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1. For a firm to create value it must:
Avoid the issuance of debt securities.
Avoid payments to the government so dividends can be increased.
Create more cash flow than it uses.
Reduce its investment in fixed assets since fixed assets require the use of cash.
Have a greater cash inflow from its stockholders than its outflow to them.
2 One disadvantage of the corporate form of business ownership is the:
Difficulties encountered when changing ownership.
Limited liability protection provided for all owners.
Firm’s ability to raise cash.
Unlimited life of the firm.
Double taxation of profits.
3 Which one of these is a cash outflow from a corporation?
Issuance of debt
Sale of an asset
Sale of common stock
Profit retained by the firm
4. The Sarbanes-Oxley Act requires public corporations to:
File annual audit reports if the firm has “gone dark”.
Assess the company’s internal control structure at least quarterly.
Distribute at least 90 percent of their profits in dividends on an annual basis.
Disclose all personal loans to corporate officers or directors made after 2002.
List any deficiencies in internal controls.
5.The primary goal of financial management is to:
Maximize current dividends per share of the existing stock.
Maintain steady growth in both sales and net earnings.
Maximize the current value per share of the existing stock.
Avoid financial distress.
Minimize operational costs and maximize firm efficiency.
6. Which one of the following business types is best suited to raising large amounts of capital?
Limited liability company
7. Accounting profits and cash flows are generally:
Different because of GAAP rules regarding the recognition of income.
Different because cash inflows must occur before revenue recognition.
The same due to the requirements of GAAP.
The same since accounting profits reflect when cash flows occur.
The same since they reflect current laws and accounting standards.
8. You just paid $344,000 for an annuity that will pay you and your heirs $11,700 a year forever. What rate of return are you earning on this policy?
9.Some time ago, Julie purchased eleven acres of land costing $14,490. Today, that land is valued at $59,643. How long has she owned this land if the price of the land has been increasing at 5 percent per year?
10.Your credit card company charges you 1.00 percent per month. What is the annual percentage rate on your account?
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.)
13. 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.):
15.Four months ago, you purchased 1,100 shares of Lakeside Bank stock for $21.20 a share. You have received dividend payments equal to $.62 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment?
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.)