Financial Management of firm: List of exercises | FIN 3403, Exams of Finance

Download Financial Management of firm: List of exercises | FIN 3403 and more Exams Finance in PDF only on Docsity! Gary Benesh EXAM I - FIN 3403 I pledge that I have neither given nor received assistance while taking this exam. ___________________________________ ____________________________________ Signature Print Name MULTIPLE CHOICE AND TRUE/FALSE QUESTIONS - 4 points each INSTRUCTIONS: Darken the letter corresponding to the most appropriate response. If you are asked to select the statement(s) that is (are) true (or false) and more than one statement is correct, choose the response that indicates that this is the case. 1. You take out a $200,000 mortgage with an annual percentage rate of 6.8%. The loan is to be amortized by making monthly payments over the next 15 years. The interest will you pay during the first year of the loan is closest to: a. $13,600 b. $13,876 c. $13,010 d. $13,355 e. $12,945 2. Select the statement(s) that is (are) true:" a. Agency problems are likely to be more prevalent in sole proprietorships than in corporations. b. Agency problems can be reduced by designing compensation plans so that managers' objectives coincide more closely with shareholder's objectives. c. The excessive consumption of 'perks' by management is an example of an agency problem. d. Both b and c are true statements. e. All of the above are true statements. 3. Select the statement(s) that is (are) true: a. In general, it is more difficult for corporations to raise capital than it is for sole proprietorships. b. "Double taxation' is a major disadvantage of the corporation form of organization. c. Limited liability is a major advantage associated with corporations as compared to sole proprietorships. d. With a corporation, it is generally more difficult to transfer ownership from one party to another than it is with a sole proprietorship. e. Both b and c are true statements. 4. You take out a loan for $23,500 to finance an automobile. The annual percentage rate on the loan is 7.8 percent, and it is to be amortized by making monthly payments over the next four years. Your monthly payment will be closest to: a. $557 b. $572 c. $614 d. $591 e. $634 5. Last year, the Burniece Corporation had earnings before interest and taxes (EBIT) of $612,000, interest expense of $103,000, common stock dividends of $40,000, a 30 percent tax rate, and 100,000 shares of common stock outstanding. Burniece's earnings per share were: a. $3.56 b. $3.16 c. $3.73 d. $3.88 e. $2.98 6. How much will you have in your account ten years from today if you make deposits of $30,000 at the end of each of the next three years and your account pays interest at the rate of 6% compounded annually? Note, deposits are only being made for the first three years, but you are being asked for the total value of the account after ten years. a. $112,874 b. $149,544 c. $138,885 d. $151,366 e. $143,609 7. You have just celebrated your 40th birthday. You want to retire on your 50th birthday. Your objective is to make equal annual deposits at the end of each of the next 10 years (1st deposit on your 41st birthday) so that you will be able to make annual withdrawals of $100,000 per year for 25 consecutive years, with the first withdrawal occurring on your 51st birthday. If your account earns interest at the rate of 7 percent compounded annually, how much must your annual deposit be over the next 10 years? a. $87,765.32 b. $83,424.92 c. $84,345.72 d. $81,672.78 e. $85,113.44 8. You are offered an investment that requires you to put up $10,000 now in exchange for payments of $2,475 at the end of each of the next five years. The annual rate of return on this investment is closest to: a. 8.01% b. 7.69% c. 8.54% d. 7.55% e. 12.9% 9. The liabilities and equity side of the Keltgen Corporation’s balance sheet is provided below. Keltgen’s common stock is presently selling for $20 per share. The book value per share of Keltgen’s common stock is closest to: Current Liabilities $ 300,000 Long-term Debt $ 300,000 Common Stock (80,000 shares outstanding, $1 par) $ 80,000 Paid in surplus $ 680,000 Retained Earnings $ 620,000 Total Liabilities and Equity $1,980,000 a. $24.63 b. $18.57 c. $16.25 d. $17.25 e. $8.50 10. You want to have $250,000 saved 10 years from now. At present you have $50,000. You are prepared to make equal annual deposits at the end of each of the next 10 years to meet your objective. Assuming that you can invest your money (both what you have at present and the annual deposits) at a rate of 7 Percent compounded annually, your annual deposit each year will be closest to: a. $11,154 b. $10,456 c. $10,976 d. $12,324 e. $11,268