FIN 571 - Week 6 - Final Exam .DOC

FIN 571 - Week 6 - Final Exam

FIN 571 Week 6 Final Exam

Multiple Choice Question 51

Which of the following is considered a hybrid organizational form?

partnership

limited liability partnership

sole proprietorship

corporation

 

Multiple Choice Question 59

Which of the following is a principal within the agency relationship?

the board of directors

a company engineer

the CEO of the firm

a shareholder

 

Multiple Choice Question 57 

Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

$2,303,010

$2,123,612

$803,010

$1,844,022

 

Multiple Choice Question 78

Which of the following presents a summary of the changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period?

The statement of net worth.

The statement of retained earnings.

The statement of cash flows.

The statement of working capital.

 

Multiple Choice Question 63

Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days's sales in inventory?

65.2 days

61.7 days

57.9 days

64.3 days

 

Multiple Choice Question 70

Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

1.47

0

0.60

1.74

 

Multiple Choice Question 84

Which of the following is not a method of “benchmarking”?

Evaluating a single firm’s performance over time.

Conduct an industry group analysis.

Identify a group of firms that compete with the company being analyzed.

Utilize the DuPont system to analyze a firm’s performance.

 

Multiple Choice Question 67

Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

 $22,680

$19,444

$16,670

$26,454

 

Multiple Choice Question 62

PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round to the nearest dollar.)

$2,735,200

$2,815,885

$2,615,432

$2,431,224

 

Multiple Choice Question 64

PV of multiple cash flows: Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company's opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

$414,322

$480,906

$429,560

$477,235

 

Multiple Choice Question 72

Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for retirement early. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years? (Round to the nearest dollar.)

$1,745,600

$2,667,904

$3,594,524

$5,233,442

 

Multiple Choice Question 57

Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.)

12%

32%

16%

40%

 

Multiple Choice Question 62

Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company's bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.)

$1,014

$1,066

$923

$972

 

 

 

 

Multiple Choice Question 57

PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value of their dividends over the next four years?

$13.50

$9.72

$12.50

$11.63

 

Multiple Choice Question 79

Capital rationing. TuleTime Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project?

 1.11

0.11

1.90

0.90

 

Multiple Choice Question 88

What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?

The modified internal rate of return.

The profitability index.

The internal rate of return.

The discounted payback.

 

Multiple Choice Question 60

How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm's cost of debt capital is 10 percent and the cost of equity capital is 20%. What proportion of the firm is financed with debt?

50%

70%

30%

33%

 

Multiple Choice Question 68

The cost of equity: Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from today. If the firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital for Gangland if the price of its common shares is currently $17.50?

15.00%

12.00%

15.36%

14.65%

 

 

 

Multiple Choice Question 85

If a company's weighted average cost of capital is less than the required return on equity, then the firm:

Is financed with more than 50% debt

Is perceived to be safe

Has debt in its capital structure

Must have preferred stock in its capital structure

 

Multiple Choice Question 32

A firm's capital structure is the mix of financial securities used to finance its activities and can include all of the following except

stock.

bonds.

equity options.

preferred stock.

 

Multiple Choice Question 54

M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock.

If Dynamo wishes to change its capital structure from 75 percent to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they issue?

 

$600

$225

$321

$375

 

Multiple Choice Question 69

Multiple Analysis: Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and amortization expenses amounted to $84 million. The firm has 135 million shares outstanding and a share price of $12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40.

What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.

 

$1,334 million

$1,787 million

$1,315 million

$453.6 million

 

Multiple Choice Question 86

External financing needed: Jockey Company has total assets worth $4,417,665. At year-end it will have net income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the growth rate it can support?

 

25.1%

32.9%

27.3%

30.3%

 

Multiple Choice Question 46

Which of the following cannot be engaged in managing the business?

none of these

a sole proprietor

a general partner

a limited partner

 

Multiple Choice Question 80

Which of the following does maximizing shareholder wealth not usually account for?

Amount of Cash flows.

The timing of cash flows.

Risk.

Government regulation.

 

Multiple Choice Question 41

The strategic plan does NOT identify

major areas of investment in real assets.

future mergers, alliances, and divestitures.

working capital strategies.

the lines of business a firm will compete in.

 

Multiple Choice Question 67

Firms that achieve higher growth rates without seeking external financing

are highly leveraged.

none of these.

have less equity and/or are able to generate high net income leading to a high ROE.

have a low plowback ratio.

 

Multiple Choice Question 75

Payout and retention ratio: Drekker, Inc., has revenues of $312,766, costs of $220,222, interest payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm's dividend payout ratio and retention ratio.

 85%, 15%

15%, 85%

55%, 45%

45%, 55%

 

Multiple Choice Question 30

The cash conversion cycle

hows how long the firm keeps its inventory before selling it.

estimates how long it takes on average for the firm to collect its outstanding accounts receivable balance.

begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures.

 begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

 

 
 


Multiple Choice Question 58

 
 
You are provided the following working capital information for the Ridge Company:

Ridge Company
Account
$
 
 
Inventory
$12,890
Accounts receivable
12,800
Accounts payable
12,670
 
 
Net sales
$124,589
Cost of goods sold
99,630
Cash conversion cycle: What is the cash conversion cycle for Ridge Company?

 



 
 

46.4 days

83.5 days

38.3 days

129.9 days

 

 

 

 

 

 
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