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FIN 534 Quiz Questions

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Question;Please answer dollar questions to the nearest cent, like $1,234.56, and rate of return or percentagequestions to two decimal places, like 12.34% or 0.1234 in decimal form, and number questions likeratios or beta to two decimal places, like 1.23.13. Which of the following factors could explain why Dellva Energy had a negative net cashflow last year, even though the cash on its balance sheet increased?The company sold a new issue of bonds.The company made a large investment in new plant and equipment.The company paid a large dividend.The company had high amortization expenses.The company repurchased 20% of its common stock.14.Medium Size Retailers, Inc. (MSR) has EBIT of $225,000, interest expense of $25,000,dividend income of $20,000, short term capital gains of $12,000, and long term capital lossesof $16,000. What is MSRs income tax liability?15. Frederickson Office Supplies recently reported $16,500 of sales, $7,750 of operating costsother than depreciation, and $1,525 of depreciation. The company had no amortization chargesand no non-operating income. It had $10,000 of bonds outstanding that carry a 7.0% interestrate, and its federal-plus-state income tax rate was 40%. How much was the firm's taxableincome, or earnings before taxes (EBT)?16.Over the years, Janjigian Corporation's stockholders have provided $36,750 of capital, partlywhen they purchased new issues of stock and partly when they allowed management to retainsome of the firm's earnings. The firm now has 2,250 shares of common stock outstanding, andit sells at a price of $36.00 per share. How much value has Janjigian's management added tostockholder wealth over the years, i.e., what is Janjigian's MVA?17. Zumbahlen Inc. has the following balance sheet. How much total net operating capitaldoes the firm have?CashShort-term investmentsAccounts receivableInventoryCurrent assetsGross fixed assetsAccumulated deprec.Net fixed assetsTotal assets$ 20.0065.0040.0060.00$185.00$225.0060.00$165.00$350.00Accounts payableAccrualsNotes payableCurrent liabilitiesLong-term debtCommon stockRetained earningsTotal common equityTotal liab. & equity$ 40.0050.0030.00$120.00140.0030.0060.00$ 90.00$350.0018.HHH Inc. reported $17,500 of sales and $7,025 of operating costs (including depreciation).The company had $18,750 of investor-supplied operating capital, the weighted average cost ofthat capital (the WACC) was 12.5%, and the federal-plus-state income tax rate was 35%. Whatwas HHH's Economic Value Added (EVA), i.e., how much value did management add tostockholders' wealth during the year?19.Wells Water Systems recently reported $10,550 of sales, $4,250 of operating costs other thandepreciation, and $1,200 of depreciation. The company had no amortization charges, it had$3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state incometax rate was 28%. In order to sustain its operations and thus generate sales and cash flows inthe future, the firm was required to spend $975 to buy new fixed assets and to invest $350 innet operating working capital. How much free cash flow did Wells generate?20. Amram Companys current ratio is 1.9. Considered alone, which of the following actionswould reduce the companys current ratio?Borrow using short-term notes payable and use the proceeds to reduce accruals.Borrow using short-term notes payable and use the proceeds to reduce long-term debt.Use cash to reduce accruals.Use cash to reduce short-term notes payable.Use cash to reduce accounts payable.21. Northwest Lumber had a net profit margin of 4.75%, a total assets turnover of 2.7, and anequity multiplier of 1.95. What was the firm's ROE?22.An investor is considering starting a new business. The company would require $700,000 ofassets, and it would be financed entirely with common stock. The investor will go forwardonly if she thinks the firm can provide a 21.5% return on the invested capital, which means thatthe firm must have an ROE of 22.5%. How much net income must be expected to warrantstarting the business?23. Helmuth Inc.'s latest net income was $1,450,000, and it had 235,000 shares outstanding. Thecompany wants to pay out 45% of its income as dividends. What dividend per share should itdeclare? 24. Heaton Corp. sells on terms that allow customers 45 days to pay for merchandise. Its sales lastyear were $675,000, and its year-end receivables were $125,000. If its DSO is less than the 45day credit period, then customers are paying on time. Otherwise, they are paying late. By howmuch are customers paying early or late? Base your answer on this equation: DSO - Creditperiod = days early or late, and use a 365-day year when calculating the DSO. A positiveanswer indicates late payments, while a negative answer indicates early payments.25. Last year Mason Inc. had a total assets turnover of 2.55 and an equity multiplier of 1.95. Itssales were $235,000 and its net income was $9,549. The CFO believes that the company couldhave operated more efficiently, lowered its costs, and increased its net income by $5,200without changing its sales, assets, or capital structure. Had it cut costs and increased its netincome in this amount, by how much would the ROE have changed?26. Muscarella Inc. has the following balance sheet and income statement data:CashReceivablesInventoriesTotal CANet fixed assetsTotal assetsSalesNet income$ 14,00060,000220,000$294,000126,000$420,000$250,000$ 14,000Accounts payableOther current liabilitiesTotal CLLong-term debtCommon equityTotal liab. and equity$ 47,00028,000$ 75,00070,000275,000$420,000The new CFO thinks that inventories are excessive and could be lowered sufficiently tocause the current ratio to equal the industry average, 2.55, without affecting either sales ornet income. Assuming that inventories are sold off and not replaced to get the currentratio to the target level, and that the funds generated are used to buy back common stock atbook value, by how much would the ROE change?

 

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