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BUSN 379 Midterm Exam

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BUSN 379 Midterm Exam

Page 1

1. (TCO 1) What is the goal of financial management for a sole proprietorship?

2. (TCO 1) When analyzing alternative capital structures for a firm, a financial manager must consider which of the following?

3. (TCO 1) Market value is important to the financial manager because:

4. (TCO 1) Which of the following is true regarding income statements?

5. (TCO 1) Tato’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 Tato’s Pizza net income?

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?

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?

8. (TCO 1) The financial statement that summarizes a firm's operations over a period of time is called a(n):

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 company’s operating cash flow?

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?

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?

12. (TCO 3) Paper Pro recently purchased a printing machine costing $97,000. The company financed this purchase at 8.25 percent interest, with monthly payments of $2,379.45. How many years will it take the firm to pay off this debt?

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?

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:

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?

Page 2

1. (TCO 3) Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Tim?

2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity?

3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 11 percent? Assume annual payments.

4. (TCO 6 and 8) A bond's debenture will include which of the following?

5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,080. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds?

6. (TCO 3) The preferred stock of Bean Coffee pays an annual dividend of $5.60. It has a required rate of return of eight percent. What is the price of the preferred stock?

7. (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year.

8. (TCO 3) Royal Electric paid a $2 dividend last year. The dividend is expected to grow at a constant rate of five percent over the next three years.

9. (TCO 6) Which of the following is true regarding the primary market?

10. (TCO 6) The smallest firms listed on NASDAQ are in the NASDAQ _____ Market.

11. (TCO 6) The annual interest on a bond divided by the bond's market price is called the:

12. (TCO 6) A sinking fund is an account managed by a bond trustee for the sole purpose of:

13. (TCO 8) Which of the following is true regarding bonds?

14. (TCO 6) Which of the following best describes a zero-coupon bond?

15. (TCO 6) Which of the following are not true regarding convertible bonds? Select all that apply:

Page 3

1. (TCO 1) Paul is the owner of Paul's Cabinets, which is a sole proprietorship. The firm cannot pay its bills because a large customer defaulted on payment.

2. (TCO 1) Which of the following is classified as tangible, fixed assets?

3. (TCO 1) Explain agency theory. Provide an example of a potential agency problem for a corporation, and identify means by which the firm can help reduce or eliminate that problem.

4. (TCO 3) Why does money have time value? Explain your rationale.

5. (TCO 8) Why do firms use protective covenants? Provide two or three examples of protective covenants, and explain how these covenants increase or decrease risk.

6. (TCO 6) What are some of the features of PETS (bonds) that make them attractive to certain investors?

BUSN 379 Midterm Exam Page 1 1. (TCO 1) What is the goal of financial management for a sole proprietorship? 2. (TCO 1) When analyzing alternative capital structures for a firm, a financial manager must consider which of the following? 3. (TCO 1)
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