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Post University FIN 201 Final Exam

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1) At 11 percent interest, how long would it take to quadruple your money? 6.55 6.64 13.09 13.28 13.56 2) Which one of the following will decrease if a firm can decrease its operating costs, all else constant? Return on equity Return on assets Profit margin Equity multiplier Price-earnings ratio 3) Chelsea Fashions is expected to pay an annual dividend of $0.80 a share next year. The market price of the stock is $22.40 and the growth rate is 5 percent. What is the firm’s cost of equity? 7.58 percent 7.91 percent 8.24 percent 8.57 percent 9.00 percent 4) According to the Rule of 72, you can do which one of the following? Double your money in five years at 7.2 percent interest Double your money in 7.2 years at 8 percent interest Double your money in 8 years at 9 percent interest Triple your money in 7.2 years at 5 percent interest Triple your money at 10 percent interest in 7.2 years 5) If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? 0.0 0.5 1.0 1.5 2.0 6) Shareholders’ equity: Increases in value anytime total assets increases. Is equal to total assets plus total liabilities. Decreases whenever new shares of stock are issued. Includes long-term debt, preferred stock, and common stock. Represents the residual value of a firm. 7) Which one of the following statements correctly states a relationship? Time and future values are inversely related, all else held constant. Interest rates and time are positively related, all else held constant An increase in the discount rate increases the present value, given positive rates. An increase in time increases the future value given a zero rate of interest. Time and present value are inversely related, all else held constant. 8) A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan amortized continuous balloon pure discount interest-only 9) Which one of following is the rate at which a stock’s price is expected to appreciate? current yield total return dividend yield capital gains yield coupon rate 10) What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent. -$3,383.25 -$2,784.62 -$2,481.53 $52,311.08 $66,416.75 11) You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? future value present value principal amounts discounted value invested principal 12) A business created as a distinct legal entity and treated as a legal “person” is called a: Corporation. Sole proprietorship. General partnership. Limited partnership. Unlimited liability company. 13) When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: Accepted because the internal rate of return is positive. Accepted because the profitability index is greater than 1. Accepted because the profitability index is negative. Rejected because the internal rate of return is negative. rejected because the net present value is negative 14) An amortized loan: requires the principal amount to be repaid in even increments over the life of the loan May have equal or increasing amounts applied to the principal from each loan payment. Requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term. Requires that all payments be equal in amount and include both principal and interest. Repays both the principal and the interest in one lump sum at the end of the loan term. 15) The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: Equilibrium. Premium. Discount. Call price. Spread. 16) Which one of the following methods of project analysis is defined as computing the value of a

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