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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

$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 yearend 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 $242,000over 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-to-equity 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

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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

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