STR 581

Capstone
Final
Examination,
Part Two
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STR 581 Capstone Final

Examination, Part Two (Lattest)
1. Internal reports that review the actual impact of decisions
are prepared by:

the controller
department heads
factory workers
management accountants

2. Horizontal analysis is also known as:

trend analysis
vertical analysis
linear analysis
common size analysis

3. Which of the following is an advantage of corporations

relative to partnerships and sole proprietorships?

most common form of organization

reduced legal liability for investors
lower taxes
harder to transfer ownership

4. 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%

5. 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%
27.3%
32.9%
25.1%

6. An unrealistic budget is more likely to result when it:

has been developed by all levels of management.

has been developed in a top down fashion.
has been developed in a bottom up fashion.
is developed with performance appraisal usages in mind.

7. Which of the following financial statements is concerned with

the company at a point in time?

balance sheet
retained earnings statement
statement of cash flows
income statement

8. 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?

$12.50
$11.63
$9.72
$13.50

9. An activity that has a direct cause-effect relationship with the

resources consumed is a(n):

product activity
cost driver
cost pool
overhead rate

10. The major element in budgetary control is:

the
the
the
the

approval of the budget by the stockholders

valuation of inventories
preparation of long-term plans
comparison of actual results with planned objectives.

11. Tule Time 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
1.11
0.90
1.90

12. 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?

70%
50%
33%
30%

13. The most important information needed to determine if

companies can pay their current obligations is the:

relationship between current assets and current liabilities

relationship between short-term and long-term liabilities
projected net income for next year
net income for this year

14. Process costing is used when:

dissimilar products are involved

production is aimed at fulfilling a specific customer order.
the production process is continuous.
costs are to be assigned to specific jobs.

15. A cost which remains constant per unit at various levels of

activity is a:

fixed cost
mixed cost
manufacturing cost
variable cost

16.The group of users of accounting information charged with

achieving the goals of the business is its:

investors
auditors
creditors
managers

17. 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?

$803,010
$2,303,010
$1,844,022
$2,123,612

18. The cash conversion cycle?

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.
shows how long the firm keeps its inventory before selling
it.

19. 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.)

$480,906
$429,560
$414,322
$477,235

20. 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)

$26,454
$19,444
$22,680
$16,670

21. 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
the
the
the

statement
statement
statement
statement

of
of
of
of

net worth
cash flows
working capital
retained earnings

22. 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
$600
$375
$321

23. Horizontal analysis is a technique for evaluating a series of

financial statement data over a period of time:
that has been arranged from the highest number to the
lowest number.

 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.

24. 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?

$2,667,904
$5,233,442
$1,745,600
$3,594,524

25. 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.

$1,344
$453.6
$1,315
$1,787

million
million
million
million

26. Firms that achieve higher growth rates without seeking

external financing:
Have a low plowback ratio
are highly leveraged

 have less equity and/or are able to generate high net

income leading to a high ROE.
None of these

27. In a process cost system, product costs are summarized:

on job cost sheets.

when the products are sold.
after each unit is produced.
on production cost reports.

28. The convention of consistency refers to consistent use of

accounting principles:

within industries
among accounting periods
throughout the accounting period
among firms

29. If a companys weighted average cost of capital is less than

the required return on equity, then the firm:

is financed with more than 50% debt

is perceived to be safe
partnership
has debt in its capital structure

30. Your firm has an equity multiplier of 2.47. What is the debtto-equity ratio?

0
1.74
0.60
1.47

31. 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:

master budgeting
static reporting
responsibility accounting
flexible accounting

32. 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

33. Variance reports are:

internal reports for management

SEC financial reports
external financial reports
all of these

34. The break-even point is where:

contribution margin equals total fixed costs.

total sales equal total variable costs.
total sales equal total fixed costs.
total variable costs equal total fixed costs.

35. When a company assigns the costs of direct materials,

direct labor, and both variable and fixed manufacturing
overhead to products, that company is using:

operations costing
product costing
absorption costing
variable costing

36. Which of the following is considered a hybrid organizational

form?

sole proprietorship
partnership
limited liability partnership
corporation

37. Gateway, Corp. has an inventory turnover of 5.6. What is

the firms dayss sales in inventory?

57.9
61.7
65.2
64.3

38. The process of evaluating financial data that change under

alternative courses of action is called:

incremental analysis
contribution margin analysis
cost-benefit analysis
double entry analysis

39. What decision criteria should managers use in selecting

projects when there is not enough capital to invest in all
available positive NPV projects?

the
the
the
the

modified internal rate of return

profitability index
discounted payback
internal rate of return

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