FIN 571 Week 6 Final Exam

Multiple Choice Question 51

 

 

  

Which of the following is considered a hybrid organizational form?

 

 

 

corporation

 

partnership

 

limited liability partnership

 

sole proprietorship

Multiple Choice Question 59

 

 

  

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

 

 

 

a shareholder

 

the board of directors

 

a company engineer

 

the CEO of the firm

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?

 

 

 

$1,844,022

 

$2,303,010

 

$2,123,612

 

$803,010

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 cash flows.

 

The statement of retained earnings.

 

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?

 

 

 

0.60

 

1.47

 

0

 

1.74

 

Multiple Choice Question 84

 

 

  

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

 

 

 

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

 

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

 

Conduct an industry group analysis.

 

Evaluating a single firm’s performance over time.

 

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.)

 

 

 

$16,670

 

$26,454

 

$19,444

 

$22,680

 

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.)

 

 

 

$2,431,224

 

$2,815,885

 

$2,735,200

 

$2,615,432

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.)

 

 

 

$480,906

 

$429,560

 

$414,322

 

$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.)

 

 

 

$3,594,524

 

$2,667,904

 

$1,745,600

 

$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.)

 

 

 

32%

 

16%

 

12%

 

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

 

$972

 

$923

 

$1,066

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?

 

 

 

$9.72

 

$13.50

 

$11.63

 

$12.50

 

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?

 

 

 

1.90

 

0.90

 

0.11

 

1.11

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 internal rate of return.

 

The discounted payback.

 

The profitability index.

 

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%

 

15.36%

 

12.00%

 

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:

 

 

 

Has debt in its capital structure

 

Must have preferred stock in its capital structure

 

Is financed with more than 50% debt

 

Is perceived to be safe

 

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?

 

 

 

$321

 

$600

 

$375

 

$225

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.

 

 

 

$1,315 million

 

$1,334 million

 

$453.6 million

 

$1,787 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?

 

 

 

27.3%

 

32.9%

 

25.1%

 

30.3%

Multiple Choice Question 46

 

 

  

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

 

 

 

a general partner

 

none of these

 

a sole proprietor

 

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

 

 

 

working capital strategies.

 

the lines of business a firm will compete in.

 

major areas of investment in real assets.

 

future mergers, alliances, and divestitures.

Multiple Choice Question 67

 

 

  

Firms that achieve higher growth rates without seeking external financing

 

 

 

have a low plowback ratio.

 

are highly leveraged.

 

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

 

none of these.

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.

 

 

 

55%, 45%

 

45%, 55%

 

15%, 85%

 

85%, 15%

Multiple Choice Question 30

 

 

  

The cash conversion cycle

 

 

 

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

 

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

 

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

 

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

Multiple Choice Question 58

 

 

  

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

Ridge Company

Account$

 

Inventory$12,890

Accounts receivable12,800

Accounts payable12,670

 

Net sales$124,589

Cost of goods sold99,630

Cash conversion cycle: What is the cash conversion cycle for Ridge Company?

 

 

 

38.3 days

 

129.9 days

 

46.4 days

 

83.5 days