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FIN370 Final - 29 questions (Score: 28/29)




Question;Buying and selling in more than one market to;make a riskless profit is called;o;globalization;o;profit maximization.;o arbitrage.;o;international trading;2 Capital Structure;Theory in general assumes that;o;A firm's cash flows will grow;indefinitely at a constant rate.;o;A firm's cost of capital rises as a;firm uses more financial leverage.;o A firm's value is determined by discounting the firm's;expected cash flows by the WACC.;o;A firm's value is determined by capitalizing;(discounting) the firm's expected net income by the firm's cost of equity.;3. Which of the following best describes why;cash flows are utilized rather than accounting profits when evaluating capital;projects?;o;Cash flows have a greater present;value than accounting profits.;o;Cash flows are more stable than;accounting profits.;o Cash flows reflect the timing of benefits and costs more;accurately than accounting profits.;o;Cash flows improve the;tax position of a firm more than accounting profits.;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?;o $25,000;o;$15,000;o;$35,000;o;$45,000;5 Given an;accounts receivable turnover of 8 and annual credit sales of $362,000, the;average collection period (360-day year) is;o;60 days.;o;75 days;o;90 days.;o 45 days;6 Long-term;financial plans typically encompass;o;the entire lifecycle of the;corporation.;o;about 5;years.;o;6 to 12 months.;o;to 10 years.;7 Which of the;following is most likely to occur if a firm over-invests in net working;capital?;o;The quick ratio will be lower than;it should be.;o;The times interest earned ratio will;be lower than it should be.;o;The current ratio will be lower than;it should be.;o The return on investment will be lower than it should;8 When the impact of;taxes is considered, as the firm takes on more debt;o;there will be no change in total;cash flows.;o;both taxes and total cash flow to;stockholders and bondholders will decrease.;o;the weighted average cost of capital;will increase.;o cash flows will increase because taxes will decrease;9 We compute the;profitability index of a capital-budgeting proposal by Initial outlay =;$1,748.80;o;dividing the present;value of the annual after-tax cash flows by the cost of capital.;o dividing the present value of the annual;after-tax cash flows by the cost of the project.;o;multiplying the cash;inflow by the IRR.;o;multiplying the IRR by;the cost of capital.;10 Which of the;following financial ratios is the best measure of the operating effectiveness;of a firm's management?;o;Current ratio;o;Gross profit margin;o;Quick ratio;o Return on investment;11 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.;o;$216,418;o;$319,604;o;$75,003;o $120,725;12 Which of the;following statements best represents what finance is about?;o;Maximizing profits;o;Reducing risk;o;How political, social, and economic;forces affect corporations;o Creation and maintenance of economic wealth;13 Aspects of demand;risk controllable by the firm include;o;interest rates.;o;entry of external competitors.;o;status of the regional and national;economy.;o product quality;14 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?;o;$3,525.62;o $5,008.76;o;$3,408.88;o;$2,465.78;15 When calculating the;weighted average cost of capital, which of the following has to be adjusted for;taxes?;o;Common stock;o;Retained earnings;o;Preferred stock;o Debt;16 Which of the;following is not part of the underwriting process?;o the Federal Reserve;o;the Securities and;Exchange Commission;o;the prospectus;o;the;syndicate;17 Which of the;following best describes why cash flows are utilized rather than accounting;profits when evaluating capital projects?;o;Cash flows are more stable than accounting;profits.;o;Cash flows have a greater present;value than accounting profits.;o;Cash flows improve the tax position;of a firm more than accounting profits.;o Cash flows reflect the timing of benefits and costs more;accurately than accounting profits.;18 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?;o;6.56%;o;8.32%;o;10.84%;o 12.78%;19 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?;o Its current assets would need to be highly liquid.;o;Its accounts receivable collection;policy could increase the average collection period.;o;It could offer no discounts for;early payment by its customers.;o;It could buy back some of its shares;in the open market in order to reduce its equity.;20 The Securities;Investor Protection Corporation protects individuals from;o brokerage firm failures;o;fraud by corporations;o;making poor investment;decisions;o;other investors who fail;to make delivery;21 If managers are;making decisions to maximize shareholder wealth, then they are primarily;concerned with making decisions that should;o increase the market value of the firm's common;stock.;o;either increase or have;no effect on the value of the firm's common stock.;o;maximize sales revenues;o;positively affect;profits.;22 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?;o;1,314 tickets;o;1,223 tickets;o;1000 tickets;o 1,112 tickets;23 Which of the;following is true about bonds?;o;At maturity of the bond, the;investor receives the market price of the bond.;o;They are obligations from the;investor to the corporation.;o;Their interest rate always varies;with the Consumer Price Index;o They have a fixed maturity, and they pay an amount equal to;the maturity value times the coupon rate each year.;24 Which of the;following goals is in the best long-term interest of stockholders?;o Maximizing of the market value of the existing shareholders;common stock;o;Risk minimization;o;Maximizing sales revenues;o;Profit maximization;25 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?;o;The company should look at other;investment criteria, not just NPV.;o Both projects should be accepted because they have positive NPV's;o;Neither project should be accepted;because they might compete with one another;o;Only project Delta should be;accepted. Alpha's NPV is too low for the investment.;26 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???;?;3.17 years;?;3.43 years;?;2.6 years;?;2.88 years;27 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?;o $31,060;o;$25,000;o;$39,720;o;$38,720;28 Which of;the following is true regarding Investment Banks?;o;Under the Glass-Steagal act;commercial banks were allowed to operate as Investment banks.;o;When Glass-Steagal was repealed in;1999, commercial banks and Investment banks had to be separate entities.;o 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.;o;As of 2010, stand alone Investment;banks are numerous.;29 Accounting;break-even analysis solves for the level of sales that will result in;net income = $0.00.;NPV = $0.00.;Free cash flow = $0.00.;IRR = Cost of Capital.


Paper#47964 | Written in 18-Jul-2015

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