1.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Final Exam Final Exam ReviewReview

1.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

According to the authors, the goal of financial managers should be ________.

1. minimizing the amount of taxes paid by the firm

2. maximizing shareholder wealth 3. maximizing the profits earned by the firm 4. increasing the types of products or

services provided by the firm

1.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

The ________ decision is concerned with how the assets will be financed.

1. asset management2. wealth management 3. financing 4. investment

1.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

The ________ decision determines how many assets are needed and also involves decisions related to which assets should be reduced, eliminated or replaced.

1. asset management2. wealth management 3. financing 4. investment

1.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

The ________ decision is concerned about giving the manager an appropriate level of operating responsibility over existing assets to supervise the assets efficiently.

1. asset management2. wealth management 3. financing 4. investment

1.6 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

In a large corporation, the controller is primarily concerned with ________.

1. gathering and reporting accounting information

2. cash and credit management

3. determining the financing necessary to support assets

4. managing and acquiring assets

1.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

The treasurer of a large corporation is primarily concerned with ________.

1. preparing budgets and forecasts2. investment, financing, and asset

management decisions 3. gathering and reporting information for

external bodies, such as the SEC 4. gathering and reporting accounting

information for internal company use

1.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 1

When a firm is meeting today’s needs without giving up the ability of future generations to meet their own needs, it is commonly referred to as ________.

1. agency theory 2. sustainability 3. the investment decision

1.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

Which of the following is correct with regard to a sole proprietorship?

1. Double taxation is imposed, meaning that the owner pays income taxes first on the income of the business, then again as personal income.

2. The owner has unlimited liability for all business obligations, including any lawsuits brought against the business.

3. Fringe benefits are legitimate business expenses and therefore deductible for tax purposes.

1.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

A major advantage of the corporation compared to other forms of business organization is ________.

1. higher credit ratings 2. limited owner liability 3. lower cost to organize 4. reduction of double taxation

1.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

The primary difference between the corporation and other forms of business organizations is _________

1. that the corporation is primarily concerned with the social welfare of society

2. the separation between ownership and management

3. that owners and management are generally the same person

4. that the corporation is unconcerned about the welfare of its employees

1.12 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

The purpose of financial markets is to ________.

1. increase the price of common stocks

2. control inflation

3. make buying and selling financial products easier and cheaper

4. lower the yield on bonds

1.13 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

A 15-year corporate bond issued in 2010 would now trade in the ________.

1. secondary capital market

2. primary capital market

3. secondary money market

4. primary money market

1.14 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Market WordsMarket Words

• Money Market: short-term government and corporate debt (<1 year)

• Capital Market: long-term stocks and bonds (>1 year)

• Primary Market: raises new money for capital investment

• Secondary Market: existing investments—does not raise money for capital investment

1.15 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2

A 15-year corporate bond issued in 2010 would now trade in the ________.

1. secondary capital market

2. primary capital market

3. secondary money market

4. primary money market

1.16 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

You invest $8,000 in a savings account paying 5% interest a year, compounded annually. How much will your account contain at the end of four years?

• Future Value of a Single Deposit• FVFVnn = P0 (FVIFFVIFi,n)

• Table 1• $9,728

1.17 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

What is the present value of $5,000 received at the end of 5 years, discounted at 10 percent?

• Present Value of a Single Deposit• PVPV00 = FVFVnn (PVIFPVIFi,n)

• Table 2

• $3,105

1.18 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

You plan to deposit $400 at the end of each year for 16 years in an account that pays 9% compounded annually. What is the future value at the end of the 16 year period?

• Future Value of an Ordinary Annuity

1.19 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Parts of an AnnuityParts of an AnnuityParts of an AnnuityParts of an Annuity

0 1 2 3

$100 $100 $100

(Ordinary Annuity)EndEnd of

Period 1EndEnd of

Period 2

Today EqualEqual Cash Flows Each 1 Period Apart

EndEnd ofPeriod 3

1.20 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

You plan to deposit $400 at the end of each year for 16 years in an account that pays 9% compounded annually. What is the future value at the end of the 16 year period?

• Future Value of an Ordinary Annuity • FVAFVAnn = R (FVIFAi%,n)

• Table 3• $13,201

1.21 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

What is the present value of $100 received at the end of every year for 10 years discounted at 8 percent?

• Present Value of an Ordinary Annuity

1.22 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Parts of an AnnuityParts of an AnnuityParts of an AnnuityParts of an Annuity

0 1 2 3

$100 $100 $100

(Ordinary Annuity)EndEnd of

Period 1EndEnd of

Period 2

Today EqualEqual Cash Flows Each 1 Period Apart

EndEnd ofPeriod 3

1.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

What is the present value of $100 received at the end of every year for 10 years discounted at 8 percent?

• Present Value of an Ordinary Annuity• PVAPVAnn = R (PVIFAi%,n)

• Table 4• $671

1.24 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

Suppose you wish to save $2,000 at the beginning of each of the next 10 years in an account paying 12 % compounded annually. The first $2,000 deposit would be made now. How much will you have in your account at the end of 10 years?

• Future Value of an Annuity Due

1.25 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Parts of an AnnuityParts of an AnnuityParts of an AnnuityParts of an Annuity

0 1 2 3

$100 $100 $100

(Annuity Due)BeginningBeginning of

Period 1BeginningBeginning of

Period 2

Today EqualEqual Cash Flows Each 1 Period Apart

BeginningBeginning ofPeriod 3

1.26 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

Suppose you wish to save $2,000 at the beginning of each of the next 10 years in an account paying 12 % compounded annually. The first $2,000 deposit would be made now. How much will you have in your account at the end of 10 years?

• Future Value of an Annuity Due

• FVADn = (1 + i) (R) (FVIFAi%,n)• Table 3• $39,310

1.27 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

What is the present value of $1,000 received at the beginning of each of the next 3 years (starting today), assuming a discount rate of 7%?

• Present Value of an Annuity Due

1.28 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Parts of an AnnuityParts of an AnnuityParts of an AnnuityParts of an Annuity

0 1 2 3

$100 $100 $100

(Annuity Due)BeginningBeginning of

Period 1BeginningBeginning of

Period 2

Today EqualEqual Cash Flows Each 1 Period Apart

BeginningBeginning ofPeriod 3

1.29 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 3

What is the present value of $1,000 received at the beginning of each of the next 3 years (starting today), assuming a discount rate of 7%?

• Present Value of an Annuity Due

• PVADn = (1 + i) (R) (PVIFAi%,n)• Table 4• $2807.68

1.30 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

The market value of a company is ________.

1. the higher of its liquidation or book value

2. the higher of its book or going-concern value

3. the higher of its liquidation or going-concern value

1.31 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

Which of the following best describes liquidation value?

1. The price a security "should be" based on all factors.

2. The amount a company could be sold for as a continuing operating business.

3. The market price of an asset.4. The amount of money a company is worth if it

goes out of business and all of the assets are sold.

1.32 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

Which of the following best describes going-concern value?

1. The amount a company could be sold for as a continuing operating business.

2. The market price of an asset.

3. The price a stock or bond "should be" based on all factors.

4. The amount of money a company is worth if it goes out of business and all of the assets are sold.

1.33 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

The intrinsic value of a bond ________.

1. is the discounted yield expected on the bond

2. increases when the required rate of return increases, if the coupon is held constant

3. is zero if the company pays no coupon

4. is what the price "should be" based on all valuation factors

1.34 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

Interest rates and the prices of bonds:

1. have no relationship with each other (i.e., they are independent).

2. generally move in opposite directions.

3. generally move in the same direction.

4. sometimes move in the same direction, sometimes in opposite directions.

1.35 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

If interest rates rise, the prices of bonds will ________.

1. remain unchanged

2. fall

3. change violently

4. rise

1.36 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

If the required rate of return for a bond is 8%, and the bond pays a 10% coupon, this bond will currently be priced ________.

1. at a premium over (more than) face value

2. at par value

3. at face value

4. at a discount from (less than) face value

1.37 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 4

What is the value of a bond with a $1,000 face value and provides an 8% annual coupon for 30 years. The discount rate is 10%.

• Coupon bond• V = I (PVIFAkd, n) + MV (PVIFkd, n)• Table 4 Table 2• $811.16