Accounting Multiple Questions

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Question 13
ABC is reviewing a project that will cost $1,798.The project will produce cash flows $630 at the end of each year for the first two years and $651 at the end of each year for the next three years. What is the profitability index? Assume interest rate is 14%.

Question 14
If you receive $239 at the end of each year for the first two years and $701 at the end of each year for the next two years.

Assume interest rate is 4%. What is the value at the end of the 4th year? That is. solve for FV at the end of the 4th year.

Question 16
ABC Company lists total assets of $3,415, current liabilities of $359 , long-term debt of $837 , and 179 shares of common stock. If the market price per share is $84, what is the market-to-book ratio?

Question 17
Consider a taxable bond with a yield of 9.4% and a tax-exempt municipal bond with a yield of 5.5%. At what tax rate would you be indifferent between the two bonds?

Question 18
ABC, Inc. has total assets of $165,822, current assets of $39,874, current ratio of 2.7, and equity multiplier of 5.9. Compute long term debt.

Question 19
ABC Company had beginning retained earnings of $2,045. During the year, the company reported sales of $17,091, costs of $6,111, depreciation of $1,290, dividends of $1,305, and interest paid of $1,993. The tax rate is 19 percent. What is the retained earnings balance at the end of the year?

Question 20
What is the effective rate of 27.49% compounded quarterly?

Question 21
Suppose you take a mortgage for $68,010 for 19 years with annual payments. If the annual interest rate is 5.8%, calculate the total interest amount paid over the life of the loan. That is, calculate the total interest paid in 19 years.
Hint: Use the amortization table.

Question 22
ABC, Inc. has a total asset turnover of 1.4 and a net profit margin of 7.6%. The firm has a return on equity of 29.3%. Calculate Marshall’s debt ratio.

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Accounting Multiple Questions

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Q1: Assessing loan options for AirJet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank APR Number of Times Compounded National First Prime Rate + semiannually 6.75% Regions Best 13.17 Monthly

1.Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, XXXXX XXXXX the EARs for these two banks? Hint for National Bank: Go to the St. Louis Federal Reserve Board’s website (http://research.stlouisfed.org/fred2/). Select “Interest Rates” and then “Prime Bank Loan Rate”. Use the latest MPRIME. Show your calculations. (15 pts)

2.Based on your calculations above, which of the two banks would you recommend and why? Explain your rationale. (15 pts)

3.AirJet Best Parts, Inc. has decided to take a $6,950,000 loan being offered by Regions Best at 8.6% APR for 5 years. What is the monthly payment amount on this loan? Do you agree with this decision? Explain your rationale. (20 pts) Task

Q2: Evaluating Competitor’s Stock AirJet Best Parts, Inc. is concerned regarding recent changes in its stock prices for the company and would like to determine the stock prices for keycompetitors. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation.

1.Using the dividend growth model and assuming a dividend growth rate of 5%, what is the rate of return for one of three key competitors? Use Yahoo Finance to obtain the latest dividend amount and price for one selected company. (15 pts)

2.Using the rate of return above, what should be the current share price of AirJet Best Parts, Inc. if the company maintains a constant 1% growth rate in dividends and the most recent dividend per share paid on the stock was $1.50? Show your calculations. (10 pts)

3.Assume AirJet Best Parts has also a preferred stock issue. The most recent dividend per share paid on the stock was also $1.50, the same as the common stock. Which one would you think has a higher price, the preferred stock or the current stock? Explain your rationale. (5 pts)

4.What would happen with the price you computed above if AirJet Best Parts, Inc. announces that dividends at the end of the year will increase? What if the required rate of return increases? What changes in dividends will affect the stock price and how? (10 pts) Task

 

Q3: Bond Evaluation AirJet Best Parts, Inc. would like to issue 20-year bonds to obtain remaining funds for the new Mexico plant. The company currently has 7.5% semiannual coupon bonds in the market that sell for $1,062 and mature in 20 years.

1.What coupon rate should AirJet Best Parts set on its new bonds to sell them at par value? (10pts)

2.What is the difference between the coupon rate and the YTM of bonds? (10 pts)

3.What factors will contribute to the riskiness of these bonds? Explain in detail your rationale. (20 pts)

4.What type of positive and negative covenants may AirJet Best Parts, Inc. use in future bond issues? (10 pts)

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ACCOUNTING MULTIPLE QUESTIONS

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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

Question 2.2. (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

Question 3.3. (TCO 1) Market value reflects which of the following: (Points : 3)
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
Question 4.4. (TCO 1) Which of the following is true regarding income statements? (Points : 3)
It shows the revenue and expenses, based upon selected accounting methods.
It reveals the net cash flows of a firm over a stated period of time.
It reflects the financial position of a firm as of a particular date.
It records revenue only when cash is received for the product or service provided.
It records expenses based on the recognition principle.

Question 5.5. (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?
$157,950
$322,000
$243,000
$200,000

Question 6.6. (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 marginal tax rate?(Points : 3)
35%
39%
34%
32%

Question 7.7. (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 2008? (Points : 3)
$1.30
$1.44
$0.77
$0.69

Question 8.8. (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.
Question 9.9. (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? (Points : 3)
$120,000
$180,000
$170,000
$150,000
$120,000
Question 10.10. (TCO 3) Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment? (Points : 3)
Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the investment.
Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.
Mark would have earned more interest if he had invested in an account paying annual interest.
Mark will earn less and less interest each year over the life of the investment.

Question 11.11. (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

Question 12.12. (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 $5,000, $3,000, and $8,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3)
The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and $16,000
The project should be rejected because its present value is negative

Question 14.14. (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 Engineering Company investment? (Points : 3)
$33,200
$34,500
$42,000
$43,500

Question 15.15. (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.
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? (Points : 3)
7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
Question 2.2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity? (Points : 3)
unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month
Question 3.3. (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 16 percent? Assume annual payments. (Points : 3)
$1315
$1300
$756
$1000

Question 4.4. (TCO 6 and 8) Which one of the following statements is correct? (Points : 3)
Bond issuers maintain a listing of bondholders when bonds are issued in bearer form.
An indenture, is a contract between a corporation and its shareholders.
Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the bond indenture.
Question 5.5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,180. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds? (Points : 3)
10.50%
11.50%
11.75%
12%
Question 6.6. (TCO 3) Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the current price of the stock? Hint: Yield is the same as required rate of return. (Points : 3)
$100
$133
$102
$86.40
None of the above
Question 7.7. (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of seven percent. What is the current price of the stock? (Points : 3)
$23
$32
$27
$29

Question 8.8. (TCO 3) Royal Electric paid a $4 dividend last year. The dividend is expected to grow at a constant rate of six percent over the next four years. Common stockholders require a 13 percent return. What are the values of the dividends for years 1, 2 and 3, respectively? (Points : 3)
$4, $4.5 and $4.8
$4.24, $4.76 and $5.05
$4.24, $4.49, $4.76
$4, $4.50, $5.05

Question 9.9. (TCO 6) Which of the following is true regarding the primary market? (Points : 3)
it is the market where the largest number of shares are traded on a daily basis.
it is the market in which the largest number of issues are listed.
it is the market with the largest number of participants.
it is the market where new securities are offered.
it is the market where shareholders trade most frequently with each other.
Question 10.10. (TCO 6) A member of the NYSE who trades on the floor of the exchange for his or her personal account is called a(n): (Points : 3)
specialist.
independent broker.
floor trader.
stand-alone agent.
dealer.

Question 11.11. (TCO 6) The annual interest on a bond divided by the bond’s market price is called the: (Points : 3)
yield to maturity.
yield to call.
total yield.
required yield.
current yield.
Question 12.12. (TCO 6) Star Industries has one outstanding bond issue. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 3)
deferred call
market
liquidity
debenture
sinking fund
Question 13.13. (TCO 8) Which of the following is true regarding bonds? (Points : 3)
Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.
None of the above is true
QuestioN 14.14. (TCO 6) Which of the following is not a floating-rate bond? (Points : 3)
A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill.
An EE Savings Bond issued by the U.S. government.
A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.

Question 15.15. (TCO 6) Which of the following is true regarding put bonds? Select all that apply: (Points : 3)
Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
1. (TCO 1) In a general partnership, each partner is personally liable for: (Points : 3)
the partnership debts that he or she personally obtained for the firm.
his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.
the total debts of the partnership, even if he or she was unaware of those debts.
the debts of the partnership, up to the amount he or she invested in the firm.
all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
Question 2.2. (TCO 1) Trademarks are classified as: (Points : 3)
short-term assets.
current liabilities.
long-term debt.
tangible fixed assets.
intangible fixed assets.

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