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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 proprietorshiplimited liability companycorporation general partnershiplimited 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 round intermediate 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 **__________**%