Fin 310 Midterm Quiz: Select The Correct Answer

Fin 310 Mid Term Quizplease Select The Correct Answer1 At Its Most B

Fin 310 Mid Term Quiz please select the correct answer. 1) At its most basic level, the function of financial intermediaries is to ________. A) track and report interest rates B) move money from lenders to borrowers and back again C) report all financial transactions to the federal government D) effect a transfer of wealth in society 2. The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance? A) Corporate finance B) Investments C) Financial institutions and markets D) International finance 3. ________ is the area of finance concerned with activities like repayment of borrowed funds through dividends or interest payments. A) Investments B) Corporate finance C) Capital budgeting D) International finance 4. ________ are the forums where buyers and sellers of financial assets and commodities meet. A) Housing markets B) Federal Reserve banks C) Financial markets D) Automotive shows 5. The purpose of studying financial statements is ________. A) to mechanically build portfolio analysis B) to understand those portions of the statements that have relevance for financial decision making C) to primarily investigate all portions of the statements that have relevance for dividend policy D) to mechanically learn how to read and understand footnotes 6. Understanding the sources and uses of cash in the recent past will enable a manager to ________ the cash flow for a potential project of the firm. A) determine with perfect precision B) forecast with perfect precision C) predict more accurately D) know today 7. It is important to remember that the fundamental identity of accounting is the debit and credit recording activity where debits ________ equal credits. A) never B) seldom C) sometimes D) always 8. The income statement begins with revenue and subtracts various operating expenses until arriving at ________. A) earning after taxes B) net income C) taxable income D) EBIT 9. Cash flow is ________. A) the increase but not decrease in cash for the period B) the decrease but not increase in cash for the period C) the increase or decrease in cash for the period D) the net income for the period 10. Your aunt places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct? A) The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%. B) The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%. C) The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%. D) The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%. 11. ________ is simply the interest earned in subsequent periods on the interest earned in prior periods. A) Quoted interest B) Anticipated interest C) Simple interest D) Compound interest 12. If you invest $1,800 today, how much money will you have in 5 years? A) $1,800 B) This question cannot be answered because it is missing an annual rate of return. C) $2,287 D) This question cannot be answered because it is missing the type of investment made. 13. Your employer has agreed to place year-end deposits of $1,000, $2,000 and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of year three when the last deposit is made? A) $5,357.95 B) $6,000 C) $6,202.50 D) $6,727. Your company just sold a product with the following payment plan: $50,000 today, $25,000 next year, and $10,000 the following year. If your firm places the payments into an account earning 10% per year, how much money will be in the account after collecting the last payment? A) $99,000 B) $98,000 C) $88,500 D) $85. A/An ________ is a series of equal end-of-the-period cash flows. A) annuity B) annuity due C) perpetuity due D) None of the above 16. What is the future value in year twelve of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4.00% per year? A) $90,154.83 B) $93,761.02 C) $28,675.97 D) $32,117. One of the key components to making financial decisions is to ________. A) understand the timing and amount of dividends B) understand the timing and amount of cash flow C) understand the timing of EBIT D) understand the amount of net income 18. To find operating cash flow for the business for the year, add depreciation expense to EBIT and then ________. A) subtract the interest expenses B) add the taxes C) subtract the taxes D) add interest expenses 19. Which of the following actions will INCREASE the present value of an investment? A) Decrease the interest rate. B) Decrease the future value. C) Increase the amount of time. D) All of the above will increase the present value. 20. Which of the following formulas is correct for finding the present value of an investment? A) FV = B) PV = FV à— (1 + r)n C) PV = FVn à— (1 + r) D) PV = FV à— 21. What is the future value in year twenty five of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10.0% per year? A) $66,505.81 B) $55,000.00 C) $196,694.12 D) $216,363. The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments? A) $3,183.60 B) $3,000.00 C) $2,833.39 D) $2,673. The question "What is the current value of an amount of cash that will be received at a specific time in the future?" is best answered by which form of the TVM equation? A) PV = B) PV = PV à— (1 + r)n C) PV = (FV/PV)1/n - 1 D) PV = 24. What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 6.0% per year? A) $120,000.00 B) $1,327,777.67 C) $45,139.89 D) $32,270. The series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________. A) ordinary annuity B) annuity due C) perpetuity D) amortization

Sample Paper For Above instruction

The fundamental function of financial intermediaries is to facilitate the transfer of funds from savers to borrowers, thereby enabling efficient allocation of resources within the financial system. Essentially, financial intermediaries move money from lenders to borrowers and back again, playing a crucial role in supporting economic stability and growth (Mishkin & Eakins, 2018). These entities include banks, credit unions, and other financial institutions that act as middlemen, collecting deposits and extending loans. Their primary role is not limited to tracking interest rates or reporting transactions but centers around channeling funds efficiently to meet the needs of borrowers while providing savers with a return on their deposits.

The set of financial activities that support the operations of a business is best described by corporate finance. Corporate finance involves managing a company's monetary resources to maximize shareholder value, including activities such as capital investment decisions, funding strategies, and managing working capital (Brigham & Ehrhardt, 2019). It encompasses the analysis of financial statements, budgeting, and investment appraisals that enable firms to operate effectively and sustain growth.

Activities related to repayment of borrowed funds via interest and dividend payments fall within the domain of corporate finance. This area addresses how firms raise capital, manage debt, and distribute earnings to stakeholders, focusing on activities like debt refinancing, dividend policy, and capital structure management (Ross, Westerfield, & Jordan, 2020).

Financial markets serve as forums where buyers and sellers of financial assets and commodities meet, facilitating liquidity and price discovery. These markets include stock exchanges, bond markets, and derivatives markets. They enable investors to buy and sell securities, helping firms raise capital and investors to manage risk effectively (Fabozzi, 2019).

Studying financial statements aims to interpret key financial data to support decision-making. Financial analysis helps stakeholders understand a firm’s financial health, profitability, and liquidity, which are vital for investment, lending, and managerial decisions. The purpose of such analysis is not merely mechanical reading but understanding the information relevant for strategic decisions.

Understanding the sources and uses of cash allows managers to forecast future cash flows more accurately, aiding in investment evaluations and liquidity management. Although past cash flows provide insights, they are not sufficient to determine future cash flows with perfect accuracy; instead, they serve as a basis for developing forecasts (Pike & Neale, 2017).

The fundamental accounting identity states that total debits must always equal total credits for every transaction, ensuring that the accounting equation remains balanced. Debits and credits are recording activities that maintain this equality, reflecting the dual nature of accounting entries.

The income statement begins with revenue and deducts operating expenses to arrive at net income. This bottom-line figure reflects the company's profitability after accounting for operating costs, taxes, and other expenses (Wild, Subramanyam, & Halsey, 2018).

Cash flow measures the actual change in a company’s cash position during a period, representing an increase or decrease in cash, not just net income or other accounting figures (Brigham & Houston, 2019).

When an aunt invests $13,000 earning 7%, after five years, the account's future value would be $18,233.17, illustrating compound interest calculations. The correct interpretation of this scenario involves recognizing the future value, principal, interest rate, and the period, which in this case is five years with a 7% rate.

Compound interest accumulates on both the original principal and previously earned interest, making it more beneficial over time compared to simple interest (Clark & Davidson, 2010).

Investing $1,800 today, with a given rate of return, will grow to a specific future amount, but without the rate, it cannot be computed precisely. Therefore, estimating future value requires knowing the annual rate of return.

Deposits made over multiple years, with interest compounded annually, accumulate to a larger amount at the end of the period. For example, depositing $1,000, $2,000, and $3,000 across three years at a 5% interest rate will result in a total amount that combines interest accrued on each deposit over differing periods.

A series of equal cash flows occurring at the end of each period is called an annuity. When these payments happen at the beginning of each period, they are termed annuities due, which typically have a higher present value due to the extra period of interest accumulation.

Calculating the future value of an annuity involves summing the compounded values of each payment over the specified periods. For example, a 12-year annuity of $6,000 per year at 4% yields a future value that can be computed using standard annuity formulas.

Understanding timing and cash flow amounts is critical for financial decision-making. Cash flow analysis provides insights into liquidity, investment potential, and risk management, serving as a key component of financial planning.

Operating cash flow is derived by adding non-cash expenses such as depreciation to EBIT and adjusting for changes in working capital, including taxes and interest expenses, which provides a clearer picture of cash generated by operations.

Decreasing the interest rate or extending the duration of an investment increases present value, as future cash flows are discounted less heavily or are spread over a longer period, making the investment more attractive (Damodaran, 2012).

The correct formula for the present value of a future sum is PV = FV / (1 + r)^n, where FV is future value, r is the interest rate per period, and n is the number of periods.

The future value of an ordinary annuity of $2,000 per year at 10% interest over 25 years can be calculated using standard future value annuity formulas, resulting in approximately $216,363 (Investopedia, 2020).

The present value of a series of equal payments made at the end of each period (ordinary annuity) can be computed using the present value of an annuity formula, which considers the interest rate, payment amount, and period.