Questions and Answers of Principles Of Finance

Kim started a paper route on January 1, 2016. Every three months, she deposited $300 in her new bank account, which earned 4 percent annually but was compounded quarterly. On December 31, 2019, she
You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum now to fund an annuity for him. At the end of those five years, he will retire and may begin
Rather than spending her $48,000 in casino winnings, Christy places the money in an investment that will earn her 5% per year, compounded annually. She will withdraw the money in four equal annual
Your new boss doesn’t have a pension or 401(k) plan for your retirement, but she agrees to place aside $12,000 every year once a year for four years. She gives you the option of either starting
Your friend Jamal borrows $5,000 from you, agreeing to pay you back with 8% annual interest, with the first payment due to you one year from today. You ask that you be fully repaid over the next four
Jada is borrowing $40,000 from you today. She agrees to pay you back in annual installments beginning a year from now over eight years, with interest at 3%. What would her annual payment amount be,
Your new El Supremo credit card arrangement indicates that you will owe interest on unpaid balances at a nominal (stated) rate of 1.2% per month. If the interest rate is compounded monthly, what is
You agree to finance your new SUV with an auto loan of $38,000. This loan will be repaid over three years with monthly payments (and compounding) at a 4% annual interest rate (0.33% per month). What
Your aunt promises to gift you $1,500 now, $1,700 one year from now, $1,900 two years from now, and $2,500 three years from now. You will deposit all four amounts in an account that bears 3% interest
If you invest $3,000 today, $5,000 one year from now, and $3,000 two years from now, approximately how much money will you have at the end of the third year if you invest in a fund paying 7%?a.
Refer to Question 7 above. Solve using the financial calculator, documenting your steps/keystrokes.Data from Question 7You wish to draw from a fund you’re creating today with a 3% guaranteed
You expect to receive $10,800 one year from now, $17,400 two years from now, nothing at the end of the third year, and $24,000 four years from now. If you discount all of your cash flows at 7%, then
You believe that you can set aside $1,200 each year for the next four years, starting immediately, in order to buy a small fishing boat for your retirement. Your friend Luis promises that he’ll pay
You intend to invest four annual payments, starting immediately: $10,000 now, another $10,000 at the end of year 1, $12,000 at the end of year 2, and $15,000 at the end of year 3. How much will you
You agree to repay a loan over five years with the following stream of cash payments: $1,000; $1,100; $1,250; $1,280; and $1,300. If you wish to discount these payments to their present value today
If you borrow $1,000 and pay back $1,728 in three years, what annual rate of interest are you paying?
How many years will it take a $700 balance to grow into $900 in an account earning 5%?
Briefly describe the relationship among consumer savings, purchasing power, and inflation.
If compounding periods increase in frequency and all else remains the same, the dollar values of any resulting future value calculations will _______________.a. Increaseb. Remain the samec.
What is the present value of $5,000 that will be paid to you eight years from today at 8% interest?
If a savings account pays interest on a quarterly basis and you are performing future value calculations on deposited amounts, how can you calculate the rate?
The discount rate that is required to equate a future payment of $500 in three years to a present value of $400 is _______________.a. 4.7%b. 6.5%c. 7.7%d. 8.8%
Following the instructions laid out in this video, practice calculating the following TVM variables in Excel.Find a Future Value (FV): Calculate FV whenPV = -1,000, N = 5, I/Y = 4, and PMT = 0.Find a
How much would you have to deposit now to have $15,000 in eight years if interest is 7%?
Which of the following two options will give you the greatest future value: (A) an initial deposit of $100 earning 20% per year, compounded annually and left to grow for 10 years, or (B) an initial
If the discount (or interest) rate used to calculate the present value of a future payment increases, the calculated present value will do which of the following?a. Increaseb. Decreasec. Remain the
Where within the Excel spreadsheet and its different menus (under what menu button option) can you find the different functions that will enable you to solve for different time value of money factors?
Following the instructions laid out in this video, practice calculating the following TVM variables using these inputs: Find a Future Value (FV): Calculate FV when PV = -1,000, N = 5, I/Y =
Find the future value of $1,800 in 3 years at 8% interest.
Briefly describe the concept of future value within the context of the larger overall concept of the time value of money.
If a discount (or interest) rate has a positive value, then the future value of any amount deposited in an interest-bearing account will _______________.a. Be less than the present valueb. Be equal
Name and describe the five primary keys on a financial calculator that are used to solve time value of money problems.
Find the future value of $100 in five years at 5% interest.
All other things being the same, would you prefer a bank account that compounds interest quarterly or one that compounds interest semiannually?
The most basic type of financial transaction involves _______________.a. An amount of money that is not investedb. A series of equal installment amounts paid or received over a period of timec. A
Bob’s Tires Inc. has sales of $100,000, net income of $50,000, beginning asset balance of $200,000, ending asset balance of $220,000, beginning stockholder equity of $160,000, and ending
Bob’s Tires Inc. has sales of $100,000, net income of $50,000, beginning asset balance of $200,000, ending asset balance of $220,000, beginning stockholder equity of $160,000, and ending
Sarai’s Sandy Beach Gear has net sales of $100,000, cost of goods sold of $60,000, and net income of $25,000. What is Sarai’s profit margin?
You have some funds that you would like to invest. Do some internet research to find two publicly traded companies in the same industry and compare their earnings per share. Would the earnings per
What is the formula for profit margin?a. Net sales / net incomeb. Cost of goods sold / net salesc. Sales / cost of goods soldd. Net income / net sales
Jamilah’s Manufacturing Company has earnings before interest and taxes of $29,000 and interest expense of $4,000 for the most current period. What is Jamilah’s times interest earned ratio?
Jackson’s Beef Jerky Shop has a cash ratio of 1.75. What does that mean? Is 1.75 a good or bad cash ratio?
Most analysts believe which of the following is true about earnings per share?a. Consistent improvement in earnings per share year after year is an indication of continuous improvement in the
Jai Company has total liabilities of $200,000 and total stockholder equity of $300,000. What is the debt-toequity ratio for Jai Company, and what can we infer about the firm using this ratio?
Jackson’s Beef Jerky Shop has a quick ratio of 1.9. What does that mean? Is 1.9 a good or bad quick ratio?
What is the formula for the calculation of earnings per share?a. (Net income + preferred dividends) / weighted average common shares outstandingb. Net income / weighted average common shares
Bonita’s Bread Company has total debt of $250,000 and total assets of $150,000. What is Bonita’s debt-to- assets ratio, and what can we infer about Bonita’s company using the ratio?
Jackson’s Beef Jerky Shop has a current ratio of 2.35. What does that mean? Is 2.35 a good or bad current ratio?
What is the formula for the times interest earned ratio? a. Net income / interest expenseb. Earnings before interest and taxes / interest expensec. Interest expense / earnings before interest
After watching the video and listing the key benefits and problems with EPS, how do you feel about the EPS calculation? Should investors use it? Why or why not? If you were going to invest a large
Giant Sales has total assets of $150,000, current assets of $80,000 (current assets includes $30,000 of cash, $10,000 of short-term investments, $20,000 of accounts receivable, and $20,000 of
Big Box Store Inc. had days’ sales in inventory of 30, 32, and 34 for the last three years. Small Box Store Inc. had days’ sales in inventory of 40, 38, and 36 for the last three years. What can
What is the formula for accounts receivable turnover?a. Net credit sales / average accounts receivableb. Total sales / average accounts receivablec. Net credit sales / beginning accounts receivabled.
What does Zach DeGregorio cite as the most beneficial characteristics of using EPS in financial analysis? And the most problematic?
The Big Club has total assets of $150,000, current assets of $80,000 (current assets includes $30,000 of cash, $10,000 of short-term investments, $20,000 of accounts receivable, and $20,000 of
The Pony Parts Tack Shop had total asset turnover of 1.8., 2.1, and 2.4 over the last three years, respectively. What can you learn about how well the Pony Parts management team is managing their
What is a common economic influence that has the potential to skew financial analysis figures?a. Past performanceb. Inflationc. Generally Accepted Accounting Principlesd. Benchmark data
Outside of the four key areas of limitations, Jim also explores a number of key elements that ratios aren’t able to convey. What characteristics of a firm would you most want to know about if you
Fantastic Foods has total assets of $150,000, current assets of $80,000 (current assets includes $30,000 of cash, $10,000 of short term investments, $20,000 of accounts receivable, and $20,000 of
The Pony Parts Tack Shop had inventory turnover of 12.8, 12.2, and 9.9 over the last three years, respectively. What can you learn about how well the Pony Parts management team is managing their
How is converting financial data to percentages helpful in financial analysis?a. It makes the figures easier to calculate.b. It masks actual financial data so the competition can’t see it.c. It
In the video, Jim walks through several key limitations in the areas of reliability, comparability, relying on only one data source, and using information based in the past. Which limitation do you
Sarah’s Toy Shop has total sales of $100,000, net credit sales of $70,000, beginning accounts receivable of $20,000, and ending accounts receivable of $30,000. What is Sarah’s accounts receivable
Is past performance considered a good indicator of future performance?
Which of the following is financial statement analysis not used for?a. Identifying trends over timeb. Benchmarking against other firmsc. Complying with SEC (Securities and Exchange Commission)
Do you agree or disagree with the following statement: “The young people of today are the investors of tomorrow, and they will prioritize environmental impact in their investment choices.” How do
Cite some examples that the video used to demonstrate the effect of climate change on the value of property and businesses. Now, identify examples of environmental disasters that you are personally
Identify and briefly define the three areas of study in finance.
Which of the following was NOT identified by your authors as one of the three main areas of financial study?a. Business financeb. Capital budgetingc. Investmentsd. Financial markets and institutions
What is the process of determining which long-term or fixed assets to acquire in an effort to maximize shareholder value?a. Business financeb. Capital budgetingc. Investmentsd. Financial markets and
Identify the three focal areas in business finance.
Have you ever traded financial securities? If so, which trading platform(s) have you used? If you have traded using another platform, how does your trading experience compare to that described in the
In an organization with each of these financial positions, which title is most likely to be associated with a job description that is less of a “hands-on” manager and that engages more in
Define each of the following types of risk:• Inflation risk• Diversifiable risk• Non-diversifiable risk• Political risk
At the end of the video, one interviewee viewed Robinhood as a gateway trading platform, but not a platform for serious traders. The other saw Robinhood as a means to level the playing field for all
Which of the following statements is false?a. Financial planning is an important tool of for-profit organizations such as corporations and partnerships but is not important for not-for-profit
Identify three common components of good financial planning.
Which of the following statements regarding data is generally NOT true?a. Financial data is important for internal and external analysis of business firms.b. Outsiders use publicly available data
The Concepts in Practice feature in Section 1.3 discusses the importance of data for decision-making. List at least three of the ways the article suggests managers can use financial statements.
Which of the following is generally NOT true about cloud data storage versus on-site data storage?a. Cloud data storage provides storage cost advantages.b. Cloud data storage causes increased energy
Describe the role of a financial analyst in a financial institution such as a bank or investment company.
Which of the following describes United States Bureau of Labor Statistics (BLS) expectations of jobs using financial skills in the next decade?a. Plentiful but low payingb. Few and low payingc.
How can an understanding of micro- and macroeconomic factors aid in small business decision-making?
Which of the following organizations would be unlikely to hire a financial analyst?a. Government agencies may hire financial analysts to aid in regulatory oversight and enforcement.b. Investment
We measure market capitalization by multiplying the number of shares of stock outstanding by the current price per share. Go to finance.yahoo.com and determine the market capitalization of Nike,
The _______________ market is the market for _______________ securities, and the _______________ is the market for _______________ securities.a. Primary; used; secondary; newb. Primary; new;
_______________ is the market for short-term, low-risk, highly liquid, homogeneous securities.a. The capital marketb. The financial marketc. The stock marketd. The money market
_______________ are short-term debt instruments issued by the federal government.a. Treasury billsb. Treasury notesc. Treasury bondsd. Federal Reserve notes
_______________ are US government debt instruments with maturities of 2, 3, 5, 7, or 10 years.a. Federal fundsb. Federal Reserve notesc. Treasury notesd. Treasury bonds
_______________ investments tend to have _______________ risk and _______________ expected returns.a. Long-term; less; smallerb. Long-term; greater; greaterc. Short-term; greater; smallerd.
_______________ value is what a consumer pays for a product. _______________ value is what a consumer is willing to pay for a product.a. Market; Economicb. Economic; Marketc. Book; Marketd. Economic;
An S corporation _______________.a. Is taxed in the same manner as a C corporationb. Is eligible for more efficient financing in the face of company growth than a C corporationc. Is usually more
What are the key differences between the potential life of a business that is formed as a sole proprietorship and that of a business set up as a corporation?
a. Describe the five key responsibilities of the board of directors of a company. Why are each of these responsibilities important to the operation of the organization as a whole?b. Discuss important
An important advantage of a sole proprietorship is that _______________.a. It is easier to raise capital under such a structure than under other organizational formsb. It allows for an unlimited life
What are the most common types of firms that are organized as limited liability partnerships?
a. What are three essential best practices in corporate governance? Discuss important relevant concepts, such as separation of duties, the need for non-executive directors, the importance of board
A Shareholder is someone who _______________.a. Sits on the audit committee of a firmb. Is an ex-employee of a companyc. Profits from the favorable results of a companyd. Follows the company for an
What is meant by LEARR in the context of governance codes? Discuss the various components that are referred to in the LEARR acronym and why they are important to a company’s continuing operations.
Effective corporate governance includes all of the following EXCEPT _______________.a. Fairnessb. Accountabilityc. Objectivityd. Higher share price

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