finance questions
1-40
20. Shop-Til-You-Drop Inc. recently reported net income of
$5.2 million and depreciation of $600,000. What is its net cash flow? Assume it
has no amortization expense.
a)
$5,400,000
b)
$5,600,000
c)
$5,800,000
d)
$6,000,000
e)
$6,200,000
21. Companies generate income from their “regular”
operations and from things like interest on securities they hold, which is call
non-operating income. Mitel Metals recently reported $9,000 of sales, $6,000 of
operating costs other than depreciation, and $1,500 of depreciation. The
company had no amortization charges and no non-operating income. It had issued
$4,000 of bonds that carry a 7% interest rate, and its federal-plus-state
income tax rate was 40%. What was the firm’s operating income, or EBIT?
a)
$1,100
b)
$1,200
c)
$1,300
d)
$1,400
e)
$1,500
22. Temple Square Inc. reported that its retained earning
for 2005 were $490,000. In its 2006 financial statements, it reported $60,000
of net income, and it ended 2006 with $510,000 of retained earnings, How much
were paid as dividends to shareholders during 2006?
a)
$20,000
b)
$25,000
c)
$30,000
d)
$35,000
e)
$40,000
23. Which of the following statements is CORRECT?
a)
Four key financial statements are the balance
sheets, the income statement, the statement of cash flows, the statements of retained
earning.
b)
The balance sheet gives us a picture of the
firm’s financial situation over a period of time.
c)
The income statement gives us a snapshot of what
is happening at a point in time.
d)
The statement of cash flows tells us how much
cash the firm has in the form of currency and demand deposits.
e)
The statement of cash needs tells us how much
cash the firm will require during some future period, generally a month or a
year.
24. Which of the following items is NOT included in current
assets?
a)
Accounts payable.
b)
Inventory
c)
Accounts receivable
d)
Cash.
e)
Short-term highly liquid, marketable securities.
25. A start-up firm is making an initial investment in new
plant and equipment. Assume that currently its equipment must be depreciated on
a straight-line basis over 10 years, but Congress is considering legislation
that would require the firm to depreciate the equipment over 7 years. If the
legislation becomes law, which of the following would occur in the year
following the change?
a)
The firm’s tax payments would increase.
b)
The firm’s reported net income would increase.
c)
The firm’s taxable income would increase.
d)
The firm’s net cash flow would increase.
e)
The firm’s operating income (EBIT) would
increase.
26. Ramala Corp’s sales last year were $48,000, and its
total assets were $25,500. What was its total assets turnover ratio (TATO)?
a)
1.88
b)
1.99
c)
1.10
d)
1.21
e)
1.32
27. Ruby Corp’s sales last year were $435,500, its operating
costs were $350,000, and its interest charges were $10,000. What was the firm’s
times interest earned (TIE) ratio?
a)
8.29
b)
8.42
c)
8.55
d)
8.68
e)
8.81
28. Roberts Corp’s sales last year were $300,000, and its
net income after taxes was $25,000. What was its profit margin on sales?
a)
7.65%
b)
7.82%
c)
7.99%
d)
8.16%
e)
8.33%
29. Reynolds Corp’s total assets at the end of last year were
$300,000 and its net income after taxes was $25,000. What was its return on
total assets?
a)
8.15%
b)
8.33%
c)
8.51%
d)
8.69%
e)
8.87%
30. Rollins Corp’s total assets at the end of last year were
$300,000 and its EBIT was $75,000. What was its basic earning power (BEP)
a)
17.50%
b)
20.00%
c)
22.50%
d)
25.00%
e)
27.50%
31. Raleigh Corp’s total common equity at the end of last
year was $300,000 and its net income after taxes was $55,000. What was its ROE?
a)
18.33%
b)
18.67%
c)
19.00%
d)
19.33%
e)
19.67%
32. Rutland Corp’s stock price at the end of last year was
$30.25 and its earnings per share for the year were $2.45. What was its P/E
ratio?
a)
11.65
b)
12.00
c)
12.35
d)
12.70
e)
13.05
33. Rand Corp’s stock price at the end of last year was
$40.00, and its book value per share was $24.50. What was its Market/Book
ratio?
a)
1.03
b)
1.18
c)
1.33
d)
1.48
e)
1.63
34. Midwest Lumbar had a profit margin of 5.1%, a total
assets turnover of 1.6, and an equity multiplier of 1.8. What was the firm’s
ROE?
a)
14.39%
b)
14.69%
c)
14.99%
d)
15.29%
e)
15.59%
35. An investor is considering starting a new business. The
company would require $500,000 of assets, and it would be financed entirely
with common stock. The investor will go forward only if she thinks the firm can
provide a 15.0% return on the invested capital, which means that the firm must have
an ROE of 15.0%. How much net income must be expected to warrant starting the
business?
a)
$45,000
b)
$55,000
c)
$65,000
d)
$75,000
e)
$85,000
36. Which of the following would indicate an improvement in
a company’s financial position, holding other things constant?
a)
The current and quick ratios both decline.
b)
The EBITDA coverage ratio increases.
c)
The total assets turnover decreases.
d)
The TIE declines.
e)
The DSO increases.
37. A firm wants to strengthen its financial position. Which
of the following actions would INCREASE its current ratio?
a)
Borrow using short-term debt and use the
proceeds to repay debt that has a maturity of more than one year.
b)
Reduce the company’s day’s sales outstanding
ratio to the industry average and use the resulting cash savings to purchase
plant and equipment.
c)
Use cash to increase inventory holdings.
d)
Use cash to repurchase some of company’s own
stock.
e)
Issue new stock and use some of the proceeds to
purchase additional inventory and hold the remainder of the funds received as
cash.
38. If 10-year T-bonds have yield of 5.2%, 10-year corporate
bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and
corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium
for T-bonds, what is the default premium on the corporate bond?
a)
1.0%
b)
1.1%
c)
1.2%
d)
2.0%
e)
2.1%
39. The real risk-free rate is 3%, inflation is expected to
be 2% this year, and the maturity risk premium is zero. Ignoring any
cross-product terms, what is the equilibrium rate of return on a 1-year
Treasury bond?
a)
4.90%
b)
5.00%
c)
5.10%
d)
5.20%
e)
5.30%
40. Suppose 1-year Treasury bonds yield 3.0% while 2-year
T-bonds yield 4.5%. Assuming the pure expectations theory is correct and thus
the maturity risk premium is zero, what should the yield be on a 1-year T-bond
one year from now?
a)
5.91%
b)
6.02%
c)
6.13%
d)
6.24%
e)
6.35%
