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?
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a.2.00
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b. 2.22
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c. 2.42
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d. 1.52
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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]?
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a. CD #1
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b. CD #2
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c. Either one is best
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d. They are not comparable due to different rates
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Solution:
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Answer is C Either one is best
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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.
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a. $323,839
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b.$162,000
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c.$270,000
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d.$1,500,000
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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.
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a. $46,933
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b.$68,960
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c.$68,690
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d.$550,000
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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.
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a. $58,666
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b. $144,866
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c. $50,000
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d. $73,466
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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?
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a. $1,100,301
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b. $1,169,261
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c. $1,219,261
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d. $1,227,927
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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.
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a. 10.00%
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b. 3.10%
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c. 15.00%
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d. 0.10%
Solution: Answer is B 3.10%
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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.
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a. 0.83%
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b. 8.33%
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c. 9.11%
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d. 9.40%
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Solution: Answer is C 9.11%
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30. Which of the following statements is true?
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a. As a general rule, management would want to reduce the firm's average collection period.
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b. As a general rule, management would want to reduce the firm's accounts receivable turnover ratio.
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c. As a general rule, management would want to increase the firm's average collection period.
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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.
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34. What is a series of equal payments for an infinite period of time called?
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a. A perpetuity
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b. A cash cow
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c. An annuity
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d. An axiom
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Solution: Answer is A A perpetuity
35. The present value of a perpetuity decreases when the ________ decreases.
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a. Number of investment periods
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b. Annual discount rate
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c. Perpetuity payment
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d. Both annual discount rate and perpetuity payment
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Solution: Answer is C Perpetuity payment
37. A decrease in ________ will increase gross profit margin.
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a. Cost of goods sold
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b. Depreciation expense
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c. Interest expense
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d. Both cost of goods sold and depreciation expense
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Solution: Answer is A. Cost of goods sold
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