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Question;Multiple;Choice Questions;90. East Side, Inc. has no debt outstanding and a;total market value of $136,000. Earnings before interest and taxes, EBIT, are;projected to be $12,000 if economic conditions are normal. If there is strong;expansion in the economy, then EBIT will be 27 percent higher. If there is a;recession, then EBIT will be 55 percent lower. East Side is considering a;$54,000 debt issue with a 5 percent interest rate. The proceeds will be used to;repurchase shares of stock. There are currently 2,000 shares outstanding.;Ignore taxes. If the economy enters a recession, EPS will change by;percent as compared to a normal economy, assuming that the firm;recapitalizes.;A. -70.97 percent;B. -63.15 percent;C. -58.08 percent;D. -42.29 percent;E. -38.87 percent;91. North Side, Inc. has no debt outstanding and a;total market value of $175,000. Earnings before interest and taxes, EBIT, are;projected to be $16,000 if economic conditions are normal. If there is strong;expansion in the economy, then EBIT will be 35 percent higher. If there is a;recession, then EBIT will be 70 percent lower. North Side is considering a;$70,000 debt issue with a 7 percent interest rate. The proceeds will be used to;repurchase shares of stock. There are currently 2,500 shares outstanding. North;Side has a tax rate of 34 percent. If the economy expands strongly, EPS will;change by ____ percent as compared to a normal economy, assuming that the firm;recapitalizes.;A. 38.80 percent;B. 45.26 percent;C. 50.45 percent;D. 53.92 percent;E. 61.07 percent;92. Galaxy Products is comparing two different capital;structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan;I, Galaxy would have 178,500 shares of stock outstanding. Under Plan II, there;would be 71,400 shares of stock outstanding and $1.79 million in debt;outstanding. The interest rate on the debt is 10 percent and there are no;taxes. What is the breakeven EBIT?;A. $287,878.78;B. $298,333.33;C. $351,111.11;D. $333,333.33;E. $341,414.14;93. ABC Co. and XYZ Co. are identical firms in all;respects except for their capital structure. ABC is all equity financed with;$480,000 in stock. XYZ uses both stock and perpetual debt, its stock is worth;$240,000 and the interest rate on its debt is 11 percent. Both firms expect;EBIT to be $58,400. Ignore taxes. The cost of equity for ABC is _____ percent;and for XYZ it is ______ percent.;A. 12.17, 12.68;B. 12.17, 12.94;C. 12.17, 13.33;D. 12.29, 12.68;E. 12.29, 13.33;94. Lamont Corp. uses no debt. The weighted average;cost of capital is 11 percent. The current market value of the equity is $38;million and there are no taxes. What is EBIT?;A. $3,423,000;B. $3,508,600;C. $3,781,100;D. $3,898,700;E. $4,180,000;95. The SLG Corp. uses no debt. The weighted average;cost of capital is 12 percent. The current market value of the equity is $31;million and the corporate tax rate is 34 percent. What is EBIT?;A. $4,180,000;B. $4,821,194;C. $5,636,364;D. $6,230,018;E. $6,568,500;96. W.V. Trees, Inc. has a debt-equity ratio of 1.4.;Its WACC is 10 percent, and its cost of debt is 9 percent. The corporate tax;rate is 33 percent. What is the firm's unlevered cost of equity capital?;A. 12.38 percent;B. 12.79 percent;C. 13.68 percent;D. 14.10 percent;E. 14.45 percent;97. Bruce & Co. expects its EBIT to be $100,000;every year forever. The firm can borrow at 10 percent. Bruce currently has no;debt, and its cost of equity is 20 percent. The tax rate is 31 percent. What;will the value of Bruce & Co. be if the firm borrows $54,000 and uses the;loan proceeds to repurchase shares?;A. $280,130;B. $346,600;C. $361,740;D. $378,900;E. $381,520;98. Bruce & Co. expects its EBIT to be $100,000;every year forever. The firm can borrow at 11 percent. Bruce currently has no;debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Bruce;will borrow $61,000 and use the proceeds to repurchase shares. What will the;WACC be after recapitalization?;A. 16.30 percent;B. 16.87 percent;C. 17.15 percent;D. 18.29 percent;E. 18.86 percent;99. New Schools, Inc. expects an EBIT of $7,000 every;year forever. The firm currently has no debt, and its cost of equity is 17;percent. The firm can borrow at 8 percent and the corporate tax rate is 34;percent. What will the value of the firm be if it converts to 50 percent;debt?;A. $29,871.17;B. $31,796.47;C. $32,407.16;D. $34,552.08;E. $37,119.30;59. Denver Interiors, Inc., has sales of $836,000 and;cost of goods sold of $601,000. The firm had a beginning inventory of $41,000;and an ending inventory of $47,000. What is the length of the inventory;period?;A. 19.21 days;B. 20.89 days;C. 26.72 days;D. 30.53 days;E. 33.69 days;60. A national firm has sales of $729,000 and cost of;goods sold of $478,000. At the beginning of the year, the inventory was;$37,000. At the end of the year, the inventory balance was $41,000. What is the;inventory turnover rate?;A. 12.26 times;B. 12.78 times;C. 14.22 times;D. 18.56 times;E. 19.70 times;61. North Side Wholesalers has sales of $948,000. The;cost of goods sold is equal to 72 percent of sales. The firm has an average;inventory of $23,000. How many days on average does it take the firm to sell its;inventory?;A. 11.24 days;B. 12.30 days;C. 16.48 days;D. 26.35 days;E. 29.68 days;62. The Bear Rug has sales of $811,000. The cost of;goods sold is equal to 63 percent of sales. The beginning accounts receivable;balance is $41,000 and the ending accounts receivable balance is $38,000. How;long on average does it take the firm to collect its receivables?;A. 17.26 days;B. 17.78 days;C. 18.58 days;D. 20.44 days;E. 29.77 days;63. The Blue Star has sales of $387,000, costs of;goods sold of $259,000, average accounts receivable of $9,800, and average;accounts payable of $12,600. How long does it take for the firm's credit;customers to pay for their purchases?;A. 7.67 days;B. 8.78 days;C. 9.24 days;D. 11.88 days;E. 13.81 days;64. The Mountain Top Shoppe has sales of $512,000;average accounts receivable of $31,400 and average accounts payable of $24,800.;The cost of goods sold is equivalent to 71 percent of sales. How long does it;take The Mountain Top Shoppe to pay its suppliers?;A. 21.76 days;B. 22.38 days;C. 24.90 days;D. 25.89 days;E. 26.67 days;65. HG Livery Supply had a beginning accounts payable;balance of $57,300 and an ending accounts payable balance of $55,100. Sales for;the period were $610,000 and costs of goods sold were $442,000. What is the;payables turnover rate?;A. 7.86 times;B. 8.39 times;C. 9.02 times;D. 9.86 times;E. 10.85 times;66. Your firm has an inventory turnover rate of 14, a;payables turnover rate of 8, and a receivables turnover rate of 19. How long is;your firm's operating cycle?;A. 45.06 days;B. 45.28 days;C. 45.63 days;D. 53.13 days;E. 53.78 days;67. Merryl Enterprises currently has an operating;cycle of 62 days. The firm is analyzing some operational changes, which are;expected to increase the accounts receivable period by 2 days and decrease the;inventory period by 5 days. The accounts payable turnover rate is expected to;increase from 42 to 46 times per year. If all of these changes are adopted;what will the firm's new operating cycle be?;A. 51 days;B. 57 days;C. 59 days;D. 60 days;E. 65 days;68. On average, Furniture & More is able to sell;its inventory in 27 days. The firm takes 87 days on average to pay for its;purchases. On the other hand, its average customer pays with a credit card;which allows the firm to collect its receivables in 4 days. Given this;information, what is the length of operating cycle?;A. 31 days;B. 38 days;C. 45 days;D. 56 days;E. 62 days;69. Interior Designs has an inventory period of 46;days, an accounts payable period of 38 days, and an accounts receivable period;of 32 days. Management is considering an offer from their suppliers to pay;within 10 days and receive a 2 percent discount. If the new discount is taken;the accounts payable period is expected to decline by 26 days. If the new;discount is taken, the operating cycle will be _____ days.;A. 52;B. 62;C. 71;D. 78;E. 91;70. Metal Products Co. has an inventory period of 53;days, an accounts payable period of 68 days, and an accounts receivable;turnover rate of 18. What is the length of the cash cycle?;A. 3.00 days;B. 5.28 days;C. 26.28 days;D. 71.00 days;E. 73.28 days;71. West Chester Automation has an inventory turnover;of 16 and an accounts payable turnover of 11. The accounts receivable period is;36 days. What is the length of the cash cycle?;A. 5.67 days;B. 25.63 days;C. 41.00 days;D. 52.00 days;E. 58.81 days;72. Peterson's Antiquities currently has a 31 day cash;cycle. Assume the firm changes its operations such that it decreases its;receivables period by 2 days, decreases its inventory period by 3 days, and;decreases its payables period by 4 days. What will the length of the cash cycle;be after these changes?;A. 22 days;B. 23 days;C. 29 days;D. 30 days;E. 31 days;73. A company currently has a 48 day cash cycle.;Assume the firm changes its operations such that it decreases its receivables;period by 2 days, increases its inventory period by 3 days, and increases its;payables period by 4 days. What will the length of the cash cycle be after;these changes?;A. 42 days;B. 43 days;C. 45 days;D. 47 days;E. 49 days;74. Tall Guys Clothing has a 45 day collection period.;Sales for the next calendar year are estimated at $2,100, $1,600, $2,500 and;$2,300, respectively, by quarter, starting with the first quarter of the year.;Given this information, which one of the following statements is correct?;Assume a year has 360 days.;A. The firm will collect $800 in Quarter 2.;B. The accounts receivable balance at the beginning of Quarter 4 will be;$1,150.;C. The firm will collect $2,000 in Quarter 3.;D. The firm will have an accounts receivable balance of $2,300 at the end;of the year.;E. The firm will collect a total of $2,400 in Quarter 4.

Paper#51108 | Written in 18-Jul-2015

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