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Question;1.;Capital Structure Theory in general assumes that;A firm?s;value is determined by capitalizing (discounting) the firm?s expected net;income by the firm?s cost of equity.;A firm?s;cost of capital rises as a firm uses more financial leverage.;A firm?s;value is determined by discounting the firm?s expected cash flows by the WACC.;A firm?s;cash flows will grow indefinitely at a constant rate.;2. Which;of the following financial ratios is the best measure of the operating;effectiveness of a firm?s management?;Quick;ratio;Return on;investment;Current;ratio;Gross;profit margin;3. The;Securities Investor Protection Corporation protects individuals from;other;investors who fail to make delivery;fraud by;corporations;making;poor investment decisions;brokerage;firm failures;4. A;company collects 60% of its sales during the month of the sale, 30% one month;after the sale, and 10% two months after the sale. The company expects sales of;$10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in;November. How much money is expected to be collected in October?;$25,000;$35,000;$45,000;$15,000;5.;Project Sigma requires an investment of $1 million and has a NPV of $10.;Project Delta requires an investment of $500,000 and has a NPV of $150,000. The;projects involve unrelated new product lines. What is your evaluation of these;two projects?;The;company should look at other investment criteria, not just NPV.;Only;project Delta should be accepted. Alpha?s NPV is too low for the investment.;Both;projects should be accepted because they have positive NPV?s;Neither;project should be accepted because they might compete with one another;6. Which;of the following is not part of the underwriting process?;the;prospectus;the;Securities and Exchange Commission;the syndicate;the;Federal Reserve;7. When;the impact of taxes is considered, as the firm takes on more debt;the;weighted average cost of capital will increase.;there;will be no change in total cash flows.;both;taxes and total cash flow to stockholders and bondholders will decrease.;cash;flows will increase because taxes will decrease.;8. Metals;Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of;common equity. Metals Corp.?s after-tax cost of debt is 5.25%, preferred stock;has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What;is Metals Corp.?s weighted average cost of capital?;12.78%;8.32%;6.56%;10.84%;9. Given;an accounts receivable turnover of 8 and annual credit sales of $362,000, the;average collection period (360-day year) is;60 days.;45 days.;75 days;90 days.;10.;Accounting break-even analysis solves for the level of sales that will result;in;Free cash;flow = $0.00.;NPV =;$0.00.;of;Capital.;net;income = $0.00.;11.;Buying and selling in more than one market to make a riskless profit is called;profit;maximization.;arbitrage.;international;trading.;globalization;12. Which;of the following best describes why cash flows are utilized rather than;accounting profits when evaluating capital projects?;Cash;flows are more stable than accounting profits.;Cash;flows reflect the timing of benefits and costs more accurately than accounting;profits.;Cash;flows have a greater present value than accounting profits.;Cash;flows improve the tax position of a firm more than accounting profits.;13. Which;of the following could offset the higher risk exposure a company would face if;it?s current ratio and net working capital were relatively low?;It could;buy back some of its shares in the open market in order to reduce its equity.;Its;current assets would need to be highly liquid.;It could;offer no discounts for early payment by its customers.;Its;accounts receivable collection policy could increase the average collection;period.;14. Which;of the following best describes why cash flows are utilized rather than;accounting profits when evaluating capital projects?;Cash;flows are more stable than accounting profits.;Cash;flows have a greater present value than accounting profits.;Cash;flows reflect the timing of benefits and costs more accurately than accounting;profits.?;Cash;flows improve the tax position of a firm more than accounting profits.;15.;Compute the payback period for a project with the following cash flows, if the;company?s discount rate is 12%.;Initial;outlay = $450;Cash;flows: Year 1 = $325;Year 2 = $65;Year 3 = $100;3.43;years;3.17;years;2.88;years;2.6 years;16. The;Oviedo Thespians are planning to present performances of their Florida Revue on;2 consecutive nights in January. It will cost them $5,000 per night for theater;rental, event insurance and professional musicians. The theater will also take;10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket;to raise $1,000 for their organization?;1000;tickets;1,314;tickets;1,223;tickets;1,112;tickets;17. Which;of the following is true regarding Investment Banks?;As a;result of the financial crisis of 2008, all stand-alone Investment banks either;failed, were merged into commercial banks, or became commercial banks.;When;Glass-Steagal was repealed in 1999, commercial banks and Investment banks had;to be separate entities.;As of;2010, stand alone Investment banks are numerous.;Under the;Glass-Steagal act, commercial banks were allowed to operate as Investment;banks.;18. If;managers are making decisions to maximize shareholder wealth, then they are;primarily concerned with making decisions that should;maximize;sales revenues;increase;the market value of the firm?s common stock.;positively;affect profits.;either;increase or have no effect on the value of the firm?s common stock.;19. Which;of the following is true about bonds?;They are;obligations from the investor to the corporation.;They have;a fixed maturity, and they pay an amount equal to the maturity value times the;coupon rate each year.;At;maturity of the bond, the investor receives the market price of the bond.;Their;interest rate always varies with the Consumer Price Index;20. Which;of the following is most likely to occur if a firm over-invests in net working;capital?;The;current ratio will be lower than it should be.;The;return on investment will be lower than it should be.;The quick;ratio will be lower than it should be.;The times;interest earned ratio will be lower than it should be.;21. Which;of the following goals is in the best long-term interest of stockholders?;Profit;maximization;Maximizing;sales revenues;Maximizing;of the market value of the existing shareholders? common stock;Risk;minimization;22. Apple;Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014, sales;were $3,450,000 in fiscal 2013. Assume the following figures for the fiscal;year ending 2013: cash $70,000, accounts receivable $250,000, inventory;$400,000, net fixed assets $520,000, accounts payable $235,000, and accruals;$155,000. Use the percent-of-sales method to forecast cash for the fiscal year;ending 2014.;$216,418;$120,725;$319,604;$75,003;23. Which;of the following statements best represents what finance is about?;Maximizing;profits;Creation;and maintenance of economic wealth;How;political, social, and economic forces affect corporations;Reducing;risk;24. If;you have $20,000 in an account earning 8% annually, what constant amount could;you withdraw each year and have nothing remaining at the end of five years?;$3,525.62;$5,008.76;$2,465.78;$3,408.88;25.;Long-term financial plans typically encompass;5 to 10;years.;about 5;years.;6 to 12;months.;the;entire lifecycle of the corporation.;26. When;calculating the weighted average cost of capital, which of the following has to;be adjusted for taxes?;Common;stock;Retained;earnings;Preferred;stock;Debt;27. We;compute the profitability index of a capital-budgeting proposal by Initial;outlay = $1,748.80;dividing;the present value of the annual after-tax cash flows by the cost of capital.;multiplying;the cash inflow by the IRR.;multiplying;the IRR by the cost of capital.;dividing;the present value of the annual after-tax cash flows by the cost of the;project.;28. You;just purchased a parcel of land for $10,000. If you expect a 12% annual rate of;return on your investment, how much will you sell the land for in 10 years?;$25,000;$38,720;$39,720;$31,060;29. Aspects;of demand risk controllable by the firm include;interest;rates.;entry of;external competitors.;status of;the regional and national economy.;product;quality.;30. Delta;Inc. is considering the purchase of a new machine which is expected to increase;sales by $10,000 in addition to increasing non-depreciation expenses by $3,000;annually. Due to the sales increase, Delta expects its working capital to;increase $1,000 during the life of the project. Delta will depreciate the;machine using the straight-line method over the project?s five year life to a;salvage value of zero. The machine?s purchase price is $20,000. The firm has a;marginal tax rate of 34 percent, and its required rate of return is 12 percent.;The machine?s initial cash outflow is;$21,000.;$23,000.;$27,000.;$20,000.


Paper#47458 | Written in 18-Jul-2015

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