1An Agency Problem Is Prone To
1. An agency problem is prone to exist in public corporations because: E. management is frequently separated from ownership.2. Larson, Inc. has total assets of $248,000 and an equity multiplier of 2.5. What is the debt-equity ratio? E. 1.5 3. Kate wants to invest $1,000 for five years. Which one of the following will provide her with the largest future value? B. 7 percent interest, compounded monthly
5. Hilltop, Inc. earns $.12 in profit on every $1 of sales. The firm pays out 55 percent of its profits to its shareholders. The firm has $.75 in assets for every $1 of sales. What is the internal growth rate? B. 7.76 percent
6. Your firm has been told that it needs $100,000 today to fund a $150,000 expansion project 8 years from now. What rate of interest was used in the present value computation? B. 5.20 percent
7. The current value of future cash flows discounted at the appropriate discount rate is called the: A. present value.
10. An increase in which of the following will increase the future value of a lump sum investment made today assuming that all interest is reinvested? Assume the interest rate is a positive value.
I. interest rate
II. amount of the lump sum
III. frequency of the interest payments
IV. length of the investment period
11. Highly liquid assets: II. decrease the probability a firm will face financial distress.IV. generally produce a low, if any, rate of return.
17. The process of adding the interest earned on an investment to the original investment in order to earn more interest is called: D. compounding.
24. Taylor has just received an insurance settlement of $58,400. She wants to save this money until her oldest daughter goes to college. Taylor can earn an average of 8.5 percent, compounded annually, on this money. How much will she have saved for her daughter's college education if her daughter enters college 14 years from now? E. $182,990.77 25. How long will it take to double your savings at 5 percent compounded semi-annually? D. 14.04
5. Hilltop, Inc. earns $.12 in profit on every $1 of sales. The firm pays out 55 percent of its profits to its shareholders. The firm has $.75 in assets for every $1 of sales. What is the internal growth rate? B. 7.76 percent
6. Your firm has been told that it needs $100,000 today to fund a $150,000 expansion project 8 years from now. What rate of interest was used in the present value computation? B. 5.20 percent
7. The current value of future cash flows discounted at the appropriate discount rate is called the: A. present value.
10. An increase in which of the following will increase the future value of a lump sum investment made today assuming that all interest is reinvested? Assume the interest rate is a positive value.
I. interest rate
II. amount of the lump sum
III. frequency of the interest payments
IV. length of the investment period
11. Highly liquid assets: II. decrease the probability a firm will face financial distress.IV. generally produce a low, if any, rate of return.
17. The process of adding the interest earned on an investment to the original investment in order to earn more interest is called: D. compounding.
24. Taylor has just received an insurance settlement of $58,400. She wants to save this money until her oldest daughter goes to college. Taylor can earn an average of 8.5 percent, compounded annually, on this money. How much will she have saved for her daughter's college education if her daughter enters college 14 years from now? E. $182,990.77 25. How long will it take to double your savings at 5 percent compounded semi-annually? D. 14.04