"Ratio Formula Value of Shortening Sales Cycle"
FIN 101 – Fall 2008 Practice Exam #1 1. The value of an investment after one or more time periods is called the: a. true value. b. future value. c. present value. d. discounted value. e. complex value. 2. The process of adding the interest earned on an investment to the original investment in order to earn more interest is called: a. discounting. b. compounding. c. duplicating. d. multiplying. e. indexing. 3. Compound interest is defined as the interest earned: a. on both the initial principal and all interest earned and reinvested in prior periods. b. on prior reinvested interest payments. c. on the initial amount invested. d. during a one-year period but paid in multiple payments. e. during any one-month period. 4. The current value of future cash flows discounted at the appropriate discount rate is called the: a. simple value. b. future value. c. present value. d. complex value. e. principal value. 5. When you discount money you are: a. agreeing to invest funds at a lower than normal rate of interest. b. offering to accept less value than that to which you are entitled. c. stating the rate of interest you require to invest your funds. d. calculating the future value of a present amount. e. computing the present value of a future amount. 6. The interest rate used to compute the present value of a future cash flow is called the: a. prime rate. b. present value rate. c. discount rate. d. compound rate. e. simple rate. 7. Which one of the following will increase the future value of a lump sum invested today? a. decreasing the amount of the lump sum b. increasing the rate of interest c. paying simple interest rather than compound interest d. paying interest only at the end of the investment period e. shortening the investment time period 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -1- FIN 101 – Fall 2008 Practice Exam #1 8. Kate wants to invest $1,000 for five years. Which one of the following will provide her with the largest future value? a. 6 percent simple interest b. 6 percent interest, compounded monthly c. 6 percent interest, compounded annually d. 7 percent simple interest e. 7 percent interest, compounded monthly 9. Dr. McDougall just deposited $8,000 into his account at The Elite Bank. The bank will pay 5 percent interest compounded annually on this money. How much interest on interest will Dr. McDougall earn over the next 5 years? 10. Five years from now, you will be inheriting $30,000. What is this inheritance worth to you today if you can earn 4 percent interest compounded annually? 11. Net working capital is defined as: a. cash, accounts receivable, and inventory. b. current assets. c. cash minus current liabilities. d. current assets plus current liabilities. e. current assets minus current liabilities. 12. The financial statement that summarizes a firm's operations over a period of time is called a(n): a. income statement. b. cash flow statement. c. production report. d. balance sheet. e. periodic operating statement. 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -2- FIN 101 – Fall 2008 Practice Exam #1 13. Free cash flow is equal to: a. cash flow to shareholders minus the cash flow to creditors. b. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. c. operating cash flow minus the change in net working capital minus net capital spending. d. net capital spending plus the change in net working capital. e. cash flow to shareholders minus net capital spending minus the change in net working capital. 14. Which of the following are classified as tangible fixed assets? I. inventory II. machinery III. patents IV. building a. I and IV only b. II and III only c. II and IV only d. I and III only e. II, III, and IV only 15. Which one of the following is classified as a current asset? a. land b. accounts payable c. equipment d. inventory e. note payable 16. Over the past year, a firm increased its current assets and decreased its current liabilities. As a result, the firm's net working capital: a. had to increase. b. had to decrease. c. could have remained constant. d. could have either increased, decreased, or remained constant. e. was unaffected as the changes occurred in the firm's current accounts. 17. All else equal, which one of the following will increase owners' equity? a. decrease in inventory b. increase in accounts payable c. increase in accounts receivable d. decrease in net working capital e. increase in notes payable 18. Which one of the following will increase the net working capital of a firm? a. obtaining a 3-year loan to purchase inventory b. collecting payment from a customer c. obtaining a 5-year loan to buy equipment d. paying a supplier for a recent purchase e. making a payment on a long-term debt 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -3- FIN 101 – Fall 2008 Practice Exam #1 19. Operating cash flow increases when: a. depreciation increases. b. period costs increase. c. interest paid decreases. d. revenues decrease. e. the cost of goods sold increases. 20. The Furnishings Co. has ending net fixed assets of $67,100 and beginning net fixed assets of $43,800. During the year, the firm sold assets with a total book value of $9,500 and also recorded $7,000 in depreciation expense. How much did The Furnishings Co. spend to buy new fixed assets? a. $6,800 b. $16,300 c. $23,300 d. $32,800 e. $39,800 21. Grandel, Inc. has current liabilities of $10,200 and accounts receivable of $14,800. The firm has total assets of $39,700 and net fixed assets of $18,900. The owners' equity has a book value of $16,500. What is the amount of the net working capital? a. $10,600 b. $20,800 c. $23,200 d. $25,400 e. $31,000 22. Solomon, Inc. has net sales of $745,100 and costs of $590,800. The depreciation expense is $82,600 and the interest paid is $15,500. What is the amount of the firm's operating cash flow if the tax rate is 35 percent? a. $46,605 b. $52,030 c. $71,700 d. $105,720 e. $134,630 23. United Enterprises paid $12,000 in dividends and $21,300 in interest over the past year. Sales totaled $139,700 with costs of $101,400. The depreciation expense was $10,500. The applicable tax rate is 34 percent. What is the amount of the operating cash flow? a. $25,590 b. $27,072 c. $32,928 d. $36,090 e. $38,300 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -4- FIN 101 – Fall 2008 Practice Exam #1 24. Which of the following transactions will increase the liquidity of a firm? I. purchasing equipment with cash II. collecting an account receivable III. selling inventory at cost IV. selling inventory at a profit a. I and III only b. II and IV only c. I and IV only d. II and III only e. II, III, and IV only 25. Which one of the following actions will decrease the current ratio, all else constant? Assume the current ratio is greater than 1.0. a. purchasing inventory on credit b. paying an account payable c. collecting payment from a customer d. selling inventory at a profit in a charge sale e. selling inventory at cost in a cash sale 26. A firm has a times interest earned ratio of 2. This means that the firm has twice as much: a. net income as it does interest expense. b. interest expense as it does net income. c. earnings before interest and taxes as it does interest expense. d. interest expense as it does earnings before interest and taxes. e. operating cash flow as it does interest expense. 27. The equity multiplier is equal to: a. one plus the debt-equity ratio. b. one plus the total asset turnover. c. total debt divided by total equity. d. total equity divided by total assets. e. one divided by the total asset turnover. 28. Which one of the following statements is correct, all else constant? a. Increasing the inventory level will increase the inventory turnover rate. b. Increasing the inventory level will increase the days' sales in inventory. c. Increasing the receivables turnover rate will increase the days' sales in receivables. d. Increasing sales will lower the total asset turnover. e. Increasing sales will increase the capital intensity ratio. 29. Which one of the following indicates a firm is utilizing its assets less efficiently than it has in the past? a. an increase in the cash ratio b. a decrease in the capital intensity ratio c. a decrease in days' sales in receivables d. an increase in the profit margin e. a decrease in the inventory turnover rate 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -5- FIN 101 – Fall 2008 Practice Exam #1 30. The profit margin is the amount of net profit earned for every $1 of: a. total assets. b. equity. c. long-term debt. d. sales. e. external financing. 31. Teri's Photography has total assets of $50,800, fixed assets of $47,400, long-term debt of $36,300, and total debt of $42,900. If inventory is $1,200, what is the current ratio? a. .33 b. .52 c. .84 d. 1.18 e. 1.94 32. The Corner Store has sales of $72,510, total assets of $60,400, a debt-equity ratio of 1.2, and a profit margin of 3 percent. What is the equity multiplier? a. .20 b. .83 c. 1.83 d. 2.20 e. 3.60 33. A firm has $28,700 in receivables and $165,600 in total assets. The total asset turnover rate is 1.85 and the profit margin is 7 percent. What are the days' sales in receivables? a. 10.69 days b 34.19 days c. 52.38 days d. 90.37 days e. 117.03 days 34. Arnold, Inc. has sales of $124,700, cost of goods sold of $102,500, net profit of $9,800, fixed assets of $84,200, and current assets of $8,100. What is the total asset turnover rate? a. 1.03 b. 1.11 c. 1.22 d. 1.35 e. 1.48 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -6- FIN 101 – Fall 2008 Practice Exam #1 35. Use the following financial information to answer this question. . Calculate the Du Pont analysis for ROA and ROE using the specific parts of the analysis. Calculate the free cash flow for 2008. 717f2909-0ef8-4a28-a4fb-608294e4102d.doc -7-