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FIN 571 Week 1 Connect Problems -

**A business owned by a single individual is called a:**

- corporation.
- sole proprietorship.
- general partnership.
- limited partnership.
- limited liability company.

**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.

**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.

**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.

**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.

**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

**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.

**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

**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

**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

**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** $**__________**

**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 $**__________**

**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

**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 $ **__________**

**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

**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 **__________**%

**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 **__________**%