QUESTION 7

Annette Anderson has a choice of receiving either $5,000 in two years or a discounted sum today. If her opportunity cost is 8% what sum received today would be the equivalent to $5,000 in two years?

	1.	$4,629.63
	2.	$4,286.69
	3.	$4,310.34
	4.	$3,931.28
	5.	$3,876.92

QUESTION 8

George Bennet wants to give his son $20,000 upon completion of his college education. If he invests $5,500 now in an account earning 9% annual interest, approximately how many years will it take for him to achieve his goal?

	1.	13 years
	2.	14 years
	3.	15 years
	4.	16 years
	5.	17 years

QUESTION 9

Susan and Tom Houser believe that they will need payments of $4,460 at the beginning of each of their retirement. The payments will be made out of an account that is expected to earn 10% interest annually. If the payments are made over 20 years, what amount (approximately) must be deposited in the account at retirement?

	1.	$140,800
	2.	$1,718,249.98
	3.	$255,406.91
	4.	$280,947.60
	5.	$1,100,000

QUESTION 10

If your credit card company charges 1.5% interest per month, what is the equivalent annual rate you are paying?

	1.	18%
	2.	1.5%
	3.	1.51%
	4.	19.56%
	5.	15%

QUESTION 11

Lucy's Music Emporium opened its doors on January 1, 2012, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 20 years, but in December 2012 management realized that the assets would last for only 15 years. The firm's accountants plan to report the 2012 financial statements based on this new information. How would the new depreciation assumption affect the company's financial statements?

		1. The firm's net liabilities would increase.
		2. The firm's reported net fixed assets would increase
		3. The firm's EBIT would increase.
		4. The firm's reported 2012 earnings per share would increase.
		5. The firm's cash position in 2012 and 2013 would increase.

QUESTION 12

Which of the following statements is CORRECT?

		1.The New York Stock Exchange is an auction market with a physical location.
2.		Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks.
	3.	If an investor sells shares of stock through a broker, then this would be a primary market transaction.
		4. Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market.
		5.While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

QUESTION 13

Which of the following statements is CORRECT?

		1.If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.
		2. If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
		3. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.
		4. There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things.
		5. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

QUESTION 14

Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?

		1. The times interest earned ratio will decrease.
		2.The ROA will decline.
		3. Taxable income will decrease.
		4.The tax bill will increase.
		5.Net income will decrease.

QUESTION 15

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

		1. The discount rate increases.
		2. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.
		3. The discount rate decreases.
		4. The riskiness of the investment's cash flows increases.
		5. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.