Fin 3090, Exam 1 Name: _____________________________________

1. Which of the following could explain why a business might choose to operate as a
corporation rather than as a sole proprietorship?
a. Corporations generally face fewer regulations and are easier to form.
b. Taxes are lower for corporations.
c. Corporate investors have unlimited liability.
d. Corporations generally find it easier to raise capital.

2. Which of the following statements is CORRECT?

a. The threat of corporate takeover decreases the likelihood that managers will act in
their own interest.
b. Managers tend to take on too much risk unless they are monitored by the board of
directors
c. Managers are more likely to spend money on perquisites if there is an independent
board of directors
d. Paying executives with options increases agency conflict.

3. The _______________ is a regulatory agency that governs publicly traded firms.

a) DJIA
b) IPO
c) NYSE
d) SEC

4. ________________ are financial intermediaries that pool funds from lots of small investors.

a) Security Dealers
b) Investment Banks
c) Mutual Funds
d) Stock Brokers

5. If the stock market is not strong-form efficient, then it is possible to consistently earn abnormal
returns through ________.

a) Technical Analysis or Charting

b) Fundamental Analysis
c) Insider Trading
d) None of the above
6. The idea that firms belong to owners and that managers should do what is best for the owners is
called ___________.

a. Corporate Social Responsibility

b. Market Efficiency
c. Shareholder Wealth Maximization
d. Window Dressing

7. The ________________ is a stock market index made up of 30 stocks. When people say the
market has gone up or down, they are usually referring to this.

a) DJIA
b) FINRA
c) NYSE
d) SEC

8. Depreciation __________

a) Are included in Cash Flows from Financing

b) Are a Use of Funds
c) Reduces Assets on the Balance Sheet
d) All of the Above

9. The _______________ is elected by shareholders and are supposed to monitor managers of a

firm.

a) Board of Directors
b) Executive Committee
c) Financial Accounting Standards Board
d) Securities and Exchange Commission

10. ___________ is the amount available for distribution to all investors after the company has
made all investments in fixed assets and operating working capital.

a) Capital Expenditures
b) Free Cash Flow
c) Cash Flows from Financing
d) Additional Financing Needed

11. Which ratios would you want to look at if you were trying to decide whether or not to buy stock
in the company?

a) Liquidity
b) Asset Management
c) Profitability
d) Market
Use the following information for questions 12-15:
12/31/2016 2016
Current Assets XX Sales XX
Fixed Assets 6000 COGS 9900
Total Assets 8000 Dep 900
EBIT XX
Current Liabilities 1000 Interest 200
Total Liabilities XX EBT XX
Equity 3000 Taxes XX
Total 8000 Net Income 600

Dividends were 400, Capital Expenditures were 1,500, Ending Stock Price was $18 per share and
there were 500 shares outstanding. Taxes are 40% of EBT.

Market to Book Ratio 3 Profit Margin 5%

Debt Ratio 62.5% ROA 7.5%
Times Int. Ern 6 BEP 15%
FATO XX P/E XX

12. What is the firms Total Asset Turnover Ratio?

a) 1 b) 1.5 c) 2 d) 2.5

13. What is the firms Current Ratio?

a) 1 b) 1.5 c) 2 d) 3

14. What is the firms Price Earnings Ratio?

a) 12 b) 15 c) 18 d) 25

15. How much did the firm have in Equity at the end of the previous year (12/31/2015)?

a) 2,800 b) 3,000 c) 3,200 d) 3,400

16. You just purchased a house for $150,000 by taking out a 30 year loan with a 6% Annual
Percentage Rate. What is your monthly payment?

a) $750 b) $900 c) $1,200 d) $1,500

17. Which is the effective annual rate if the Annual Percentage Rate is 12% compounded monthly?

a) 11.3% b) 12.5% c) 12.7% d) 13.2%

18. You currently have $25,000 and expect to save another $15,000 per year. You want to retire as
soon as you have $1,000,000 saved up. If you have a 6% interest rate, how long will it be until you
can retire?

a) 10 years b) 15 years c) 21 years d) 26 years

19. You currently have $800,000 and expect to spend $50,000 per year for thirty years. If the
interest rate is 6%, how much will you have or how much will you owe in thirty years?

a) You have $642,000

b) You owe $237,000
c) You have $237,000
d) You owe $642,000

20. An investment is going to return cash flows of $4,000 in year; $6,000 in year2; and $15,000 in
year 3. If the interest rate is 8%, then what is the present value of these cash flows?

a) $18,375 b) $20,750 c) $24,300 d) $28,250

Answer Sheet, Fin 3090 Exam 1 Name: ________________________________

1. A B C D

2. A B C D

3. A B C D

4. A B C D

5. A B C D

6. A B C D

7. A B C D

8. A B C D

9. A B C D

10. A B C D

11. A B C D

12. A B C D

13. A B C D

14. A B C D

15. A B C D

16. A B C D

17. A B C D

18. A B C D

19. A B C D

20. A B C D