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FIN 571 Final Exam

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1. Multiple Choice Question 51


Which of the following is considered a hybrid organizational form?
A. limited liability partnership
B. partnership
C. corporation
D. sole proprietorship
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2. Multiple Choice Question 59
Which of the following is a principal within the agency relationship?
E. the CEO of the firm
F. a shareholder
G. the board of directors
H. a company engineer

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3. 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?
A. $2,123,612
B. $803,010
C. $1,844,022
D. $2,303,010
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4. Multiple Choice Question 78
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?
E. The statement of retained earnings.
F. The statement of working capital.
G. The statement of cash flows.(66)
H. The statement of net worth.

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5. 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?
A. 65.2 days
B. 64.3 days
C. 61.7 days
D. 57.9 days
6. Multiple Choice Question 70
Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity
ratio?
E. 1.74
F. 0.60
G. 1.47(95)
H. 0
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7. Multiple Choice Question 84


Which of the following is not a method of benchmarking?
A. Conduct an industry group analysis.
B. Evaluating a single firms performance over time.(112)
C. Utilize the DuPont system to analyze a firms performance.
D. Identify a group of firms that compete with the company being analyzed.
8. 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.)
E. $22,680
F. $26,454
G. $19,444
H. $16,670

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9. 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.)
A. $2,431,224
B. $2,815,885
C. $2,735,200
D. $2,615,432
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10. 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 $242,000over 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.)
E. $480,906
F. $414,322
G. $477,235
H. $429,560

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11. 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.)
A. $1,745,600
B. $3,594,524
C. $5,233,442
D. $2,667,904
12. 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.)
E. 16%
F. 32%
G. 12%
H. 40%

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13. 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.)
A. $1,014
B. $1,066
C. $923
D. $972
14. 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?
E. $13.50
F. $11.63
G. $9.72
H. $12.50

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15. 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?
A. 0.11
B. 1.90
C. 1.11
D. 0.90
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16. 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?
E. The profitability index.
F. The modified internal rate of return.
G. The internal rate of return.
H. The discounted payback.

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17. 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?
A. 30%
B. 50%
C. 70%
D. 33%
18. 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?
E. 15.36%
F. 12.00%
G. 14.65%
H. 15.00%

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19. Multiple Choice Question 85
If a company's weighted average cost of capital is less than the required return on
equity, then the firm:
A. Is perceived to be safe
B. Has debt in its capital structure
C. Must have preferred stock in its capital structure
D. Is financed with more than 50% debt
20. 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
E. stock.
F. bonds.
G. equity options.
H. preferred stock.

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21. 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?
A. $375
B. $600
C. $225
D. $321

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22. 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.
A. $1,787 million
B. $1,315 million
C. $453.6 million
D. $1,334 million
23. 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?
E. 30.3%
F. 25.1%
G. 27.3%
H. 32.9%

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24. Multiple Choice Question 46


Which of the following cannot be engaged in managing the business?
A. a sole proprietor
B. a general partner
C. none of these
D. a limited partner
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25. Multiple Choice Question 80
Which of the following does maximizing shareholder wealth not usually account for?
E. The timing of cash flows.
F. Amount of Cash flows.
G. Risk.
H. Government regulation.

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26. Multiple Choice Question 41


The strategic plan does NOT identify
A. working capital strategies.
B. the lines of business a firm will compete in.
C. major areas of investment in real assets.
D. future mergers, alliances, and divestitures.
27. Multiple Choice Question 67
Firms that achieve higher growth rates without seeking external financing
E. are highly leveraged.
F. none of these.
G. have less equity and/or are able to generate high net income leading to a high
ROE.
H. have a low plowback ratio.
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28. 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.
A. 85%, 15%
B. 55%, 45%
C. 15%, 85%
D. 45%, 55%
29. Multiple Choice Question 30
The cash conversion cycle
E. begins when the firm uses its cash to purchase raw materials and ends when
the firm collects cash payments on its credit sales.
F. estimates how long it takes on average for the firm to collect its outstanding
accounts receivable balance.
G. shows how long the firm keeps its inventory before selling it.
H. begins when the firm invests cash to purchase the raw materials that would be
used to produce the goods that the firm manufactures.

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30. 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

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

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Cash conversion cycle: What is the cash conversion cycle for Ridge Company?
A. 38.3 days
B. 46.4 days
C. 83.5 days
D. 129.9 days

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