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FIN 571 Week 1 Connect Problems

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FIN 571 Week 1 Connect Problems -

  1. A business owned by a single individual is called a:
  • corporation.
  • sole proprietorship.
  • general partnership.
  • limited partnership.
  • limited liability company.

 

  1. The decisions made by financial managers should all be ones which increase the:
  • size of the firm.
  • growth rate of the firm.
  • marketability of the managers.
  • market value of the existing owners' equity.
  • firm’s current sales.

 

  1. The primary goal of financial management is to:
  • maximize current dividends per share of the existing stock.
  • maximize the current value per share of the existing stock.
  • avoid financial distress.
  • minimize operational costs and maximize firm efficiency.
  • maintain steady growth in both sales and net earnings.

 

  1. Accounting concepts for a firm to create value it must:
  • have a greater cash inflow from its stockholders than its outflow to them.
  • create more cash flow than it uses.
  • reduce its investment in fixed assets since fixed assets require the use of cash.
  • avoid payments to the government so dividends can be increased.
  • avoid the issuance of debt securities.

 

  1. The primary goal of financial management is to:
  • maximize current dividends per share of the existing stock.
  • maximize the current value per share of the existing stock.
  • avoid financial distress.
  • minimize operational costs and maximize firm efficiency.
  • maintain steady growth in both sales and net earnings.

 

  1. Which one of the following business types is best suited to raising large amounts of capital?
  • sole proprietorship
  • limited liability company
  • corporation
  • general partnership
  • limited partnership

 

  1. Accounting profits and cash flows are generally:
  • the same since they reflect current laws and accounting standards.
  • the same since accounting profits reflect when cash flows occur.
  • different because of GAAP rules regarding the recognition of income.
  • different because cash inflows must occur before revenue recognition.
  • the same due to the requirements of GAAP.

 

  1. Some time ago, Julie purchased eleven acres of land costing $15,490. Today, that land is valued at $49,957. How long has she owned this land if the price of the land has been increasing at 5 percent per year?
  • 24.00 years
  • 23.51 years
  • 24.13 years
  • 23.67 years
  • 23.72 years

 

  1. What is the future value of $3,088 invested for 11 years at 6.00 percent compounded annually?
  • $5,510.23
  • $5,841.06
  • $5,861.95
  • $5,882.83
  • $1,563.45

 

  1. One year ago, you invested $3,440. Today it is worth $3,700.50. What rate of interest did you earn?
  • 7.18 percent
  • 7.57 percent
  • 7.52 percent
  • 7.50 percent
  • 7.04 percent

 

  1. First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually.

If you made a $73,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 9 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Difference in accounts          $__________

 

  1. a. Compute the future value of $1,000 compounded annually for 20 years at 6 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 $1,000 compounded annually for 15 years at 9 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 $1,000 compounded annually for 25 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value    $__________

 

  1. 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

$__________  12                    6%       $ 15,651

$__________  3                      12        53,557

$__________  28                    13        888,073

$__________  30                    10        552,164

 

  1. Wilkinson Co. has identified an investment project with the following cash flows:

Year   Cash Flow

1                     $ 880

2                     1,250

3                     1,510

4                     1,675

If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value         $ __________

If the discount rate is 20 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value         $ __________

If the discount rate is 30 percent, what is the present value of these cash flows? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value         $ __________

  1. You own 300 shares of Western Feed Mills stock valued at $36.72 per share. What is the dividend yield if your annual dividend income is $322?
  • 2.9 percent
  • 4.5 percent
  • 3.2 percent
  • 11.4 percent
  • 9.2 percent

 

  1. Suppose a stock had an initial price of $82 per share, paid a dividend of $1.20 per share during the year, and had an ending share price of $90.

Compute the percentage total return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Total return                       __________%

 

  1. You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent. Suppose the average inflation rate over this period was 1.5 percent, and the average T-bill rate over the period was 3 percent.

a. What was the average real return on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Average real return                       __________%

b. What was the average nominal risk premium on the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

Average nominal risk premium     __________%

 

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