I answered 31 questions for this homework assignment, please tell me which ones are wrong, so I can fine to my study plan. Thank you for your help.
4. A conservative financing plan involves
A. ANSWER Heavy reliance on debt
B. Heavy reliance on equity
C. High degree of financial leverage
D. High degree of combined leverage
5. At age 5, how much would you have to save per month to have $1 million in your account at age 65, if your investment rate was 10% per year? Assume no taxes and compounding on a monthly basis.
ANSWER: $21.23
6. The extent to which inventory financing may be used depends on
A. Marketability of pledged goods
B. Price stability of goods
C. Perishability of goods
D. ANSWER All of the above
7. After 20 years, 100 shares of stock originally purchased for $1000 was sold for $5,000. What was the yield on the investment? Choose the closest answer.
ANSWER: 8%
8. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of return for Plan A over Plan B?
A. ANSWER $28,800
B. $4,000
C. $4,800
D. $35,200
9. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motor's stock, General Motors receives:
A. The spread between the bid and ask of the transaction
B. The dollar amount of the transaction, less brokerage fees
C. Only the par value of the common stock
D. ANSWER Nothing
10. Corporations that do not issue financial securities such as stock or debt obligations:
A. Will not be able to increase sales
B. Cannot be profitable
C. ANSWER Generate sufficient funds to fulfill their needs
D. Do not face double taxation of their profits
11. With a Subchapter S corporation
A. ANSWER Corporate income is taxed as direct income to stockholders
B. Stockholders have the same liability as members of a partnership
C. The number of stockholders is unlimited
D. Life of the corporation is limited
12. Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the
A. ANSWER Expectations hypothesis
B. Segmentation theory
C. Liquidity premim theory
D. Theory of industry supply and demand for bonds
13. In examining the liquidity ratios, the primary emphasis is the firm's
A. Ability to effectively employ its resources
B. Overall debt position
C. ANSWER Ability to pay short term obligations on time
D. Ability to earn an adequate return
14. A corporation’s board of directors:
A. Is selected by and can be removed by management
B. ANSWER Can be voted out by power by the shareholders
C. Has a life time appointment to the board
D. Is selected by a vote of all corporate stakeholders
15. What is your monthly mortgage payment on a loan for $150,000, at 6% for 20 years?
ANSWER: $1,074.65
16. Assuming a tax rate of 50%, the after-tax cost of a $200,000 dividend payment is
A. $200,000
B. $100,000
C. $-100,000
D. ANSWER None of the above
17. The ABC Corp. had net income before taxes of $400,000 and sales of $200,000. It if is in the 50% tax bracket its after-tax profit margin is:
ANSWER 10%
18. A firm has a debt to equity ratio of 50%, debt of $300,000, and net income of $90,000. The return on equity is
ANSWER 15%
19. In general, the larger the portion of a firm's sales that are on credit, the
A. Lower will be the form’s need to borrow
B. ANSWER Higher will be the firm’s need to borrow
C. More rapidly credit sales will be paid off
D. More the firm can buy raw materials on credit
20. If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $3.00 per unit and fixed costs are $60,000, what will the firm's net income be at sales of 30,000 units?
ANSWER $30,000
21. Total asset turnover indicates the firm’s
A. ANSWER Liquidity
B. Debt position
C. Ability to use its assets to generate sales
D. Profitability
22. A higher interest rate (discount rate) would
A. Reduce the price of corporate bonds.
B. Reduce the price of preferred stock
C. Reduce the price of common stock
D. ANSWER All of the above
23. The cost of capital for common stock is ke=(D1/Po)+g. What are the assumptions of the model?
A. ANSWER Growth (g) is constant to infinity
B. The price earnings ratio stays the same
C. The firm must pay a dividend to use this model
D. All of the above assumption of the model
24. The risk premium is likely to be highest for
A. U.S. government bonds
B. Corporate bonds
C. G ANSWER old mining expedition
D. Either b or c
25. Although debt financing is usually the cheapest component of capital, it cannot be used to excess because
A. I ANSWER nterest rates may change
B. The firm’s stock price will increase and raise the cost of equity financing
C. The financial risk of the firm may increase and thus drive up the cost of all sources of financing
D. Underwriting costs may change
26. A bond which has a yield to maturity greater than its coupon interest rate will sell for a price
A. Below par
B. At par
C. Above par
D. ANSWER What is equal to the face value of the bond plus the value of all interest payments
27. Corporations prefer bonds to preferred stock for financing their operations because
A. Preferred stocks require a dividend
B. Bond interest rates change with the economy while stock dividends remain constant
C. ANSWER The after-tax cost of debt is less than the cost of preferred stock
D. None of the above
28. The best indication of the operational efficiency of management is
A. Net income
B. Earnings per share
C. ANSWER Earnings before interest and taxes (EBIT)
D. Gross profit
29. Assuming a tax rate of 35%, depreciation expenses of $1,000,000 will
A. Reduce income by $350,000
B. Reduce taxes by $350,000
C. Reduce taxes by $650,000
D. ANSWER Have no effect on income or taxes, since depreciation is not a cash expense
30. A firm with earnings per share of $5 and a price-earnings ratio of 15 will have a stock price of
ANSWER $75.00
31. Depreciation is a source of cash inflow because
A. ANSWER It is a tax-deductible non-cash expense
B. It supplies cash for future asset purchases
C. It is a tax-deductible cash expense
D. It is a taxable expense
32. The financial markets allocate capital to corporations by
A. ANSWER Reflecting expectations of the market participants in the prices of the corporation’s securities
B. Requiring higher returns from companies with lower risk then their competitors
C. Rewarding companies with expected high returns with lower relative stock prices
D. Relying on the opinion of investment bankers
33. An item which may be converted to cash within one year or one operating cycle of the firm is classified as a
A. Current liability
B. Long-term asset
C. ANSWER Current asset
D. Long-term liability
34. The retained earnings of the firm belong to
A. Creditors
B. preferred stockholders
C. ANSWER Common stockholders
D. Bondholders
To determine which questions are incorrect, you will need to compare your answers to the correct answers provided. Here is a list of the correct answers for the questions you provided:
4. B. Heavy reliance on equity
5. ANSWER: $21.23
6. D. All of the above
7. ANSWER: 8%
8. A. $28,800
9. D. Nothing
10. C. Generate sufficient funds to fulfill their needs
11. A. Corporate income is taxed as direct income to stockholders
12. A. Expectations hypothesis
13. C. Ability to pay short term obligations on time
14. B. Can be voted out by power by the shareholders
15. ANSWER: $1,074.65
16. D. None of the above
17. ANSWER: 10%
18. ANSWER: 15%
19. B. Higher will be the firm’s need to borrow
20. ANSWER $30,000
21. C. Ability to use its assets to generate sales
22. D. All of the above
23. A. Growth (g) is constant to infinity
24. C. Gold mining expedition
25. C. The financial risk of the firm may increase and thus drive up the cost of all sources of financing
26. A. Below par
27. C. The after-tax cost of debt is less than the cost of preferred stock
28. C. Earnings before interest and taxes (EBIT)
29. C. Reduce taxes by $650,000
30. ANSWER: $75.00
31. A. It is a tax-deductible non-cash expense
32. A. Reflecting expectations of the market participants in the prices of the corporation’s securities
33. C. Current asset
34. C. Common stockholders
Compare your answers to the correct answers to identify which questions you answered incorrectly.