FIN571/FIN 571 FINAL EXAM (LATEST) 100% SOLUTION

1. Which of the following is considered a hybrid organizational form?

Limited liability partnership

Partnership

Corporation

Sole proprietorship

2. Which of the following is a principal within the agency relationship?

A shareholder

A company engineer

The board of directors

The CEO of the firm

3. Which of the following presents a summary of the changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period?

The statement of cash flows.

The statement of retained earnings.

The statement of working capital.

The statement of net worth

4. 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?

$2,303,010

$2,123,612

$803,010

$1,844,022

5. Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm’s days’s sales in inventory?

64.3 days

57.9 days

65.2 days

61.7 days

6. Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

0.60

1.74

0

1.47

7. Which of the following is not a method of “benchmarking”?

Utilize the DuPont system to analyze a firm’s performance.

Identify a group of firms that compete with the company being analyzed.

Conduct an industry group analysis

Evaluating a single firm’s performance over time.

8. 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

$16,670

$19,444

9. 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.)

$2,615,432

$2,431,224

$2,815,885

$2,735,200

10. 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 company’s opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

$429,560

$477,235

$414,322

$480,906

11. 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.)

$2,667,904

$3,594,524

$1,745,600

$5,233,442

12. 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%

40%

12%

13. 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.)

$923

$972

$1,066

$1,014

14. 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?

$9.72

$12.50

$11.63

$13.50

15. 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?

1.11

0.90

1.90

0.11

16. 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

17. 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%

70%

33%

50%

18. If a company’s 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

has debt in its capital structure

partnership

19. 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?

15.00%

12.00%

15.36%

14.65%

20. 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.

21. 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?

$600

$225

$321

$375

22. 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.

$1,315 million

$1,334 million

$1,787 million

$453.6 million

23. 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%

24. Which of the following cannot be engaged in managing the business?

a sole proprietor

a general partner

a limited partner

none of these

25. Which of the following does maximizing shareholder wealth not usually account for?

Government regulation.

Risk.

The timing of cash flows.

Amount of Cash flows.

26. 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.

27. Firms that achieve higher growth rates without seeking external financing

none of these.

have a low plowback ratio.

have less equity and/or are able to generate high net income leading to a high ROE.

are highly leveraged.

28. 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%

45%, 55%

15%, 85%

55%, 45%

29. 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.

30. 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?

129.9 days

46.4 days

83.5 days

38.3 days

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