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fin mgt test 2
| Question | Answer |
|---|---|
| Which one of the following terms is applied to the financial planning method which uses the projected sales level as the basis for determining changes in balance sheet and income statement account values? | percentage of sales method |
| Which one of the following terms can be defined as the net income that a firm reinvests in itself? | retention ration |
| Which one of the following ratios identifies the amount of total assets a firm needs in order to generate $1 in sales? | capital intensity ratio |
| Maximum growth rate achievable excluding external financing of any kind | internal growth rate |
| Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio. | substainable growth rate |
| You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan? | I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained? |
| considers multiple options and scenarios | financial planning |
| You are getting ready to prepare pro forma statements for your business. Which one of the following are you most apt to estimate first as you begin this process? | projected sales |
| Which one of the following statements is correct? | pro forma statements are projections, not guarantees |
| When utilizing the percentage of sales approach, managers: | consider the current production capacity level and can project both net income and net cash flows |
| Which one of the following is correct in relation to pro forma statements? | the addition to retained earnings is equal to net income less cash dividends |
| When constructing a pro forma statement, net working capital generally: | varies proportionally with sales |
| A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume that the firm: | is currently operating at full capacity |
| Networking capital costs assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by: | long-term debt |
| Which one of the following capital intensity ratios indicates the smallest need for fixed assets per dollar of sales? | .07 |
| The percentage of net income available to the firm to fund future growth. | plowback ratio |
| Which one of the following will increase the maximum rate of growth a corporation can achieve? | increases in the retention ration |
| A firm's external financing need is financed by which of the following? | debt or equity |
| Blasco Industries is currently at full-capacity sales. Which one of the following is limiting sales to this level? | fixed assets |
| All else constant, which one of the following will increase the internal rate of growth? | decrease in total assets |
| You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? | future value |
| Christina invested $3,000 five years ago and earns 2 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of.The way she is handling her interest income is referred to as which one of the following? | compounding |
| Art invested $100 two years 8%. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: | interest on interest |
| Renee invested $2,000 six years ago at 4.5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? | simple interest |
| Kurt won a lottery and will receive $1,000 a year for the next 50 years. The value of his winnings today discounted at his discount rate is called which one of the following? | present value |
| Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: | discounting |
| Andy&Barb deposit $3,000 pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. which one of the following statements is true? | barb will earn more the second year than andy |
| Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one is a correct statement | sue will have more money than neal at age 60 |
| Which one of the following variables is the exponent in the present value formula? | number of time periods |
| What is the relationship between present value and future value interest factors? | the factors are reciprocals of each other |
| An ordinary annuity is best defined by which one of the following? | Equal payments paid at the end of regular intervals over a stated time period. |
| Which one of the following accurately defines a perpetuity? | unending equal payments paid at equal time intervals |
| The interest rate that is most commonly quoted by a lender is referred to as which one of the following? | annual percentage rate |
| An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates? | effective annual rate |
| Your credit card charges you 1.5 percent interest per month. This rate when multiplied by 12 is called the: | annual percentage rate |
| A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan. | pure discount |
| Which one of the following terms is defined as a loan wherein the regular payments, including both interest and principal amounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum? | balloon loan |
| Which one of the following statements related to annuities and perpetuities is correct? | A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments; given equal discount rates. |
| Which one of these statements related to growing annuities and perpetuities is correct? | The present value of a growing perpetuity will decrease if the discount rate is increased. |
| Which one of the following statements correctly defines a time value of money relationship? | Time and present value are inversely related, all else held constant. |
| Your grandmother is gifting you $150 a month for four years while you attend college to earn your bachelor's degree. At a 4.8 percent discount rate, what are these payments worth to you on the day you enter college? | $6,539.14 |
| You just won the grand prize in a national writing contest! As your prize, you will receive $1,000 a month for 10 years. If you can earn 7 percent on your money, what is this prize worth to you today? | $86,126.35 |
| You are borrowing $21,800 to buy a car. The terms of the loan call for monthly payments for five years at 8.25 percent interest. What is the amount of each payment? | $444.64 |
| You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay? | $153,524 |
| You estimate that you will owe $39,950 in student loans by the time you graduate. The interest rate is 3.75 percent. If you want to have this debt paid in full within 10 years, how much must you pay each month? | $399.74 |
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rcu10