What standards are used to help US investors understand and compare foreign financial statements to domestic financial statements? - ANSWER-International
... [Show More] Financial Reporting Standards
When a company is optimizing its resources and maintaining or improving productivity, they are engaging in what hypothesis - ANSWER-Efficient Market Hypothesis
What is the basic type of negotiable debt? - ANSWER-Bonds
What is the characteristic of a stock sold in the secondary markets? - ANSWER-Stocks sold in the secondary markets are traded after the initial offering.
If a company is engaged in lobbying for tariffs and trade restrictions, if they are successful, what are the two principal impacts? - ANSWER-Protection for the lobbyist and higher prices for the consumer pre reduced competition.
Describe what an income statement is in one sentence? - ANSWER-It covers a period of time and starts with sales, takes out expenses, and ends with net income.
What is the difference between taxable income and accounting income? - ANSWER-Accounting income is reported as net income on the income statement whereas Taxable income is used to determine the amount of tax a firm must pay.
Net Income 15,000
Depreciation Exp 2,000
Change in Operating Assets 1,200
Change in PP&E 2,000
Change in long-term liab. 1,200
Dividends paid 1,500
What is the Cash Flow from Financing? - ANSWER-CFF= Incr Stock + Incr Debt -Dividends Paid
= 1200-1500
= -300
Net Income 121,000
Depreciation Expense 4,000
Accounts Receivable (30,000)
Change in net PP&E 15,000
Accounts Payable (5,000)
New Bank Loan 12,000
Dividends Paid 1,500
What is the Cash Flow from Investing? - ANSWER-CFI = Change in Net PPE + Depreciation Expense
= 15,000 + 4,000
= 19,000
A grandmother sets up a trust for her grandson. She desires him to receive $20,000 per year. Her investment advisor finds an investment vehicle that
will yield 7%. How much will the grandmother have to put into the investment? - ANSWER-20000/.07= 140*12 =1680.00
What is the number of payments of a semi-annual bond if the number of years remaining are 12? - ANSWER-There are 24 semi-annual payments remaining
bWhat is the expected rate of return for a stock that has a eta of 2.1. The market rate is 8.5% with a risk free rate of 2%. - ANSWER-E[R]=Rf + B(Rm - Rf)
=2% + 2.1(8.5%-2.0%)
=.02 + 2.1(0.0850-.02)
=.01565 or 15.65%
A company has a trial balance that shows $13,000 in bonds payable. On which financial statement should this be shown? - ANSWER-This would be shown on the Balance Sheet under Long Term Liabilities
Which is the principal account comprising Cash Flow from Investing - ANSWER-The principal account for CFI is PP& E
What is the cash effect on the Statement of Cash Flow when current liabilities decline? - ANSWER-Results in a decrease in cash
If two companies use different inventory valuation methods, what difference would that be called in calculating net income? - ANSWER-Accounting Difference
There are two competitors. The gross margin for Green Company is .45. The gross margin for Red Company is .40 Which company has a more productive manufacturing process? Why? - ANSWER-Green company has a more productive manufacturing process because the high gross margins are usually associated with and efficient production process.
What is the current ratio given a balance sheet with the following account balances:
Cash 10,000
Accounts Receivable 252,000
PP&E 725,000
Accounts Payable 93,000
Bank Loan 425,000
Common Stock 1,000,000 - ANSWER-Current Ratio = Current Assets/Current Liabilities
=10000 + 252000/93000
=262000/93000
=2.8172
If a nephew anticipates a $250,000 gift from a wealthy uncle in five years, what is the present value of the gift if the discount rate is 6%? - ANSWER-Calculator:
FV= 250000
I/R= 6
N= 5
Cpt PV = -186,814.54
Or
PV=FV/(1+r)n
=250000/(1.07)5
=250000/1.3382
=186,184.54
A stockbroker wishes to retire in 15 years with $3,000,000 in her retirement account. How much will she have to put aside at the end of each year to reach her goal if she can invest her money at 8.5%? - ANSWER-Calculator
FV = 3000000
I/R= 8.5
N=15
CPT, PMT= 106,261.38
If there is a bankruptcy and a loan wont be paid off until another debt is satisfied, what is the loan called? - ANSWER-Subordinated Debenture
Example: 1st mortgage is primary, Second Mortgage is secondary. Secondary Mortgage is Subordinated Debenture
A $1000 bond has a coupon rate of 3.5% and a market rate of 5%. What is the value of the bond if it matures in 5 years? - ANSWER-Calculator:
PV=- 1000
PMT = 35
I/R= 5
N= 5
CPT, FV= 1082.88
If a bond has a coupon rate lower that the yield to maturity, what can we say about the bond price? - ANSWER-Bond price at a discount
What will the annual interest payment be for a zero coupon bond? - ANSWER-Zero Coupon bonds do not make interest payments
Which securities are issued by non-federal government organizations that might not be subject to federal income tax? - ANSWER-Municipal Bonds
What is the APY in relationship to the APR if compounding happens more frequently than once a year? - ANSWER-If there is more than one compounding period, the APY will be greater than the APR. If there is only one compounding period per year, the APY and the APR will be the same.
A 2% $1000 bond matures in 3 years. If the market interest rate is 2.9 what is the price? - ANSWER-Calculator:
N = 3
I/Y = 2.9
FV = 1000
PMT (2% of 1000)
CPT PV = 974.49
A company wishes to improve the marketability of their bond and does so by putting in the option for the investor to replace their bond with common stock. What is this kind of bond called? - ANSWER-Convertible Bonds
If a company's credit rating is downgraded, what will happen to the price of its bonds? - ANSWER-Bond price will decrease, yield increase
What do you call a loan that does not require collateral? - ANSWER-Unsecured Loan
A project plan has the following forecast results with a WACC of 11%. What is the net Present Value?
Initial Outlay: -70,000
Year 1 13,000
Year 2 15,000
Year 3 18,000
Year 4 20,000
Year 5 25,000 - ANSWER-Press CF, then Input:
CF0 -70000, Enter, Down Arrow
C01 13000, Enter, Down Arrow
C02 15,000, Enter, Down Arrow
C03 18,000, Enter, Down Arrow
C02 20,000, Enter, Down Arrow
C03 25,000, Enter, Down Arrow
Press NPV button, enter 11 for I, Enter, Down Arrow
NPV = -4,941.60
(Minus sign is significant per would not approve the project)
A project has an NPV of 52,000. What does mean as far acceptance? - ANSWER-If the computed NPV is greater than zero, the project is accepted.
What is the net present value of expected future case flows for a share of stock called? - ANSWER-Intrinsic Value
What is the internal rate of return given the following information about the project:
Initial Outlay -50,000
Year 1 20,000
Year 2 22,000
Year 3 18,000 - ANSWER-Calculator:
Press CF, then Input:
CF0 -50000, Enter, Down Arrow
C01 20000, Enter, Down Arrow
C02 22,000, Enter, Down Arrow
C03 18,000, Enter, Down Arrow
Press IRR button, CPT
IRR = 9.8699
An investor purchases a share of stock for $82.00. She sells it in on year for $92.00 and receives a dividend of $2.95. What is the rate of return the investor achieved? - ANSWER-Ks = [(P1+D1)/P0] - 1
= [(92+2.95)]/82] - 1
= (94.95/ 82)-1
=1.1579 - 1
=15.79
Found etext: 7.7 Common Stock Valuation: Single Holding Period Model
36. The expected return for a stock is 10% with a forecast growth rate of 2.5%. The company recently paid a dividend of $3.50. What is the highest price an investor should pay for the stock? - ANSWER-V0 = D1/(kcs - g)
VO = 3.50(1.025)/(.10-.025)
VO = 3.50/ 0.0750
VO = 47
In the event of liquidation who will be paid third? - ANSWER-Secured, Unsecured, Preferred, Common
38. What is the growth in the expected stock price change for a company is trying to value their stock's return in an uncertain economy. (Hint: use the same method for calculating Expected Return for different economic states) They need to use the most likely result for their planning. They estimate a 10% probability that will result in a stock price drop of 7%, a 60% probability for no change in the stock, and a 30% probability for a stock price increase of 15% - ANSWER-E(R) = .10*-.07+.60*0+.30*.15
=.0070+.0450
=.0520 or 5.2%
39. What will be the risk-return profile for an investor with a high tolerance for risk? - ANSWER-A higher rate of return
An investor wishes to decrease the risk level of their portfolio. How would they do that, if they want their portfolio to be closer to the market. - ANSWER-Diversification
How does a person calculating a long term debt cost in a WACC calculation? - ANSWER-R d,1-t is the cost of long-term debt
Find the weighted after tax cost of bonds given the following information:
Total Market Value = 500, bond market [Show Less]