Finance Exam

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Finance Exam
2010-12-13 04:45:41
Finance Exam Managerial

Finance exam flash cards
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  1. An annuity with payments at the end of the period
    Ordinary Annuity
  2. An annuity with payments at the beginning
    Annuity Due
  3. Increasing the compounding frequency will result
    in a ___________ PV and a ____________FV
    Smaller, larger
  4. To find the FV of a given amount today, use
    ______________ but to find the PV today of a given future amount use ____________________.
    Compounding, discounting
  5. If your house increased in value from $200,000
    to $300,000 over the past 10 years, your average annual appreciation would be
  6. You borrow $90,000 that requires payments of
    $456 for 30 years and the END of each month.
    You’re paying an annual interest rate of ___________%
  7. You want to double your money and you’re earning
    9% annually. It will take ___________
  8. If you make a one time deposit today of $500
    into an account that pays 4% interest compounded semi-annually in 10 years
    you’ll have ___________ in the account.
  9. If you put $100 monthly into an account at the
    beginning of each and the account pays a 5% nominal rate compounded monthly, in
    five years you’ll have _____________ in the account.
  10. If you buy a preferred stock that will pay you
    $100 per year for the indefinite future then if the current required return on
    such a stock is 5%, you shouldn’t pay more than ___________ for the bond.
  11. You invested $10,000 today in an investment that
    will mature for $50,000 in ten years.
    Your average annual return on the investment will be ___________%
  12. A stock just paid a dividend of $2 per share,
    which is expected to grow at a constant rate of 5% indefinitely. If the required return on the stock is 10%, then it should be selling for ____________ per share.
  13. A stock just paid a dividend of $1 and is expected
    to pay $0.95 at the end of this year.
    The dividend is expected to grow by the same rate indefinitely thereafter and is selling for $7 per share.
    The market requires a rate of return on this stock of ___________% and it has a dividend yield of ____________%.
    8.57%, 13.57%
  14. Rights of common stockholders include
    _____________________, _______________________, _______________________, and
    Vote for electors, dividends declared and paid, preemptive, right to final claim on assets
  15. Dividends must be paid on ______________ stock
    before they can be paid on common stock.
  16. A sinking fund is used to ________________ stock
    or bonds.
  17. A ______________provision allows a corporation
    to buy back preferred stock whereas a ____________ provision provides for the exchange of common stock for preferred stock.
    Call, conversion
  18. Planning and evaluating expenditures that result
    in LT streams of cash flows, usually involving fixed assets and large expenditures that have important consequences to the firm refers to the process
    called _____________________ ____________________.
    Capital, budgetting
  19. Replacement decisions and _____________
    decisions define the two types of capital projects that are evaluated.
  20. It is important that projects also be
    categorized as Independent, where all or none can be accepted, or _________________ exclusive where choosing one from among several eliminates
    the need or ability to do the others.
  21. The steps in capital budgeting are to determine the initial cost, estimate the periodic _________ flows, assess _____________ to determine an appropriate
    required rate of return, then use evaluation
    tools such as the ___________, _____________, _____________.
    Cashflows, risk, NPV, IRR, PB
  22. The payback period is the length of time
    required for ________________ to recover the original investment in the
    Future CF
  23. The payback method suffers the weaknesses of ignoring time value of ________ and also ignores cash flows that occur subsequent to _____________.
    Money, Payback
  24. The NPV method relies on discounting future cash
    flows and reducing them by the _______________ to determine the NET amount by which the project will increase shareholder wealth.
  25. If the value of the discounted future cash flows
    for an independent project is greater than the initial investment, then the NPV will be _________________ than zero and all such projects should be ______________ until the capital budget is fully committed.
    Greater, accepted
  26. In evaluating mutually exclusive projects,
    choose the one that has the ______________ NPV.
  27. The IRR is the discount rate that will cause the
    _____________________ to be equal to the sum of the discounted future cash flows such that the NPV will equal (or be very, very close to) _______________.
    NINV, 0
  28. The IRR is the same thing as the _____________to
    _____________ of a bond.
    Y, M
  29. If the IRR is greater than the required return
    for an independent project, the project should be __________________.
  30. In evaluating two mutually exclusive projects,
    different costs or capital that dictate different required rates of return may cause inconsistent results between the ____________ and the ________________
    methods of evaluation, and the unique required rate of return where both methods will produce the same result is called the _______________ point on a
    graph of NPV profiles of two projects.
    IRR, NPV, Crossover
  31. Generally, it is best to base accept/reject
    decisions on the ____________ method because it assumes reinvestment of future cash flows at the more realistic ____________ of capital and also eliminates
    the conflict between the two methods for mutually exclusive projects that result from timing and size differences..
    NPV, Cost
  32. NPV assumes cash flows are reinvested and earn
    the _______________ whereas the IRR assumes they are reinvested and earn the _____________ of the project.
    Required return ratios, IRR
  33. An additional evaluation tool called the
    _________________________________ can be used to eliminate the reinvestment rate conflict between the IRR and NPV methods.
  34. Working capital management relates to managing _______________ assets and the
    _______________ liabilities used to finance those assets.
    ST, ST
  35. Current assets and liabilities that increase at the same rate a firm’s business does are called _______________ assets and liabilities.
  36. Working capital does not include the portion
    of ___________________ that is due within one year because that short term liability does not relate to
  37. The need for financing working capital with
    outside sources of funding can be due to _________________, ____________________, or _____________________.
    Seasonal, Business cycle, expansion/growth
  38. Generally, an account balance in the working
    capital accounts is equal to the average daily activity in an income statement account related to that account multiplied by the ______________________.
    Number of days activity 'rests' in the account
  39. The Cash Conversion Cycle is the length of time
    between when raw material purchases are paid for until when _________________________resulting from inventory sales are collected.
  40. Which is better, a longer CCC or a shorter CCC,
    generally speaking ______________.
  41. The two basic questions involved in WC are: The
    appropriate ___________ for each CA and total CA; and how should those Current
    Assets be __________________.
    level, financed/funded
  42. If a company keeps large balances of cash and
    marketable securities, inventories are maintained at high levels, and credit policies are liberal and encourage large A/R balances, the company is following a__________________ current asset investment policy.
  43. If cash, marketable securities, inventories and
    A/R are minimized by policy structure, the company is following a _______________ policy.
  44. Working capital assets consist of two
    components: a Permanent Layer that doesn’t change much even when business is slow, and a _____________ layer that fluctuates seasonally or cyclically due to the nature of the business.
  45. If all of the FA and all of the permanent layer
    and some of the temporary layer is financed with LT capital, the firm is following a _________________ CA financing policy.
  46. If some of the permanent layer and all of the temporary layer is financed with ST, non-spontaneous, capital, the firm is following an _______________
  47. Firms prefer to use ST financing because it’s
    ________________ and __________________.
    Cheaper, easier
  48. The risks of using ST financing are ________
    rates may unexpectedly change and business conditions may deteriorate resulting in inability to _______________ ST debt.
    Interest, repay
  49. European firms have CCC that are _____________
    than US firms, on average.
  50. Firms maintain cash in the bank to pay creditors, employees, and otherwise do business and such balances are called _____________ balances
  51. Often banks require firms to keep a certain amount on deposit with the bank as a condition for making a loan. Such bank accounts are called _______________ balances.
  52. Cash kept in reserve for unforeseen needs that can be reduced by having a LOC loan facility are called _______________ balances.
  53. A schedule that shows expected receipts, expected disbursements, and target cash balances for a firm is called a ______________.
    Cash budget
  54. Firms often attempt to arrange their credit policy so that collections on AR match amounts require to pay current AP balances, and this technique is called ________________ cash flows.
  55. Float is the difference between ___________________ and ____________________.
    Checkbook balance, balance ber bank
  56. ‘Good’ float is the value of checks that have been _______________ but have not yet cleared the bank and is called __________________ float.
    Written, disbursment
  57. ‘Bad’ float is the value of checks that have been ___________________ but have not yet cleared for credit and is called __________________ float.
    Deposited, Collection
  58. Net Float is the difference between
    ______________ and ____________________.
    Disbursment, collection
  59. Lockbox arrangements, concentration accounts in
    banks, and pre-authorized debits of customers’ accounts for sales are methods of ____________________ receipts so that ______________ is minimized.
    Accelerating, Collection Float
  60. Concentrating payment of AP in one location,
    maintaining bank accounts that have a zero balance normally and into which funds are only deposited as checks are presented for payment, and locating
    disbursing banks in remote places from where checks are distributed are all methods of increasing __________________float, which is the ‘good float’.
  61. Surplus cash is ‘temporarily parked’ in marketable securities, which are ST investments that have ____________ risk, _____________ liquidity, and thus has _______________ returns.
    Low, High, Low
  62. Credit policy involves decisions as to who gets
    credit and how much, how long customers can take to pay and what discount they may take for paying early, when action should be taken on delinquent AR, and
    how __________________ will be achieved on past due accounts.
  63. A basic tool of credit monitoring is a schedule
    that reflects how long balances for each customer have been ________________ and divides balances into categories such as _______ days, __________days, ____________ days, and ___________ days.
    Oustanding, 30, 60, 90, 120
  64. A company’s DSO is 35 days. It wants to reduce the DSO to increase cash on hand, and offers customers the following terms: 1%/10, net 30. If 20% of the company’s customers take advantage of the discount and pay on the 10th day, 70% pay on the 30th
    day, and the remaining 10% of the customers take 60 days to pay, the company will reduce its DSO by __________ days.
  65. Sources of ST financing for firms are
    ________________ and _____________________
    Accruals, A/P
  66. Trade credit is ‘free’ during the _____________
  67. ST bank loans are generally evidenced by a document called a _______ ___________.
    Promissory Note
  68. If a firm borrows $100,000 for eight months on a
    loan that quotes a nominal annual rate of 8%, what is the EAR the firm is paying?
  69. If the bank deducts the interest from the loan
    proceeds, i.e. makes a Discount loan, then the firm is paying an APR of ____________ and an EAR of _____________.
    8.45%, 8.56%
  70. ST bank loans are normally secured, collateralized, using ______________ assets.
  71. When accounts receivables are ‘sold’ to a bank,
    or other financial institution, the transaction is called ________________ receivables and only a fraction of the face value is received.
  72. Recourse for uncollectable accounts remains with
    the _________________ when a loan is made, but if receivables are _______________ then the receiving purchaser assumes responsibility for uncollectable amounts.
    Borrower, factored
  73. Inventory financing can be achieved by ‘pledging’ inventories to the lender. This can be accomplished by ___________liens, ____________ receipts, ____________ receipts, physical separation of the _____________.
    Blanket, Warehouse, Trust, Inventory/goods
  74. A flexible inventory financing arrangement is often used by __________ dealerships to finance floor stock with the loan being paid when the ___________ is ____________.
    Car, Car, Sold