Download 1 - JustAnswer

1.
The opening of new international markets to the U.S. can be attributed to:
a. acceptance of a free market system by third world countries.
b. regulation of U.S. industries.
c. increase in information technology.
d. a and c.
e. all of the above.
2.
Your firm has the following balance sheet statement items: total current liabilities of
$805,000; total assets of $2,655,000; fixed and other assets of $1,770,000; and long-term
debt of $200,000. What is the amount of the firm’s net working capital?
a. $25,000
b. $325,000
c. $770,000
d. $80,000
Current Assets = $2,655,000 - $1,770,000 = $885,000
NWC = $885,000 - $805,000
= $80,000
3.
If Challenge Corporation has sales of $2 million per year (all credit) and an average
collection period of 35 days, what is its average amount of accounts receivable (assume a
360-day year)?
a. $194,444
b. $ 57,143
c. $ 5,556
d. $ 97,222
Average Collection Period = 365 / Receivables Turnover
35 = 365 / Receivables Turnover
Receivables Turnover = 360 / 35
= 10.2857
Turnover = Sales / Average Receivables
10.2857 = $2,000,000 / Av. Rec
Av. Rec. = $2,000,000 / 10.2857
= $194,444
4.
The primary purpose of a cash budget is to:
a. determine the level of investment in current and fixed assets.
b. determine accounts payable.
c. provide a detailed plan of future cash flows.
d. determine the estimated income tax for the year.
5.
Dawn Swift discovered that 20 years ago, the average tuition for one year at an Ivy League
school was $4,500. Today, the average cost is $29,000. What is the growth rate in tuition
cost over this 20-year period? Round off to the nearest 0.1%.
a.
15.5%
b.
4.2%
c.
9.8%
d.
10.6%
$29,000 = $4,500 (1+r)20
(1+r)20 = $29,000 / $4,500
(1+r)20 = 6.44
20
(1  r ) 20  20 6.44
1+ r = 1.09764
r = 1.09764 – 1
r = 0.09764
= 9.8%
6.
You are considering investing in Ford Motor Company. Which of the following is an
example of diversifiable risk?
a. Risk resulting from the possibility of a stock market crash
b. Risk resulting from uncertainty regarding a possible strike
against Ford
c. Risk resulting from an expected recession
d. Risk resulting from interest rates decreasing
7.
If current market interest rates rise, what will happen to the value of outstanding bonds?
a. It will rise.
b. It will fall.
c. It will remain unchanged.
d. There is no connection between current market interest rates and the value of
outstanding bonds.
8.
The XYZ Company, whose common stock is currently selling for $40 per share, is
expected to pay a $2.00 dividend in the coming year. If investors believe that the expected
rate of return on XYZ is 14%, what growth rate in dividends must be expected?
a. 5%
b. 14%
c. 9%
d. 6%
$40 = 2 / (0.14-g)
40(0.14-g) = 2
5.6 – 40g = 2
3.6 = 40 g
g = 3.6 / 40
= 0.09
9.
You are considering investing in a project with the following year-end after-tax cash flows:
Year 1: $5,000
Year 2: $3,200
Year 3: $7,800
If the initial outlay for the project is $12,113, compute the project’s IRR.
a. 14%
b. 10%
c. 32%
d. 24%
Please see the attached excel sheet for calculations
10.
If the federal income tax rate were increased, the impact of the tax increase on acceptable
investment proposals would be to (ignore the impact of the tax change on the cost of
capital) decrease the:
a. net present value.
b. internal rate of return.
c. payback period.
d. both a & b.
e. all of the above.
11.
Evaluating risky capital investments by meanswer of the risk-adjusted discount rate:
a. assumes that the risk of the project equals the average risk of the firm.
b. requires the certainty equivalent of the project to be determined.
c. assumes that the risk of the project increases through time.
d. results in a lower risk-adjusted net present value for projects with above-average
risk than would be obtained by discounting cash flows at the marginal cost of
capital.
12.
J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the
yield to maturity on these bonds is 14%. If the firm’s tax rate is 40%, what is the cost of
debt to J & B?
a. 12.0%
b. 14.0%
c. 8.4%
d. 5.6%
Cost of Debt = 14 × (1-0.4)
= 8.4%
13.
What does the free cash flow method of business valuation focus on?
a. Discount market value added to the present
b. Discount current year earnings to the present
c. Discount current year cash flows to the present
d. Discount projected future cash flows to the present
14.
An advantage of a private placement is:
a. speed.
b. no flotation costs.
c. financial flexibility.
d. a bigger market.
15.
Tom’s Trashbins, Inc. has fixed costs of $225,000. Tom’s trashbins sell for $45 and have a
unit variable cost of $20. What is Tom’s break-even point in units?
a. 8,500
b. 8,750
c. 9,000
d. 9,250
= $225,000 / ($45 - $20)
= 9,000
16.
The Goreman Corporation has a debt ratio of 33.33%, and it needs to raise $100,000 to
expand. Management feels that an optimal debt ratio is 16.67%. Sales are currently
$750,000, and the total assets turnover is 7.5. How should the expansion be financed so as
to produce the desired debt ratio?
a. Finance it all with debt.
b. Finance it all with equity.
c. Finance 20% with debt and 80% with equity.
d. Finance 40% with debt and 60% with equity.
e. Finance 50% with debt and 50% with equity.
17.
Which of the following is a reason that a company would repurchase its own shares of
stock in the market?
a. To award employees
b. To increase outstanding equity shares
c. To have shares available to offer a merger target
d. Both a & b
e. All of the above
18.
Which of the following is not an advantage for a company using cash budgeting
procedures?
a. It makes forecasting short-term interest rates more accurate.
b. It makes managing inventory easier under a seasonal production approach.
c. It highlights the fluctuating levels of accounts receivable and inventory for a given
production plan.
d. It helps the firm plan its current asset levels for a given production plan.
19.
Which of the following does not have an important direct effect on cash flow?
a. The payment patterns of customers
b. The time it takes for suppliers to process payments made by check
c. The ability of the banking system to process checks efficiently
d. The general direction of the Federal Reserve Board’s interest rate policy
20.
Three loan applicants have provided the following information:
Applicant A
Applicant B
Applicant C
EBIT Sales
Total Total
Assets Assets
0.2
0.8
0.1
0.4
0.3
0.7
Market Value Retained
of Equity Earnings
Book Value Total
of Debt
Assets
1.0
0.3
1.2
0.4
0.5
0.4
Working
Capital
Total
Assets
0.8
0.4
0.7
If we use Altman’s Z-score as a preliminary hurdle to determine to whom we should
extend credit, then:
a. we would extend credit to all three applicants.
b. we would extend credit to applicants A and B but not to applicant C.
c. we would extend credit to applicants A and C but not to applicant B.
d. we would extend credit to applicants B and C but not to applicant A.
Altman found that of the firms that went bankrupt over this time period, 94 percent
had Z scores of less than 2.7 one year prior to bankruptcy and only 6 percent had
scores above 2.7. Conversely, of those firms that did not go bankrupt, only 3 percent
had Z scores below 2.7 and 97 percent had scores above 2.7.
Please see the attached excel sheet for the analysis