FIN 571 Final Exam

Multiple Choice Question 51

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
Cost of goods sold

$124,589
99,630

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

38.3 days
46.4 days

83.5 days

129.9 days
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Multiple Choice Question 58

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 30
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%
55%, 45%

15%, 85%

45%, 55%
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Multiple Choice Question 75

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 67
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 41
Which of the following does maximizing shareholder wealth not usually account
for?

The timing of cash flows.

Amount of Cash flows.

Risk.

Government regulation.
Multiple Choice Question 80
Which of the following cannot be engaged in managing the business?

a sole proprietor
a general partner

none of these

a limited partner
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Multiple Choice Question 46

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%
25.1%

27.3%

32.9%
Multiple Choice Question 86
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.

$1,787 million
$1,315 million

$453.6 million

$1,334 million
Multiple Choice Question 69
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?

$375
$600

$225

$321
Multiple Choice Question 54
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 32
If a company's weighted average cost of capital is less than the required return
on equity, then the firm:

Is perceived to be safe
Has debt in its capital structure

Must have preferred stock in its capital structure

Is financed with more than 50% debt

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Multiple Choice Question 85

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?

15.36%
12.00%

14.65%

15.00%
Multiple Choice Question 68
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?

30%
50%

70%

33%
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Multiple Choice Question 60

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

The profitability index.

The modified internal rate of return.

The internal rate of return.

The discounted payback.

Multiple Choice Question 88
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?

0.11

1.90

1.11

0.90
Multiple Choice Question 79
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
$11.63

$9.72

$12.50
Multiple Choice Question 57
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
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Multiple Choice Question 62

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.)

16%

32%

12%

40%
Multiple Choice Question 57
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
$3,594,524

$5,233,442

$2,667,904
Multiple Choice Question 72
PV of multiple cash flows: Ajax Corp. is expecting the following cash flows
$79,000, $112,000, $164,000, $84,000, and $242,000over 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
$414,322

$477,235

$429,560
Multiple Choice Question 64
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

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Multiple Choice Question 62
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
$26,454

$19,444

$16,670
Multiple Choice Question 67
Which of the following is not a method of benchmarking?

Conduct an industry group analysis.

Evaluating a single firms performance over time.(112)

Utilize the DuPont system to analyze a firms performance.

Identify a group of firms that compete with the company being analyzed.
Multiple Choice Question 84
Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-toequity ratio?

1.74
0.60

1.47(95)

0
Multiple Choice Question 70
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
64.3 days

61.7 days

57.9 days
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Multiple Choice Question 63

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

The statement of retained earnings.

The statement of working capital.

The statement of cash flows.(66)

The statement of net worth.

Multiple Choice Question 78
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?

$2,123,612
$803,010

$1,844,022

$2,303,010
Multiple Choice Question 57
Which of the following is a principal within the agency relationship?

the CEO of the firm

a shareholder

the board of directors

a company engineer
Multiple Choice Question 59
Which of the following is considered a hybrid organizational form?

limited liability partnership

partnership

corporation

sole proprietorship

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