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FIN 571 Week 5 Connect Problems

FIN 571 Week 5 Connect Problems

1. The difference between the present value of an investment?s future cash flows and its initial cost is the:

  • net present value.
  • internal rate of return.
  • payback period.
  • profitability index.
  • discounted payback period.

 

  1. Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
  • A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
  • An investment project should be accepted only if the NPV is equal to the initial cash flow.
  • Any type of project should be accepted if the NPV is positive and rejected if it is negative.
  • Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
  • An investment project that has positive cash flows for every time period after the initial investment should be accepted.

 

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  1. The primary reason that company projects with positive net present values are considered acceptable is that:
  • they create value for the owners of the firm.
  • the project's rate of return exceeds the rate of inflation.
  • they return the initial cash outlay within three years or less.
  • the required cash inflows exceed the actual cash inflows.
  • the investment's cost exceeds the present value of the cash inflows.

 

  1. Accepting a positive net present value (NPV) project:
  • indicates the project will pay back within the required period of time.
  • means the present value of the expected cash flows is equal to the project’s cost.
  • ignores the inherent risks within the project.
  • guarantees all cash flow assumptions will be realized.
  • is expected to increase the stockholders’ value by the amount of the NPV.

 

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  1. The net present value method of capital budgeting analysis does all of the following except:
  • incorporate risk into the analysis.
  • consider all relevant cash flow information.
  • use all of a project's cash flows.
  • discount all future cash flows.
  • provide a specific anticipated rate of return.

 

  1. What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.
  • −$287.22
  • −$1,195.12
  • −$1,350.49
  • $204.36
  • $797.22

 

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  1. Maxwell Software, Inc., has the following mutually exclusive projects.

Year   Project A      Project B

0           –$17,000    –$20,000

1             10,500       11,500

2              7,000                     8,000

3              2,600                     7,000

a-1.Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

Payback period

Project A                   ____years

Project B                   ____years

a-2. Which, if either, of these projects should be chosen?

Project __

b-1. What is the NPV for each project if the appropriate discount rate is 15 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

NPV

Project A         $____

Project B         $____

b-2. Which, if either, of these projects should be chosen if the appropriate discount rate is 15 percent?

Project __

 

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  1. Flatte Restaurant is considering the purchase of a $9,900 soufflé maker. The soufflé maker has an economic life of six years and will be fully depreciated by the straight-line method. The machine will produce 1,950 soufflés per year, with each costing $2.35 to make and priced at $5.20. Assume that the discount rate is 14 percent and the tax rate is 40 percent.

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV                      $_____

Should the company make the purchase?

Yes/No

 

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  1. The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 38 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project.

Year 0    Year 1                   Year 2                        Year 3                        Year 4

Investment                               $ 29,000

Sales revenue                                      $ 15,000       $15,500        $16,000        $13,000

Operating costs                                                3,200                        3,300                         3,400                   2,600

Depreciation                                       7,250                         7,250                         7,250                   7,250

Net working capital spending              350 400 450 350 ?

  1. Compute the incremental net income of the investment for each year. (Do not round intermediatecalculations.)

Year 1               Year 2              Year 3              Year 4

Net income        $ ____           $ _____           $ _____           $____

  1. Compute the incremental cash flows of the investment for each year. (Do not round intermediatecalculations. A negative answer should be indicated by a minus sign.)

Year 0                  Year 1                  Year 2                 Year 3                Year 4

Cash flow         $ _____               $ _____               $ _____            $ _____            $ _____

  1. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV                           $_____

 

 

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FIN 571 Final Exam (Newest)

FIN 571 Week 1 Quiz

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FIN 571 Week 3 Quiz

FIN 571 Week 4 Quiz

FIN 571 Week 5 Quiz

FIN 571 Week 6 Quiz

FIN 571 Week 1 Connect Problems

FIN 571 Week 2 Connect Problems

FIN 571 Week 3 Connect Problems

FIN 571 Week 4 Connect Problems

FIN 571 Week 5 Connect Problems

 

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FIN 571 Final Exam Latest Question Answers

FIN 571 Final Exam Latest Question Answers

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

$124,589

Cost of goods sold

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

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%

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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 

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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

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

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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 

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% 

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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 $242,000—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
  • $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 firm’s performance over time.(112)
  • 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 84

Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

  • 1.74
  • 0.60
  • 1.47(95)

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 firm’s 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 

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Multiple Choice Question 59

Which of the following is considered a hybrid organizational form?

  • limited liability partnership
  • partnership
  • corporation
  • sole proprietorship

 

About Author

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