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STR 581 Capstone Final Examination Part Two
(Latest)
1. Internal reports that review the actual impact of decisions are
prepared by:
the controller
department heads
factory workers
management accountants
2. Horizontal analysis is also known as:
trend analysis
vertical analysis

linear analysis
common size analysis
3. Which of the following is an advantage of corporations relative to
partnerships and sole proprietorships?
most common form of organization
reduced legal liability for investors
lower taxes
harder to transfer ownership
4. 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%
5. 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?
30.3%
27.3%

32.9%
25.1%
6. An unrealistic budget is more likely to result when it:
has been developed by all levels of management.
has been developed in a top down fashion.
has been developed in a bottom up fashion.
is developed with performance appraisal usages in mind.
7. Which of the following financial statements is concerned with the
company at a point in time?
balance sheet
retained earnings statement
statement of cash flows
income statement
8. 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 if 14 percent, what is the present
value of their dividends over the next four years?
$12.50
$11.63
$9.72
$13.50

9. An activity that has a direct cause-effect relationship with the
resources consumed is a(n):
product activity
cost driver
cost pool
overhead rate
10. The major element in budgetary control is:
the approval of the budget by the stockholders
the valuation of inventories
the preparation of long-term plans
the comparison of actual results with planned objectives.
11. Tule Time 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?
0.11
1.11
0.90
1.90
12. 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?
70%
50%
33%
30%
13. The most important information needed to determine if
companies can pay their current obligations is the:
relationship between current assets and current liabilities
relationship between short-term and long-term liabilities
projected net income for next year
net income for this year
14. Process costing is used when:
dissimilar products are involved
production is aimed at fulfilling a specific customer order.
the production process is continuous.
costs are to be assigned to specific jobs.
15. A cost which remains constant per unit at various levels of
activity is a:
fixed cost

mixed cost
manufacturing cost
variable cost
16. The group of users of accounting information charged with
achieving the goals of the business is its:
investors
auditors
creditors
managers
17. 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?
$803,010
$2,303,010
$1,844,022
$2,123,612
18. The cash conversion cycle?
begins when the firm invests cash to purchase the raw
materials that would be used to produce the goods that the
firm manufactures.

estimates how long it takes on average for the firm to collect its
outstanding accounts receivables balance.
begins when the firm uses its cash to purchase raw materials
and ends when the firm collects cash payments on its credit
sales.
shows how long the firm keeps its inventory before selling it.
19. 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
20. 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)
$26,454
$19,444
$22,680
$16,670

21. Which of the following presents a summary of 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 working capital
the statement of retained earnings
22. 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
equity to 60 percent equity and use the debt proceeds to pay a
special dividend to shareholders, how much debt should they use?
$225
$600
$375
$321
23. Horizontal analysis is a technique for evaluating a series of
financial statement data over a period of time:
that has been arranged from the highest number to the lowest
number.

to determine the amount and/or percentage increase or
decrease that has taken place.
to determine which items are in error.
that has been arranged from the lowest number to the highest
number.
24. Jayadev Athreya has started his first job. 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?
$2,667,904
$5,233,442
$1,745,600
$3,594,524
25. 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.
$1,344 million
$453.6 million
$1,315 million
$1,787 million

26. 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
27. In a process cost system, product costs are summarized:
on job cost sheets.
when the products are sold.
after each unit is produced.
on production cost reports.
28. The convention of consistency refers to consistent use of
accounting principles:
within industries
among accounting periods
throughout the accounting period
among firms
29. 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
partnership
has debt in its capital structure
30. Your firm has an equity multiplier of 2.47. What is the debt-toequity
ratio?
0
1.74
0.60
1.47
31. The accumulation of accounting data on the basis of the
individual manager who has the authority to make day-to-day
decisions about activities in an area is called:
master budgeting
static reporting
responsibility accounting
flexible accounting
32. 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.)
$1014

$972
$923
$1,066
33. Variance reports are:
internal reports for management
SEC financial reports
external financial reports
all of these
34. The break-even point is where:
contribution margin equals total fixed costs.
total sales equal total variable costs.
total sales equal total fixed costs.
total variable costs equal total fixed costs.
35. When a company assigns the costs of direct materials, direct
labor, and both variable and fixed manufacturing overhead to
products, that company is using:
operations costing
product costing
absorption costing
variable costing

36. Which of the following is considered a hybrid organizational
form?
sole proprietorship
partnership
limited liability partnership
corporation
37. Gateway, Corp. has an inventory turnover of 5.6. What is the
firm’s days’s sales in inventory?
57.9
61.7
65.2
64.3
38. The process of evaluating financial data that change under
alternative courses of action is called:
incremental analysis
contribution margin analysis
cost-benefit analysis
double entry analysis
39. 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 discounted payback
the internal rate of return
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