BAFN 370 Spring 2023, Exam 1 Name Multiple Choice (22 @ 3pts each = 66pts) Check all that apply (2 problems = 13pts) EFF or EAR = (1 + APR/m)" - 1 PV = PMT Problems (3 problems = 21pts) MULTIPLE CHOICE (3pts each) 1. Which statement is TRUE? a. Both dividends paid and interest paid reduce taxable income and hence lower the amount a firm owes in taxes. b. Under GAAP accounting, a sale in November is recorded as a sale on November's income statement, even if cash payment is not received until December. c. The income statement shows the firm's financial position at a single point in time. 2. Which statement is TRUE? a. On the balance sheet, Common Equity (EQ) is adjusted up/down when the stock price changes. b. Inventory is depreciated - its value on the balance sheet reflects its historical cost less accumulated depreciation. C. When making future decisions, one should use the firm's marginal tax rate, not the average rate. 3. NWC (Net Working Capital) management refers to: a. Managing long-term fixed assets (plant, equipment, building and machinery) b. Managing short-term assets and liabilities (inventory, cash, AR, AP) Deciding how to raise long-term funds (the bond vs. stock decision) 4. Accumulated retained earnings appears on which statement and how? Balance sheet (as an asset) b. Balance sheet (as a liability) C. Income statement (as income) d. Income statement (as an expense) 5 Christine talked about book values and market values. Which account would have a book value CLOSE TO its actual market value? a. Fixed assets b. Common equity C. Bank loan 6. Christine taught BAFN 370 for 10 days in January, but doesn't get paid until the end of the month. Money owed to her would show on UNC's January 10" balance sheet in which account? a. accounts payable b. accrued expenses C. long-term debt d. accounts receivables e. COGS 1| PagePROBLEM 3 (7 PTS) The T=0 value of the following cash flow stream is $6,000 when discounted at 9% (annual compounding). What is the value of the missing T=4 cash flow (calculate $x)? 1 2 $1000 SX 7Pagejo pie ending 13 . Starting next year (T=1) you need $5,772 each year for 4 years to complete your education. Your aunt deposited $20,000 today (T=0) in an account paying 6% (compounded annually) to help fund your college needs. How much will be in your account immediately after you make your first withdrawal at T=1? . $14,228 b. $14,954 C. $15,107 d. $15,428 $15,359 14. Your client is 32 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She will save $10,000 per year (end of year deposits) and expects to earn 9% per year on average. About how much will she have when she turns 65? a. $1.330 million b. $1.640 million C . $1.798 million d. $1.970 million 15 What is the future value of lump sum $400 deposited today after 6 years if you earn 6% compounded semi-annually? a. $1558.39 b. $570.30 C. $477.62 d. $567.41 e . $789.53 f . $539.54 $804.88 16. What is value of following cash flow stream to you today (T=0)? Assume the appropriate rate of interest is 5%. -2- 400 0 200 a. $504 b. C. $571 d. $600 17. Bryson Cars reported EBIT of $7.5 million and net income of $2.6 million. Bryson's tax rate was 20%. What was its interest expense? a. $4.25 million b. $5.5 million c. $5.7 million d. $3.92 million le . $0.98 million 3 |PageStartin deposit In recent financial statements, Aspen Inc. reported $200,000 in net income, dividends paid of 7. $175,000, and a beginning balance in retained earnings of $250,000. What would Aspen's ending balance in the retained earnings account equal? Aspen did not sell any new stock. a. $25,000 b. $200,000 C. $250,000 d. $275,000 e . $450,000 8. Payless Shoes had taxable income of $90,000. Ysxable Income Marginal Tax Rate How much does Payless owe in taxes? $0-$50,000 15% a. $18,850 $50.001-$75,000 25% b. $28,850 C. $30,600 $75,001-$100,000 34% d $33,600 $100,001-$335,090 39% $335,001-$10,000,000 34% $10,000,001-$15,000,000 35% $15,000,001-$18,333,333 38% 9. What is Payless Shoe's marginal tax rate? Over $18.333,333 35% a. b. 18% C. 15% d. 34% 10. Which is TRUE? a. On an amortized loan, the amount going to principal will increase each month and the amount going to interest will decrease each month. b. The retained earnings account on the balance sheet is a "savings account" of sorts; it represents money available to withdraw and spend to purchase items the firm needs. C. Depreciation is a cash expense the firm must periodically pay. 11. Approximately how many years will it take for your money to triple if interest rates are 8% (annual compounding)? a. 9 years b. 11 years C. 12 years d. 14 years 12. You borrowed $59,000 for a new sailboat. You can afford monthly payments of $1,250 but no more. What is the highest APR you can afford on a 6-year loan (compounded monthly)? a. 7.21% b. 9.56% c. 12.56% d. 15.08% 2 |Page22. You are in the store and see the following advertisement. What approximate APR you are being charged if you take their so-called "0% financing"? Interest is compounded monthly. To make your calculations easier, assume you are buying an item that costs $2,400, Buy any regularly priced item and get 0% financing, just make 24 equal monthly payments. *20% discount for cash. {Be careful and ensure you have everything in monthly terms} a. 0.00% -- 0% financing! b. 44% C. 37% d. 32% e. 22% f. 20% CHECK ALL THAT APPLY (1pt each = 13 PTS) Circle all accounts that would be considered a CURRENT ASSET. Accrued wages & taxes Accounts receivable Cost of goods sold Inventory Accounts payable Annual dividends paid Circle all accounts/entries you would find on an INCOME STATEMENT. Cash Annual depreciation expense Accumulated retained earnings (ACCRE) Cost of goods sold Interest expense Accounts payable Accrued wages & taxes 5|PageYou are in t charged if you calculations eas USE THE FOLLOWING INFORMATION FOR THE NEXT TWO QUESTIONS You are planning to buy your first home. The 30-year loan will be for $200,000 (after your down payment), carry an APR of 9%, and require monthly payments of $1609.25. 18. How much of your first monthly payment will be applied to principle? a. $109.25 $153.27 . $144.33 d. $180.07 e. $190.75 f. $1,429.25 19. If you live in the home for 7 years and then sell it, what will the loan payoff be at that time? a. $562,000 b. $169,879 $187,281 d. $100,021 USE THE FOLLOWING DATA FOR THE NEXT TWO QUESTIONS Congrats! You won the Colorado Lottery and must pick one of the following alternatives. For each option, calculate its value at T=0. For each, the appropriate interest rate is 10%, 1. Perpetuity paying $600 per year - the first payment will be paid at T= 1. 11. Annuity DUE paying $600 per year for 14 years - payments start immediately (at T=0), 20. Value of Option I today equals: a. Infinite - payments last forever! b. $6,000 C. $5,455 d. $6,600 e. $4,098 f. $3,726 21. Value of Option II today equals: a. $4,862 b. $5,375 C. $5,020 d. $4,420 $3,820 Before turning the page be sure to set your calculator back to ordinary annuity! 4 | PagePROBLEM 3 (7 The T=0 PROBLEM 1 (7 PTS) Your son will attend college and will need $40,000 per year for 4 years starting at T=15. You can deposit an annual payment (PMT) at T=3 through T=9 in the account. If you can earn 10% (compounded annually), how much must you deposit each year from T=3 through T=9? 40K 40K 40K 40K 0----1--..-2----3--...-4-.....-5---.---6--- ---7--.---8------9-"--10-----11----12----13----14----15----16---17-----18 PMT PMT PMT PMT PMT PMT PMT PROBLEM 2 (7 PTS) Five years from today you need $10,000. You plan to deposit $2,000 annually with the first payment made one year from today (T=1) in an account earning 5%. Your last deposit (T=5) will be less than $2,000 if less is needed to reach your goal. How large is your last deposit (T=5)? 1 2 6 Page