FINC 5310 Exam 1 Questions with Correct Answers| Latest Update Guaranteed Success
1. The Blue Giant has a profit margin of 6.2 percent and a dividend payout ratio of 40 percent.
The capital intensity is 1.08 and the debt-equity ratio is .54. What is the sustainable rate of
growth?
A. 6.30%
B. 5.53%
C. 5.89%
D. 5.60%
E. 6.41% D
2. Which of the following statements is CORRECT?
A. Relative to sole proprietorships, corporations generally face fewer regulations, which makes
raising capital easier for corporations.
B. One disadvantage of operating as a corporation rather than as a partnership is that corporate
shareholders are exposed to more personal liability than partners.
C. Bondholders are generally more willing than stockholders to have managers invest in risky
projects with high potential returns as opposed to safer projects with lower expected returns.
D. Stockholders are generally more willing than bondholders to have managers invest in risky
projects with high potential returns as opposed to safer projects with lower expected returns.
E. There is no good reason to expect a firm's bondholders and stockholders to react differently
to the types of new asset investments a firm makes. D
3. You sold your motorcycle and accepted a note with the following cash flow stream as your
payment. What was the effective price you received for the car assuming an interest rate of
6.0%?
A. $6,930
B. $5,987
C. $6,600
D. $7,277
E. $6,286 B
,4. Muscarella Inc. has the following balance sheet and income statement data:
Cash $14,000
Receivables $70,000
Inventories $210,000
Total CA $294,000
Net fixed assets $126,000
Total assets $420,000
Accounts payable $42,000
Other current liabilities $28,000
Total CL $70,000
Long-term debt $70,000
Common equity $280,000
Total liab. and equity $420,000
Sales $280,000
Net income $21,000
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause
the current ratio to equal the industry average, 2.70, without affecting either sales or net
income. Assuming that inventories are sold off and not replaced to get the current ratio to the
target level, and that the funds generated are used to buy back common stock at book value, by
how much would the ROE change?
A. 4.28%
B. 4.73%
C. 4.50%
, D. 4.96%
E. 5.21% C
5. Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded
annually. If you invest $2,000 in the CD, how much will you have when it matures?
A. $4,563.34
B. $4,346.04
C. $3,754.27
D. $4,139.09
E. $3,941.99 C
6. What is the annual percentage rate on a loan that charges interest of 1.65 percent per
quarter?
A. 6.60%
B. 6.72%
C. 6.50%
D. 6.45%
E. 6.54% A
7. You have $2,500 to deposit into a savings account. The five banks in your area offer the
following rates. In which bank should you deposit your savings?
A. Bank B: 3.69%, compounded monthly
B. Bank D: 3.67% compounded continuously
C. Bank E; 3.65% compounded quarterly
D. Bank C: 3.70% compounded semi-annually
E. Bank A: 3.75%, compounded annually A
1. The Blue Giant has a profit margin of 6.2 percent and a dividend payout ratio of 40 percent.
The capital intensity is 1.08 and the debt-equity ratio is .54. What is the sustainable rate of
growth?
A. 6.30%
B. 5.53%
C. 5.89%
D. 5.60%
E. 6.41% D
2. Which of the following statements is CORRECT?
A. Relative to sole proprietorships, corporations generally face fewer regulations, which makes
raising capital easier for corporations.
B. One disadvantage of operating as a corporation rather than as a partnership is that corporate
shareholders are exposed to more personal liability than partners.
C. Bondholders are generally more willing than stockholders to have managers invest in risky
projects with high potential returns as opposed to safer projects with lower expected returns.
D. Stockholders are generally more willing than bondholders to have managers invest in risky
projects with high potential returns as opposed to safer projects with lower expected returns.
E. There is no good reason to expect a firm's bondholders and stockholders to react differently
to the types of new asset investments a firm makes. D
3. You sold your motorcycle and accepted a note with the following cash flow stream as your
payment. What was the effective price you received for the car assuming an interest rate of
6.0%?
A. $6,930
B. $5,987
C. $6,600
D. $7,277
E. $6,286 B
,4. Muscarella Inc. has the following balance sheet and income statement data:
Cash $14,000
Receivables $70,000
Inventories $210,000
Total CA $294,000
Net fixed assets $126,000
Total assets $420,000
Accounts payable $42,000
Other current liabilities $28,000
Total CL $70,000
Long-term debt $70,000
Common equity $280,000
Total liab. and equity $420,000
Sales $280,000
Net income $21,000
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause
the current ratio to equal the industry average, 2.70, without affecting either sales or net
income. Assuming that inventories are sold off and not replaced to get the current ratio to the
target level, and that the funds generated are used to buy back common stock at book value, by
how much would the ROE change?
A. 4.28%
B. 4.73%
C. 4.50%
, D. 4.96%
E. 5.21% C
5. Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded
annually. If you invest $2,000 in the CD, how much will you have when it matures?
A. $4,563.34
B. $4,346.04
C. $3,754.27
D. $4,139.09
E. $3,941.99 C
6. What is the annual percentage rate on a loan that charges interest of 1.65 percent per
quarter?
A. 6.60%
B. 6.72%
C. 6.50%
D. 6.45%
E. 6.54% A
7. You have $2,500 to deposit into a savings account. The five banks in your area offer the
following rates. In which bank should you deposit your savings?
A. Bank B: 3.69%, compounded monthly
B. Bank D: 3.67% compounded continuously
C. Bank E; 3.65% compounded quarterly
D. Bank C: 3.70% compounded semi-annually
E. Bank A: 3.75%, compounded annually A
