BUSN379 Corporate Finance: Midterm Study Guide Part 1 (15 MCQs)

BUSN379 Corporate Finance
Midterm Study Guide

Part 1 (15 MCQs)
1. (TCO 1) The goal of financial management is to increase the: (Points : 3)
future value of the firm's total equity.
book value of equity
dividends paid per share
current market value per share
number of shares outstanding, thereby increasing the market value of equity

2. (TCO 1) Which of these activities is not a capital budgeting task? (Points : 3)
determining the amount of cash needed on a daily basis to operate a firm
identifying assets that produce value in excess of the cost to acquire those assets
evaluating the size and timing of future cash flows from a project
evaluating the risks associated with a proposed project

3. (TCO 1) Book values are different from market values because: (Points : 3)
Book values reflect the value of the asset based on generally-accepted accounting principles.
Book values are used in the company’s balance sheet.
Book values do not reflect the amount someone is willing to pay today for an asset.
All of the above
None of the above

4. (TCO 1) The income statement reflects: (Points : 3)
Income and expenses at the time when those items affect the cash flows of a firm.
Income and expenses in accordance with GAAP.
The cash flows in accordance with GAAP.
The flow of cash into and out of a firm during a stated period of time.
The flow of cash into and out of a firm as of a particular date.

5. (TCO1) Telemarket Inc. has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Telemarket’s taxes figure? (Points : 3)
$100,100
$85,050
$112,700
$72,900

6. (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the approximate average tax rate? (Points : 3)
35%
39%
34%
32%

7. (TCO 1) Pizza A had earnings after taxes of $600,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased to $750,000, and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008? (Points : 3)
$2.0
$2.21
$0.50
$0.47

8. (TCO 1) An income statement: (Points : 3)
reveals the net cash flows of a firm over a stated period of time.
reflects the financial position of a firm as of a particular date.
shows the revenue and expenses based upon selected accounting methods.
records revenue only when cash is received for the product or service provided.
records expenses based on the recognition principle.

9. (TCO 1) Best Electronics has EBIT of $450,000, interest of $30,000, taxes of $50,000, and depreciation of $80,000. What is the company’s operating cash flow?(Points : 3)
$497,200
$480,000
$530,000
$470,000
$450,000

10. (TCO 3) Linda invested $15,000 today, in an investment that pays 6.50 percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment? (Points : 3)
Linda will receive equal interest payments every six months over the life of the investment.
Linda would have earned more interest if she had invested in an account paying 6.50 percent simple interest.
Linda will earn more interest in year 5 than she will in year 4.
Linda would have earned more interest if she had invested in an account paying annual interest.
Linda will earn less and less interest each year over the life of the investment.

11. (TCO 3) Mr. Smith will receive $8,500 a year for the next 14 years from a contract. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments? (Points : 3)
$70,070 closest answer- with rounding off difference
$53,500
$110,200
$96,700

12. (TCO 3) Your neighbor just received a credit offer in an e-mail. The company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he accepts this offer, how long will it take him to pay off the loan? (Points : 3)
81.00 months
81.50 months
83 months
82.17 months
90.70 months

13. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $6,000, $4,000, and $3,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is false? (Points : 3)
The current value of the project’s inflows is $13,000
The approximate current value of the project’s inflows is $11,000
The project’s inflows are higher than zero
The project should be accepted because its present value is positive

14. (TCO 4) You are considering two investments. Investment I, is in a software company and Investment II, is an engineering company. The investments offer the following cash flows:
Year Software Company Engineering Company
1 $5,000 $15,000
2 $3,000 $8,000
3 $4,000 $9,000
4 $3,600 $11,000
If the appropriate discount rate is 10 percent, what is the approximate present value of the Software Company investment? (Points : 3)
$15,600
$12,500
$12,750
$15,000

15. (TCO 3) North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why? (Points : 3)
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower.
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