Finance and Accounting Midterm Exam at the University

This document presents a finance and accounting midterm exam designed to assess students' understanding of core financial concepts. The exam covers a wide range of topics, including shareholders' equity, operating cash flow, financial leverage, fixed assets, and the recognition principle. It includes questions on calculating net fixed assets, net working capital, and cash flow from assets. Furthermore, the exam delves into financial ratios, such as the current ratio, quick ratio, inventory turnover, return on assets, earnings per share, internal growth rate, and total asset turnover. Time value of money concepts are also tested, including present value, future value, and the impact of compounding interest. This exam provides a comprehensive evaluation of financial knowledge, suitable for students seeking to test and enhance their understanding of financial principles and practices. The exam also includes calculations related to the DuPont identity, providing a holistic assessment of financial performance.

Running head: FINANCE & ACCOUNTING
Finance & Accounting
Name of the Student:
Name of the University:
Author’s Note:

1FINANCE & ACCOUNTING
Midterm EXAM
By definition, shareholders' equity is:
A
.
net working capital plus total assets.
B
.
total assets plus total liabilities.
C
.
net fixed assets minus total liabilities.
D
.
fixed assets minus long-term debt plus net
working capital.
Which of the following will result in higher owners' equity, all else equal?
A
.
increase in accounts
receivable
B
.
decrease in net working
capital
C
.
increase in accounts
payable
D
.
decrease in inventory
Operating cash flow is defined as:
A
.
the change in the net working capital over a stated
period of time.
B
.
a firm's net profit over a specified period of time.
C
.
a firm's operating margin.
D
.
the cash that a firm generates from its normal
business activities.
Financial leverage:
A
.
is the ratio of a firm's revenues to its fixed expenses.
B
.
is inversely related to the level of debt.
C is equal to the market value of a firm divided by the

2FINANCE & ACCOUNTING
. firm's book value.
D
.
increases the potential return to the shareholders.
Which one of the following statements is correct concerning a firm's fixed assets?
A
.
The market value is affected by the accounting method
selected.
B
.
The book value is equal to the market value minus the
accumulated depreciation.
C
.
The market value is the expected selling price in today's
economy.
D
.
The market value is equal to the initial cost minus the
depreciation to date.
The recognition principle states that:
A
.
costs should be recorded on the income statement whenever those
costs can be reliably determined.
B
.
sales should be recorded when the payment for that sale is received.
C
.
sales should be recorded when the earnings process is virtually
completed and the value of the sale can be determined.
D
.
costs should be recorded when paid.
Morgantown Movers has net working capital of $11,300, current assets of $31,200, equity of
$53,400, and long-term debt of $11,600. What is the amount of the net fixed assets?
A
.
$45,5
00
B
.
$48,1
00
C
.
$53,7
00
D
.
$32,9
00

3FINANCE & ACCOUNTING
8) Red Roofs, Inc. has current liabilities of $24,300 and accounts receivable of $7,800. The firm
has total assets of $43,100 and net fixed assets of $23,700. The owners' equity has a book value
of $21,400. What is the amount of the net working capital?
A
.
$6,50
0
B
.
$5,10
0
C
.
-
$4,90
0
D
.
$18,8
00
9) The Plaza Cafe has an operating cash flow of $78,460, depreciation expense of $8,960, and
taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows:
Beginning Balance Ending Balance
Current assets $141,680 $138,509
Net fixed assets $687,810 $703,411
Current liabilities $87,340 $91,516
Long-term debt $267,000 $248,000
What is the amount of the cash flow from assets?
A
.
$63,9
09
B
.
$61,4
87
C
.
$61,2
46
D
.
$58,9
13
10) Six months ago, Benders Gym repurchased $20,000 of its common stock. The company
pays regular quarterly dividends totaling $8,500 per quarter. What is the amount of the cash flow
to stockholders for the past year if no additional shares were issued?
A
.
$30,0
00
B $20,0

4FINANCE & ACCOUNTING
. 00
C
.
$54,0
00
D
.
$28,5
00
11) The DuPont identity can be totally defined by which one of the following?
A
.
Equity multiplier, return on assets, and profit
margin
B
.
Equity multiplier and return on assets
C
.
Profit margin and return on equity
D
.
Return on equity, total asset turnover, and
equity multiplier
12) Peter's Motor Works has total assets of $689,400, long-term debt of $299,500, total equity
of $275,000, net fixed assets of $497,800, and sales of $721,500. The profit margin is 4.6
percent. What is the current ratio?
A
.
1.6
7
B
.
0.9
1
C
.
1.0
1
D
.
0.6
0
13) On a common-size balance sheet statement, inventory is calculated as a percent of:
A
.
sales.
B
.
EBIT.
C
.
net
income.

5FINANCE & ACCOUNTING
D
.
total
assets.
14) You are analyzing a company that has cash of $11,200, accounts receivable of $27,800,
fixed assets of $124,600, accounts payable of $31,300, and inventory of $56,900. What is the
quick ratio?
A
.
0.6
7
B
.
1.2
5
C
.
0.8
0
D
.
1.3
7
15) Galaxy Sales has sales of $746,700, cost of goods sold of $603,200, and inventory of
$94,300. How long on average does it take the firm to sell its inventory?
A
.
57.06
days
B
.
48.68
days
C
.
61.10
days
D
.
7.23
days
16) The After Life has sales of $428,300, total assets of $389,100, and a profit margin of 7.2
percent. What is the return on assets?
A
.
7.01
percent

6FINANCE & ACCOUNTING
B
.
7.93
percent
C
.
6.54
percent
D
.
6.83
percent
17) The Rainbow Company has total sales of $713,200 and a profit margin of 8.5 percent.
Currently, the firm has 12,500 shares outstanding. What are the earnings per share?
A
.
$6.5
8
B
.
$4.8
5
C
.
$5.3
1
D
.
$5.5
6
18) Company R has a return on assets of 12 percent, an equity multiplier of 1.6, and a dividend
payout ratio of 40 percent. What is Company R’s internal rate of growth?
A
.
7.68
percent
B
.
7.76
percent
C
.
7.50
percent
D
.
7.90
percent
19) Aardvaark & Co. has sales of $291,200, cost of goods sold of $163,300, net profit of
$11,360, net fixed assets of $154,500, and current assets of $89,500. What is the total asset
turnover rate?
A
.
1.2
4

7FINANCE & ACCOUNTING
B
.
1.1
9
C
.
1.0
8
D
.
1.1
1
20) Denbo's, Inc. has total equity of $389,600, long-term debt of $116,400, net working capital
of $1,600, and total assets of $627,600. What is the total debt ratio?
A
.
0.3
8
B
.
0.1
9
C
.
0.6
7
D
.
1.4
9
21) Ben deposits $2,500 into an account paying 5 percent interest, compounded annually. At the
same time, Mike deposits $2,500 into an account paying 2.5 percent interest, compounded
annually. At the end of five years:
A
.
Both Ben and Mike will have earned the same amount of interest.
B
.
Ben will have earned somewhere between 1 and 2 times the amount of
interest that Mike earned.
C
.
Ben will have earned more than twice the amount of interest that Mike
earned.
D
.
Ben will have earned exactly twice the amount of interest as Mike
earned.
22) Which one of the following will increase the present value of a lump sum future amount?
Assume the interest rate is a positive value and all interest is reinvested.
A
.
Decrease in the
future value

8FINANCE & ACCOUNTING
B
.
Decrease in the
interest rate
C
.
Increase in the
interest rate
D
.
Increase in the time
period
23) Bank Z pays 4 percent interest, compounded monthly, on its long-term deposits. Bank A
pays 4 percent interest, compounded quarterly, on its savings accounts. You want to deposit
sufficient funds today so that you will have $2,400 in your account 3 years from today. The
amount you must deposit today:
A
.
is the same regardless of which bank you choose because they both
pay simple interest.
B
.
is the same regardless of which bank you choose because they both
pay compound interest.
C
.
will be greater if you invest with Bank A.
D
.
is the same regardless of which bank you choose because they both
pay 4 percent interest.
24) Suppose you deposit $10,750 in an account that pays 3 percent simple interest. How much
total interest will you receive over the next 7 years?
A
.
$2,471.
14
B
.
$2,257.
50
C
.
$1,935.
00
D
.
$2,086.
06
25) Corporation Z invested $50,000 at 7.5 percent compounded annually for 2 years. How much
interest on interest did the company earn over this period of time?
A $4,614.

9FINANCE & ACCOUNTING
. 83
B
.
$281.2
5
C
.
$3,750.
00
D
.
$7,500.
00
26) Rob has just received an insurance settlement of $58,400. He wants to save this money until
his oldest daughter goes to college. Rob can earn an average of 8.5 percent, compounded
annually, on this money. How much will he have saved for his daughter's college education if his
daughter enters college 14 years from now?
A
.
$187,302
.09
B
.
$104,587
.01
C
.
$105,223
.03
D
.
$182,990
.77
27) You receive an inheritance of $10,000. You deposited it into an account that pays 7.5
percent interest compounded annually. How long will you have to wait until your account is
worth $15,000?
A
.
16.19
years
B
.
5.83
years
C
.
5.61
years

10FINANCE & ACCOUNTING
D
.
5.46
years
28) When you were born, your parents opened an investment account in your name and
deposited $2,000 into the account. The account has earned an average annual rate of return of 8
percent. Today, the account is valued at $21,735.34. How old are you?
A
.
44
years
B
.
31
years
C
.
25
years
D
.
50
years
29) Thirteen years from now, you will be receiving $30,000. What is the value of this amount
worth to you today if you can earn 4 percent interest compounded annually?
A
.
$20,741.
87
B
.
$23,190.
98
C
.
$26,359.
88
D
.
$18,017.
22
30) How long will it take to double what is in your bank account, if the interest rate is 5 percent
and is compounded semi-annually?
A
.
7.10
years
B
.
28.10
years
C
.
14.21
years

11FINANCE & ACCOUNTING
D
.
14.04
years
31) Which one of the following types of loans requires periodic repayments, each of which
reduces the principal balance?
A
.
amortized
B
.
pure discount
C
.
none of the other
answers
D
.
interest-only
32) Your credit card has an APR of 13.9 percent, compounded monthly. What is the effective
annual rate on your card?
A
.
14.46
percent
B
.
14.82
percent
C
.
15.29
percent
D
.
15.11
percent
33) You are planning to buy a house. The house costs $169,000 and you have $12,000 cash to
pay as a down payment. Your bank will loan you the balance at 6.25 percent interest for 30
years. You monthly mortgage payment will be…
A
.
$920.1
5
B
.
$1,040.
56
C
.
$992.9
8

12FINANCE & ACCOUNTING
D
.
$966.6
8
34) McClary Tires just decided to save money each year for the next four years to help fund a
new building. If it earns 6.5 percent on its savings, how much will the firm have saved at the end
of year 4?
End of year: Amount saved:
1 $20,000
2 $24,000
3 $28,000
4 $32,000
A. $108,392
.69
B. $113,200
.39
C. $111,860
.57
D. $107,525
.40
35) The manager of Gloria's Boutique has approved Carla's application for credit. The
maximum payment that has been approved is $65 a month for 24 months. The APR is 15.7
percent. What is the maximum initial purchase that Carla can make given this credit approval?
A
.
$1,331.
42
B
.
$1,350.
00
C
.
$1,300.
00
D
.
$1,288.
90
36) Suppose you want to retire 30 years from now and have investments worth $2.5 million at
that time. Today, you have $211 in your investment account and plan on adding an additional

13FINANCE & ACCOUNTING
$10,000 to that account each year. What annual rate of return must you earn on average to
achieve this goal?
A
.
12.49
percent
B
.
12.76
percent
C
.
12.17
percent
D
.
11.83
percent
37) Company Q wants to build a new office building. The firm has budgeted monthly payments
of $3,500 for 15 years at 7.5 percent interest, compounded monthly. Based on this budget, how
much can the firm afford to borrow to build the building?
A
.
$377,5
57
B
.
$425,0
00
C
.
$441,4
14
D
.
$402,8
12
38) The local Goodwill store receives annual income of $9,800 from a trust fund established by
a generous donor several years ago. The trust fund earns a fixed annual return of 4.75 percent.
How much did the donor contribute to establish this fund?
A
.
$225,0
00
B
.
$206,3
16
C
.
$249,6
13
D
.
$260,4
00

14FINANCE & ACCOUNTING
39) Two years ago, you took out a 3-year, $60,000 interest-only loan. The interest rate on the
loan is 7.5 percent with annual payments. How much will the loan payment be that is due today?
A
.
$4,5
00
B
.
$0
C
.
$1,5
00
D
.
$3,0
00
40) Suppose you have $11,289 in your investment account. You have decided to save an
additional $600 a month for the next 5 years and buy a car. How much will you be able to spend
on the car if you can earn an annual return of 8.8 percent?
A
.
$71,3
33
B
.
$48,2
20
C
.
$56,9
11
D
.
$62,5
18