UFM

FIN201

Midterm Revision Questions

1. The balance sheet for TECHCORP INC. is shown below. Sales for the year totalled
$3,200,000, with 85 percent of sales on credit.

TECHCORP INC.
Balance Sheet 20X4

Assets Liabilities and Equity

Cash……………….. $80,000
Accounts receivable…... 300,000
Inventory……………… 450,000
Plant and equipment…... 500,000
Total assets……….. $1,330,000

Compute the following ratios:

a. Current ratio

b. Quick ratio

c. Debt-to-total-assets ratio

d. Asset turnover

e. Average collection period

2. The balance sheet for AQUAFIRM INC. is shown below. Total annual sales were
$2,800,000, with 92 percent of these sales sold on credit.

AQUAFIRM INC.
Balance Sheet 20X5

Assets Liabilities and Equity

Cash……………….. $100,000
Accounts receivable…... 350,000
Inventory……………… 400,000
Plant and equipment…... 550,000
Total assets……….. $1,400,000

Compute the following ratios:

a. Current ratio
 b. Quick ratio

c. Debt-to-total-assets ratio

d. Asset turnover

e. Average collection period

3. Explain the role and significance of institutional investors in modern capital markets.
How do they influence corporate governance and affect stock market trends?

4. Why are institutional investors critical in shaping corporate policies and market
stability in today’s financial landscape? Discuss how their involvement can benefit or
impact publicly traded companies.

5. OPAL TECH had $800,000 in retained earnings on December 31, 20X3. The
company paid $40,000 in common dividends in 20X3 and reported retained earnings
of $725,000 on December 31, 20X2. Calculate OPAL TECH’s earnings for 20X3 and
find the earnings per share (EPS) if 50,000 shares of common stock were outstanding.

6. NOVA INDUSTRIES reported retained earnings of $900,000 on December 31,

20X4. The company paid dividends of $55,000 during 20X4 and had retained
earnings of $820,000 on December 31, 20X3. Determine NOVA INDUSTRIES’ net
earnings for 20X4 and calculate the earnings per share (EPS) if there are 52,500
shares of common stock outstanding.

7. Alyssa wants to save for a down payment of $120,000 on a property in 10 years.

a. How much would Alyssa need to invest now in an account yielding 6% annually to
reach her down payment goal?

b. If Alyssa instead decides to make quarterly deposits beginning today, how much
would she need to deposit every three months to achieve her $120,000 target in 10
years?

8. Jake plans to purchase a car in six years, aiming to have saved $60,000 for the down
payment.

a. How much must Jake invest today in an account earning 5% per year to meet his
target?

b. If Jake decides to save with monthly deposits starting immediately, how much will
he need to deposit monthly to reach his $60,000 goal in six years?

9. Discuss how an increase or decrease in interest rates affects the present value of future
cash flows, especially in long-term versus short-term cash flow scenarios. Use
examples to illustrate your answer.
10. Explain the impact of rising or falling interest rates on the present value of a future
investment or loan. Discuss why this relationship matters for both investors and
borrowers, with practical examples.

11. The principle of the time value of money essentially states that ________.
A) since firms pay high salaries, managers must use time efficiently
B) money today is worth more than the same sum in the future because of the
potential for earning a return
C) money received today is less valuable than money in the future due to inflation
D) investors should value future payments more than current ones due to their long-
term nature

12. The basic concept behind the time value of money is that ________.
A) future money is more valuable than present money due to inflation
B) current money has more value than future money due to its investment potential
C) individuals tend to overestimate the value of future earnings
D) future investments yield higher returns when discounted correctly

13. Cash flows and risk are fundamental to determining share price. An increase in cash
flow generally results in ________, assuming other factors remain constant.
A) a higher share price
B) an unchanged share price
C) a decreased share price
D) a proportionally reduced share price

14. Key determinants of share price include cash flows and associated risk. Given all else
remains equal, an increase in cash flow typically leads to ________.
A) an unchanged share price
B) a lower share price
C) an unpredictable share price
D) a higher share price

15. An argument against managing a firm for stakeholders rather than shareholders is that
________.
A) stakeholders lack a strong economic interest in the firm
B) there are conflicting interests among various stakeholders
C) stakeholders only care about immediate outcomes
D) the goal of satisfying stakeholders is too focused on profit

16. One criticism of managing a company on behalf of stakeholders rather than solely for
shareholders is ________.
A) stakeholders are primarily concerned with long-term outcomes
B) stakeholder interests are frequently conflicting and hard to prioritize
C) stakeholders seek economic value over community impact
D) managing for stakeholders is seen as too narrow a focus
17. Finance is defined as ________.
A) the study of economic production and consumption patterns
B) the field concerned with investment, allocation, and raising of funds
C) the art of analyzing and recording transactions
D) the practice of pricing products and services
18. Finance refers to ________.
A) the study of product distribution and marketing
B) the science of managing money in business and personal contexts
C) the process of selling goods and services
D) the technique of assessing economic factors

19. ________ bring together investment capital, manage risks, and make investment
decisions on behalf of investors who otherwise would not have the means to do so
alone.
A) Banks
B) Hedge funds
C) Financial analysts
D) Depositors

20. ________ gather capital, make investment choices, and handle risks for investors
unable to invest independently.
A) Portfolio managers
B) Institutional investors
C) Retail investors
D) Financial planners

21. The amount earned during an accounting period on each outstanding share of
common stock is called ________.
A) net income per share
B) gross profit per share
C) book value per share
D) retained earnings per share

22. The per-share earnings during a given period on outstanding stock is known as
________.
A) dividends
B) earnings per share
C) profit margin per share
D) retained capital per share

23. The primary goal of a financial manager is ________.

A) to maximize short-term revenue
B) to minimize operating expenses
C) to maximize shareholder wealth
D) to increase market competition
24. The main objective for a financial manager is ________.
A) to reduce debt
B) to boost firm’s wealth
C) to raise the return on equity
D) to cut operational costs
25. Which of the following would be considered a firm’s stakeholder?
A) Federal Reserve
B) competitors
C) customers
D) local government

26. A firm’s stakeholder might include ________.

A) suppliers
B) the Board of Directors
C) competitors
D) foreign markets

27. Which of the following is TRUE regarding a primary market?

A) It’s a platform for trading established stocks
B) It allows direct sales of shares to investors
C) It’s a derivatives-only market
D) It’s the main location for bond transactions

28. The primary market is a venue where ________.

A) only bonds are traded
B) new securities are issued
C) used assets are bought and sold
D) brokers and investors conduct OTC trades

29. The key securities traded in capital markets are ________.

A) preferred shares and Treasury bonds
B) futures and options
C) corporate bonds and stocks
D) government bonds and stock options

30. The main instruments exchanged in the capital markets include ________.
A) Treasury bills and commercial paper
B) corporate stock and government bonds
C) bonds and term deposits
D) mutual funds and derivatives

31. Most money market transactions are conducted in ________.

A) long-term debt
B) Treasury bonds
C) marketable securities
D) commercial bonds
32. Money market deals are primarily made in ________.
A) commodities
B) preferred stock
C) government bonds
D) short-term securities
33. Company XYZ had operating profits of $120,000, interest expense of $20,000, taxes
of $15,000, and preferred dividends of $8,000. The firm’s net profit after taxes is
________.
A) $77,000
B) $95,000
C) $62,000
D) $48,000

34. Company LMN reported operating profits of $95,000, taxes of $10,000, interest
expenses of $20,000, and preferred dividends of $7,000. What was the firm’s net
profit after taxes?
A) $88,000
B) $63,000
C) $58,000
D) $70,000

35. Which of the following statements accurately describes benchmarking?

A) It compares a firm’s performance against its projected ratios.
B) It forecasts competitors' asset values.
C) It is primarily used for industry trend analysis.
D) It evaluates a firm’s performance against leading competitors.

36. Benchmarking is best described as ________.

A) the comparison of a company’s metrics against industry leaders
B) a financial forecasting tool
C) the annual review of corporate tax expenses
D) a statistical analysis technique

37. The two primary liquidity measures are ________.

A) current ratio and net profit margin
B) quick ratio and inventory turnover
C) current ratio and quick ratio
D) quick ratio and return on equity

38. Which of the following are main indicators of liquidity?

A) asset turnover and current ratio
B) quick ratio and asset turnover
C) current ratio and quick ratio
D) gross profit and current ratio

39. The present value of a $30,000 perpetuity at a 12 percent discount rate is ________.
A) $250,000
 B) $100,000
C) $450,000
D) $225,000

40. The present value of a $20,000 perpetuity with a 10 percent discount rate would be
________.
A) $200,000
B) $150,000
C) $250,000
D) $300,000

41. If you receive $1,500 today, $2,500 in one year, and $3,500 in two years, and deposit
them in an account earning 10%, how much will you have in three years?
A) $8,715
B) $7,940
C) $9,120
D) $10,450

42. You receive $2,000 today, $3,000 in one year, and $4,000 in two years. If these are
invested at a 9% rate, how much is in the account after three years?
A) $8,220
B) $9,245
C) $10,675
D) $11,580

43. Henry wants to save for a vacation costing $20,000 in four years. If his account earns
12% interest, how much must he deposit annually?
A) $3,872
B) $4,256
C) $5,000
D) $6,015

44. To save $25,000 for a new car in six years at 9% interest, Sarah must deposit
________ each year.
A) $2,500
B) $2,847
C) $4,500
D) $3,265

45. Zack borrows $6,000 at a 10% annual compound rate, repaid over three equal
installments. The third year's interest payment is ________.
A) $278
B) $420
C) $327
D) $185
46. Lily borrows $7,500 at an 8% annual interest rate to repay over four years. The
interest in the second year is ________.
A) $300
B) $560
C) $420
D) $470

47. An ________ is a series of equal payments at the end of each period.

A) annuity due
B) perpetuity
C) growing annuity
D) ordinary annuity

48. A series of equal end-of-period payments is known as a/an ________.

A) deferred annuity
B) fixed annuity
C) ordinary annuity
D) growing annuity

49. If you deposit $5,000 annually in an account earning 6% interest, how much will you
have after 25 years?
A) $250,000
B) $300,256
C) $400,078
D) $498,946

50. For the next 35 years, depositing $4,000 annually in an account earning 7% results in
________.
A) $600,000
B) $720,450
C) $810,800
D) $1,125,349