FIN 571 Final Exam (Newest) -
FIN/571 Final Exam
1. In a general partnership, the general partners have _____ liability and have _____ control over day-to-day operations.
2. Which one of these is a correct definition?
3. The owners of a limited liability company generally prefer:
4. Which one of the following is least apt to help convince managers to work in the best interest of the stockholders?pay raises based on length of service
a. Compute the future value of $2,000 compounded annually for 20 years at 4 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $_________
b. Compute the future value of $2,000 compounded annually for 15 years at 10 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $_________
c. Compute the future value of $2,000 compounded annually for 25 years at 4 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $_________
6. For each of the following, compute the present value (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):
Present Value Years Interest Rate Future value
$_________ 14 8 % $15,551
$_________ 5 14 $52,557
$_________ 30 15 $887,073
$_________ 35 8 $551,164
7. First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.
If you made a $74,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Difference in accounts $_________
8. Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8 percent. How much dividend income will you receive per year if you purchase 500 shares of this stock?
9. You bought 360 shares of stock at a total cost of $7,754.40. You received a total of $403.20 in dividends and sold your shares for $19.98 a share. What was your total rate of return?
10. According to generally accepted accounting principles (GAAP), revenue is recognized as income when:
11. Sankey, Inc., has current assets of $4,230, net fixed assets of $25,700, current liabilities of $3,500, and long-term debt of $14,400. (Do not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity $_________
How much is net working capital?
Net working capital $_________
12. The financial statement summarizing a firm's accounting performance over a period of time is the:
13. Net working capital is defined as:
14. Jessica's Boutique has cash of $59, accounts receivable of $62, accounts payable of $210, and inventory of $140. What is the value of the quick ratio?
15. Al's Sport Store has sales of $2,940, costs of goods sold of $2,090, inventory of $526, and accounts receivable of $445. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
16. Galaxy United, Inc.2009 Income Statement($ in millions)
Net sales $8,550
Less: Cost of goods sold 7,150
Less: Depreciation 410
Earnings before interest and taxes 990
Less: Interest paid 82
Taxable Income 908
Less: Taxes 318
Net income $ 590
Galaxy United, Inc.2008 and 2009 Balance Sheets($ in millions)
2008 2009 2008 2009
Cash $120 $140 Accounts payable $1,120 $1,130
Accounts rec. 940 790 Long-term debt 990 1,201
Inventory 1,480 1,520 Common stock $3,140 $2,940
Sub-total $2,540 $2,450 Retained earnings 510 799
Net fixed assets 3,220 3,620
Total assets $5,760 $6,070 Total liab. & equity $5,760 $6,070
What is the return on equity for 2009?
17. Reliable Cars has sales of $3,790, total assets of $3,350, and a profit margin of 5 percent. The firm has a total debt ratio of 41 percent. What is the return on equity?
18. A firm has a debt-equity ratio of .41. What is the total debt ratio?
19. The return on equity can be calculated as:
20. One of the primary weaknesses of many financial planning models is that they:
21. In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:
22. The Wintergrass Company has an ROE of 15.1 percent and a payout ratio of 40 percent.
What is the company’s sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate _________%
23. Assume the following ratios are constant:
Total asset turnover 2.50
Profit margin 5.4%
Equity multiplier 1.30
Payout ratio 35%
What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate _________%
24. The length of time between the acquisition of inventory and its sale is called the:
25. A prearranged, short-term bank loan made on a formal or informal basis, and typically reviewed for renewal annually, is called a:
26. Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. Input all amounts as positive values):
COUNTRY KETTLES, INC.
December 31, 2016
Cash $31,800 $31,030
Accounts receivable 71,300 74,560
Inventories 62,200 64,625
Property, plant, and equipment 161,000 172,600
Less: Accumulated depreciation (47,040) (51,300 )
Total assets $279,260 $291,515
Liabilities and Equity
Accounts payable $46,300 $48,530
Accrued expenses 7,680 6,740
Long-term debt 27,000 30,100
Common stock 30,000 35,400
Accumulated retained earnings 168,280 170,745
Total liabilities and equity $279,260 $291,515
Item Source/Use Amount
Accounts receivable $_________
Property, plant, and equipment $_________
Accounts payable $_________
Accrued expenses $_________
Long-term debt $_________
Common stock $_________
Accumulated retained earnings $_________
27. Consider the following financial statement information for the Rivers Corporation:
Item Beginning Ending
Inventory $10,900 $11,900
Accounts receivable 5,900 6,200
Accounts payable 8,100 8,500
Net sales $89,000
Cost of goods sold 69,000
Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Operating cycle _________days
Cash cycle _________days
28. The _____ premium is that portion of the bond yield that represents compensation for potential difficulties that might be encountered should the bond holder wish to sell the bond prior to maturity.
29. How much are you willing to pay for one share of stock if the company just paid an annual dividend of $1.03, the dividends increase by 3 percent annually, and you require a rate of return of 15 percent?
30. The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield.
31. Which one of these applies to the dividend growth model of stock valuation?
32. You are given the following information for Huntington Power Co. Assume the company’s tax rate is 40 percent.
Debt: 8,000 6.9 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 105 percent of par; the bonds make semiannual payments.
Common stock: 410,000 shares outstanding, selling for $59 per share; the beta is 1.15.
Market: 9 percent market risk premium and 4.9 percent risk-free rate.
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
33. Filer Manufacturing has 7.7 million shares of common stock outstanding. The current share price is $47, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $68.8 million and a coupon rate of 6.4 percent and sells for 108.9 percent of par. The second issue has a face value of $58.8 million and a coupon rate of 6.9 percent and sells for 107.7 percent of par. The first issue matures in 9 years, the second in 26 years.
Suppose the company’s stock has a beta of 1.3. The risk-free rate is 2.5 percent, and the market risk premium is 6.4 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 40 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
34. A firm’s WACC can be correctly used to discount the expected cash flows of a new project when that project:
35. When computing WACC, you should use the:
36. The CAPM has an advantage over DDM because the CAPM:
37. The net present value method of capital budgeting analysis does all of the following except:
38. Lee's Furniture just purchased $24,000 of fixed assets that are classified as 5-year MACRS property. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. What is the amount of the depreciation expense for the third year?
39. Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings. The expansion would require the use of land the firm purchased three years ago at a cost of $142,000 that is currently valued at $137,500. The expansion could use some equipment that is currently sitting idle if $6,700 of modifications were made to it. The equipment originally cost $139,500 six years ago, has a current book value of $24,700, and a current market value of $39,000. Other capital purchases costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project?
40. If you want to review a project from a benefit-cost perspective, you should use the _______ method of analysis.
41. The profitability index of an investment project is the ratio of the:
42. A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?
43. Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B. Project A has an initial cost of $54,500, and should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1 to 3, respectively. Project B has an initial cost of $69,400, and should produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3, respectively. Which project, or projects, if either, should be accepted and why?
44. What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in Year 1, $6,980 in Year 3, and $2,750 in Year 4? The discount rate is 12.5 percent.
45. A proposed project costs $300 and has cash flows of $80, $200, $75, and $90 for Years 1 to 4, respectively. Because of its high risk, the project has been assigned a discount rate of 16 percent. In dollars, how much will this project return in today’s dollars for every $1 invested?