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<strong>FIN</strong> <strong>571</strong> <strong>Final</strong> <strong>Exam</strong> 30/30<br />
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<strong>FIN</strong> <strong>571</strong> <strong>Final</strong> <strong>Exam</strong> 30/30<br />
Multiple Choice Question 51<br />
Which of the following is considered a hybrid organizational form?<br />
partnership<br />
limited liability partnership<br />
sole proprietorship<br />
corporation<br />
Multiple Choice Question 59<br />
Which of the following is a principal within the agency relationship?<br />
the board of directors<br />
a company engineer<br />
the CEO of the firm<br />
a shareholder
Multiple Choice Question 57<br />
Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30,<br />
2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of<br />
$1,468,347. How much long-term debt does the firm have?<br />
$2,303,010<br />
$2,123,612<br />
$803,010<br />
$1,844,022<br />
Multiple Choice Question 78<br />
Which of the following presents a summary of the changes in a firm’s balance sheet from the beginning of an<br />
accounting period to the end of that accounting period?<br />
The statement of net worth.<br />
The statement of retained earnings.<br />
The statement of cash flows.<br />
The statement of working capital.<br />
Multiple Choice Question 63<br />
Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days's sales in inventory?<br />
65.2 days<br />
61.7 days<br />
57.9 days<br />
64.3 days<br />
Multiple Choice Question 70<br />
Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?<br />
1.47
0<br />
0.60<br />
1.74<br />
Multiple Choice Question 84<br />
Which of the following is not a method of “benchmarking”?<br />
Evaluating a single firm’s performance over time.<br />
Conduct an industry group analysis.<br />
Identify a group of firms that compete with the company being analyzed.<br />
Utilize the DuPont system to analyze a firm’s performance.<br />
Multiple Choice Question 67<br />
Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How<br />
much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to<br />
nearest dollar.)<br />
$22,680<br />
$19,444<br />
$16,670<br />
$26,454<br />
Multiple Choice Question 62<br />
PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan<br />
with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—<br />
$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round<br />
to the nearest dollar.)<br />
$2,735,200<br />
$2,815,885<br />
$2,615,432
$2,431,224<br />
Multiple Choice Question 64<br />
PV of multiple cash flows: Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000,<br />
$84,000, and $242,000—over the next five years. If the company's opportunity cost is 15 percent, what is the<br />
present value of these cash flows? (Round to the nearest dollar.)<br />
$414,322<br />
$480,906<br />
$429,560<br />
$477,235<br />
Multiple Choice Question 72<br />
Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for retirement<br />
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<br />
percent. How much will Jayadev have at the end of 45 years? (Round to the nearest dollar.)<br />
$1,745,600<br />
$2,667,904<br />
$3,594,524<br />
$5,233,442<br />
Multiple Choice Question 57<br />
Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for<br />
$28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year?<br />
(Round to the nearest percent.)<br />
12%<br />
32%<br />
16%<br />
40%
Multiple Choice Question 62<br />
Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying<br />
the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company's bonds be<br />
priced at today? Assume annual coupon payments. (Round to the nearest dollar.)<br />
$1,014<br />
$1,066<br />
$923<br />
$972<br />
Multiple Choice Question 57<br />
PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by<br />
$0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value<br />
of their dividends over the next four years?<br />
$13.50<br />
$9.72<br />
$12.50<br />
$11.63<br />
Multiple Choice Question 79<br />
Capital rationing. TuleTime Comics is considering a new show that will generate annual cash flows of $100,000<br />
into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate<br />
is 6 percent for the cash flows, then what is the profitability index for the project?<br />
1.11<br />
0.11<br />
1.90<br />
0.90<br />
Multiple Choice Question 88<br />
What decision criteria should managers use in selecting projects when there is not enough capital to invest in all<br />
available positive NPV projects?
The modified internal rate of return.<br />
The profitability index.<br />
The internal rate of return.<br />
The discounted payback.<br />
Multiple Choice Question 60<br />
How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm's cost of<br />
debt capital is 10 percent and the cost of equity capital is 20%. What proportion of the firm is financed with debt?<br />
50%<br />
70%<br />
30%<br />
33%<br />
Multiple Choice Question 68<br />
The cost of equity: Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from today. If the<br />
firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital<br />
for Gangland if the price of its common shares is currently $17.50?<br />
15.00%<br />
12.00%<br />
15.36%<br />
14.65%<br />
Multiple Choice Question 85<br />
If a company's weighted average cost of capital is less than the required return on equity, then the firm:<br />
Is financed with more than 50% debt<br />
Is perceived to be safe<br />
Has debt in its capital structure
Must have preferred stock in its capital structure<br />
Multiple Choice Question 32<br />
A firm's capital structure is the mix of financial securities used to finance its activities and can include all of the<br />
following except<br />
stock.<br />
bonds.<br />
equity options.<br />
preferred stock.<br />
Multiple Choice Question 54<br />
M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The<br />
company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the<br />
appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10<br />
percent of the stock.<br />
If Dynamo wishes to change its capital structure from 75 percent to 60 percent equity and use the debt proceeds<br />
to pay a special dividend to shareholders, how much debt should they issue?<br />
$600<br />
$225<br />
$321<br />
$375<br />
Multiple Choice Question 69<br />
Multiple Analysis: Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and<br />
amortization expenses amounted to $84 million. The firm has 135 million shares outstanding and a share price<br />
of $12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40.<br />
What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.<br />
$1,334 million
$1,787 million<br />
$1,315 million<br />
$453.6 million<br />
Multiple Choice Question 86<br />
External financing needed: Jockey Company has total assets worth $4,417,665. At year-end it will have net<br />
income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the<br />
growth rate it can support?<br />
25.1%<br />
32.9%<br />
27.3%<br />
30.3%<br />
Multiple Choice Question 46<br />
Which of the following cannot be engaged in managing the business?<br />
none of these<br />
a sole proprietor<br />
a general partner<br />
a limited partner<br />
Multiple Choice Question 80<br />
Which of the following does maximizing shareholder wealth not usually account for?<br />
Amount of Cash flows.<br />
The timing of cash flows.<br />
Risk.<br />
Government regulation.
Multiple Choice Question 41<br />
The strategic plan does NOT identify<br />
major areas of investment in real assets.<br />
future mergers, alliances, and divestitures.<br />
working capital strategies.<br />
the lines of business a firm will compete in.<br />
Multiple Choice Question 67<br />
Firms that achieve higher growth rates without seeking external financing<br />
are highly leveraged.<br />
none of these.<br />
have less equity and/or are able to generate high net income leading to a high ROE.<br />
have a low plowback ratio.<br />
Multiple Choice Question 75<br />
Payout and retention ratio: Drekker, Inc., has revenues of $312,766, costs of $220,222, interest payment of<br />
$31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm's dividend<br />
payout ratio and retention ratio.<br />
85%, 15%<br />
15%, 85%<br />
55%, 45%<br />
45%, 55%<br />
Multiple Choice Question 30<br />
The cash conversion cycle<br />
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.<br />
begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the<br />
firm manufactures.<br />
begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on<br />
its credit sales.<br />
Multiple Choice Question 58<br />
Ridge Company<br />
Account $<br />
Inventory $12,890<br />
Accounts receivable 12,800<br />
Accounts payable 12,670<br />
Net sales $124,589<br />
Cost of goods sold 99,630<br />
You are provided the following working capital information for the Ridge Company:<br />
Cash conversion cycle: What is the cash conversion cycle for Ridge Company?<br />
46.4 days<br />
83.5 days<br />
38.3 days<br />
129.9 days