School

York UniversityDepartment

Administrative StudiesCourse Code

ADMS 3530Professor

Lois KingStudy Guide

FinalThis

**preview**shows pages 1-3. to view the full**10 pages of the document.**Practice Final Solutions

1. The followings are considered as financial assets, except:

A) well-trained sales force.

B) car insurance.

C) checking accounts.

D) mortgage loans.

Answer: A

A well-trained sales force is not a financial asset. All the others are

financial assets.

2. Which of the following does NOT address the question: "What are the roles of

a financial manager?"

I. Deciding how to maximize the stock prices.

II. Deciding the capital mix of long-term debt and equity.

III. Deciding which projects a firm should undertake.

IV. Deciding how much short-term debt to borrow.

A) I only

B) III only

C) II and III only

D) II, III, and IV only

E) I, II, III, and IV

Answer: A

Maximizing the stock price is not a role of the financial manager.

3. Given the following income statement data, calculate net income: sales =

$2,500, cost of goods sold = $1,800, miscellaneous expenses = $200,

depreciation = $150, interest expense = $50, average tax rate = 35%.

A) $195

B) $230

C) $377

D) $425

Answer: A

EBT = $2,500 - 1,800 - 200 - 150 - 50 = $300; NI = $300 - (300 x .35) =

$195

1

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

4. A firm with negative net working capital ______________.

A) is technically bankrupt

B) has no cash on hand

C) needs to sell some of its inventory to correct the problem

D) has more current liabilities than current assets

Answer: D

Net Working Capital = Current Assets – Current Liabilities

5. Calculate the EBIT (earnings before interest and taxes) for a firm with $5

million total revenues, $3 million cost of goods sold, $500,000 depreciation

expense, and $500,000 interest expense.

A) $1,500,000

B) $500,000

C) $1,000,000

D) -$500,000

Answer: A

EBIT = $5,000,000 - $3,000,000 - $500,000 = $1,500,000

6. What are the annual sales for a firm with $400,000 in liabilities, a total debt

ratio of 0.25, and an asset turnover of 3.0 (assume total assets remains

unchanged)?

A) $ 333,333

B) $3,200,000

C) $4,800,000

D) $6,400,000

Answer: C

Total Debt Ratio = Total Liabilities / Total Assets = .25 = ¼

¼ = $400,000/total assets, so total assets = $1,600,000

Asset Turnover = Sales / Average Total Assets = 3.0

3.0 = Sales / $1,600,000

So, Sales = $4,800,000

7. How much will accumulate in an account with an initial deposit of $100, and

which earns 15% interest for four years?

A) $107.69

B) $132.25

C) $152.09

D) $174.90

Answer: D

2

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

$100 x (1.15) ^4 = $174.90

8. How much would an investor expect to pay for a $1,000 par value bond with a

9% annual coupon that matures in 5 years if the interest rate is 5%?

A) $ 844.4

B) $1,075.8

C) $1,082.0

D) $1,173.2

Answer: D

PV = (90 x 4.3295) + (1000 x 0.7835) = $1173.15

9. What is the coupon rate for a bond with three years until maturity, a price of

$1,053.46, and a yield to maturity of 6%?

A) 6%

B) 8%

C) 10%

D) 11%

Answer: B

$1053.46 = (PMT x 2.6730) + (1000 x 0.8396)

PMT = 80

Coupon Rate = 8%

10. What happens to the price of a three-year bond with an 8% coupon when

interest rates change from 8% to 6%?

A) A price increase of $51.54

B) A price decrease of $53.47

C) A price increase of $53.47

D) No change in price

Answer: C

8%: (80 x 2.5771) + (1000 x 0.7938) = $999.97

6%: (80 x 2.6730) + (1000 x 0.8396) = $1053.44

Price increase of $53.47

11. What is the yield to maturity of a bond with the following characteristics?

Coupon rate is 8% with annual payments, current price is $950, three

years until maturity.

A) 4%

B) 5%

C) 10%

D) 12%

3

###### You're Reading a Preview

Unlock to view full version