Reference no: EM13833884

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