Chapter 5 how many years will it take for his investment

Fundamentals of Corporate Finance 3e Test Bank

90.

Bovic Inc. is a growing company with sales of $1.25 million this year. The company expects to

grow at an annual rate of 25 percent for the next three years, followed by a growth of 20

percent per year for the next two years. What will be Bovic’s sales at the end of five years?

(Round to the nearest percent.)

A)

$2,160,000

B)

$3,515,625

C)

$1,875,000

D)

$2,929,688

Ans:

B

Fundamentals of Corporate Finance 3e Test Bank

91.

Manufic, a detergent manufacturer, has announced this year’s net income as $832,500. It

expects its net earnings to grow at a rate of 15 percent per year for the next two years, before

dropping to 12 percent for each of the following two years. What is the firm’s net income after

four years? (Round to the nearest dollar.)

A)

$1,381,071

B)

$1,266,128

C)

$1,233,099

D)

$1,072,260

Ans:

A

Fundamentals of Corporate Finance 3e Test Bank

92.

Genor Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm

expects to see an annual growth of 30 percent for the next five years, followed by a growth rate

of 15 percent for each of the next three years. What will be the firm’s expected net income in

eight years? (Round to the nearest dollar.)

A)

$319,157

B)

$241,329

C)

$911,546

D)

$689,259

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

93.

Locil Agencies is a fast-growing advertising agency. Currently, its sales is at $700,000. The

company expects its sales to grow at an annual rate of 35 percent in the next two years,

followed by an annual rate of 25 percent in years 3 through 7. Finally, its growth rate would

slow down to 10 percent in years 8–10. What will be its sales as of year 10? (Round to the

nearest dollar.)

A)

$1,698,023

B)

$2,843,323

C)

$3,893,280

D)

$5,181,956

Ans:

D

Fundamentals of Corporate Finance 3e Test Bank

94.

Your uncle is looking to double his investment of $10,000. He claims he can get earn 14

percent on his investment. How long will it take to double his investment? Use the Rule of 72

and round to the nearest year.

A)

5 years

B)

14 years

C)

10 years

D)

7 years

Ans:

A

95.

Animist Designers has generated sales of $625,000 for the current year. If it can grow the sales

at a rate of 12 percent every year, how long will it take to triple the sales? (Round off to the

nearest year.)

A)

8 years

B)

7 years

C)

10 years

D)

9 years

Ans:

C

Fundamentals of Corporate Finance 3e Test Bank

96.

Transent Foods announced that its current sales is $1,233,450 this year. The company forecasts

a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce

earnings of $3 million? (Round off to the nearest year.)

A)

7 years

B)

6 years

C)

8 years

D)

10 years

Ans:

B

Fundamentals of Corporate Finance 3e Test Bank

98.

Nickole wants to invest in a bank CD that will pay her 7.8 percent annually. If she invests

$11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.)

A)

5 years

B)

7 years

C)

2 years

D)

4 years

Ans:

D

97.

Albend Holmes wants to deposit $4,500 in a bank account that pays 8.25 percent annually.

How many years will it take for his investment to grow to $10,000? (Round off to the nearest

year.)

A)

8 years

B)

11 years

C)

10 years

D)

12 years

:

Fundamentals of Corporate Finance 3e Test Bank

99.

Amanda Sorenson is planning her retirement. She is presently investing in a 401(k) but needs

an additional $500,000 to reach her retirement goal. As luck would have it, Amanda just won a

brand new car that is worth $36,000 in a raffle. If Amanda were to sell the car and invest the

$36,000 proceeds at a rate of 6.50%, compounded annually, how long will it be before

Amanda could retire? (Round off to the nearest 1/10 of a year)

A)

36.6 years

B)

41.8 years

C)

52.2 years

D)

24.0 years

:

Fundamentals of Corporate Finance 3e Test Bank

100.

Omniva Inc. just generated earnings per share of $3.75 for the fiscal year ending September

30, 2014. The firm is expected to achieve earnings per share of $8.76 in 5-years. At what rate

will Omniva Inc.’s earnings per share be growing over this 5-year period? (Round off to the

nearest 1/10 percent)

A)

15.7%

B)

18.5%

C)

21.3%

D)

13.4%

:

AICPA: Measurement

101.

Explain the difference between simple interest and compound interest.

Fundamentals of Corporate Finance 3e Test Bank

102.

Explain how the future and the present value equations are related.

103.

Suppose you win $10 million in a lottery. You have a choice of how you will receive your

winnings. The first choice is to receive a certain lump sum today. The second choice is to

receive a certain amount at the end of five years. How will you evaluate your choices to make

your decision?

Fundamentals of Corporate Finance 3e Test Bank

104.

Suppose that you just attended a lecture on Time Value of Money. On your way home, you

stopped in to get a cup of coffee. One of your classmates, who missed the lecture, joined you

for coffee and asked you to explain to her the key concepts of time value of money and how

you could use it to solve some of practical financial problems. What would you tell her?