Fin300 Midterm

Ryerson University CFIN300 Midterm Exam Fall 2007 There are 2. 0 hours in this exam. Version A Student Name____________________________ (Please Print) Student Number_________________________________ Notes 1. This is a closed in(p) book exam. You may notwithstanding necessitate pens, pencils and a calculator at your desk. 2. A formula airplane is attached to the final stage of the exam. You may abstract the formula sheet from the exam. Please as sum totale out the scanner sheet as you go along in the exam. You will not be given extra time at the remainder of the exam to fill it out. 3.Select the best possible answer for each multiple-choice question 4. all(prenominal) of the 30 MC questions is worth 1 mark Marks purchasable positive 30_________ There are 14 pages in this exam. 2. Poor Dog, Inc. borrowed $135,000 from the avow straight off. They mustiness(prenominal) re expect this money all over the next sisesome old age by making monthly wagess of $2,215. 10. Wh at is the interest ordinate on the loan? press out your answer with classbook compounding. A) 5. 98% B) 6. 63% C) 4. 1% D) 5. 65% E) 5. 80% 3. How a good deal would you pay for a security measure that pays you $ five hundred every(prenominal) 4 months for the next 10 geezerhood if you require a pass off of 8% per stratum heighten monthly? A) $11,228. 48 B) $15,000. 00 C) $10,260. 0 D) $13,724. 90 E) $10,200. 23 4. You can substantiate 5% per year compound yearly for the next 4 old age, followed by 8% per year intensify every quarter for 5 age. What is the average annual compounded identify of return over the 9 year period? Express your answer with monthly compounding. A) B) 6. 2% C) 6. 97% D) 6. 43% E) 6. 59% 5. You take on just purchased a rest home for $540,000 with a $200,000 down payment. You are going to get a owe at the TF bank for the balance. TF is charging a say of 5. 8% per year compounded semi-annually on 5 year term mor tgages.You want to illuminate periodical payments amortized over 20 old age. What is your weekly payment? A) $877. 60 B) $549. 01 C) $545. 47 D) E) $871. 92 6. Master Meter is planning on constructing a unrepresentatived $20 million facility. The company plans to pay 20% of the cost in funds and finance the balance.How much will each monthly loan payment be if they can borrow the necessary funds for 30 years at 9% per year compounded semi-annually? A) $128,740 B) $158,567 C) $160,925 D) $141,982 E) $126,853 7. Gerry Industries has some 8% (per year compounded semi-annually) voucher bonds on the market that are selling at $989, pay interest semi-annually, and mature in fifteen years. The company would a homogeneous to issue $1 million in new fifteen-year bonds. What coupon tempo should be applied to the new bonds if Gerry Industries wants to sell them at par? Express your answer with semi-annual compounding. A) 8. 00% B) 8. 3% C) 7. 87% D) 8. 13% E) 8. 26% 8. You have pertinacious to save $30 a week for the next three years as an emergency fund. You can earn 3. 5 % per year compounded weekly. How much would you have to deposit in one lump sum to daylight to have the same marrow in your savings at the end of three years? A) $4,441. 26 B) $4,382. 74 C) $4,288. 87 D) $4,305. 19 E) $4,414. 14 9. A credit card company charges you an interest rate of 1. 25% per month.The annual percentage rate is ____ and the effective annual rate is _______. A) 15. 00% 16. 08% B) 16. 08% 15. 00% C) 15. 00% 15. 00% D) 15. 00% 14. 55% E) 14. 55% 15. 00% 10. The Friendly Bank wants to earn an effective annual rate of 9% on its auto loans. If interest is compounded monthly, what APR must they charge? A) 8. 65% B) 9. 17% C) 8. 58% D) 9. 38% E) 8. 44% spend the following to answer question 11 Rondolo, Inc. 2006 Income Statement scratch sales $12,800 Less embody of Goods Sold 10,400 Less Depreciation 680 E arnings originally engage and Taxes 1,720 Less Interest Paid 280 Taxable Income $1,440 Less Taxes euchre cabbage Income $940 Dividends $423 Additions to carry wages $517 Rondolo, Inc. 2006 Balance Sheet Cash $520 Accounts due $1,810 Accounts rec 1,080 Long-term debt 3,600 Inventory 3,120 super C acquit 5,000 count $4,720 Retained earnings 1,790 Net fixed assets 7,480 broad(a) assets $12,200 Total liabilities &038 equity $12,200 11. Rondolo, Inc. is currently operating(a) at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The range rate and the dividend payout ratio will remain constant.How much additional debt is require if no new equity is raised and sales are project to increase by 4 percent? A) -$122. 08 B) $598. 75 C) $416. 00 D) -$562. 50 E) $318. 01 12. Your brother-in-law borrowed $2,000 from you quartette years ago and then disappeared. Yesterday he returned and expr essed a desire to pay back the loan, including the interest accrued.Assuming that you had agreed to charge him 10% per year compounded annually, and assuming that he wishes to manipulate five adapted annual payments beginning in one year, how much would your brother-in-law have to pay you annually in order to pay off the debt? (Assume that the loan continues to accrue interest at 10% per year. ) A) $738. 63 B) $798. 24 C) $772. 45 D) $697. 43 E) $751. 46 13. What information to you need to find the 3 year earlier rate starting 2 years from now? A) 2 and 5 year zero coupon while rates B) 3-year zero coupon deformity rate C) 2 and 3 year zero coupon spot rates D) 5 year zero coupon spot rate E) 3 and 5 year zero coupon spot rates 14. You have been making payments for the last 25 years and have finally pay off your mortgage.Your original mortgage was for $345,000 and the interest rate was 5% per year compounded semi-annually for the entire 25 year peri od. How much interest have you paid over the last 5 years of the mortgage? A) B) $120,392. 23 C) $13,931. 87 D) $80,743. 13 E) $106,460. 37 15. Which of the following is (are) sources of hard inter substitute? I. an increase in accounts receivable II. a decrease in general stock III. an increase in long-term debt IV. a decrease in accounts due A) I, II, and IV only B) II and IV only C) I only D) III only E) I and III only 16. fiscal planning allows firms to I. avoid approaching losses. II. develop contingency plans. III. ascertain judge financing needs. IV. explore and evaluate various options. A) I, II, III, and IV B) I and IV only C) III and IV only D) II and III only E) II, III, and IV only Use the following to answer question 17 Current $ degree centigrade additions A) $52. 00 B) $22. 50 C) $0. 00 D) $4. 50 E) $29. 50 18. A new security will pay an initial cash in flow of $100 in 1 year. Thereafter it will pay cash flows every month for the rest of time.The cash flows will grow at 3% per year compounded monthly forever. If you require a return of 6% per year compounded monthly, how much would you be willing to pay for this security? A) $18,932. 30 B) $40,000. 00 C) $37,864. 59 D) $33,333. 33 E) $20,000. 00 19. Which one of the following actions is the best example of an agency problem? A) Basing watchfulness bonuses on the attainment of specific pecuniary goals B) Requiring stockholders approval of all management compensation decisions C) Paying management bonuses base on the current market value of the firms stock D) Paying management bonuses based on the number of store locations opened during the year E) pass judgment a project that enhances both management salaries and the market value of the firms stock 20. The bonds of Franks Welding, Inc. pay an 8% annual coupon, have a 7. 98% (per year compounded annually) yield to maturity and have a face value of $1,000. The current rate of inflation is 2. 5% per year compounded annually.What is the significant rate of return on these bonds? A) 5. 42 percent B) 5. 48 percent C) 5. 35 percent D) 5. 37 percent E) 5. 32 percent 21. What is the future value of the following cash flows at the end of year 3 if the interest rate is 6% per year compounded annually? The cash flows occur at the end of each year. year 1 Year 2 Year 3 $5,180 $9,600 $2,250 A) $19,341. 02 B) $15,916. 8 C) $19,608. 07 D) $18,246. 25 E) $18,109. 08 22. The I. C. James Co. invested $10,000 six years ago at 5% per year simple interest. The I. M. ache Co. invested $10,000 six years ago at 5% per year compounded annually. Which one of the following statements is true concerning these two investments? I. The I. C.James Co. has an account value of $13,400. 96 today. II. The I. C. James Co. will have an account value of $13,400 . 96 six years from now. III. The I. M Smart Co. will earn $525 interest in the second year. IV. Both the I. C. James Co. and the I. M. Smart Co. will earn $500 interest in the first year. A) II, III and IV only B) II and IV only C) I and III only D) III and IV only E) I, III and IV only 23. The bonds of Microhard, Inc. carry a 10% annual coupon, have a $1,000 face value, and mature in four-spot years. Bonds of equivalent risk yield 15% (per year compounded annually). Microhard is having cash flow problems and has asked its bondholders to accept the following deal The firm would like to make the next three coupon payments at half the scheduled amount, and make the final coupon payment be $251.If this plan is implemented, the market worth of the bond will (rise/fall) to ___________. (Continue to assume a 15% required return. ) A) $892. 51 B) $865. 45 C) $829. 42 D) $808. 89 E) $851. 25 24. Your older sister deposited $5,000 today at 8% per y ear compounded annually for five years. You would like to have just as much money at the end of the next five years as your sister. However, you can only earn 6% per year compounded annually. How much more money must you deposit today than your sister if you are to have the same amount at the end of five years? A) $367. 32 B) $399. 05 C) $489. 84 D) $201. 0 E) $423. 81 25. Net income differs from operating cash flow due to the use of A) Interest expense and depreciation. B) Depreciation and dividends. C) Dividends and non-interest expense. D) Dividends and interest expense. E) Dividends, interest expense, and depreciation. 26. Shirley adds $1,000 to her savings on the last day of each month. Shawn adds $1,000 to his savings on the first day of each month.They both earn an 8% per year compounded every quarter rate of return. What is the difference in their savings account balances at the end of 35 years? A) $13,923. 34 B) $15,794. 64 C) $16,776. 34 D) $1 4,996. 47 E) $12,846. 88 Use the following to answer questions 27-30 KLM, Inc. 2006 Income Statement Net sales $3,685 Cost of goods sold $3,180 Depreciation $104 Earnings before interest and taxes $401 Interest paid $25 Taxable income $376 Taxes $128 Net income $248 Dividends paid $60 Addition to retained earnings $188 KLM Corporation Balance Sheets as of December 31, 2005 and 2006 2005 2006 2005 2006 Cash $520 $601 Accounts payable $621 $704 Accounts rec. $235 $219 Notes payable $333 $272 Inventory $964 $799 Current liabilities $954 $976 Current assets $1,719 $1,619 Long-term debt $350 $60 Net fixed assets $890 $930 Common stock $800 $820 Retained earnings $505 $693 Total assets $2,609 $2,549 Total liabilities and Owners equity $2,609 $2,549 27. What is the net capital spending for 2006? A) $208 B) $144 C) -$144 D) $64 E) -$64 28. What is the cash flow from assets for 2006? A) $1,307 B) $2,259 C) $355 D) $2,503 E) $111 29. What is the operating cash flow for 2006? A) $480 B) $169 C) $425 D) $272 E) $377 30. What is the change in net working capital for 2006? A) $122 B) $643 C) $765 D) -$643 E) -$122 31. A number of years ago you bought some land for $100,000. Today it is worth $225,000. If the land has been locomote is price by 5% per year compounded annually, how long have you owned the land? A) 14. 1 years B) 16. years C) Cant be situated with the given information D) 13. 8 years E) 12. 4 years FV = PV (1+tr) pic FV = PV (1+r)t pic pic pic pic pic pic pic pic pic pic pic pic pic pic pic pic Total Dollar Return (TDR) = Dividend Income + working capitalital Gain (Loss) pic pic pic pic Variance of returns pic pic pic pic pic pic pic Arbitrage price Theory PV of CCA tax shield pic pic Current dimension = Current Assets Total Asset = Sales Current Liabilities turnover Total Assets Quick proportionality = Current Assets Inventory RO A = Net Income Current Liabilities Total Assets Inventory Turnover = COGS ROE = Net Income Inventory Total law Cash Ratio = Cash P/E Ratio = Price/common division Current Liabilities EPS Receivables = Sales Dividend Payout = DPS Turnover Accounts Receivable Ratio EPS D/E Ratio = Total Debt Dividend Payout = Cash Dividends Total Equity Ratio Net Income Total Debt Ratio = Total Debt Market to Book Price / Common share Total Assets Ratio = Book value of equity Equity multiplier = Total Assets Profit = Net Income Total Equity brink Sales Net Working = Net Working Capital legal separation Measure = Current Assets Capital-Total Asset Total Assets Average Daily run Costs Long Term Debt = Long Term Debt Cash insurance coverage = EBIT + Depreciation Ratio Total Equity + LT Debt Ratio Interest old age Sales in = 365 eld Days Sales in = 365 Days Receivables Receivables Turnover Inventory Inventory Turnover Internal Growth = ROA x R Sustainable = ROE x R set out 1 ROA x R Growth Rate 1 ROE x R Sustainable = p(S/A)(1+D/E) x R Growth Rate 1 p(S/A)(1+D/E) x R NWC = Sales Fixed Asset = Sales Turnover NWC Turnover Net Fixed Assets Times Interest = EBIT CF from Assets = Operating CF Cap Ex Additions to NWC Operating CF = EBIT + Deprec Tax =Sales Costs Taxes = (Sales Costs) x (1 Tc) + Deprec x Tc Cap Ex = End Gross FA bug Gross FA Cap Ex = End Net FA Beg Net FA + Deprec Add to NWC = End NWC Beg NWC CF to Debtholders = Interest Net stark naked Debt CF to Shareholders = Divs Net New Equity CF from Assets = CF to Debtholders + CF to Shareholders Earned Interest Charges answer Key 2. E 3. E 4. E 5. B 6. E 7. D 8. A 9. A 10. A 11. A 12. C 13. A 14. C 15. D 16. E 17. E 18. C 19. D 20. C 21. D 22. D 23. C 24. C 25. A 26. D 27. B 28. C 29. E 30. E 31. B