FIN 370 Final Exam Guide (New 2017)

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Which one of the following statements is correct concerning the cash
cycle? Accepting a suppliers discount for early payment decreases
the cash cycle. Increasing the accounts payable period increases the
cash cycle. The longer the cash cycle, the more likely a firm will need
external financing. The cash cycle can exceed the operating cycle if
the payables period is equal to zero. Offering early payment discounts
to customers will tend to increase the cash cycle. Precise Machinery is
analyzing a proposed project. The company expects to sell 2100 units
give or take 5 percent. The expected variable cost per unit is $260 and
the expected fixed costs are $589,000. Cost estimates are considered
accurate within a plus or minus 4 percent range. The depreciation
expense is $129,000. The sales price is estimated at $750 per unit,
give or take 2 percent. The tax rate is 35 percent. The company is
conducting a sensitivity analysis on the sales price using a sales price
estimate of $755. What is the operating cash flow based on this
analysis? $86,675 $354,874 $368,015 $293,089 $337,975 You are
doing some comparison shopping. Five stores offer the product you
want at basically the same price but with differing credit terms. Which
one of these terms is best-suited to you if you plan to forgo the
discount? 2/10, net 30 2/5, net 30 2/5, net 20 1/10, net 45 1/5, net 15
The plowback ratio is: The dollar increase in net income divided by
the dollar increase in sales. Equal to net income divided by the change
in total equity. Equal to one minus the retention ratio. The change in
retained earnings divided by the dividends paid. The percentage of net
income available to the firm to fund future growth. Which one of the
following is the financial statement that summarizes a firms revenue
and expenses over a period of time? Statement of cash flows Market
value report Tax reconciliation statement Balance sheet Income
statement Kellys Corner Bakery purchased a lot in Oil City six years
ago at a cost of $278000. Today, that lot has a market value of
$264,000. At the time of the purchase, the company spent $6,000 to
level the lot and another $8,000 to install storm drains. The company
now wants to build a new facility on that site. The building cost is
estimated at $1.03 million. What amount should be used as the initial
cash flow for this project? -$1,294,000 -$1,322,000 -$1,045,000 -
$1,308,000 -$1,308,000 Webster United is paying a dividend of $1.32
per share today. There are 350,000 shares outstanding with a market
price of $22.40 per share prior to the dividend payment. Ignore taxes.
Before the dividend, the company had earnings per share of $1.68. As
a result of this dividend, the: Retained earnings will decrease by
$350,000. Earnings per share will increase to $3. Total firm value will
not change. Price-earnings ratio will be 12.55. Retained earnings will
increase by $462,000. The common stock of Dayton Repair sells for
$43.19 a share. The stock is expected to pay $2.28 per share next year
when the annual dividend is distributed. The firm has established a
pattern of increasing its dividends by 2.15 percent annually and
expects to continue doing so. What is the market rate of return on this
stock? 7.67 percent 7.59 percent 7.43 percent 7.14 percent 7.28
percent Which one of the following should earn the most risk
premium based on CAPM? Diversified portfolio with returns similar
to the overall market. Stock with a beta of 1.38. Portfolio with a beta
of 1.01. U.S. Treasury bill. Stock with a beta of 0.74. Which one of
these actions will increase the operating cycle? Assume all else held
constant. Decreasing the receivables turnover rate. Decreasing the
payables period. Decreasing the average inventory level. Increasing
the payables period. Increasing the inventory turnover rate. Oil Wells
offers 6.5 percent coupon bonds with semiannual payments and a
yield to maturity of 6.94 percent. The bonds mature in seven years.
What is the market price per bond if the face value is $1,000? $902.60
$996.48 $913.48 $989.70 $975.93 Three Corners Markets paid an
annual dividend of $1.37 a share last month. Today, the company
announced that future dividends will be increasing by 2.8 percent
annually. If you require a return of 11.6 percent, how much are you
willing to pay to purchase one share of this stock today? $16.67
$16.00 $18.23 $17.68 $15.57 Which one of the following is a source
of cash? Granting credit to a customer Purchase of inventory
Acquisition of debt Payment to a supplier Repurchase of common
stock Nadines Home Fashions has $2.12 million in net working
capital. The firm has fixed assets with a book value of $31.64 million
and a market value of $33.9 million. The firm has no long-term debt.
The Home Centre is buying Nadines for $37.5 million in cash. The
acquisition will be recorded using the purchase accounting method.
What is the amount of goodwill that The Home Centre will record on
its balance sheet as a result of this acquisition? $5.86 million $3.34
million $4.14 million $1.48 million $3.74 million Chelsea Fashions is
expected to pay an annual dividend of $1.10 a share next year. The
market price of the stock is $21.80 and the growth rate is 4.5 percent.
What is the firms cost of equity? 9.55 percent 10.54 percent 9.24
percent 7.91 percent 9.77 percent Operating leverage is the degree of
dependence a firm places on its: Depreciation tax shield. Variable
costs. Fixed costs. Operating cash flows. Sales. Phillips Equipment
has 75,000 bonds outstanding that are selling at par. Bonds with
similar characteristics are yielding 7.5 percent. The company also has
750,000 shares of 6 percent preferred stock and 2.5 million shares of
common stock outstanding. The preferred stock sells for $64 a share.
The common stock has a beta of 1.21 and sells for $44 a share. The
U.S. Treasury bill is yielding 2.3 percent and the return on the market
is 11.2 percent. The corporate tax rate is 34 percent. What is the firms
weighted average cost of capital? 11.56 percent 11.30 percent 11.18
percent 10.64 percent 9.69 percent Andy deposited $3,000 this
morning into an account that pays 5 percent interest, compounded
annually. Barb also deposited $3,000 this morning into an account that
pays 5 percent interest, compounded annually. Andy will withdraw his
interest earnings and spend it as soon as possible. Barb will reinvest
her interest earnings into her account. Given this, which one of the
following statements is true? Barb will earn more interest the second
year than Andy. Barb will earn more interest the first year than Andy
will. Andy will earn compound interest. Andy will earn more interest
in year three than Barb will. After five years, Andy and Barb will both
have earned the same amount of interest. When utilizing the
percentage of sales approach, managers: 1. Estimate company sales
based on a desired level of net income and the current profit margin.
2. Consider only those assets that vary directly with sales. III.
Consider the current production capacity level. 1. Can project both
net income and net cash flows. III and IV only I, III, and IV only II
and III only II, III, and IV only I and II only You are comparing two
investment options that each pay 6 percent interest compounded
annually. Both options will provide you with $12000 of income.
Option A pays $2,000 the first year followed by two annual payments
of $5,000 each. Option B pays three annual payments of $4,000 each.
Which one of the following statements is correct given these two
investment options? Assume a positive discount rate. Option B is a
perpetuity. Option B has a higher present value at time zero. Both
options are of equal value since they both provide $12,000 of income.
Option A has the higher future value at the end of year three. Option A
is an annuity. The condition stating that the interest rate differential
between two countries is equal to the percentage difference between
the forward exchange rate and the spot exchange rate is called:
Uncovered interest rate parity. The unbiased forward rates condition.
Purchasing power parity. Interest rate parity. The international Fisher
effect. The Dry Dock is considering a project with an initial cost of
$118400. The projects cash inflows for years 1 through 3 are $37200,
$54600 and $46900, respectively. What is the IRR of this project?
8.42 percent 7.48 percent 8.56 percent 8.04 percent 8.22 percent The
7 percent bonds issued by Modern Kitchens pay interest semiannually
mature in eight years and have a $1000 face value. Currently, the
bonds sell for $1,032. What is the yield to maturity? 7.20 percent 6.87
percent 6.48 percent 6.92 percent 6.08 percent Al invested $7200 in
an account that pays 4 percent simple interest. How much money will
he have at the end of five years? $8,678 $8,710 $8,299 $8,056 $8,640
All of the following represent potential gains from an acquisition
except the: Use of surplus funds. Tax loss carryovers acquired in the
acquisition. Obtainment of a beachhead. Diseconomies of scale
related to increased labor demand. Lower costs per unit realized.
Fresno Salads has current sales of $6000 and a profit margin of 6.5
percent. The firm estimates that sales will increase by 4 percent next
year and that all costs will vary in direct relationship to sales. What is
the pro forma net income? $438.70 $327.18 $405.60 $303.33 $441.10
A news flash just appeared that caused about a dozen stocks to
suddenly drop in value by 20 percent. What type of risk does this
news flash best represent? Market Unsystematic Portfolio Total Non-
diversifiable Which one of the following terms is defined as the
mixture of a firms debt and equity financing? Cash management Cost
analysis Working Capital Management Capital Structure Capital
budgeting George and Pat just made an agreement to exchange
currencies based on todays exchange rate. Settlement will occur
tomorrow. Which one of the following is the exchange rate that
applies to this agreement? Forward exchange rate Triangle rate Cross
rate Current rate Spot exchange rate