Grade Details – All QuestionsQuestion 1. Question : During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO’s free cash flow is ________.Question 2. Question : The tax liability of a corporation with ordinary income of $1,100,000 is ________.Range of taxable income Marginal rate$ 0 to $ 50,000 15%50,000 to 75,000 2575,000 to 100,000 34100,000 to 335,000 39335,000 to 10,000,000 3410,000,000 to 15,000,000 35Note: Please refer to Table 2.1 or PowerPoint Slide 2-34Student Answer:$362,250$340,000$374,000$390,000Question 3. Question : A beta coefficient of +1 represents an asset that ________.Student Answer:is more responsive than the market portfoliohas the same response as the market portfoliois less responsive than the market portfoliois unaffected by market movementQuestion 4. Question : A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm’s bond will sell for ________ today.Student Answer:$1,000$716.67$840.73$1,123.33Question 5. Question : Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.Student Answer:fixed dividend paymentsgreater returns from their investment in the firm’s stockall profits to be paid out in dividendswarrants to be attached to the stock issueQuestion 6. Question : Which of the following is a source of cash flows?Student Answer:increase in marketable securitiesincrease in accounts payabledecrease in notes payablerepurchase of stockQuestion 7. Question : Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a constant growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.’s common stock is ________.Student Answer:$28.00$56.00$22.40$18.67Question 8. Question : A corporation sold a fixed asset for $100,000. This is ________.Student Answer:an investment cash flow and a source of fundsan operating cash flow and a source of fundsan operating cash flow and a use of fundsan investment cash flow and a use of fundsQuestion 9. Question : The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.Question 10. Question : A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm’s preferred stock isStudent Answer:$120$10$12$100Question 11. Question : Under which of the following legal forms of organization is ownership readily transferable?Student Answer: sole proprietorshipspartnershipslimited partnershipscorporationsQuestion 12. Question : Operating profit is known as ________.Student Answer:earnings after interest and taxesearnings before interest and taxesearnings before depreciation and taxesearnings after taxQuestion 13. Question : Holders of equity capital ________.Student Answer:own the firmreceive interest paymentsreceive guaranteed incomehave loaned money to the firmQuestion 14. Question : Which of the following is a strength of a corporation?Student Answer:low taxeslimited liabilitylow organization costsless government regulationQuestion 15. Question : Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?Student Answer:$120,000$ 38,640$ 67,800$ 72,560Question 16. Question : Making financing decisions includes ________.Student Answer:determining the appropriate mix of short-term and long-term financingdeciding on which individual securities to select for investmentanalyzing quarterly budget and performance reportsimproving the productivity of manufacturing productsQuestion 17. Question : The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.Student Answer:$178,571$285,000$350,000$219,298Question 18. Question : A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks.Student Answer: yield curvesupply functionrisk-return profileaggregate demand curveQuestion 19. Question : Which of the following activities of a finance manager determines the types of assets the firm holds?Student Answer:budget allocationinvestment decisionsfinancing decisionsanalyzing and planning cash flowsQuestion 20. Question : For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________.Student Answer:net increase of $5,000 in cash and marketable securitiesnet decrease of $5,000 in cash and marketable securitiesnet decrease of $15,000 in cash and marketable securitiesnet increase of $25,000 in cash and marketable securitiesQuestion 21. Question : An efficient market is one where ________.Student Answer:prices of stocks move up and down widely without apparent reasonprices of stocks remain low for long periods of timeprices of stocks are unaffected by market newsthe price of a security is an unbiased estimate of its true valueQuestion 22. Question : The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called ________.Student Answer:valuationsecuritizationprivate placementcapital restructuringQuestion 23. Question : Managerial finance ________.Student Answer:involves tasks such as budgeting, financial forecasting, cash management, and funds procurementinvolves the design and delivery of advice and financial productsrecognizes funds on an accrual basisdevotes the majority of its attention to the collection and presentation of financial dataQuestion 24. Question : Which of the following is a marketable security?Student Answer:mutual fundsTreasury billprovident fundforward contractsQuestion 25. Question : The primary concern of creditors when assessing the strength of a firm is its ________.Student Answer: profitabilityleverageshort-term liquidityshare priceQuestion 26. Question : Retained earnings on the balance sheet represents the ________.Student Answer:net profit after taxesamount of proceeds in excess of the par value received from the original sale of common stocknet profit after taxes minus preferred dividendscumulative total of all earnings reinvested in the firmQuestion 27. Question : A debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms is called a(n) ________.Student Answer:common stockcorporate bondindenturepreferred stockQuestion 28. Question : The primary goal of a financial manager is ________.Student Answer: minimizing riskmaximizing profitmaximizing wealthminimizing returnQuestion 29. Question : A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is ________.Student Answer:$240,000$250,000$270,000$300,000Question 30. Question : A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered as ________.Student Answer: an investment cash flowa financing cash flowa financing cash flow and investment cash flow, respectivelya financing cash flow and operating cash flow, respectivelyQuestion 31. Question : If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy.Student Answer:risk-seekingrisk-indifferentrisk-averserisk-neutralQuestion 32. Question : Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?Student Answer:$19,292$14,938$40,000$144,104Question 33. Question : Bonds are ________.Student Answer:a series of perpetual short-term debt instrumentsa form of equity financing that pays interestlong-term debt instruments used to raise large sums of moneya hybrid form of financing used to raise large sums of money from a diverse group of lendersQuestion 34. Question : Investment banks are institutions that ________.Student Answer:perform all activities of commercial banks and retail banksare exempted from Securities and Exchange Commission regulationsengage in trading and market making activitiesare only limited to capital market activitiesQuestion 35. Question : The future value of $100 received today and deposited at 6 percent for four years is ________.Student Answer: $126$ 79$124$116Question 36. Question : Risk aversion is the behavior exhibited by managers who require ________.Student Answer: an increase in return, for a given decrease in riskan increase in return, for a given increase in riskno changes in return, for a given increase in riskdecrease in return, for a given increase in riskQuestion 37. Question : Given a financial manager’s preference for faster receipt of cash flows, ________.Student Answer:a longer depreciable life is preferred to a shorter onea shorter depreciable life is preferred to a longer onethe manager is not concerned with depreciable life, because depreciation is a noncash expensethe manager is not concerned with depreciable life, because once purchased, depreciation is considered a sunk costQuestion 38. Question : From a corporation’s point of view, a disadvantage of issuing preferred stock is ________.Student Answer:that it increases financial leveragethat it has to give fixed payments as well as voting rights to the holdersits excellent merger securitythat the dividends are not tax-deductibleQuestion 39. Question : Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm’s net profit after taxes?Student Answer:$66,000$49,000$44,000$83,000Question 40. Question : A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders’ investment of $750,000 has a return on equity of ________.Student Answer: 20 percent15 percent3 percent4 percentQuestion 41. Question : Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________.Student Answer: 36.5; 1010; 36.536.0; 1030; 36.0Question 42. Question : Which of the following is a means of selling bonds or stocks to the public?Student Answer:private placementpublic offeringorganized sellingdirect placementQuestion 43. Question : A firm has the following accounts and financial data for 2014:Sales revenues: $3,060Account receibale: $500Interest expenses: $126Total operating expenses: $600Account payable: $240Cost of goods sold: $1,800Preferred stock dividends: $18Tax rate: 40%Number of shares of common stock outstanding: 1,000The firm’s earnings per share for 2014 is ________.Question 44. Question : Which of the following is true of risk?Student Answer:Risk and return are inversely proportionate to each other.Higher the risk associated with a security the lower is its return.Risk is a measure of the uncertainty surrounding the return that an investment will earn.Riskier investments tend to have lower returns as compared to T-bills which are risk free.Grade Details – All QuestionsQuestion 1. Question : During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO’s free cash flow is ________.Question 2. Question : The tax liability of a corporation with ordinary income of $1,100,000 is ________.Range of taxable income Marginal rate$ 0 to $ 50,000 15%50,000 to 75,000 2575,000 to 100,000 34100,000 to 335,000 39335,000 to 10,000,000 3410,000,000 to 15,000,000 35Note: Please refer to Table 2.1 or PowerPoint Slide 2-34Student Answer:$362,250$340,000$374,000$390,000Question 3. Question : A beta coefficient of +1 represents an asset that ________.Student Answer:is more responsive than the market portfoliohas the same response as the market portfoliois less responsive than the market portfoliois unaffected by market movementQuestion 4. Question : A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm’s bond will sell for ________ today.Student Answer:$1,000$716.67$840.73$1,123.33Question 5. Question : Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.Student Answer:fixed dividend paymentsgreater returns from their investment in the firm’s stockall profits to be paid out in dividendswarrants to be attached to the stock issueQuestion 6. Question : Which of the following is a source of cash flows?Student Answer:increase in marketable securitiesincrease in accounts payabledecrease in notes payablerepurchase of stockQuestion 7. Question : Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a constant growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.’s common stock is ________.Student Answer:$28.00$56.00$22.40$18.67Question 8. Question : A corporation sold a fixed asset for $100,000. This is ________.Student Answer:an investment cash flow and a source of fundsan operating cash flow and a source of fundsan operating cash flow and a use of fundsan investment cash flow and a use of fundsQuestion 9. Question : The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.Question 10. Question : A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm’s preferred stock isStudent Answer:$120$10$12$100Question 11. Question : Under which of the following legal forms of organization is ownership readily transferable?Student Answer: sole proprietorshipspartnershipslimited partnershipscorporationsQuestion 12. Question : Operating profit is known as ________.Student Answer:earnings after interest and taxesearnings before interest and taxesearnings before depreciation and taxesearnings after taxQuestion 13. Question : Holders of equity capital ________.Student Answer:own the firmreceive interest paymentsreceive guaranteed incomehave loaned money to the firmQuestion 14. Question : Which of the following is a strength of a corporation?Student Answer:low taxeslimited liabilitylow organization costsless government regulationQuestion 15. Question : Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?Student Answer:$120,000$ 38,640$ 67,800$ 72,560Question 16. Question : Making financing decisions includes ________.Student Answer:determining the appropriate mix of short-term and long-term financingdeciding on which individual securities to select for investmentanalyzing quarterly budget and performance reportsimproving the productivity of manufacturing productsQuestion 17. Question : The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.Student Answer:$178,571$285,000$350,000$219,298Question 18. Question : A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks.Student Answer: yield curvesupply functionrisk-return profileaggregate demand curveQuestion 19. Question : Which of the following activities of a finance manager determines the types of assets the firm holds?Student Answer:budget allocationinvestment decisionsfinancing decisionsanalyzing and planning cash flowsQuestion 20. Question : For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________.Student Answer:net increase of $5,000 in cash and marketable securitiesnet decrease of $5,000 in cash and marketable securitiesnet decrease of $15,000 in cash and marketable securitiesnet increase of $25,000 in cash and marketable securitiesQuestion 21. Question : An efficient market is one where ________.Student Answer:prices of stocks move up and down widely without apparent reasonprices of stocks remain low for long periods of timeprices of stocks are unaffected by market newsthe price of a security is an unbiased estimate of its true valueQuestion 22. Question : The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called ________.Student Answer:valuationsecuritizationprivate placementcapital restructuringQuestion 23. Question : Managerial finance ________.Student Answer:involves tasks such as budgeting, financial forecasting, cash management, and funds procurementinvolves the design and delivery of advice and financial productsrecognizes funds on an accrual basisdevotes the majority of its attention to the collection and presentation of financial dataQuestion 24. Question : Which of the following is a marketable security?Student Answer:mutual fundsTreasury billprovident fundforward contractsQuestion 25. Question : The primary concern of creditors when assessing the strength of a firm is its ________.Student Answer: profitabilityleverageshort-term liquidityshare priceQuestion 26. Question : Retained earnings on the balance sheet represents the ________.Student Answer:net profit after taxesamount of proceeds in excess of the par value received from the original sale of common stocknet profit after taxes minus preferred dividendscumulative total of all earnings reinvested in the firmQuestion 27. Question : A debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms is called a(n) ________.Student Answer:common stockcorporate bondindenturepreferred stockQuestion 28. Question : The primary goal of a financial manager is ________.Student Answer: minimizing riskmaximizing profitmaximizing wealthminimizing returnQuestion 29. Question : A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is ________.Student Answer:$240,000$250,000$270,000$300,000Question 30. Question : A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered as ________.Student Answer: an investment cash flowa financing cash flowa financing cash flow and investment cash flow, respectivelya financing cash flow and operating cash flow, respectivelyQuestion 31. Question : If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy.Student Answer:risk-seekingrisk-indifferentrisk-averserisk-neutralQuestion 32. Question : Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?Student Answer:$19,292$14,938$40,000$144,104Question 33. Question : Bonds are ________.Student Answer:a series of perpetual short-term debt instrumentsa form of equity financing that pays interestlong-term debt instruments used to raise large sums of moneya hybrid form of financing used to raise large sums of money from a diverse group of lendersQuestion 34. Question : Investment banks are institutions that ________.Student Answer:perform all activities of commercial banks and retail banksare exempted from Securities and Exchange Commission regulationsengage in trading and market making activitiesare only limited to capital market activitiesQuestion 35. Question : The future value of $100 received today and deposited at 6 percent for four years is ________.Student Answer: $126$ 79$124$116Question 36. Question : Risk aversion is the behavior exhibited by managers who require ________.Student Answer: an increase in return, for a given decrease in riskan increase in return, for a given increase in riskno changes in return, for a given increase in riskdecrease in return, for a given increase in riskQuestion 37. Question : Given a financial manager’s preference for faster receipt of cash flows, ________.Student Answer:a longer depreciable life is preferred to a shorter onea shorter depreciable life is preferred to a longer onethe manager is not concerned with depreciable life, because depreciation is a noncash expensethe manager is not concerned with depreciable life, because once purchased, depreciation is considered a sunk costQuestion 38. Question : From a corporation’s point of view, a disadvantage of issuing preferred stock is ________.Student Answer:that it increases financial leveragethat it has to give fixed payments as well as voting rights to the holdersits excellent merger securitythat the dividends are not tax-deductibleQuestion 39. Question : Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm’s net profit after taxes?Student Answer:$66,000$49,000$44,000$83,000Question 40. Question : A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders’ investment of $750,000 has a return on equity of ________.Student Answer: 20 percent15 percent3 percent4 percentQuestion 41. Question : Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________.Student Answer: 36.5; 1010; 36.536.0; 1030; 36.0Question 42. Question : Which of the following is a means of selling bonds or stocks to the public?Student Answer:private placementpublic offeringorganized sellingdirect placementQuestion 43. Question : A firm has the following accounts and financial data for 2014:Sales revenues: $3,060Account receibale: $500Interest expenses: $126Total operating expenses: $600Account payable: $240Cost of goods sold: $1,800Preferred stock dividends: $18Tax rate: 40%Number of shares of common stock outstanding: 1,000The firm’s earnings per share for 2014 is ________.Question 44. Question : Which of the following is true of risk?Student Answer:Risk and return are inversely proportionate to each other.Higher the risk associated with a security the lower is its return.Risk is a measure of the uncertainty surrounding the return that an investment will earn.Riskier investments tend to have lower returns as compared to T-bills which are risk free.