BUSN 379 Midterm Exam
1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3)
decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production
2. (TCO 1) Working capital management includes which of the following? (Points : 3)
establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
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 companyÂ’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. (TCO 1) TatoÂ’s Pizza 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 TatoÂ’s Pizza net income?
(Points : 3)
$157,950
$322,000
$243,000
$200,000
6. (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what are the companyÂ’s income taxes? (Points : 3)
$122,850
$106,100
$94,500
None of the above
7. (TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008, and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to $468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2009? (Points : 3)
$1.30
$1.44
$0.77
$0.69
8. (TCO 1) The financial statement that summarizes a firm’s operations over a period of time is called a(n): (Points : 3)
income statement.
cash flow statement.
production report.
balance sheet.
periodic operating statement.
9. (TCO 1) Print Imaging has EBIT of $150,000, interest of $30,000, taxes of $50,000, and depreciation of $50,000. What is the companyÂ’s operating cash flow? (Points : 3)
$120,000
$180,000
$170,000
$150,000
$120,000
10. (TCO 3) You opened a new certificate of feposit with $13,000. Your broker indicated that this investment pays five percent interest, compounded quarterly. Which one of the following statements is correct concerning this investment? (Points : 3)
You will receive equal interest payments every three months over the life of the investment.
You could earn more interest by investing in an account paying five percent simple interest.
You would have earned more interest if you had invested in an account paying annual interest.
You will earn less and less interest each year over the life of the investment.
You will earn more interest in year 3, than you will in year 2.
11. (TCO 3) Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments? (Points : 3)
$61,800
$53,500
$113,400
$97,200
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 projectÂ’s inflows is $13,000
The approximate current value of the projectÂ’s inflows is $11,000
The projectÂ’s inflows are higher than zero
The project should be accepted because its present value is positive
14. (TCO 4) You are considering an investment that will have the following cash flows: $54,000, $66,000, $(60,000), $57,000, and $120,000. The appropriate discount rate is 11 percent. What is the value of this investment? Note that the cash flow in brackets is negative. (Points : 3)
$160,000
$167,106
$162,500
Cannot be determined because one of the cash flows is negative
15. (TCO 3) North Bank offers you an APR of 13.17 percent compounded monthly, and South Bank offers you an effective rate of 13.75 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.
