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STR 581 Final Exam Capstone Part 2 Week 4 Complete

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STR 581 Final Exam Capstone Part 2 Week 4 Complete A+ Answer
1. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You
know that the firms cost of debt capital is 10 percent and the cost of equity capital is
20% What proportion of the firm is financed with debt?
33%
50%
70%
30%
2. 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 companys opportunity cost is 15
percent, what is the present value of these cash flows? (Round to the nearest dollar.)
$414,322
$480,906
$477,235
$429,560
3. Variance reports are:
internal reports for management
external financial reports
SEC financial reports
all of these
4. A cost which remains constant per unit at various levels of activity is a:
fixed cost
manufacturing cost
variable cost
mixed cost
5. 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 companys bonds be priced at today? Assume annual coupon
payments. (Round to the nearest dollar.)
$1014
$972
$923
$1,066
6. The convention of consistency refers to consistent use of accounting principles:
throughout the accounting period
among accounting periods
within industries
among firms
7. The major element in budgetary control is:
the comparison of actual results with planned objectives.
the preparation of long-term plans
the valuation of inventories
the approval of the budget by the stockholders
8. Firms that achieve higher growth rates without seeking external financing:
are highly leveraged
Have a low plowback ratio
have less equity and/or are able to generate high net income leading to a high ROE.
None of these
9. Gateway, Corp. has an inventory turnover of 5.6. What is the firms dayss sales in
inventory?
65.2
57.9
64.3
61.7
10. Which of the following financial statements is concerned with the company at a
point in time?

statement of cash flows

retained earnings statement
income statement
balance sheet
11.The cash conversion cycle?
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.
estimates how long it takes on average for the firm to collect its outstanding accounts
receivables balance.
begins when the firm uses its cash to purchase raw materials and ends when the firm
collects cash payments on its credit sales.
12. The process of evaluating financial data that change under alternative courses of
action is called:
cost-benefit analysis
double entry analysis
incremental analysis
contribution margin analysis
13. Jayadev Athreya has started his first job. 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?
$3,594,524
$5,233,442
$1,745,600
$2,667,904
14. If a companys weighted average cost of capital is less than the required return on
equity, then the firm:
has debt in its capital structure
is financed with more than 50% debt
partnership

is perceived to be safe
15. 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)
$19,444
$22,680
$26,454
$16,670
16. Horizontal analysis is a technique for evaluating a series of financial statement data
over a period of time:
to determine the amount and/or percentage increase or decrease that has taken place.
to determine which items are in error.
that has been arranged from the lowest number to the highest number.
that has been arranged from the highest number to the lowest number.
17. Process costing is used when:
the production process is continuous.
costs are to be assigned to specific jobs.
dissimilar products are involved
production is aimed at fulfilling a specific customer order.
18. What decision criteria should managers use in selecting projects when there is not
enough capital to invest in all available positive NPV projects?
the internal rate of return
the discounted payback
the modified internal rate of return
the profitability index
19. Which of the following is considered a hybrid organizational form?
limited liability partnership
partnership
corporation

sole proprietorship
20. Which of the following is an advantage of corporations relative to partnerships and
sole proprietorships?
reduced legal liability for investors
harder to transfer ownership
most common form of organization
lower taxes
21. Horizontal analysis is also known as:
vertical analysis
trend analysis
common size analysis
linear analysis
22. In a process cost system, product costs are summarized:
after each unit is produced.
when the products are sold.
on job cost sheets.
on production cost reports.
23. An activity that has a direct cause-effect relationship with the resources consumed is
a(n):
product activity
cost pool
cost driver
overhead rate
24. The break-even point is where:
contribution margin equals total fixed costs.
total sales equal total fixed costs.
total sales equal total variable costs.
total variable costs equal total fixed costs.
25. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?

0
1.47
1.74
0.60
26. 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 equity to 60 percent
equity and use the debt proceeds to pay a special dividend to shareholders, how much
debt should they use?
$225
$321
$600
$375
27. An unrealistic budget is more likely to result when it:
is developed with performance appraisal usages in mind.
has been developed in a top down fashion.
has been developed by all levels of management.
has been developed in a bottom up fashion.
28. 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.
$453.6 million
$1,344 million
$1,787 million
$1,315 million
29. 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?
$1,844,022
$2,303,010
$803,010
$2,123,612
30. The most important information needed to determine if companies can pay their
current obligations is the:
net income for this year
relationship between short-term and long-term liabilities
projected net income for next year
relationship between current assets and current liabilities
31. 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 if
14 percent, what is the present value of their dividends over the next four years?
$9.72
$11.63
$12.50
$13.50
32. Internal reports that review the actual impact of decisions are prepared by:
department heads
the controller
factory workers
management accountants
33. 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
0.90

1.11
34. Which of the following presents a summary of changes in a firms balance sheet
from the beginning of an accounting period to the end of that accounting period?
the statement of cash flows
the statement of net worth
the statement of working capital
the statement of retained earnings
35. 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.)
32%
16%
12%
40%
36. The group of users of accounting information charged with achieving the goals of
the business is its:
managers
auditors
creditors
investors
37. The accumulation of accounting data on the basis of the individual manager who has
the authority to make day-to-day decisions about activities in an area is called:
static reporting
flexible accounting
responsibility accounting
master budgeting
38. 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?
27.3%
25.1%

32.9%
30.3%
39. When a company assigns the costs of direct materials, direct labor, and both variable
and fixed manufacturing overhead to products, that company is using:
product costing
absorption costing
operations costing
variable costing

STR 581 Final Exam Capstone Part 2 Week 4 Complete

A+ Answer