A stakeholder is any person or entity:
other than a stockholder or creditor who
potentially has a financial interest in the firm.
that initially started a firm and currently
has management control over that firm.
owning bonds or other long-term debt issued by
a corporation.
to whom the firm currently owes money.
owning shares of stock of a corporation.
A proxy fight occurs when:
a group solicits voting rights to replace the
board of directors.
the firm files for
bankruptcy.
the board of directors disagree on the members
of the management team.
a competitor offers to sell their ownership
interest in the firm.
the firm is declared
insolvent.
Which one of the following is least apt to
help convince managers to work in the best interest of the stockholders?
management compensation tied to the market
value of the firmâs stock
pay raises based on length of service
implementation of a stock option plan
threat of a proxy fight
threat of a takeover of the firm by
unsatisfied stockholders
Which one of the following actions by a
financial manager creates an agency problem?
refusing to borrow money when doing so will
create losses for the firm
increasing current costs in order to increase
the market value of the stockholders’ equity
agreeing to pay bonuses based on the market
value of the companyâs stock
agreeing to expand the company at the expense
of stockholders’ value
refusing to lower selling prices if doing so
will reduce the net profits
5.
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 $65,000
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.)
What is the present value of $13,450 to be
received 5 years from today if the discount rate is 5.25 percent?
$10,413.86
$10,309.72
$10,960.59
$10,271.13
$12,809.52
What is the future value of $3,076 invested
for 11 years at 4.50 percent compounded annually?
$4,974.04
$4,991.90
$4,692.38
$1,853.63
$5,009.75
A year ago, you purchased 500 shares of New
Tech stock at a price of $49.03 per share. The stock pays an annual dividend of
$.10 per share. Today, you sold all of your shares for $58.14 per share. What
is your total dollar return on this investment?
$4,733
$4,753
$4,755
$4,853
$4,605
One year ago, you purchased 300 shares of
IXC at a stock price of $22.05 per share, received $460 in dividends over the
year, and today sold all of your shares for $29.32 per share. What was your
dividend yield?
5.87%
6.95%
2.48%
192%
5.23%
Net working capital is defined as:
current assets plus
stockholders’ equity.
fixed assets minus
long-term liabilities.
current assets plus
fixed assets.
current assets minus
current liabilities.
total assets minus
total liabilities.
11.
Shelton, Inc., has
sales of $398,000, costs of $186,000, depreciation expense of $51,000,
interest expense of $32,000, and a tax rate of 40 percent.(Do not round intermediate calculations.)
What is the net income
for the firm?
Net income
$
Suppose the company
paid out $41,000 in cash dividends. What is the addition to retained
earnings?
Addition
to retained earnings
$
12.Which one of these
accounts is classified as a current asset on the balance sheet?
intangible asset
accounts payable
inventory
preferred stock
net plant and
equipment
The financial statement summarizing a firm’s
accounting performance over a period of time is the:
tax reconciliation
statement.
statement of cash
flows.
statement of equity.
income statement.
balance sheet.
A firm has sales of $1,310, net income of
$192, net fixed assets of $502, and current assets of $262. The firm has $94 in
inventory. What is the common-size statement value of inventory?
18.7 percent
12.3 percent
35.9 percent
45.5 percent
7.2 percent
Jessica’s Boutique has cash of $52, accounts
receivable of $52, accounts payable of $200, and inventory of $150. What is the
value of the quick ratio?
.75
.26
1.79
.52
1.27
16.
Galaxy United, Inc.
2009 Income Statement
($ in millions)
Net sales
$8,450
Less: Cost
of goods sold
7,230
Less:
Depreciation
410
Earnings
before interest and taxes
810
Less:
Interest paid
77
Taxable
Income
733
Less:
Taxes
257
Net income
$ 477
Galaxy United, Inc.
2008 and 2009 Balance Sheets
($ in millions)
2008
2009
2008
2009
Cash
$ 110
$ 160
Accounts
payable
$1,110
$1,140
Accounts
rec.
940
790
Long-term
debt
920
1,304
Inventory
1,490
1,530
Common
stock
$3,180
$2,980
Sub-total
$2,540
$2,480
Retained
earnings
510
686
Net fixed
assets
3,180
3,630
Total
assets
$5,720
$6,110
Total
liab. & equity
$5,720
$6,110
What is the days’ sales in receivables? (use 2009 values)
81.2
48.0
34.1
38.0
29.5
17.Al’s Sport Store has
sales of $3,060, costs of goods sold of $2,030, inventory of $549, and accounts
receivable of $404. How many days, on average, does it take the firm to sell
its inventory assuming that all sales are on credit?
113.6
97.4
116.3
65.5
98.7
18.
Galaxy United, Inc.
2009 Income Statement
($ in thousands)
Net sales
$5,710
Less: Cost
of goods sold
4,050
Less:
Depreciation
430
Earnings
before interest and taxes
1,230
Less:
Interest paid
28
Taxable
Income
1,202
Less:
Taxes
421
Net income
$ 781
Galaxy United, Inc.
2008 and 2009 Balance Sheets
($ in thousands)
2008
2009
2008
2009
Cash
$ 60
$ 170
Accounts
payable
$1,340
$1,210
Accounts
rec.
990
830
Long-term
debt
720
530
Inventory
1,490
1,960
Common
stock
$3,110
$3,299
Total
$2,540
$2,960
Retained
earnings
910
1,191
Net fixed
assets
3,540
3,270
Total
assets
$6,080
$6,230
Total
liab. & equity
$6,080
$6,230
What is the debt-equity ratio for 2009?
.23
.46
.27
.39
.48
19.The maximum rate at
which a firm can grow while maintaining a constant debt-equity ratio is best
defined by its:
sustainable rate of
growth.
rate of return on
assets.
internal rate of
growth.
rate of return on
equity.
average historical
rate of growth.
20.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:
plus the changes in
both liabilities and equity.
minus the change in
retained earnings.
minus the changes in
both liabilities and equity.
plus the changes in
liabilities minus the changes in equity.
minus the changes in
liabilities.
Which account is least apt to vary directly
with sales?
cost of goods sold
accounts receivable
accounts payable
notes payable
inventory
22.
Assume the following
ratios are constant:
Total
asset turnover
3.30
Profit
margin
6.2
%
Equity
multiplier
1.50
Payout
ratio
22
%
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
%
23. If the Hunter
Corp. has an ROE of 7 and a payout ratio of 15 percent, what is its
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
%
24The most common means
of financing a temporary cash deficit is a:
short-term unsecured
bank loan.
long-term unsecured
bank loan.
short-term issue of
corporate bonds.
long-term secured bank
loan.
short-term secured
bank loan.
.25.The most common means
of financing a temporary cash deficit is a:
short-term unsecured
bank loan.
long-term unsecured
bank loan.
short-term issue of
corporate bonds.
long-term secured bank
loan.
short-term secured
bank loan.
26.
Consider the following
financial statement information for the Rivers Corporation:
Item
Beginning
Ending
Inventory
$
10,500
$
11,500
Accounts
receivable
5,500
5,800
Accounts
payable
7,700
8,100
Net
sales
$
85,000
Cost
of goods sold
65,000
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
27.
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
(Click to select)
Use
Source
$
Accounts
receivable
(Click to select)
Use
Source
$
Inventories
(Click to select)
Source
Use
$
Property,
plant, and equipment
(Click to select)
Use
Source
$
Accounts
payable
(Click to select)
Use
Source
$
Accrued
expenses
(Click to select)
Use
Source
$
Long-term
debt
(Click to select)
Use
Source
$
Common
stock
(Click to select)
Use
Source
$
Accumulated
retained earnings
(Click to select)
Source
Use
$
28.Ancient Industries
just paid a dividend of $1.03 a share. The company announced today that it
expects to pay $.90 a share next year and a final liquidating dividend of
$18.44 in two years. What is one share of this stock worth today if the
required rate of return is 16 percent?
$13.23
$14.48
$13.44
$13.60
$14.94
29.If a bond provides a
real rate of return of 2.89 percent at a time when inflation is 3.21 percent,
what is the nominal rate of return on the bond?
6.13%
6.10%
6.16%
6.19%
6.22%
30.Rosita’s announced
that its next annual dividend will be $1.65 a share and all future dividends
will increase by 2.5 percent annually. What is the maximum amount you should
pay to purchase a share of this stock if you require a 12 percent rate of
return?
$16.94
$13.75
$17.80
$17.37
$15.46
The Fisher formula is expressed as _____ where
R is the nominal rate, r is the real rate, and h is the
inflation rate.
R = r Ãh
1 + R = (1 + r)
Ã(1 + h)
1 + h = (1 + r) / (1 +
R)
1 + R = (1 + r) / (1 +
h)
r = R Ã h
32.Peter’s Audio has a
yield to maturity on its debt of 7.8 percent, a cost of equity of 12.4 percent,
and a cost of preferred stock of 8 percent. The firm has 105,000 shares of
common stock outstanding at a market price of $22 a share. There are 25,000
shares of preferred stock outstanding at a market price of $45 a share. The
bond issue has a total face value of $1.5 million and sells at 98 percent of
face value. If the tax rate is 34 percent, what is the weighted average cost of
capital?
9.45%
8.54%
9.04%
9.22%
8.69%
33.
Filer Manufacturing
has 7.3 million shares of common stock outstanding. The current share price
is $43, and the book value per share is $3. The company also has two bond
issues outstanding. The first bond issue has a face value of $68 million and
a coupon rate of 6 percent and sells for 109.3 percent of par. The second
issue has a face value of $58 million and a coupon rate of 6.5 percent and
sells for 106.9 percent of par. The first issue matures in 7 years, the
second in 28 years.
Suppose the companyâs
stock has a beta of 1.4. The risk-free rate is 2.1 percent, and the market
risk premium is 6 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 34 percent. What is the companyâs WACC?(Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC
%
34.A firmâs WACC can be
correctly used to discount the expected cash flows of a new project when that
project:
will be financed with
the same proportions of debt and equity as those currently used by the overall
firm.
will be financed
solely with new debt and internal equity.
will be financed
solely with internal equity.
has the same level of
risk as the firmâs current operations.
will be managed by the
firmâs current managers.
35.The CAPM has an
advantage over DDM because the CAPM:
is more simplistic.
applies to firms that pay dividends.
ignores changes in the
overall market over time.
specifically considers a firmâs degree of operating
leverage.
explicitly adjusts for
risk.
36.The weighted average
cost of capital for a firm is the:
discount rate which
the firm should apply to all of the projects it undertakes.
overall rate which the
firm must earn on its existing assets to maintain its value.
maximum rate which the
firm should require on any projects it undertakes.
rate of return that
the firm’s preferred stockholders should expect to earn over the long term.
rate the firm should
expect to pay on its next bond issue.
37The present value of an investment’s future
cash flows divided by the initial cost of the investment is called the:
average accounting
return.
net present value.
profile period.
internal rate of
return.
profitability index.
38No matter how many
forms of investment analysis you employ:
only the first three
years of a project ever affect its final outcome.
a project will never
be accepted unless the payback period is met.
the internal rate of
return will always produce the most reliable results.
the initial costs will
generally vary considerably from the estimated costs.
the actual results
from a project may vary significantly from the expected results.
An independent investment is acceptable if the
profitability index (PI) of the investment is:
greater than one.
greater than the
internal rate of return.
greater than a
pre-specified rate of return.
less than one.
less than the internal
rate of return.
40.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?
$927,800
$953,400
$963,200
$948,900
$962,300
41.The net present value
method of capital budgeting analysis does all of the following except:
incorporate risk into
the analysis.
discount all future
cash flows.
use all of a project’s
cash flows.
consider all relevant
cash flow information.
provide a specific
anticipated rate of return.
42
Flatte Restaurant is
considering the purchase of a $10,100 soufflé maker. The soufflé maker has an
economic life of four years and will be fully depreciated by the
straight-line method. The machine will produce 2,050 soufflés per year, with
each costing $2.45 to make and priced at $5.30. Assume that the discount rate
is 14 percent and the tax rate is 40 percent.
What is the NPV of the
project?(Do not round
intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
NPV
$
Should the company
make the purchase?
Yes
No
43.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?
$935.56
$2,903.19
$2,474.76
$3,011.40
$1,980.02
44What 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.
$249.65
$68.20
$86.87
$371.02
$270.16
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
todayâs dollars for every $1 invested?
$1.03
$1.05
$.99
$1.01
$.97
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