Fin 571 week 1 connect problems (week 1 problem set)

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FIN 571 Week 1 Connect Problems (Week 1 Problem Set) 1.The ultimate control of a corporation lies in the hands of the corporate: president. board of directors. chairman of the board. chief executive officer. stockholders. 1. (Set 2) If a firm is currently profitable, then: it will always have sufficient cash to pay its bills in a timely manner. the timing of the cash flows on proposed projects is irrelevant. its current cash inflows must exceed its current cash outflows. its cash flows are known with certainty. its reported sales exceed its costs. 2.Which one of these is a cash outflow from a corporation? sale of an asset dividend payment profit retained by the firm sale of common stock issuance of debt 2.(Set 2) Short-term finance deals with: acquiring and selling fixed assets. financing long-term projects. capital budgeting. 3.For a firm to create value it must: avoid the issuance of debt securities. have a greater cash inflow from its stockholders than its outflow to them. avoid payments to the government so dividends can be increased. 3.(Set 2) A stakeholder is any person or entity: owning shares of stock of a corporation. to whom the firm currently owes money. that initially started a firm and currently has management control over that firm. owning bonds or other long-term debt issued by a corporation. other than a stockholder or creditor who potentially has a financial interest in the firm. 4.If a firm is currently profitable, then: its cash flows are known with certainty. its reported sales exceed its costs. the timing of the cash flows on proposed projects is irrelevant. it will always have sufficient cash to pay its bills in a timely manner. its current cash inflows must exceed its current cash outflows. 4.(Set 2)Which one of these best fits the description of an agency cost? increasing the dividend payments per share the benefits received from reducing production costs per unit the payment of interest on a firm’s debts the payment of corporate income taxes the payment required for an outside audit of the firm 5.The primary goal of financial management is to: maximize current dividends per share of the existing stock. avoid financial distress. minimize operational costs and maximize firm efficiency. maximize the current value per share of the existing stock. maintain steady growth in both sales and net earnings. 6.Which one of the following business types is best suited to raising large amounts of capital? limited partnership corporation sole proprietorship limited liability company general partnership 7.Accounting profits and cash flows are generally: the same since accounting profits reflect when cash flows occur. different because of GAAP rules

regarding the recognition of income. different because cash inflows must occur before revenue recognition. the same since they reflect current laws and accounting standards. the same due to the requirements of GAAP. 8.One year ago, you invested $2,690. Today it is worth $3,800.50. What rate of interest did you earn? 8. (Set 2) Your credit card company charges you 1.00 percent per month.

What is the annual percentage rate on your account? 9. (Set 1) What is the future value of $920 a year for 5 years at a 6 percent interest? 9. (Set 2) Your credit card company charges you 1.00 percent per month. What is the annual percentage rate on your account? 10.You just paid $361,000 for an annuity that will pay you and your heirs $12,300 a year forever. What rate of return are you earning on this policy? Some time ago, Julie purchased eleven acres of land costing $15,590.

Today, that land is valued at $63,123. How long has she owned this land if the price of the land has been increasing at 6 percent per year? 11.First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $57,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 11. (Set 2) First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $60,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 11450.86 12.a. Compute the future value of $2,000 compounded annually for 10 years at 7 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Compute the future value of $2,000 compounded annually for 10 years at 12 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Compute the future value of $2,000 compounded annually for 15 years at 7 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 12. (Set 2) 10.00 points a.

Compute the future value of $1,000 compounded annually for 10 years at 8 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Compute the future value of $1,000 compounded annually for 10 years at 11 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Compute the future value of $1,000 compounded annually for 15 years at 8 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 13. (Set 2) 10.00 points For each of the following, compute the present value (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.): Present Value Years Interest Rate Future value Wilkinson Co. has identified an investment project with the following cash flows: If the discount rate is 9 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

If the discount rate is 16 percent, what is the present value of these cash flows?

(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If the discount rate is 25 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 15.You own 300 shares of Western Feed Mills stock valued at $36.72 per share. What is the dividend yield if your annual dividend income is $322? 15.Four months ago, you purchased 1,200 shares of Lakeside Bank stock for $21.20 a share. You have received dividend payments equal to $.55 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment? Question 16 (Another Set) Suppose a stock had an initial price of $54 per share, paid a dividend of $1.30 per share during the year, and had an ending share price of $64. Compute the percentage total return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 17. You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 14 percent, –7 percent, 17 percent, 15 percent, and 10 percent. Suppose the average inflation rate over this period was 1.4 percent, and the average T-bill rate over the period was 5.1 percent. a. What was the average real return on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the average nominal risk premium on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) Question 17 (another Set) You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 17 percent, –15 percent, 19 percent, 29 percent, and 10 percent. Suppose the average inflation rate over this period was 2.6 percent, and the average T-bill rate over the period was 4.3 percent. a. What was the average real return on the stock?

(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the average nominal risk premium on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)