FIN/571 Final Exam Multiple Choice Questions

 

FIN /571 Final Exam

 

Question 1

 

Which of the following is considered a hybrid organizational form?

 

 

 

[removed]

corporation

 

 

 

[removed]

sole proprietorship

 

 

 

[removed]

limited liability partnership

 

 

 

[removed]	partnership
Question 2

 

Which of the following is a principal within the agency relationship?

 

 

 

[removed]

the CEO of the firm

 

 

 

[removed]

a shareholder

 

 

 

[removed]

the board of directors

 

 

 

[removed]

a company engineer

 

 

 

Question 3

 

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?

 

 

 

[removed]

$1,844,022

 

 

 

[removed]

$2,303,010

 

 

 

[removed]

$2,123,612

 

 

 

[removed]	$803,010
Question 4

 

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?

 

 

 

[removed]

The statement of working capital.

 

 

 

[removed]

The statement of cash flows.

 

 

 

[removed]

The statement of retained earnings.

 

 

 

[removed]

The statement of net worth.

 

 

 

Question 5

 

Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm’s days’s sales in inventory?

 

 

 

[removed]

57.9 days

 

 

 

[removed]

64.3 days

 

 

 

[removed]

65.2 days

 

 

 

[removed]

61.7 days

 

 

 

Question 6

 

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

 

 

 

[removed]

1.47

 

 

 

[removed]

0

 

 

 

[removed]

1.74

 

 

 

[removed]	0.60
Question 7

 

Which of the following is not a method of “benchmarking”?

 

 

 

[removed]

Evaluating a single firm’s performance over time.

 

 

 

[removed]

Identify a group of firms that compete with the company being analyzed.

 

 

 

[removed]

Utilize the DuPont system to analyze a firm’s performance.

 

 

 

[removed]	Conduct an industry group analysis.
Question 8

 

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.)

 

 

 

[removed]

$26,454

 

 

 

[removed]

$16,670

 

 

 

[removed]

$19,444

 

 

 

[removed]	$22,680
estion 9

 

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.)

 

 

 

[removed]

$2,615,432

 

 

 

[removed]

$2,815,885

 

 

 

[removed]

$2,431,224

 

 

 

[removed]	$2,735,200
Question 10

 

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.)

 

 

 

[removed]

$480,906

 

 

 

[removed]

$414,322

 

 

 

[removed]

$429,560

 

 

 

[removed]	$477,235
Question 11

 

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.)

 

 

 

[removed]

$1,745,600

 

 

 

[removed]

$5,233,442

 

 

 

[removed]

$2,667,904

 

 

 

[removed]	$3,594,524
Question 12

 

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.)

 

 

 

[removed]

32%

 

 

 

[removed]

40%

 

 

 

[removed]

12%

 

 

 

[removed]	16%
Question 13

 

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.)

 

 

 

[removed]

$1,014

 

 

 

[removed]

$972

 

 

 

[removed]

$1,066

 

 

 

[removed]	$923
Question 14

 

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?

 

 

 

[removed]

$12.50

 

 

 

[removed]

$9.72

 

 

 

[removed]

$11.63

 

 

 

[removed]	$13.50
Question 15

 

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?

 

 

 

[removed]

0.11

 

 

 

[removed]

1.11

 

 

 

[removed]

1.90

 

 

 

[removed]	0.90
Question 16

 

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

 

 

 

[removed]

The internal rate of return.

 

 

 

[removed]

The modified internal rate of return.

 

 

 

[removed]

The profitability index.

 

 

 

[removed]	The discounted payback.
Question 17

 

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?

 

 

 

[removed]

70%

 

 

 

[removed]

30%

 

 

 

[removed]

33%

 

 

 

[removed]	50%
Question 18

 

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?

 

 

 

[removed]

12.00%

 

 

 

[removed]

15.36%

 

 

 

[removed]

14.65%

 

 

 

[removed]	15.00%
Question 19

 

If a company’s weighted average cost of capital is less than the required return on equity, then the firm:

 

 

 

[removed]

Is financed with more than 50% debt

 

 

 

[removed]

Is perceived to be safe

 

 

 

[removed]

Has debt in its capital structure

 

 

 

[removed]	Must have preferred stock in its capital structure
Question 20

 

A firm’s capital structure is the mix of financial securities used to finance its activities and can include all of the following except

 

 

 

[removed]

stock.

 

 

 

[removed]

bonds.

 

 

 

[removed]

equity options.

 

 

 

[removed]	preferred stock.
Question 21

 

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

 

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