ANSWER THE FOLLOWING MULTIPLE CHOICE QUESTIONS: [MARK THE MOST APPROPRIATE ANSWE
ID: 2797733 • Letter: A
Question
ANSWER THE FOLLOWING MULTIPLE CHOICE QUESTIONS: [MARK THE MOST APPROPRIATE ANSWER) 1. In order to maximize the shareholders' wealth of a firm, the financial manager would consider the following value of the firm: a. Book value b. Replacement value c. Liquidating value 2. Which of the following is a profitability ratio: d. Market value e. none of the given ones a. Quick Ratio b. Fixed asset turnover ratio c. Returnm on Assets (ROA) d. P/E ratio e all of the above Average Accounts Receivables $500,000. Calculate the receivables period (Use 365 days a year): a 30 days b. 40 days c 50 days d. 60 days e. none of the given answers Net Income (NI) $50,000; Total Assets $500,000. Calculate the Retum on Assets (ROA) ratio: a. 20% b, 2% c. 5% d, 10% e, none ofthe given answers 3. Given the following data. Credit Sales $3.650,000, Cost of Goods Sold (COGS) # $2,000,000, and 4. Given the following data: Earnings Before Interest and Taxes (EBIT) $250,000; Sales $1,000,000 5. At an interest rate of 13%, how many years will it take $1000 to triple in value? (approximately) a. 7 years b. 8 years c. 9 years d. 10 years e.none of the given answers interest rate compounded daily? (assume 365 days a ye 6, what is the effective interest rate of 8% nominal annual a. 7.86% b. 8.57% 8.33% d. 921% e, none of the given values c. 7. Your firm needs $143,500 to cover improvements of the warehouse. The bank is willing to loan the money for fr equal annual payments of $35,000. What is the implied interest rate on the loan? [approximately] a. 4% b, 30.5% c.32% d, 7% none of the given values e, 8. Mr. Cutler would like to retire in 32 years. He would like to accumulate $1,500,000 at the time of retirement to live a contented life. He would like set aside equal amount each month to achieve his goal. What is the monthly amount he should save if he can invest them at an interest rate of 9% [Annual rate! Assume monthly compoundingl a. $676.74 b. $833.33 c. $182.05 d. $416.67 e. none of the given answers 9 Mr. Homemaker has just taken out a S200.000 mortgage at an interest rate of 45% (Annual rate! The mortgag calls for equal monthly payments for 30 years. Then the amount of the monthly payment is: a $1162.95 b. $775.30 C. $1013.37 d. $666.67 e. none of the given ones 10. Mr. Bond is considering purchasing a bond with 8-year maturity and $1,000 face value. The coupon interest rate is 8% and the of the bond is: terest is paid annually If Mr Bond requ res 10% yield to maturity on the investment, then the proe a. $1,122.87 b. $893.30 c. $875.39 d. $950.75 e. none of the given answers all FNPR Page # 1Explanation / Answer
1.
Answer: d
Market value of share indicates shareholders’ wealth, since by this value shareholders can sell their shares in the market and make profit. If such value is very high, they can make huge profit which ultimately increases the reputation of the company. This is the reason why the manager tries to maintain market value.
Other options are not correct:
Book value is the actual value in the books of accounts till date. If shares are sold at this value there will be no profit no loss; therefore, there is no question of maximization of wealth.
Replacement value is connected to asset replacement; it has no connection with shareholders’ wealth.
Liquidating value is the value acquired from market in urgency; therefore, it is below the market value and can’t maximize shareholders’ wealth.
2.
Answer: c
ROA is the ratio of net income to average total asset. Only in this ratio the term “net income” is used; therefore, this is a profitability ratio.
Other options are not correct:
Quick ratio = (Current assets – Inventories) / Current liabilities; therefore, there is no indication of profit; it is basically liquidity ratio.
Fixed asset turnover ratio = Revenues / Average fixed asset; this is efficiency ratio but not profitability ratio.
P/E ratio = Market price of share / Earning per share; this is the market situation of share; it has no connection to profitability.
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