E (Constant-growth stock) Explanation: $36.84 = [$1.61(1 + g)/(.158 − g) g =.1095, or 10.95% Yummy Bakery just paid an annual dividend of $3.40 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 14.8 percent at the time of your purchase? A) $29.89 B) $27.58 C) $29.83 D) $28.18 E) $27.20 Answer: D (Constant-growth stock) Explanation: P1 = [$3.40(1.0222)]/(.148 −.022) P1 = $28.18 The UpTowner just paid an annual dividend of $4.12. The company has a policy of increasing the dividend by 2.5 percent annually. You would like to purchase shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a rate of return of 16.7 percent, how much will you be willing to pay per share when you can afford to make this investment? A) $32.03 B) $32.83 C) $33.12 D) $33.65 E) $32.47 Answer: B (Constant-growth stock) Explanation: P4 = [$4.12(1.0255)]/(.167 −.025) P4 = $32.8 The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent? A) $13.89 B) $14.01 C) $14.56 D) $13.79 E) $13.28 Answer: A (Zero-growth stock = Constant dividend, perpetuity) Explanation: P0 = $2.25/.162 P0 = $13.89 A preferred stock sells for $63.60 a share and provides a return of 8.40 percent. What is the amount of the dividend per share? A) $5.45 B) $5.25 C) $5.34 D) $5.43 E) $5.28 Answer: C Explanation: D =.0840($63.60) D = $5.34 The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? A) 4.84 percent B) 6.41 percent C) 9.92 percent D) 6.14 percent E) 7.28 percent Answer: B Explanation: R = dividend yield + capital gain yield = D1/P0 + g = $2.28/$47.92 +.0165 R =.0641, or 6.41% Which one of following is the rate at which a stock's price is expected to appreciate? A) Current yield B) Total return C) Dividend yield D) Capital gains yield E) Coupon rate Answer: D The dividend growth model: A) assumes dividends increase at a decreasing rate. B) only values stocks at Time 0. C) cannot be used to value constant dividend stocks. D) can be used to value both dividend-paying and non-dividend-paying stocks. E) requires the growth rate to be less than the required return. Answer: E Which one of the following represents the capital gains yield as used in the dividend growth model? A) D1 B) D1/P0 C) P0 D) g E) g/P0 Answer: D Which one of these will increase the present value of a set amount to be received sometime in the future? A) Increase in the time until the amount is received B) Increase in the discount rate C) Decrease in the future value D) Decrease in the interest rate E) Decrease in both the future value and the number of time periods Answer: D Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than ________ and earn a ________ rate of interest, then you can deposit a smaller lump sum today. A) sooner; later; low B) sooner; later; high C) later; sooner; high D) later; sooner; low E) today; later; high Answer: C The process of determining the present value of future cash flows in order to know their value today is referred to as: A) compound interest valuation. B) interest on interest valuation. C) discounted cash flow valuation. D) future value interest factoring. E) complex factoring. Answer: C Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as: A) simplifying. B) compounding. C) aggregating. D) accumulating. E) discounting. Answer: B The DuPont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generating per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner? A) I and III only B) II and IV only C) I, II, and III onlyD) II, III and IV only E) I, II, III, and IV At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? A) −$19,679 B) −$11,503 C) $19,387 D) $15,497 E) $21,903 Answer: E Explanation: Change in NWC = ($122,418 − 103,718) − ($121,306 − 124,509) Change in NWC = $21,903