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Islamic university – Gaza
College of commerce
Accounting department
Final exam 2008/2009
Financial management
Monday 22/06/2009
60 marks
Name: …………………………………………………… Id.:………………………………..
Question 1: choose the best answer .
1. All of the following are non-cash charges EXCEPT
A) depreciation.
B) accruals.
C) depletion.
D) amortization.
( 30 + 3 bonus )marks.
2. Which of the following is a source of cash flows?
A) Cost of goods sold.
B) Depreciation.
C) Interest expense.
D) Taxes.
3. ________ is an expense that is a legal obligation of the firm.
A) Labor expense
B) Interest expense
C) Salaries expense
D) Rent expense
4. All of the following are inflows of cash EXCEPT
A) a decrease in accounts receivable.
B) net profits after taxes.
C) an increase in accounts receivable.
D) an increase in accruals.
5. All of the following are outflows of cash EXCEPT
A) an increase in inventory.
B) a decrease in accounts receivable.
C) an increase in accounts receivable.
D) a decrease in notes payable.
6. Cash flows that result from debt and equity financing transactions, including incurrence and
repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash
dividends or repurchase stock are called
A) operating flows.
B) investment flows.
C) financing flows.
D) none of the above.
7. A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is
considered
A) an investment cash flow.
B) a financing cash flow.
C) a financing cash flow and investment cash flow, respectively.
D) a financing cash flow and operating cash flow, respectively.
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8. For the year ended December 31, 2008, a corporation had cash flow from operating
activities of $12,000, cash flow from investment activities of - $10,000, and cash flow from
financing activities of $4,000. The Statement of Cash Flows would show a
A) net decrease of $18,000 in cash and marketable securities.
B) net decrease of $6,000 in cash and marketable securities.
C) net increase of $6,000 in cash and marketable securities.
D) net increase of $2,000 in cash and marketable securities.
9. Gross profits are defined as
A) operating profits minus depreciation.
B) operating profits minus cost of goods sold.
C) sales revenue minus operating expenses.
D) sales revenue minus cost of goods sold.
10. Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000
and preferred dividends of $5,000. What was the firm's net profit after taxes?
A) $66,000
B) $49,000
C) $44,000
D) $83,000
11. Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and
it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no
interest expense. What were Candy Corporations earnings per share?
A) $3.91
B) $4.52
C) $7.42
D) $7.5
12. A firm had year end 2004 and 2005 retained earnings balances of $670,000 and
$560,000,respectively. The firm paid $10,000 in dividends in 2005. The firm's net profit after
taxes in 2002 was ________.
A) -$100,000
B) -$110,000
C) $100,000
D) $110,000
13. A corporation had year end 2004 and 2005 retained earnings balances of $320,000 and
$400,000,respectively. The firm reported net profits after taxes of $100,000 in 2005. The firm
paid dividends in 2005 of ________.
A) $0
B) $20,000
C) $80,000
D) $100,000
14. ________ analysis involves comparison of current to past performance and the evaluation
of developing trends.
A) Time-series
B) Cross-sectional
C) Marginal
D) Quantitative
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15. The primary concern of creditors when assessing the strength of a firm is the firm's
A) profitability.
B) leverage.
C) short-term liquidity.
D) share price.
16. Present and prospective shareholders are mainly concerned with a firm's
A) risk and return.
B) profitability.
C) leverage.
D) liquidity.
17. To analyze the firm's financial performance, the following types of ratio analyses
EXCEPT________ may be used.
A) time-series analysis
B) cross-section analysis
C) combined analysis
D) marginal analysis
18. Time-series analysis is often used to
A) assess developing trends.
B) correct errors of judgment.
C) reflect performance relative to some norm.
D) standardize results.
19. If the interest rate is zero, the future value interest factor equals ________.
A) -1.0
B) 0.0
C) 1.0
D) 2.0
20. As the interest rate increases for any given period, the future value interest factor will
A) decrease.
B) increase.
C) remain unchanged.
D) move toward 1.
21. The amount of money that would have to be invested today at a given interest rate over a
specified period in order to equal a future amount is called
A) future value.
B) present value.
C) future value interest factor.
D) present value interest factor.
22. Indicate which formula is correct to determine the future value of an annuity due.
A) FVAs = PMT × FVIFAi,n
B) FVAs = PMT × [FVIFAi,n × (1 + i)]
C) FVAs = PMT × [FVIFAi,n/(1 + i)]
D) FVAs = PMT × FVIFAi,n + 1
Please transfer your answer to the following table:
Q. NO. 1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2
0 1 2 3 4 5 6 7 8 9 0
ANSWE
R
3
2
1
2
2
Question 2: answer the following separately cases : ( 10 marks)
1. Asset A was purchased six months ago for $25,000 and has generated $1,500 cash flow
during that period. What is the asset's rate of return if it can be sold for $26,750 today?
2. The expected value and the standard deviation of returns for asset A is (See below.)
Possible Outcomes
Probability
Returns (%)
Pessimistic
0.25
10
Most likely
0.45
12
Optimistic
0.30
16
3. Given the following expected returns and standard deviations of assets B, M, Q, and D,
which asset should the prudent financial manager select?
Asset
Expected Return
Standard Deviation
B
10%
5%
M
16%
10%
Q
14%
9%
D
12%
8%
4. Nico bought 100 shares of Cisco Systems stock for $24.00 per share on January 1, 2002. He
received a dividend of $2.00 per share at the end of 2002 and $3.00 per share at the end of
2003.At the end of 2004, Nico collected a dividend of $4.00 per share and sold his stock for
$18.00 per share. What was NICO's realized holding period return?
5. Assuming the following returns and corresponding probabilities for asset A, compute its
standard deviation and coefficient of variation.
Rate of Return
Probability
10%
30%
15
40
20
30
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Name: …………………………………………………… Id.:………………………………..
Question 3 : answer the following separately cases : ( 20 marks)
1. The present value of $100 to be received 10 years from today, assuming an opportunity cost
of 9 percent, is
2. The present value of $200 to be received 10 years from today, assuming an opportunity cost
of10 percent, is
3. Colin has inherited $6,000 from the death of Grandma Anna. He would like to use this money
to buy his mom Hayley a new scooter costing $7,000 2 years from now. Will Colin have enough
money to buy the gift if he deposits his money in an account paying 8 percent compounded
semi-annually?
4. Dan and Jia are newlyweds and have just purchased a condominium for $70,000. Since the
condo is very small, they hope to move into a single-family house in 5 years. How much will
their condo worth in 5 years if inflation is expected to be 8 percent?
5. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of
$2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his
contributions, how much will he have at the end of the twentieth year?
6. James plans to fund his individual retirement account, beginning today, with 20 annual
deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual
compound rate of 8 percent on his deposits, the amount in the account upon retirement will be
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7. You have been offered a project paying $300 at the beginning of each year for the next 20
years. What is the maximum amount of money you would invest in this project if you expect 9
percent rate of return to your investment?
8. Jia has just won a $20 million lottery, which will pay her $1 million at the end of each year for
20 years. An investor has offered her $10 million for this annuity. She estimates that she can
earn 10 percent interest, compounded annually, on any amounts she invests. She asks your
advice on whether to accept or reject the offer. What will you tell her? (Ignore Taxes)
9. Nico is 30 years old and will retire at age 65. He will receive retirement benefits but the
benefits are not going to be enough to make a comfortable retirement life for him. Nico has
estimated that an additional $25,000 a year over his retirement benefits will allow him to have a
satisfactory life. How much should Nico deposit today in an account paying 6 percent interest
to meet his goal? Assume Nico will have 15 years of retirement.
10. You have been given a choice between two retirement policies as described below.
Policy A: You will receive equal annual payments of $10,000 beginning 35 years from now for
10 years.
Policy B: You will receive one lump-sum of $100,000 in 40 years from now.
Which policy would you choose? Assume rate of interest is 6 percent.
3 bonus marks for all students
With best wishes
Mohammad Marwan Al Ashi
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