Multiple Choice- Bubble in the single best answer to each question #1.

Corporations are different from partnerships in that corporations ____________. A. have unlimited liability B. have limited liability C. are exempt from business taxes #2. An important principle in accounting is that book values must always equal market values. A. True B. False #3. The financial statement summarizing a firm's accounting performance over a period of time is the: A. income statement B. balance sheet C. statement of cash flows D. tax reconciliation statement E. shareholders' equity sheet #4. In the year 2000, XYZ Corp. had total revenues of $2 million, costs of goods sold of $400,000, and other operating costs of $500,000. Depreciation was $300,000. During the year XYZ Corps sole debt liability was a $2 million bank loan on which it pays an annual interest rate of 10%. The principal on the loan will not be repaid for several more years. Taxes paid in the year 2000 were $300,000. Capital expenditures were $100,000. There was no change in any working capital items. What was XYZ Corps total cash flow from assets in 2000? A. +$300,000 B. +$400,000 C. +$500,000 D. +$700,000 E. None of the above #5. A firms major supplier has just changed its payment policy for its customers. In the past, the supplier required customers to pay for all delivered shipments within 90 days of receipt. Since the economy is slowing down, the supplier has changed the policy to allow customers up to 270 days to pay for all delivered shipments. As a result of this change, the firm that buys many of its inputs from this supplier will experience ______________ and _____________. A. an immediate increase in net income, a decrease in cash flow in the short run B. no immediate change in net income, a decrease in cash flow in the short run C. no immediate change in net income, an increase in cash flow in the short run D. no immediate change in net income, no change in cash flow in the short run #6. You are considering two projects with the following cash flows:

Which of the following statements are true concerning these two projects?

I. Both projects have the same future value at the end of year 4, given a positive rate of return. II. Both projects have the same future value given a zero rate of return. III. Both projects have the same future value at any point in time, given a positive rate of return. IV. Project A has a higher future value than project B, given a positive rate of return. A. II only B. IV only C. I and III only D. II and IV only E. I, II, and III only

#7. Find the present value of $5,325 to be received in one period if the rate is 6.5%. A. $5,000.00 B. $5,023.58 C. $5,644.50 D. $5,671.13 E. None of these. #8. Youre going to receive 8 payments of $1,000 each, every 4 years, staring 4 years from today. The discount rate is 5% per year (with yearly compounding). Whats the present value of this annuity? (a) $3,666.41 (b) $5,062.13 (c) $7,852.62 (d) $9,563.71 (e) None of the above #9. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why? A. You should accept the payments because they are worth $56,451.91 today. B. You should accept the payments because they are worth $56,523.74 today. C. You should accept the payments because they are worth $56,737.08 today. D. You should accept the $50,000 because the payments are only worth $47,757.69 today. E. You should accept the $50,000 because the payments are only worth $47,808.17 today.

#10. You borrow $149,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay? A. $138,086 B. $218,161 C. $226,059 D. $287,086 E. $375,059

#11. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as: A. 0.09e - 1. B. e^0.09 q. C. e (1 + 0.09). D. E^0.09 - 1. E. (1 + 0.09)q. #12. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today? A. $13,144.43 B. $15,920.55 C. $16,430.54 D. $16,446.34 E. $16,519.02

#13. You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year. The rate of return is 4.5%. What is the length of the annuity time period? A. 24.96 years B. 29.48 years C. 31.49 years D. 33.08 years E. 38.00 years #14. If a business takes out a $10,000, 7 year, 12% loan, the annual payment is: A. $1,976.38 B. $2,000.00 C. $2,111.78 D. $2,191.17 E. $2,456.54 #15. Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve its goal? A. $75,966.14 B. $76,896.16 C. $78,004.67 D. $81.414.14 E. $83,333.33

#16. You are considering the following two mutually exclusive projects that will not be repeated. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept and why?

A. project A; because its NPV is about $335 more than the NPV of project B. B. project A; because it has the higher required rate of return. C. project B; because it has the largest total cash inflow. D. project B; because it returns all its cash flows within two years. E. project B; because it is the largest sized project.

#17. Jack is considering adding toys to his general store. He estimates that the cost of inventory will be $4,200. The remodeling and shelving costs are estimated at $1,500. Toy sales are expected to produce net cash inflows of $1,200, $1,500, $1,600, and $1,750 over the next four years, respectively. Should Jack add toys to his store if he assigns a three-year payback period to this project? A. Yes; because the payback period is 2.94 years. B. Yes; because the payback period is 2.02 years. C. Yes; because the payback period is 3.80 years. D. No; because the payback period is 2.02 years. E. No; because the payback period is 3.80 years.

#18. Bruno's, Inc. is analyzing two machines to determine which one it should purchase. The company requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Bruno's purchase and why? (Round your answer to whole dollars.) A. Machine A; because it will save the company about $8,600 a year B. Machine A; because it will save the company about $132,912 a year C. Machine B; because it will save the company about $200,000 a year D. Machine B; because it will save the company about $11,600 a year E. Machine B; because its equivalent annual cost is $199,759