BFIN 300 midterm exam

The process of planning and managing a firm's long-term investments is called

Capital Budgeting

Which of the following is an example of an indirect agency cost?

A lost opportunity

Which of the following forms of business organization is subject to double taxation?

Corporation

Control of a firm ultimately rests with

The Stockholders

Which of the following should a financial manager take into account when considering an opportunity?

How much cash they expect to receive, When will they receive the funds and How likely they are to receive the funds

ABC Corporation has current assets of $5,200, fixed assets of $26,000, current liabilities of $4,900, and long-term debt of $15,000. What is the ABC Corporation's total equity? What is the NWC of ABC Corporation?

Total Equity $11,300, NWC $300

Company X has fixed assets of $6million on its balance sheet that were originally purchased for $10million; it can be sold for $7million today. The company's balance sheet also shows current liabilities of $2.6million and NWC of $900,000. In addition, if all the current assets were liquidated today, the company would receive $2.8million cash. What is the book value of Company X's total assets? What is the market value of Company X's total assets?

BV $9.5million, MV $9.8million

Company has sales of $21,000, costs of $11,200, depreciation expense of $2,300, and interest expense of $1,300. If the tax rate is 40 percent, what is the operating cash flow, or OCF?

OCF $7320 = EBIT $7500+Depreciation $2300-Taxes $2480

XYZ Corporation's balance sheet of 2019 showed net fixed assets of $1.56million, and the 2020 balance sheet showed net fixed assets of $1.78 million. The company's 2020 income statement showed a depreciation expense of $140,000. What was the company's net capital spending for 2020?

$360,000

Which one of the following is the financial statement which shows the accounting value of a firm's equity as of a particular date?

Balance sheet

Which is a financial leverage ratio?

Debt to equity

Which is a key turnover ratio?

Inventory turnover ratio, Asset turnover ratio, Receivables turnover ratio and Fixed asset turnover ratio

Which of the following ratios are market-based ratios?

P/E ratio and P/BV ratio

Which of the followings are the correct set of components of ROE?

Profit margin, asset turnover, equity multiplier

Find Current ratio: Company A's balance sheet shows current assets of $6,300, fixed assets of $32,000, total long-term liabilities of $16,200 and total equity of $18,100.

1.58x

Interest earned on both the initial principal and the interest reinvested from the prior periods is called

Compound interest

Don Lemon invested $2,000 six years ago at 4.5%. He spends his earnings as soon as he earns any interest so he only receives interest on his initial investment. Which type of interest is Mr. Lemon earning?

Simple interest

Alan Fishman just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?

Discount rate

The process of determining the present value of future cash flows in order to know their worth today is referred to as

Discounted cash flow valuation

Interest earned on interest is referred to as the __________ of interest

compounding

Which is the best example of a perpetuity?

Pension plan with TIAA

Capital One is charging you 1.5% per month on your credit card. What is your Annual Percentage Rate (APR)?

18.0%

During the Global Financial Crisis, Interest Only financial products were a significant problem. Which is the best example of an I/O security?

Corporate bond

Which is the best definition of an annuity?

A cash flow stream where a fixed amount is received every year

A bonds coupon rate is equal to the annual interest divided by which one of the following?

Face Value

The bond principal is repaid on which one of these dates?

Maturity date

Protective covenants:

Are primarily designed to protect bondholders.

The items included in an indenture that can limit actions of the issuer in order to protect bondholders interests are referred to as the:

Protective covenants

What is the average life of common equity?

Forever. It doesn't mature

How is the Dividend Discount Model get calculated?

A model which determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate

What are the relevant cash flows for valuing a share of common stock?

Dividends

Which is not a feature of common stock?

Protective covenant; or Interest

What is a financial security?

A claim against assets of cash flows of a company

Who is the primary regulator of the US securities markets?

Securities and Exchange Commission

The Securities and Exchange Commission does all of the following except:

Regulates all national banks in the US

Which of the following is a security traded in the US money market?

Treasury Bills

What is the best definition of a derivative in the context of securities markets?

A security where the value is based on the value of another security

A Johnson & Johnson bond pays an 8% coupon rate on a bond provided that its earnings exceed an ROE of 8%. What type of security is this?

Income bond.

Which security has the greatest preference in liquidation?

Senior debt.

Which security has a "residual claim" on a company's cash flows?

Equity

Which two cash flows are received by a typical bond?

Interest and principal at maturity.

Which best explains a fixed coupon bond?

Fixed coupon paid until maturity, and lump sum returned at maturity