7. The King Carpet Company has $3,000,000 in cash and a total of $12,000,000 in current assets. The firm’s current liabilities equal $6,000,000 such that the firm’s current ratio equals 2. The company’s managers want to reduce the firm’s cash holdings down to $1,000,000 by paying $500,000 in cash to expand the firm’s truck fleet and using $1,500,000 in cash to retire a short-term note. If the carry this plan through, what will be the firm’s NEW current ratio?
|
a.2.00
|
| |
b. 2.22
|
| |
c. 2.42
|
| |
d. 1.52
|
| |
|
Solution: Answer is B 2.22
9. Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one-year maturity and a fixed interest rate. The first certificate of deposit, CD #1 pays 4.99% APR compounded daily and the second certificate of deposit, CD #2 pays 5.00% APR compounded monthly. Based on the effective annual rate (EAR) which CD would you suggest for her [keep two digits after decimals]?
|
a. CD #1
|
| |
b. CD #2
|
| |
c. Either one is best
|
| |
d. They are not comparable due to different rates
|
|
Solution:
|
Answer is C Either one is best
|
11. You are trying to plan for retirement in 10 years and currently you have $150,000 in a savings account and $250,000 in stocks. In addition, you plan to deposit $8,000 per year into your savings account at the end of each of the next five years, and then $10,000 per year at the end of each year for the final five years until you retire. Assume your savings account returns 8% compounded annually, and your investment in stocks will return 12% compounded annually.
|
a. $323,839
|
|
b.$162,000
|
|
c.$270,000
|
|
d.$1,500,000
|
|
Solution: Answer is A $323,839
15. You are trying to plan for retirement in 10 years and currently you have $150,000 in a savings account and $250,000 in stocks. In addition, you plan to deposit $8,000 per year into your savings account at the end of each of the next five years, and then $10,000 per year at the end of each year for the final five years until you retire. Assume your savings account returns 8% compounded annually, and your investment in stocks will return 12% compounded annually.
|
a. $46,933
|
|
b.$68,960
|
|
c.$68,690
|
|
d.$550,000
|
|
Solution: Answer is B $68,960
17. You are trying to plan for retirement in 10 years and currently you have $150,000 in a savings account and $250,000 in stocks. In addition, you plan to deposit $8,000 per year into your savings account at the end of each of the next five years, and then $10,000 per year at the end of each year for the final five years until you retire. Assume your savings account returns 8% compounded annually, and your investment in stocks will return 12% compounded annually.
|
a. $58,666
|
| |
b. $144,866
|
| |
c. $50,000
|
| |
d. $73,466
|
|
|
|
|
Solution: Answer is A $58,666
19. You are trying to plan for retirement in 10 years and currently you have $150,000 in a savings account and $250,000 in stocks. In addition, you plan to deposit $8,000 per year into your savings account at the end of each of the next five years, and then $10,000 per year at the end of each year for the final five years until you retire. Assume your savings account returns 8% compounded annually, and your investment in stocks will return 12% compounded annually.
How much (FV of all savings) will you have at the end of 10 years?
|
a. $1,100,301
|
| |
b. $1,169,261
|
| |
c. $1,219,261
|
| |
d. $1,227,927
|
Solution: Answer is D $1,227,927
23. Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows:
Calculate the risk (standard deviation) of stock A.
|
a. 10.00%
|
|
b. 3.10%
|
|
c. 15.00%
|
|
d. 0.10%
Solution: Answer is B 3.10%
|
|
25. Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows:
Calculate the risk (standard deviation) of stock B.
|
a. 0.83%
|
|
|
b. 8.33%
|
|
|
c. 9.11%
|
|
|
d. 9.40%
|
|
|
Solution: Answer is C 9.11%
|
|
30. Which of the following statements is true?
|
a. As a general rule, management would want to reduce the firm's average collection period.
|
|
b. As a general rule, management would want to reduce the firm's accounts receivable turnover ratio.
|
|
c. As a general rule, management would want to increase the firm's average collection period.
|
|
d. As a general rule, a firm is not financially affected by the amount of time required to collect its accounts receivable.
Solution: Answer is A. As a general rule, management would want to reduce the firm's average collection period.
|
|
|
34. What is a series of equal payments for an infinite period of time called?
|
a. A perpetuity
|
| |
b. A cash cow
|
| |
c. An annuity
|
| |
d. An axiom
|
Solution: Answer is A A perpetuity
35. The present value of a perpetuity decreases when the ________ decreases.
|
a. Number of investment periods
|
|
b. Annual discount rate
|
|
c. Perpetuity payment
|
|
d. Both annual discount rate and perpetuity payment
|
Solution: Answer is C Perpetuity payment
37. A decrease in ________ will increase gross profit margin.
|
a. Cost of goods sold
|
|
b. Depreciation expense
|
|
c. Interest expense
|
|
d. Both cost of goods sold and depreciation expense
|
Solution: Answer is A. Cost of goods sold