FIN571 FREE Final Exam Study Guide

8/9/2019 FIN571 FREE Final Exam Study Guide

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FIN571 Final Exam “ Study Guide “ ; ) - October 21!

Question 1

Which of the following is considered a hybrid organizational form?

partnership

sole proprietorship

corporation

[ limited liability partnership]

Question 2

Your answer is correct.

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

[a shareholder]

the board of directors

a company engineer



the CEO of the firm

Question 3


Teakap !nc. has current assets of " #$%&'#( and total assets of "$)#('&* for the year ending+eptember ', (,,&. !t also has current liabilities of "#,$#,#( common e-uity of "#%,,,,, andretained earnings of "#$&)'$. /ow much long0term debt does the firm ha1e?

[$803,010]

"#)$$,((

"(',',#,

"(#('&#(

Question 4


Which of the following presents a summary of the changes in a firm2s balance sheet from thebeginning of an accounting period to the end of that accounting period?

The statement of working capital.

[The statement of cash flos]!



The statement of retained earnings.

The statement of net worth.

Question "


#fficiency ratio3 4ateway Corp. has an in1entory turno1er ratio of %.&. What is the firm5s days5s sales

in in1entory?

&$.' days

["!2 days]

&#. days

%.* days

Question


%e&era'e ratio( Your firm has an e-uity multiplier of (.$. What is its debt0to0e-uity ratio?

[1!4)]



#.$

,

,.&,

Question )


Which of the following is not a method of 6benchmarking7?

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

E1aluating a single firm2s performance o1er time.

Conduct an industry group analysis.

[*tili+e the u-ont system to analy+e a firm.s performance] .

Question 8


-resent &alue( 8ack 9obbins is sa1ing for a new car. /e needs to ha1e " (#,,, for the car in threeyears. /ow much will he ha1e to in1est today in an account paying ) percent annually to achie1e his

target? :9ound to nearest dollar.;



"(&$%$

"#*$$$

[$1,)0]

"((&),

Question /


- of multiple cash flos( <erris !nc. has borrowed from their bank at a rate of ) percent and willrepay the loan with interest o1er the ne=t fi1e years. Their scheduled payments starting at the end ofthe year are as follows>"$%,,,, "%&,,,, "%,,,, ")%,,, and "#,,,,,,. What is thepresent 1alue of these payments? :9ound to the nearest dollar.;

"('%(,,

"($'#(($

[$2,81",88"]

"(&#%$'(

Question 10




- of multiple cash flos( @a= Corp. is e=pecting the following cash flows>"*,,, "##(,,,"#&$,,, ")$,,, and "($(,,,>o1er the ne=t fi1e years. !f the company5s opportunity cost is #%percent what is the present 1alue of these cash flows? :9ound to the nearest dollar.;

"$(*%&,

"$#$'((

"$('%

"$),*,&

Question 11


uture &alue of an annuity( 8ayade1 threya has started on his first @ob. /e plans to start sa1ing forretirement early. /e will in1est "%,,, at the end of each year for the ne=t $% years in a fund that willearn a return of #, percent. /ow much will 8ayade1 ha1e at the end of $% years? :9ound to thenearest dollar.;

[$3,"/4,"24]

"(&&*,$

"#$%&,,



"%(''$$(

Question 12


+ero= stock was selling for "(, two years ago. The stock sold for "(% one year ago and it is currentlyselling for "(). +ero= pays a "#.#, di1idend per year. What was the rate of return for owning +ero= inthe most recent year? :9ound to the nearest percent.;

#(A

[1]

'(A

$,A

Question 13


ond price( 9egatta !nc. has si=0year bonds outstanding that pay a ).(% percent coupon rate.!n1estors buying the bond today can e=pect to earn a yield to maturity of &.)% percent. What should



the company5s bonds be priced at today? ssume annual coupon payments. :9ound to the nearestdollar.;

[$1,0]

"#,#$

"*(

"*('

Question 14


- of di&idends( Be=t year 8enkins Traders will pay a di1idend of "'.,,. !t e=pects to increase itsdi1idend by ",.(% in each of the following three years. !f their re-uired rate of return is #$ percentwhat is the present 1alue of their di1idends o1er the ne=t four years?

"#(.%,

"#'.%,

[$/!)2]

"##.&'

Question 1"




apital rationin'! TuleTime Comics is considering a new show that will generate annual cash flows of "#,,,,, into the infinite future. !f the initial outlay for such a production is "#%,,,,, and theappropriate discount rate is & percent for the cash flows then what is the profitability inde= for thepro@ect?

[1!11]

#.*,

,.*,

,.##

Question 1


What decision criteria should managers use in selecting pro@ects when there is not enough capital toin1est in all a1ailable positi1e BD pro@ects?

[The profitability inde5].

The internal rate of return.

The discounted payback.

The modified internal rate of return.

Question 1)




6o firms estimate their cost of capital( The WCC for a firm is #'.,, percent. You know that thefirm5s cost of debt capital is #, percent and the cost of e-uity capital is (,A. What proportion of thefirm is financed with debt?

',A

%,A

''A

[)0]

Question 18


The cost of e7uity3 4angland Water 4uns !nc. is e=pected to pay a di1idend of "(.#, one year fromtoday. !f the firm5s growth in di1idends is e=pected to remain at a flat ' percent fore1er then what isthe cost of e-uity capital for 4angland if the price of its common shares is currently "#.%,?

#(.,,A

[1"!00]

#%.'&A

#$.&%A



Question 1/


!f a company5s weighted a1erage cost of capital is less than the re-uired return on e-uity then the

firm3

!s percei1ed to be safe

!s financed with more than %,A debt

ust ha1e preferred stock in its capital structure

[6as debt in its capital structure]

Question 20


firm5s capital structure is the mi= of financial securities used to finance its acti1ities and can includeall of the following e=cept

stock.

bonds.

[e7uity options].

preferred stock.



Question 21


9 -roposition 1( Fynamo Corp. produces annual cash flows of "#%, and is e=pected to e=ist

fore1er. The company is currently financed with % percent e-uity and (% percent debt. Your analysistells you that the appropriate discount rates are #, percent for the cash flows and percent for thedebt. You currently own #, percent of the stock.

!f Fynamo wishes to change its capital structure from % percent to &, percent e-uity and use thedebt proceeds to pay a special di1idend to shareholders how much debt should they issue?

"'%

[$22"]

"'(#

"&,,

Question 22


ultiple :nalysis( Turnbull Corp. had an EG!T of "($ million in the last fiscal year. !ts depreciationand amortization e=penses amounted to ")$ million. The firm has #'% million shares outstanding anda share price of "#(.),. competing firm that is 1ery similar to Turnbull has an enterprise1alueHEG!TF multiple of %.$,. What is the enterprise 1alue of Turnbull Corp.? 9ound to the nearest

million dollars.

"#'#% million



"$%'.& million

[$1,)8) million]

"#''$ million

Question 23


#5ternal financin' needed3 8ockey Company has total assets worth "$$#&&%. t year0end it willha1e net income of "(#'$( and pay out &, percent as di1idends. !f the firm wants no e=ternalfinancing what is the growth rate it can support?

'(.*A

(.'A

',.'A

[2"!1]

Question 24


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



[a limited partner]

a general partner

none of these

a sole proprietor

Question 2"


Which of the following does ma=imizing shareholder wealth not usually account for?

The timing of cash flows.

[;o&ernment re'ulation!]

9isk.

mount of Cash flows.

Question 2




The strategic plan does <=T identify

the lines of business a firm will compete in.

ma@or areas of in1estment in real assets.

[or>in' capital strate'ies]!

future mergers alliances and di1estitures.

Question 2)


<irms that achie1e higher growth rates without seeking e=ternal financing

none of these.

ha1e a low plowback ratio.

[ha&e less e7uity and?or are able to 'enerate hi'h net income leadin' to a hi'h @=#]!

are highly le1eraged.

Question 28




-ayout and retention ratio( Frekker !nc. has re1enues of "'#(&& costs of "((,((( interestpayment of "'#$ and a ta= rate of '$ percent. !t paid di1idends of "'$#(% to shareholders. <indthe firm5s di1idend payout ratio and retention ratio.

%%A $%A

#%A )%A

[8", 1"]

$%A %%A

Question 2/


The cash con1ersion cycle

shows how long the firm keeps its in1entory before selling it.

[be'ins hen the firm in&ests cash to purchase the ra materials that ould be usedto produce the 'oods that the firm manufactures!]

begins when the firm uses its cash to purchase raw materials and ends when the firm collectscash payments on its credit sales.

estimates how long it takes on a1erage for the firm to collect its outstanding accounts recei1ablebalance.

Question 30




You are pro1ided the following working capital information for the 9idge Company3

@id'e ompany

:ccount $

!n1entory "#()*,

ccounts recei1able #(),,

ccounts payable #(&,

Bet sales "#($%)*

Cost of goods sold **&',

ash con&ersion cycle3 What is the cash con1ersion cycle for 9idge Company?

#(*.* days

)'.% days

[38!3 days]

$&.$ days

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FIN571 FREE Final Exam Study Guide