FIN 571 Connect Problem

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FIN 571 Week 1 Connect Problems 1. A business owned by a single individual is called a:
corporation
sole proprietorship
general partnership
limited partnership
limited liability company
02. The decisions made by financial managers should all be
ones which increase the:
size of the firm.
growth rate of the firm.
marketability of the managers.
market value of the existing owners' equity.
firms current sales.
3. The primary goal of financial management is to:

 maximize current dividends per share of the existing

stock.
maximize the current value per share of the existing stock.
avoid financial distress.
minimize operational costs and maximize firm eciency.
maintain steady growth in both sales and net earnings.

04. Accounting concepts for a firm to create value it must:

have a greater cash inow from its stockholders than its
outow to them.
create more cash ow than it uses.
reduce its investment in fixed assets since fixed assets
require the use of cash.
avoid payments to the government so dividends can be
increased.
avoid the issuance of debt securities.
05. The primary goal of financial management is to:
maximize current dividends per share of the existing
stock.
maximize the current value per share of the existing stock.
avoid financial distress.
minimize operational costs and maximize firm eciency.
maintain steady growth in both sales and net earnings.
06. Which one of the following business types is best suited to
raising large amounts of capital?

 sole proprietorship
limited liability company
corporation
general partnership
limited partnership
07.Accounting profits and cash ows are generally:
the same since they reect current laws and accounting
standards.
the same since accounting profits reect when cash ows
occur.
different because of GAAP rules regarding the recognition
of income.
different because cash inows must occur before revenue
recognition.
the same due to the requirements of GAAP.

08.Some time ago, Julie purchased eleven acres of land costing

$15,490. Today, that land is valued at $49,957. How long has
she owned this land if the price of the land has been increasing
at 5 percent per year?
24.00 years
23.51 years
24.13 years
23.67 years
23.72 years

09.What is the future value of $3,088 invested for

11 years at 6.00 percent compounded annually?
$5,510.23
$5,841.06
$5,861.95
$5,882.83
$1,563.45
10.One year ago, you invested $3,440. Today it is worth
$3,700.50. What rate of interest did you earn?
7.18 percent
7.57 percent
7.52 percent
7.50 percent
7.04 percent
11.First City Bank pays 7 percent simple interest on its savings
account balances, whereas Second City Bank pays 7 percent
interest compounded annually.
If you made a $73,000 deposit in each bank, how much
more money would you earn from your Second City Bank
account at the end of 9 years? (Do not round intermediate
calculations and round your answer to 2 decimal places,
e.g., 32.16.)
Difference in accounts $__________
a. Compute the future value of $1,000 compounded
annually for 20 years at 6 percent. (Do not round
intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)

 Future value
$__________
b. Compute the future value of $1,000 compounded
annually for 15 years at 9 percent. (Do not round
intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Future value $__________
c. Compute the future value of $1,000 compounded
annually for 25 years at 6 percent. (Do not round
intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Future value
$__________
12.For each of the following, compute the present value (Do not
round intermediate calculations and round your answers to 2
decimal places, e.g., 32.16.):

Present Value Years

$__________ 12
$__________ 3
$__________ 28
$__________ 30

Interest Rate
6%
12
13
10

Future value
$ 15,651
53,557
888,073
552,164

13.Wilkinson Co. has identified an investment project with the

following cash ows:
Year

Cash Flow

$ 880
1,250
1,510
1,675

14.If the discount rate is 8 percent, what is the present value of

these cash ows? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Present value
$ __________
If the discount rate is 20 percent, what is the present value
of these cash ows? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)

Present value
$ __________
If the discount rate is 30 percent, what is the present value
of these cash ows? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
Present value
$ __________
You own 300 shares of Western Feed Mills stock valued at
$36.72 per share. What is the dividend yield if your annual
dividend income is $322?
2.9 percent
4.5 percent
3.2 percent
11.4 percent
9.2 percent
current liabilities of $3,500, and long-term debt of $7,900. (Do
not round intermediate calculations.)
What is the value of the shareholders' equity account for
this firm?
o Shareholders' equity
$_________
How much is net working capital?
o Net working capital
$_________
16.Which one of these accounts is classified as a current asset
on the balance sheet?
intangible asset
accounts payable
preferred stock
inventory
net plant and equipment

17.It is easier to evaluate a firm using its financial statements

when the firm:
is a conglomerate.
is global in nature.
uses the same accounting procedures as other firms in its
industry.
has a different fiscal year than other firms in its industry.
tends to have one-time events such as asset sales and
property acquisitions.

18.The cash ow resulting from a firm's ongoing, normal

business activities is referred to as the:
operating cash ow.
net capital spending.
additions to net working capital.
cash ow to retained earnings.
cash ow to investors.
19.Which one of these is a non-cash item?
depreciation
interest expense
current taxes
dividends

 selling expenses
20.The total asset turnover ratio measures the amount of:
total assets needed for every $1 of sales.
sales generated by every $1 in total assets.
fixed assets required for every $1 of sales.
net income generated by every $1 in total assets.
net income than can be generated by every $1 of fixed
assets.
21.The current ratio is measured as:
current assets minus current liabilities.
current assets divided by current liabilities.
current liabilities minus inventory, divided by current
assets.
cash on hand divided by current liabilities.
current liabilities divided by current assets.
22.Which statement expresses all accounts as a percentage of
total assets?
pro forma balance sheet
common-size income statement
statement of cash ows
pro forma income statement
common-size balance sheet

23.Ratios that measure how eciently a firm's

management uses its assets and equity to generate bottom line
net income are known as _______ ratios.
asset management
long-term solvency
short-term solvency
profitability
market value
24.Ratios that measure a firm's ability to pay its bills over the
short run without undue stress are known as asset
management ratios.
long-term solvency measures.
liquidity measures.
profitability ratios.
market value ratios.
25.Which one of the following sets of ratios would generally be
of the most interest to stockholders?
return on assets and profit margin
quick ratio and times interest earned
price-earnings ratio and debt-equity ratio
return on equity and price-earnings ratio
cash coverage ratio and equity multiplier
26.The receivables turnover ratio is measured as:
sales plus accounts receivable.

 sales divided by accounts receivable.

sales minus accounts receivable, divided by sales.
accounts receivable times sales.
accounts receivable divided by sales.
27.The Purple Martin has annual sales of $4,800, total debt of
$1,210, total equity of $2,500, and a profit margin of 7 percent.
What is the return on assets?
7.00 percent
9.06 percent
13.44 percent
11.74 percent
27.77 percent
28.A firm has a debt-equity ratio of .38. What is the total debt
ratio?
.61
.39
.28
1.63
1.38
29.A firm has total debt of $1,100 and a debt-equity ratio of .
31. What is the value of the total assets?
$3,100
$4,648
$1,441

 $3,420
$3,548
30.The inventory turnover ratio is measured as:
total sales minus inventory.
inventory times total sales.
cost of goods sold divided by inventory.
inventory divided by cost of goods sold.
inventory divided by sales.
31.A firm has a total debt ratio of .47. This means the firm has
47 cents in debt for every:
$1 in total equity.
$.53 in total assets.
$1 in current assets.
$.53 in total equity.
$1 in fixed assets.

32.If Wilkinson, Inc., has an equity multiplier of 1.47, total asset

turnover of 1.6, and a profit margin of 5.7 percent, what is its
ROE? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE
_________%
The financial ratio measured as net income divided by
sales is known as the firm's:
profit margin.

 return on assets.
return on equity.
asset turnover.
earnings before interest and taxes.
33.The financial ratio that measures the accounting profit per
dollar of book equity is referred to as the:
profit margin.
price-earnings ratio.
return on equity.
equity turnover.
market profit-to-book ratio.
34.Puffy's Pastries generates five cents of net income for every
$1 in equity. Thus, Puffy's has _______ of 5 percent.
a return on assets
a profit margin
a return on equity
an EV multiple
a price-earnings ratio

35.Which one of these equations is an accurate expression of

the balance sheet?
Assets ? Liabilities Stockholders? Equity
Stockholders? equity ? Assets + Liabilities

 Liabilities ? Stockholders? equity Assets

Assets ? Stockholders? equity Liabilities
Stockholders? equity ? Assets Liabilities

36.The financial statement summarizing a firm's accounting

performance over a period of time is the:
income statement.
balance sheet.
statement of cash ows.
tax reconciliation statement.
statement of equity.

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