FIN 571 Final Exam Guide- New

Which of the following is considered a hybrid organizational form?

corporation

limited liability partnership

partnership

sole proprietorship

Multiple Choice Question 59

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

a shareholder

a company engineer

the board of directors

the CEO of the firm

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

The statement of cash flows.

The statement of retained earnings.

The statement of working capital.

The statement of net worth.

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 currentliabilities of $1,041,012, common equity of $1,500,000, and retainedearnings 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 63

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

64.3 days

61.7 days

57.9 days

65.2 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

1.74

0.60

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.

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

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

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 hehave to invest today in an account paying 8 percent annually to achievehis target? (Round to nearest dollar.)

$26,454

$16,670

$19,444

$22,680

Multiple Choice Question 62

PV of multiple cash flows: Ferris, Inc., hasborrowed from their bank at a rate of 8 percent and will repay the loanwith 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 thesepayments? (Round to the nearest dollar.)

$2,431,224

$2,615,432

$2,735,200

$2,815,885

Multiple Choice Question 64

PV of multiple cash flows: Ajax Corp. is expectingthe 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 is15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

$480,906

$477,235

$429,560

$414,322

Multiple Choice Question 72

Future value of an annuity: JayadevAthreya hasstarted 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 haveat the end of 45 years? (Round to the nearest dollar.)

$5,233,442

$1,745,600

$2,667,904

$3,594,524

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 $1.10dividend per year. What was the rate of return for owning Serox in themost recent year? (Round to the nearest percent.)

40%

12%

16%

32%

Multiple Choice Question 62

Bond price: Regatta, Inc., has six-year bondsoutstanding that pay a 8.25 percent coupon rate. Investors buying thebond 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 couponpayments. (Round to the nearest dollar.)

$923

$972

$1,066

$1,014

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 14percent, what is the present value of their dividends over the next four years?

$9.72

$13.50

$12.50

$11.63

Multiple Choice Question 79

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

0.90

1.90

1.11

0.11

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 NPVprojects?

The modified internal rate of return.

The internal rate of return.

The profitability index.

The discounted payback.

Multiple Choice Question 60

How firms estimate their cost of capital: The WACCfor a firm is 13.00 percent. You know that the firm’s cost of debtcapital is 10 percent and the cost of equity capital is 20%. Whatproportion of the firm is financed with debt?

50%

30%

70%

33%

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

Must have preferred stock in its capital structure

Has debt in its capital structure

Multiple Choice Question 68

The cost of equity: Gangland Water Guns, Inc., isexpected to pay a dividend of $2.10 one year from today. If the firm’sgrowth 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?

12.00%

15.36%

14.65%

15.00%

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 annualcash flows of $150 and is expected to exist forever. The company iscurrently financed with 75 percent equity and 25 percent debt. Youranalysis tells you that the appropriate discount rates are 10 percentfor the cash flows, and 7 percent for the debt. You currently own 10percent of the stock.
 

If Dynamo wishes to change its capital structure from 75 percent to60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they issue?

$600

$321

$375

$225

Multiple Choice Question 69

Multiple Analysis: Turnbull Corp. had an EBIT of$247 million in the last fiscal year. Its depreciation and amortizationexpenses amounted to $84 million. The firm has 135 million sharesoutstanding and a share price of $12.80. A competing firm that is verysimilar 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 totalassets 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 noexternal financing, what is the growth rate it can support?

30.3%

27.3%

32.9%

25.1%

Multiple Choice Question 46

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

none of these

a general partner

a limited partner

a sole proprietor

Multiple Choice Question 80

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

The timing of cash flows.

Amount of Cash flows.

Government regulation.

Risk.

Multiple Choice Question 41

The strategic plan does NOT identify

future mergers, alliances, and divestitures.

the lines of business a firm will compete in.

working capital strategies.

major areas of investment in real assets.

Multiple Choice Question 67

Firms that achieve higher growth rates without seeking external financing

are highly leveraged.

have a low plowback ratio.

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., hasrevenues 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 toshareholders. Find the firm’s dividend payout ratio and retention ratio.

85%, 15%

45%, 55%

55%, 45%

15%, 85%

Multiple Choice Question 30

The cash conversion cycle

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

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 receivable

12,800

Accounts payable

12,670

Net sales

$124,589

Cost of goods sold

99,630

Operating cycle: What is the operating cycle for Ridge Company?

 
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