How can a private firm appropriately maximize shareholder value? Ans- By making decisions that keep
the control of the business with the owners
Why are American regulators focused on international investing in a globa
...
How can a private firm appropriately maximize shareholder value? Ans- By making decisions that keep
the control of the business with the owners
Why are American regulators focused on international investing in a global marketplace? Ans- Because
international investing in a global marketplace is the concern of
American investors
What is one of the two basic types of financial instruments? Ans- Bonds
If a company outsources the manufacturing of its products to a foreign country, what are the likeliest
outcomes? Ans- Consumer prices will decrease and Domestic employment will decrease.
What is true about the content and structure of a balance sheet? Ans- It reports the assets, liabilities,
and equity at a point in time.
A company reported an increase in accounts receivable of $5,000 during the recent period. Half of this
amount is expected to be collected next period.
How will this change in accounts receivable affect the cash flows from the operating activities section?
Ans- The change will decrease cash flows from operations by $5,000.
Which statement accurately explains the recognition of revenues and expenses under accounting
income
and income for tax purposes? Ans- Revenues and expenses may be recognized in one period for
accounting income purposes and in a different period for income tax purposes.
Selected Data for 20x2 for ABD Inc.
Netincome $ 1,000
Depreciation expense $ 300
Change in operating assets $ 600
Change in net property, plant, and equipment$ 5,000
Changes in long-term liabilities $ 1,000
Dividends paid $ 200
What is the firm's cash flow from investments, using the data above and assuming no asset disposals?
Ans- $5,300 outflow
What is the basic equation for a balance sheet? Ans- Assets = Liabilities + Equity
What do cash flows from investing activities generally relate to? Ans- A firm's purchase and sale of longterm assets
Which transaction is reflected in cash flow from operating activities? Ans- Cash sales to customers
What does free cash flow represent? Ans- Cash available for distribution after funding required
reinvestment
An analyst is comparing the ratios of two firms and needs to address timing differences. What would be
considered an example of a timing difference between the two firms? Ans- The firms have different
fiscal years.
A company's year-end balance sheetfor 2013 shows the following:
Accounts receivable: $900
Inventory: $1200
Fixed assets: $1000
Accounts payable: $1300
Sales: $4000
Salaries expense: $275
What is their fixed asset turnover ratio? Ans- 4.0
A firm has a ROE (return on equity) of 0.27 and the industry average ROE is 0.24. Which conclusion
would an analyst draw when comparing the firm to the industry? Ans- The firm is generating higher
returns to owners than the industry.
What must have taken place for a firm to recognize revenue, in order for the firm to comply with the
accrual accounting rules? Ans- The product must have been delivered.
A teacher won $100,000 and invests this money for 5 years at an interest rate of 4% (compounded
annually).
How much will the teacher have in principal and interest at the end of the 5 years? Ans- $121,665
An accountantis 40 years old with an anticipated retirement age of 70 years old. The accountant plans to
save $6,000 per year at the end of the next 30 years to fund retirement. Ans- $336,510
An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest bearing account.
The
last cash flow is received 1 year prior to the end ofthe tenth year.
What is the investor's future balance after 10 years? Ans- $24,973
What is the par value (face value) of a bond? Ans- The sum of money that the corporation promises to
pay upon expiration of the bond.
A broker is considering purchasing common stock in a company that has average but consistent
operating
performance.
Which factor should lead the broker to purchase shares in this company? Ans- The current price of the
stock is 25% below its intrinsic value.
A broker is considering buying a dividend-paying stock. The dividend will be paid atthe end of the year.
The analyst consensus is the stock will be worth $36 in one year. The company pays a $2.25 annual
dividend (ex dividend date is not a consideration,the broker will receive the full $2.25), and the broker
expects a 12% rate of return
What is the highest price the broker should be willing to pay for the stock? Ans- $34.15
A person buys shares of a company at $45. They recently paid a $2 annual dividend which is expected to
grow by 10% per year.
What is the expected return per year? Ans- 14.9%
Which investment option is less desirable for a prudent investor? Ans- Quadrant 4, bottom left, 3/4 to
right side. Also E. for answer.
The market rate of return is 9%. The face value ofthe bond is $1000,the coupon rate is 9% with annual
compounding, and the bond matures in 10 years.
What is the value of the bond? Ans- $1,000
Which statement is true about fluctuations in bond prices? Ans- When the market interest rates
fluctuate, the required rate of return equals the bond coupon rate.
A company issues bonds at a market price of $925. The face value is $1,000. The bonds mature in 10
years,
and the coupon rate is 6% compounded semiannually.
What is the yield to maturity (YTM) on the company's bonds? Ans- 7.06%
Which securities are issued by local governments and are usually tax exempt at the federal level? AnsMunicipal bonds
A bond pays $27.50 semiannually, matures in 9 years, and is currently priced at $1,090.
What is the yield to maturity for this bond? Ans- 4.28%
A bond that matures in 30 months is sold at a premium.
What is the yield to maturity (YTM)? Ans- Lower than the coupon rate
Why does a long-term bond resemble an interest-only loan? Ans- None of the principle is repaid until
the bond matures.
Under which circumstances will annual percentage yield (APY) be greater than the annual percentage
rate
(APR)? Ans- Any time the number of compounding periods is greater than annual.
What is the difference between a common stock and a preferred stock? Ans- Skipping a declared
preferred stock dividend results in dividends in arrears.
Which happens to the risk level in a portfolio as the number of assets in the portfolio increases? AnsRisk decreases at a slower rate.
Where along this line will a highly risk-averse investor likely fall? Ans- C1 - Three up vertical on the graph
curve and also that would be on the most arched part of the graph.
What are two primary benefits of the capital asset pricing model (CAPM)? Ans- CAPM provides a way to
determine the expected return for stocks. & CAPM provides a way to estimate the required return.
A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt
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