FIN 571 Final Exam

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- 1. In a general partnership, the general partners

have _____liability and have _____control over

day-to-day operations. - limited no
- no total
- unlimited no
- limited total
- unlimited total
- 2. Which one of these is a correct definition?
- Long-term debt is defined as a residual claim on

a firms assets. - Net working capital equals current assets plus

current liabilities. - Current liabilities are debts that must be repaid

in 18 months or less. - Tangible assets are fixed assets such as patents.
- Current assets are assets with short lives, such

as inventory.

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- 3. The owners of a limited liability company

generally prefer - being taxed personally on all business income.
- having liability exposure similar to that of a

general partner. - having liability exposure similar to that of a

sole proprietor. - being taxed like a corporation.
- being taxed like a corporation with liability

like a partnership. - 4.Which one of the following is least apt to help

convince managers to work in the best interest of

the stockholders? pay raises based on length of

service - implementation of a stock option plan
- threat of a proxy fight
- management compensation tied to the market value

of the firms stock - threat of a takeover of the firm by unsatisfied

stockholders

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5. a. Compute the future value of 2,000

compounded annually for 20 years at 4 percent.

(Do not round intermediate calculations and round

your answer to 2 decimal places, e.g., 32.16.)

Future value _________ b. Compute the future

value of 2,000 compounded annually for 15 years

at 10 percent. (Do not round intermediate

calculations and round your answer to 2 decimal

places, e.g., 32.16.) Future value

_________ c. Compute the future value of 2,000

compounded annually for 25 years at 4 percent.

(Do not round intermediate calculations and round

your answer to 2 decimal places, e.g., 32.16.)

Future value _______ Complete Answers

here-fin 571 final exam answers __

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6. For each of the following, compute the present

value (Do not round intermediate calculations and

round your answers to 2 decimal places, e.g.,

32.16.) Present Value Years

Interest Rate Future value _________

14 8

15,551 _________ 5

14 52,557

_________ 30

15 887,073

_________ 35 8

551,164

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7. First City Bank pays 8 percent simple interest

on its savings account balances, whereas Second

City Bank pays 8 percent interest compounded

annually. If you made a 74,000 deposit in each

bank, how much more money would you earn from

your Second City Bank account at the end of 8

years? (Do not round intermediate calculations

and round your answer to 2 decimal places, e.g.,

32.16.) Difference in accounts

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- 8. Winslow, Inc. stock is currently selling for

40 a share. The stock has a dividend yield of

3.8 percent. How much dividend income will you

receive per year if you purchase 500 shares of

this stock? - 1,053
- 152
- 190
- 329
- 760
- 9. You bought 360 shares of stock at a total cost

of 7,754.40. You received a total of 403.20 in

dividends and sold your shares for 19.98 a

share. What was your total rate of return? - 5.38
- 7.24
- -1.29
- 3.67
- -2.04

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- 10. According to generally accepted accounting

principles (GAAP), revenue is recognized as

income when - income taxes are paid on the revenue earned.
- the transaction is complete and the goods or

services are delivered. - a contract is signed to perform a service or

deliver a good. - payment is requested.
- managers decide to recognize it.
- 11. Sankey, Inc., has current assets of 4,230,

net fixed assets of 25,700, current liabilities

of 3,500, and long-term debt of 14,400. (Do not

round intermediate calculations.) - What is the value of the shareholders' equity

account for this firm? - Shareholders' equity _________
- How much is net working capital?
- Net working capital _________

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- 12. The financial statement summarizing a firm's

accounting performance over a period of time is

the - statement of equity..
- income statement.
- tax reconciliation statement.
- balance sheet.
- statement of cash flows.
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- 13. Net working capital is defined as
- current assets minus current liabilities.
- total assets minus total liabilities.
- fixed assets minus long-term liabilities.
- current assets plus stockholders' equity.
- current assets plus fixed assets.
- 14. Jessica's Boutique has cash of 59, accounts

receivable of 62, accounts payable of 210, and

inventory of 140. What is the value of the quick

ratio? - .30
- 1.82
- .67
- .58
- 1.24

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- 15. Al's Sport Store has sales of 2,940, costs

of goods sold of 2,090, inventory of 526, and

accounts receivable of 445. How many days, on

average, does it take the firm to sell its

inventory assuming that all sales are on credit? - 90.6
- 65.3
- 119.9
- 91.9
- 120.4
- 16.What is the return on equity for 2009?
- 14 percent
- 17 percent
- 11 percent
- 16 percent
- 19 percent

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- 17. Reliable Cars has sales of 3,790, total

assets of 3,350, and a profit margin of 5

percent. The firm has a total debt ratio of 41

percent. What is the return on equity? - 9.59 percent
- 12.20 percent
- 13.80 percent
- 8.47 percent
- 5.66 percent
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- 18. A firm has a debt-equity ratio of .41. What

is the total debt ratio? - 1.44
- .31
- .29
- 1.41
- .69
- 19.The return on equity can be calculated as
- ROA Equity multiplier.
- ROA Debt-equity ratio.
- ROA (Net income / Total assets).
- Profit margin ROA Total asset turnover.
- Profit margin ROA.

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- 20.One of the primary weaknesses of many

financial planning models is that they - rely too much on financial relationships and too

little on accounting relationships. - are iterative in nature.
- ignore the goals and objectives of senior

management. - ignore cash payouts to stockholders.
- ignore the size, risk, and timing of cash flows.
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- 21. In the financial planning model, the external

financing needed (EFN) as shown on a pro forma

balance sheet is equal to the changes in assets - minus the change in retained earnings.
- minus the changes in both liabilities and equity.
- minus the changes in liabilities.
- plus the changes in both liabilities and equity.
- plus the changes in liabilities minus the changes

in equity. - 22.The Wintergrass Company has an ROE of 15.1

percent and a payout ratio of 40 percent. - What is the companys sustainable growth rate?

(Do not round intermediate calculations and enter

your answer as a percent rounded to 2 decimal

places, e.g., 32.16.) - Sustainable growth rate _________

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23.Assume the following ratios are constant

Total asset turnover 2.50 Profit margin

5.4 Equity multiplier 1.30

Payout ratio 35 What is the sustainable

growth rate?(Do not round intermediate

calculations and enter your answer as a percent

rounded to 2 decimal places, e.g.,

32.16.) Sustainable growth rate

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- 24.The length of time between the acquisition of

inventory and its sale is called the - cash cycle.
- 3accounts payable period.
- accounts receivable period.
- inventory period.
- operating cycle.
- 25.A prearranged, short-term bank loan made on a

formal or informal basis, - and typically reviewed for renewal annually, is

called a - compensating balance.
- cleanup loan.
- roll-over.
- line of credit.
- letter of credit.

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- 26. The _____ premium is that portion of the bond

yield that represents compensation for potential

difficulties that might be encountered should the

bond holder wish to sell the bond prior to

maturity. - default risk
- liquidity
- taxability
- inflation
- interest rate risk
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- 27. How much are you willing to pay for one share

of stock if the company just paid an annual

dividend of 1.03, the dividends increase by 3

percent annually, and you require a rate of

return of 15 percent? - 8.84
- 6.87
- 9.49
- 10.40
- 8.58
- 28. The rate at which a stock's price is expected

to appreciate (or depreciate) is called the _____

yield. - total
- capital gains
- current
- earnings
- dividend

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