Financial Economics Midterm 1 Spring 2010 Prof Farshid Mojaver There are 26 MC questions 1 5 points each please mark the best answer in your scantron 1 Book value A is equivalent to market value for firms with fixed assets B is based on historical cost C generally tends to exceed market value when fixed assets are included D is more of a financial than an accounting valuation E is adjusted to market value whenever the market value exceeds the stated book value 2 Which of the following statements concerning the income statement is true A It measures performance over a specific period of time B It determines after tax income of the firm C It includes deferred taxes D It treats interest as an expense E All of the above 3 Financial ratios that measure a firm s ability to pay its bills over the short run without undue stress are known as ratios A asset management B long term solvency C short term solvency D profitability E market value 4 Ratios that measure a firm s financial leverage are known as ratios A asset management B long term solvency C short term solvency D profitability E market value 5 Ratios that measure how efficiently a firm uses its assets to generate sales are known as ratios A asset management B long term solvency C short term solvency D profitability E market value 6 Ratios that measure how efficiently a firm s management uses its assets and equity to generate bottom line net income are known as ratios A asset management B long term solvency C short term solvency D profitability E market value 7 A total asset turnover measure of 1 03 means that a firm has 1 03 in A total assets for every 1 in cash B total assets for every 1 in total debt C total assets for every 1 in equity D sales for every 1 in total assets E long term assets for every 1 in short term assets 8 If a firm produces a 10 return on assets and also a 10 return on equity then the firm A has no debt of any kind B is using its assets as efficiently as possible C has no net working capital D also has a current ratio of 10 E has an equity multiplier of 2 9 What is the net working capital for 2008 A 345 B 405 C 805 D 812 E 1 005 10 What is the change in net working capital from 2007 to 2008 A 93 B 7 C 7 D 85 E 97 11 What is net capital spending for 2008 A 250 B 57 C 0 D 57 E 477 12 What is the operating cash flow for 2008 A 143 B 297 C 325 D 353 E 367 13 What is net new borrowing for 2008 A 70 B 35 C 35 D 70 E 105 14 What is the cash flow of the firm for 2008 A 50 B 247 C 297 D 447 E 517 15 What is the cash flow to stockholders for 2008 A 408 B 417 C 452 D 482 E 503 16 What is the cash flow to creditors for 2008 A 170 B 35 C 135 D 170 E 205 17 The financial ratio measured as net income divided by total equity is known as the firm s A profit margin B return on assets C return on equity D asset turnover E earnings before interest and taxes 18 The long term debt ratio is probably of most interest to a firm s A credit customers B employees C suppliers D mortgage holder E shareholders 19 The yield to maturity is A the rate that equates the price of the bond with the discounted cash flows B the expected rate to be earned if held to maturity C the rate that is used to determine the market price of the bond D equal to the current yield for bonds priced at par E All of the above 20 If shareholders want to know how much profit a firm is making on their entire investment in the firm the shareholders should look at the A profit margin B return on assets C return on equity D equity multiplier E earnings per share 21 A firm has a market capitalization of 2 million market value of interest bearing debt of 1 million book value of interest bearing debt of 500 000 and cash of 100 000 What is the enterprise value A 2 5 million B 2 9 million C 3 0 million D 3 5 million E 3 6 million 22 Frederico s has a profit margin of 6 a return on assets of 8 and an equity multiplier of 1 4 What is the return on equity A 6 7 B 8 4 C 11 2 D 14 6 E 19 6 23 A firm has a return on equity of 15 The debt equity ratio is 50 The total asset turnover is 1 25 and the profit margin is 8 The total equity is 3 200 What is the amount of the net income A 480 B 500 C 540 D 600 E 620 24 All else constant a coupon bond that is selling at a premium must have A a coupon rate that is equal to the yield to maturity B a market price that is less than par value C semi annual interest payments D a yield to maturity that is less than the coupon rate E a coupon rate that is less than the yield to maturity 25 The newly issued bonds of the Wynslow Corp offer a 6 coupon with semiannual interest payments The bonds are currently priced at par value The effective annual rate provided by these bonds must be A equal to 3 B greater than 3 but less than 4 C equal to 6 D greater than 6 but less than 7 E equal to 12 26 The zero coupon bonds of Markco Inc have a market price of 394 47 a face value of 1 000 and a yield to maturity of 6 87 How many years is it until this bond matures A 7 years B 10 years C 14 years D 18 years E 21 years Please write the answers in your Blue Book Show your work 12 pts 1 Some Financial Terms and Ideas please be very concise a What are financial derivatives b What is Mortgage Backed Securities MBS c What is Credit Default Swap CDS 10 pts 2 Pro Forma The most recent financial statement for Bradley Inc are shown here assuming no income taxes Income Statement Sales Costs Net income Balance Sheet 5 700 3 820 1 880 Assets 14 100 Total 14 100 Debt Equity Total 6 300 7 800 14 100 Assets and costs are proportional to sales but debt and equity are not No dividends are paid Next year s sales are projected to increase by 20 Write Bradley s pro forma income statement and pro forma balance sheet Answer Assuming costs and assets increase proportionally the pro forma financial …