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Title: FIN 571 Final Exam New Assignment

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FIN 571 Final Exam (Newest) Assignment
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1. In a general partnership, the general partners
have _____ liability and have _____ control over
day-to-day operations.
limited no
no total
unlimited no
limited total
unlimited total
2. Which one of these is a correct definition?
Long-term debt is defined as a residual claim on
a firms assets.
Net working capital equals current assets plus
current liabilities.
Current liabilities are debts that must be repaid
in 18 months or less.
Tangible assets are fixed assets such as patents.
Current assets are assets with short lives, such
as inventory.
3. The owners of a limited liability company
generally prefer
being taxed personally on all business income.
having liability exposure similar to that of a
general partner.
having liability exposure similar to that of a
sole proprietor.
being taxed like a corporation.

4. Which one of the following is least apt to
help convince managers to work in the best
interest of the stockholders?pay raises based on
length of service
implementation of a stock option plan
threat of a proxy fight
management compensation tied to the market value
of the firms stock
threat of a takeover of the firm by unsatisfied
stockholders
5.
a. Compute the future value of 2,000 compounded
annually for 20 years at 4 percent. (Do not round
intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.)
Future value _________
b. Compute the future value of 2,000 compounded
annually for 15 years at 10 percent. (Do not
round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Future value _________
c. Compute the future value of 2,000 compounded
annually for 25 years at 4 percent. (Do not round
intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.)
Future value _________
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6. For each of the following, compute the present
value (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g.,
32.16.)
Present Value Years Interest
Rate Future value
_________ 14
             8          15,551
_________ 5
        14 52,557
_________ 30
           15
887,073
_________ 35
8 551,164
7. First City Bank pays 8 percent simple interest
on its savings account balances, whereas Second
City Bank pays 8 percent interest compounded
annually.
If you made a 74,000 deposit in each bank, how
much more money would you earn from your Second
City Bank account at the end of 8 years? (Do not
round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Difference in accounts
_________
8. Winslow, Inc. stock is currently selling for
40 a share. The stock has a dividend yield of
3.8 percent. How much dividend income will you
receive per year if you purchase 500 shares of
this stock?
1,053
152
190
329
760

9. You bought 360 shares of stock at a total cost
of 7,754.40. You received a total of 403.20 in
dividends and sold your shares for 19.98 a
share. What was your total rate of return?
5.38
7.24
-1.29
3.67
-2.04
10. According to generally accepted accounting
principles (GAAP), revenue is recognized as
income when
income taxes are paid on the revenue earned.
the transaction is complete and the goods or
services are delivered.
a contract is signed to perform a service or
deliver a good.
payment is requested.
managers decide to recognize it.
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11. Sankey, Inc., has current assets of 4,230,
net fixed assets of 25,700, current liabilities
of 3,500, and long-term debt of 14,400. (Do not
round intermediate calculations.)
What is the value of the shareholders' equity
account for this firm?
Shareholders' equity _________
How much is net working capital?
Net working capital _________
12. The financial statement summarizing a firm's
accounting performance over a period of time is
the
statement of equity..
income statement.
tax reconciliation statement.
balance sheet.
statement of cash flows.
13. Net working capital is defined as
current assets minus current liabilities.
total assets minus total liabilities.
fixed assets minus long-term liabilities.
current assets plus stockholders' equity.
current assets plus fixed assets.

14. Jessica's Boutique has cash of 59, accounts
receivable of 62, accounts payable of 210, and
inventory of 140. What is the value of the quick
ratio?
.30
1.82
.67
.58
1.24
15. Al's Sport Store has sales of 2,940, costs
of goods sold of 2,090, inventory of 526, and
accounts receivable of 445. How many days, on
average, does it take the firm to sell its
inventory assuming that all sales are on credit?
90.6
65.3
119.9
91.9
120.4
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16. Galaxy United, Inc.2009 Income Statement( in
millions)
Net sales
8,550
Less Cost of goods sold
7,150
Less Depreciation
410
Earnings before interest and taxes
990
Less Interest paid
82
Taxable Income
908
Less Taxes
318
Net income
590
Galaxy United, Inc.2008 and 2009 Balance Sheets(
in millions)
                                2008
                2009
                             2008
          2009
Cash                      120
                140        Accounts
payable         1,120              1,130
Accounts rec.     940
790           Long-term debt
990                    1,201
Inventory            1,480
1,520      Common stock
3,140              2,940
Sub-total             2,540
2,450    Retained earnings
510                     799
Net fixed assets 3,220
3,620
Total assets        5,760
6,070    Total liab. equity        5,760
        6,070
What is the return on equity for 2009?
14 percent

17. Reliable Cars has sales of 3,790, total
assets of 3,350, and a profit margin of 5
percent. The firm has a total debt ratio of 41
percent. What is the return on equity?
9.59 percent
12.20 percent
13.80 percent
8.47 percent
5.66 percent
18. A firm has a debt-equity ratio of .41. What
is the total debt ratio?
1.44
.31
.29
1.41
.69

19. The return on equity can be calculated as
ROA Equity multiplier.
ROA Debt-equity ratio.
ROA (Net income / Total assets).
Profit margin ROA Total asset turnover.
Profit margin ROA.
20. One of the primary weaknesses of many
financial planning models is that they
rely too much on financial relationships and too
little on accounting relationships.
are iterative in nature.
ignore the goals and objectives of senior
management.
ignore cash payouts to stockholders.
ignore the size, risk, and timing of cash flows.
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21. In the financial planning model, the external
financing needed (EFN) as shown on a pro forma
balance sheet is equal to the changes in assets
minus the change in retained earnings.
minus the changes in both liabilities and equity.
minus the changes in liabilities.
plus the changes in both liabilities and equity.
plus the changes in liabilities minus the changes
in equity.
22. The Wintergrass Company has an ROE of 15.1
percent and a payout ratio of 40 percent.
What is the companys sustainable growth rate?
(Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Sustainable growth rate
_________
23. Assume the following ratios are constant
Total asset turnover
2.50
Profit margin
5.4
Equity multiplier
1.30
Payout ratio
35
What is the sustainable growth rate? (Do not
round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places,
e.g., 32.16.)
Sustainable growth rate _________

24. The length of time between the acquisition of
inventory and its sale is called the
cash cycle.
accounts payable period.
accounts receivable period.
inventory period.
operating cycle.
25. A prearranged, short-term bank loan made on a
formal or informal basis, and typically reviewed
for renewal annually, is called a
compensating balance.
cleanup loan.
roll-over.
line of credit.
letter of credit.
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26. Here are the most recent balance sheets for
Country Kettles, Inc. Excluding accumulated
depreciation, determine whether each item is a
source or a use of cash, and the amount. (Do not
round intermediate calculations and round your
answers to the nearest whole number, e.g., 32.
Input all amounts as positive values) COUNTRY
KETTLES, INC. Balance Sheet December 31,
2016
                                   2015

2016       Assets

                Cash
                                          31,800

31,030 Accounts receivable

71,300
       74,560   Inventories

62,200
                64,625   Property, plant,
and equipment              161,000

172,600     Less Accumulated depreciation
    (47,040)
         (51,300)
                 Total assets
                                  279,260

291,515
Liabilities and Equity

                Accounts payable
                            46,300

48,530 Accrued expenses
                               7,680

6,740     Long-term debt
                         27,000
                               30,100
Common stock
          30,000
                35,400   Accumulated
retained earnings
168,280
                170,745
Total liabilities and equity
279,260
    291,515              Item

           Source/Use
Amount
Cash


_________      Accounts receivable


_________      Inventories


_________      Property, plant, and
equipment

_________      Accounts payable


_________      Accrued expenses


_________      Long-term debt


_________      Common stock


_________      Accumulated retained
earnings

_________
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27. Consider the following financial statement
information for the Rivers Corporation
Item
        Beginning
                Ending
Inventory
   10,900
                11,900
Accounts receivable
5,900
                6,200
Accounts payable
8,100
                8,500
  Net sales
                                89,000
Cost of goods sold
                                69,000
Calculate the operating and cash cycles. (Use 365
days a year. Do not round intermediate
calculations and round your answers to 2 decimal
places, e.g., 32.16.)
Operating cycle _________days
Cash cycle
_________days
28. The _____ premium is that portion of the bond
yield that represents compensation for potential
difficulties that might be encountered should the
bond holder wish to sell the bond prior to
maturity.
default risk
liquidity
taxability
inflation
interest rate risk

29. How much are you willing to pay for one share
of stock if the company just paid an annual
dividend of 1.03, the dividends increase by 3
percent annually, and you require a rate of
return of 15 percent?
8.84
6.87
9.49
10.40
8.58
30. The rate at which a stock's price is expected
to appreciate (or depreciate) is called the _____
yield.
total
capital gains
current
earnings
dividend
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31. Which one of these applies to the dividend
growth model of stock valuation?
The rate of growth must be positive.
The model cannot be applied if the growth rate is
zero.
The dividend must be for the same time period as
the stock price.
The dividend amount must be constant over time.
The growth rate must be less than the discount
rate.
32. You are given the following information for
Huntington Power Co. Assume the companys tax
rate is 40 percent.
Debt
8,000 6.9 percent coupon bonds outstanding,
1,000 par value, 20 years to maturity, selling
for 105 percent of par the bonds make semiannual
payments.
Common stock 410,000 shares
outstanding, selling for 59 per share the beta
is 1.15.
Market 9 percent
market risk premium and 4.9 percent risk-free
rate.
What is the company's WACC? (Do not round
intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g.,
32.16.)
WACC _________

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33. Filer Manufacturing has 7.7 million shares of
common stock outstanding. The current share price
is 47, and the book value per share is 5. The
company also has two bond issues outstanding. The
first bond issue has a face value of 68.8
million and a coupon rate of 6.4 percent and
sells for 108.9 percent of par. The second issue
has a face value of 58.8 million and a coupon
rate of 6.9 percent and sells for 107.7 percent
of par. The first issue matures in 9 years, the
second in 26 years. Suppose the companys stock
has a beta of 1.3. The risk-free rate is 2.5
percent, and the market risk premium is 6.4
percent. Assume that the overall cost of debt is
the weighted average implied by the two
outstanding debt issues. Both bonds make
semiannual payments. The tax rate is 40 percent.
What is the companys WACC? (Do not round
intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g.,
32.16.) WACC _________
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34. A firms WACC can be correctly used to
discount the expected cash flows of a new project
when that project
has the same level of risk as the firms current
operations.
will be financed solely with new debt and
internal equity.
will be financed with the same proportions of
debt and equity as those currently used by the
overall firm.
will be managed by the firms current managers.
will be financed solely with internal equity.
35. When computing WACC, you should use the
pretax yield to maturity because it considers the
current market price of debt.
pretax cost of debt because it is the actual rate
the firm is paying bondholders.
pretax cost of debt because most corporations pay
taxes at the same tax rate.
current yield because it is based on the current
market price of debt.
aftertax cost of debt because interest is tax
deductible.
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36. The CAPM has an advantage over DDM because
the CAPM
ignores changes in the overall market over time.
is more simplistic.
specifically considers a firms degree of
operating leverage.
applies to firms that pay dividends.
explicitly adjusts for risk.
37. The net present value method of capital
budgeting analysis does all of the following
except
consider all relevant cash flow information.
provide a specific anticipated rate of return.
use all of a project's cash flows.
discount all future cash flows.
incorporate risk into the analysis.
38. Lee's Furniture just purchased 24,000 of
fixed assets that are classified as 5-year MACRS
property. The MACRS rates are 20 percent, 32
percent, 19.2 percent, 11.52 percent, 11.52
percent, and 5.76 percent for Years 1 to 6,
respectively. What is the amount of the
depreciation expense for the third year?
4,800
2,507
4,608
2,765

39. Jamestown Ltd. currently produces boat sails
and is considering expanding its operations to
include awnings. The expansion would require the
use of land the firm purchased three years ago at
a cost of 142,000 that is currently valued at
137,500. The expansion could use some equipment
that is currently sitting idle if 6,700 of
modifications were made to it. The equipment
originally cost 139,500 six years ago, has a
current book value of 24,700, and a current
market value of 39,000. Other capital purchases
costing 780,000 will also be required. What is
the amount of the initial cash flow for this
expansion project?
963,200
948,900
927,800
962,300
953,400
40. If you want to review a project from a
benefit-cost perspective, you should use the
_______ method of analysis.
internal rate of return
profitability index
net present value
payback
discounted payback
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41. The profitability index of an investment
project is the ratio of the
net present value of every project cash flow to
the initial cost.
net present value of the projects cash outflows
divided by the net present value of its inflows.
internal rate of return to the current market
rate of interest.
present value of the Time 1 and subsequent cash
flows to the initial cost.
average net income to the average investment.
42. A project costing 6,200 initially should
produce cash inflows of 2,860 a year for three
years. After the three years, the project will be
shut down and will be sold at the end of Year 4
for an estimated net cash amount of 3,300. What
is the net present value of this project if the
required rate of return is 11.3 percent?
2,903.19
2,474.76
935.56
1,980.02
3,011.40

43. Wilsons Market is considering two mutually
exclusive projects that will not be repeated. The
required rate of return is 13.9 percent for
Project A and 12.5 percent for Project B. Project
A has an initial cost of 54,500, and should
produce cash inflows of 16,400, 28,900, and
31,700 for Years 1 to 3, respectively. Project B
has an initial cost of 69,400, and should
produce cash inflows of 0, 48,300, and 42,100,
for Years 1 to 3, respectively. Which project, or
projects, if either, should be accepted and why?
Project B because it has the largest total cash
inflow
Project A because it has the higher required
rate of return
Project B because it has a negative NPV which
indicates acceptance
neither project because neither has an NPV equal
to or greater than its initial cost
Project A because its NPV is positive while
Project Bs NPV is negative
44. What is the net present value of a project
that has an initial cash outflow of 7,670 and
cash inflows of 1,280 in Year 1, 6,980 in Year
3, and 2,750 in Year 4? The discount rate is
12.5 percent.
270.16
86.87
68.20
371.02
249.65

45. A proposed project costs 300 and has cash
flows of 80, 200, 75, and 90 for Years 1 to
4, respectively. Because of its high risk, the
project has been assigned a discount rate of 16
percent. In dollars, how much will this project
return in todays dollars for every 1 invested?
.99
1.01
1.05
.97
1.03
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