Corporate Finance 5. An annuity with payments that occur at the beginning of eac
ID: 2512305 • Letter: C
Question
Corporate Finance
5. An annuity with payments that occur at the beginning of each period is known as a_____.
a) annuity due
b) discounted annuity
c) ordinary annuity
d) immediate annuity
e) deferred annuity
6. The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time.
a) True
b) false
7. Which of the following mathematical expressions computes earnings per share?
a) Earnings per share = Net Income ÷ Number of outstanding shares of common stock
b) Earnings per share = (Net Income + Dividend Paid) ÷ Number of outstanding shares of common stock
c) Earnings per share = Net Income × Number of outstanding shares of common stock
8. The informational efficiency where current prices reflect all pertinent information both public and private is manifested as
a) The weak-form
b) The semi strong-form
c) The strong-form
9. Primary markets are markets _____.
a) where loans are traded
b) where financial assets that have previously been issued by various organizations are traded among investors
c) in which various organizations raise funds by issuing new securities
d) where the instruments traded have original maturities equal to one year or less
10. One of the following is not a benefits of financial intermediaries
a) Reduced cost
b) Helps corporations design securities attractive to investors
c) Risk diversification
d) Financial flexibility
11. Which of the following is an example of a firm's long-term debt?
a) Retained earnings
b) Accounts receivable
c) Corporate bonds
d) Accounts payable
12. An annuity with payments that occur at the beginning of each period is known as a _____.
a) deferred annuity
b) immediate annuity
c) ordinary annuity
d) annuity due
Problems:
13. Dwayne invests $4,700 in a savings account at the beginning of each of the next twelve years. If his opportunity cost rate is 7 percent compounded annually, how much will his investment be worth after the last annuity payment is made?
14. Robert invests $650 in a savings account at the beginning of each of the next seven years. If his opportunity cost rate is 5 percent compounded annually, how much will his investment be worth after the last annuity payment is made? Nper = 7, rate = 5, PV = 0, PMT = – 650;
15. Jason's opportunity cost rate is 8 percent compounded annually. How much must he deposit in an account today if he wants to receive $5,400 at the end of each of the next 10 years? Nper = 10, Rate= 8, FV = 0, PMT = –5,400
16. If Emma purchased a 5 year annuity and she pays $5000 in year 1, $300 in year 2, $2000 in year 3, $1500 in year 4, and $1000 in year 5, at a 5% rate, what is the worth of the investment today?
Complete the balance sheet and sales information in the table that follows for Isberg Industries using the following financial data:
Debt ratio: 50%
Quick ratio: 0.80x
Total assets turnover: 1.5x
Days sales outstanding: 36.0 days
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 25%
Inventory turnover ratio: 5.0x
Balance Sheet:
17. Cash Accounts payable
18. Accounts receivable Long-term debt $ 60,000
19. Inventories Common stock
20. Fixed assets Retained earnings $ 97,500
21. Total assets $300,000 Total liabilities and equity
22. Sales Cost of goods sold
Campsey Computer Company: Balance Sheet as of December 31
Cash $ 77,500 Accounts payable $129,000
Receivables 336,000 Notes payable 84,000
Inventories 241,500 Other current liabilities 117,000
Total current assets $655,000 Total current liabilities $330,000
Net fixed assets 292,500 Long-term debt 256,500
Common equity 361,000
Total assets $947,500 Total liabilities and equity $947,500
Campsey Computer Company: Income Statement for Year Ended December 31
Sales $1,607,500
Cost of goods sold (1,353,000)
Gross profit $ 254,500
Fixed operating expenses except depreciation ( 143,000)
Earnings before interest, taxes, depreciation,
and amortization (EBITDA) $ 111,500
Depreciation ( 41,500) Earnings before interest and taxes (EBIT) $ 70,000
Interest ( 24,500) Earnings before taxes (EBT) $ 45,500
Taxes (40%) ( 18,200)
Net income $ 27,300
Using the information above, calculate the following ratios:
23. Current ratio
24. Days sales outstanding
25. Inventory turnover
26. Total assets turnover
27. Net profit margin
28. Return on assets (ROA)
29. Return on equity (ROE)
30. Debt ratio
Explanation / Answer
5 Annuity with payments occur at the beginning of the period is annuity due. So ans is a.
6 False. Balance Sheet shows the financial position of the company at the end of financial year. It is the fund flow statement which shows the flow of funds from various accounts. So the ans is b.
7 EPS is calculated as = Net Income / No. of Outstanding shares of common stock. So the ans is a. It is to be kept in mind that if there is payment of dividend then such dividend must be subtracted from Net Income.
9 Primary markets are markets where companies issues securities for the first time. IPO is a example of primary market. Here ans is (c) i.e. various organisation raise funds by issuing new securities.
10 Ans is a. Reduced Costs. Employing financial intermediaries will going to increase cost and not reduce it.
11 Ans is c. Corporate bonds. These bonds are fall under the category of long term debt.
12 Ans is d. Annuity due.
13. Future Value = PV X (((1+r)^n)-1)/r i.e 4700 * (((1+.07)^12)-1)/.07 = 84075.72