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1) Profitability ratios capture both risk and return.
2) Mercosur is a major South American trading bloc that includes countries that account
for more than half of the total of Latin America's GDP.
3) Average age of inventory can be calculated as inventory turnover divided by 365.
4) Renewal options are provisions frequently included in both operating and financial
leases that allow the lessee to purchase the leased asset at maturity.
5) Commercial finance companies are lending institutions that make only unsecured
loans-both short-term and long-termto businesses.
6) If an asset is depreciable and used in business, any loss on the sale of the asset is
tax-deductible only against other capital gains income, not against ordinary income.
7) If you expect to retire in 30 years, live on $50,000 per year and expect the inflation
to average 3% over the next 30 years, what amount of annual income will you need to
live at the same comfort level in 30 years?
A) $121,363
B) $$95,000
C) $20,599
D) $51,500
8) James plans to fund his individual retirement account, beginning today, with 20
annual deposits of $2,000, which he will continue for the next 20 years. If he can earn
an annual compound rate of 8 percent on his deposits, the amount in the account upon
retirement will be ________.
A) $19,636
B) $91,524
C) $98,846
D) $21,207
9) The rate of interest agreed upon contractually charged by a lender or promised by a
borrower is the ________ interest rate.
A) effective
B) nominal
C) discounted
D) continuous
10) Financial managers evaluating decision alternatives or potential actions must
consider ________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
11) Given that the cost of common stock is 18 percent, dividends are $1.50 per share
and the price of the stock is $12.50 per share, what is the annual growth rate of
dividends?
A) 4 percent
B) 5 percent
C) 6 percent
D) 8 percent
12) Table 11.5
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The
gluing machine costs $50,000 and requires installation costs of $2,500. This outlay
would be partially offset by the sale of an existing gluer. The existing gluer originally
cost $10,000 and is four years old. It is being depreciated under MACRS using a
five-year recovery schedule and can currently be sold for $15,000. The existing gluer
has a remaining useful life of five years. If held until year 5, the existing machine's
market value would be zero. Over its five-year life, the new machine should reduce
operating costs (excluding depreciation) by $17,000 per year. Training costs of
employees who will operate the new machine will be a one-time cost of $5,000 which
should be included in the initial outlay. The new machine will be depreciated under
MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and
a 40 percent tax on ordinary income and capital gains.
The payback period for the project is ________. (See Table 11.5)
A) 2 years
B) 3 years
C) between 3 and 4 years
D) between 4 and 5 years
13) ________ ratio measures the proportion of total assets financed by the firm's
creditors.
A) Total asset turnover
B) Inventory turnover
C) Current
D) Debt
14) Table 4.6
Income Statement
Ace Manufacturing, Inc.
For the Year Ended December 31, 2015
Ace Manufacturing, Inc., is preparing pro forma financial statements for 2016. The firm
utilized the percent-of-sales method to estimate costs for the next year. Sales in 2015
were $2 million and are expected to increase to $2.4 million in 2016. The firm has a 40
percent tax rate.
(a)Given the 2015 income statement in Table 4.6, estimate net profit and retained
earnings for 2016.
(b)If $200,000 of the cost of goods sold and $40,000 of selling expense are fixed costs;
and the interest expense and dividends are not expected to change, what is he dollar
effect on net income and retained earnings? What is the significance of this effect?
15) Majority of actively traded warrants are listed on the ________.
A) NASDAQ
B) American Stock Exchange
C) New York Stock Exchange
D) Singapore Stock Exchange
16) Table 3.1
Information (2013 values)
1> Sales totaled $110,000
2> The gross profit margin was 25 percent.
3> Inventory turnover was 3.0.
4> There are 360 days in the year.
5> The average collection period was 65 days.
6> The current ratio was 2.40.
7> The total asset turnover was 1.13.
8> The debt ratio was 53.8 percent.
Inventory for CEE in 2013 was ________. (See Table 3.1)
A) $36,667
B) $32,448
C) $27,500
D) $ 9,167
17) MACRS RATE
A corporation has decided to replace an existing asset with a newer model. Two years
ago, the existing asset originally cost $70,000 and was being depreciated under
MACRS using a five-year recovery period. The existing asset can be sold for $30,000.
The new asset will cost $80,000 and will also be depreciated under MACRS using a
five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and
capital gains, the initial investment is ________.
A) $48,560
B) $44,360
C) $49,240
D) $27,600
18) In the EOQ model, ________ costs are the variable costs per unit of holding an item
of inventory for a specified time period.
A) marginal
B) order
C) carrying
D) processing
19) The risk resulting from the effects of changes in foreign exchange rates on the
translated value of a firm's accounts denominated in a given foreign currency is
________.
A) economic exposure
B) macro political risk
C) accounting exposure
D) micro political risk
