STR 581 Capstone Final Examination,

Part Two

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STR 581 Capstone Final Examination, Part Two
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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 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%

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 approval of the budget by the stockholders

the valuation of inventories

the preparation of long-term plans

the 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 statement of net worth

the statement of cash flows

the statement of working capital

the statement of 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 million

$453.6 million

$1,315 million

$1,787 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 debt-to-equity ratio?

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

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