Finance Practice
Finance Practice Assessment
1. Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
A. No external financing is required.
B. $100,000
C. $200,000
D. $300,000 2. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of returns?
A. $28,800
B. $4,000
C. $4,800
D. $35,200 3. Riley Co. is considering a short-term or long-term financing plan for $6,000,000 in assets. They expect the following 1 year rates over the next 3 years: 7%, 9%, and 12%. Their long-term interest rate will be 9% for the 3 years. Assuming the rates follow their expectations, what will be the difference in interest costs over the 3 years?
A. Long-term interest will be $60,000 more than short-term interest
B. Long-term interest will be $60,000 less than short-term interest
C. Long-term interest will be $1,140,00 less than short-term interest
D. None of these 4. Average daily remittances are $5 million, and "extended disbursement float" adds 3 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 10% on excess funds.
A. $500,000
B. $1,500,000
C. $1,000,000
D. $0 5. Price Corp. is considering selling to a group of new customers and creating new annual sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket. What is the profit on new sales?
A. $5,554.50
B. $9,660.00
C. $7,245.00
D. none of these. 6. Waldron Inc. is
1. Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
A. No external financing is required.
B. $100,000
C. $200,000
D. $300,000 2. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of returns?
A. $28,800
B. $4,000
C. $4,800
D. $35,200 3. Riley Co. is considering a short-term or long-term financing plan for $6,000,000 in assets. They expect the following 1 year rates over the next 3 years: 7%, 9%, and 12%. Their long-term interest rate will be 9% for the 3 years. Assuming the rates follow their expectations, what will be the difference in interest costs over the 3 years?
A. Long-term interest will be $60,000 more than short-term interest
B. Long-term interest will be $60,000 less than short-term interest
C. Long-term interest will be $1,140,00 less than short-term interest
D. None of these 4. Average daily remittances are $5 million, and "extended disbursement float" adds 3 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 10% on excess funds.
A. $500,000
B. $1,500,000
C. $1,000,000
D. $0 5. Price Corp. is considering selling to a group of new customers and creating new annual sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket. What is the profit on new sales?
A. $5,554.50
B. $9,660.00
C. $7,245.00
D. none of these. 6. Waldron Inc. is