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2. FIN 571 Final Exam
Problems to be solved-Chapter 2
1. What is the primary goal of financial management?
2. The partnership form of organization
3. Increased productivity due to technology has
4. Insider trading occurs when
5. When a firm's earnings are falling more rapidly than its stock price,
its P/E ratio will:
6. The net worth of a firm
7. A statement of cash flows allows a financial analyst to determine
8. A firm has $200,000 in current assets, $400,000 in long-term assets,
$80,000 in current liabilities, and $200,000 in long-term liabilities. What is
its net working capital?
9. The ______________ method of inventory costing is least likely to lead
to inflation-induced profits.
10. The Bubba Corp. had net income before taxes of $200,000 and sales of
$2,000,000. If it is in the 50% tax bracket its after-tax profit margin is:
11. XYZ's receivables turnover is 10x. The accounts receivable at year-end
are $600,000. The average collection period is 90 days (3 months). What was the
sales figure for the year?
12. A firm has total assets of $2,000,000. It has $900,000 in long-term
debt. The stockholders equity is $900,000. What is the total debt to asset
ratio?
13. A firm has total assets of $2,000,000. It has $900,000 in long-term
debt. The stockholders equity is $900,000. What is the total debt to asset
ratio?
14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000
units. The company maintains ending inventory equal to 125% of next month's
sales. June beginning inventory reflects this policy. What is June's required
production?
15. The difference between total receipts and total payments referred to as
16. In developing the pro forma income statement we follow four important
steps
17. In break-even analysis the contribution margin is defined as
18. Firm A employs a high degree of operating leverage; Firm B takes a more
conservative approach. Which of the following comparative statements about firms
A and B is true?
19. Heavy use of long-term debt may be beneficial in an inflationary economy
because
20. Under which of the following conditions could the overuse of financial
leverage be detrimental to the firm?
21. Risk exposure due to heavy short-term borrowing can be compensated for
by
22. When actual sales are greater than forecasted sales
23. Yield curves change daily to reflect
24. Retail companies like Target and Limited Brands are more likely to have
25. When using the economic order quantity model
26. Hedging
27. Which of the following is not a true statement about commercial paper?
28. Which of the following best describes the benefits to the borrower of
selling asset backed securities?
29. Price Corp. is considering selling to a group of new customers and
creating new annual sales of $70,000. 5% will be uncollectible. The collection
cost on these accounts is 3.5% of new sales, the cost of producing and selling
is 80% of sales and the firm is in the 31% tax bracket. What is the profit on
new sales?
30. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his
effective rate of interest?
31. The prime rate
32. Accounts receivable may be used as a source of financing by
33. The required compensating balance is usually computed as a
34. The concept of time value of money is important to financial decision
making because

3. 35. . Mr. Nailor invests $5,000 in a certificate of deposit at his local
bank. He receives annual interest of 8% for 7 years. How much interest will his
investment earn during this time period?
36. Mr. Fish wants to build a house in 10 years. He estimates that the total
cost will be $170,000. If he can put aside $10,000 at the end of each year, what
rate of return must he earn in order to have the amount needed?
37. A 20-year bond pays 12% on a face value of $1,000. If similar bonds are
currently yielding 9%, What is the market value of the bond? Use annual
analysis.
38. An issue of preferred stock is paying an annual dividend of $5. The
growth rate for the firm's common stock is 14%. What is the preferred stock
price if the required rate of return is 11%?
39. Which of the following does not influence the yield to maturity for a
security?
40. The cost of common stock is usually greater than the simple dividend
yield because
41. The dividend valuation model stresses the
42. Although debt financing is usually the cheapest component of capital, it
cannot be used to excess because
43. Each project should be judged against
44. The cost of debt is determined by taking the
45. The pre-tax cost of debt for a new issue of debt is determined by
46. The pre-tax cost of debt for a new issue of debt is determined by
47. With respect to the United States and its relationship with the rest of
the world, it can be said that
48. Financial instruments in the capital markets generally fall under what
category in the Balance Sheet?
49. With regard to interest rates and bond prices it can be said that
50. Which one of these conditions must be met for a lease to qualify as a
capital lease
51. Which of the following is not a true statement?
52. Which of the following is not a true statement?
53. When comparing common stock of the same company it is fair to say that
54. Dr. J. wants to buy an IBM personal computer which will cost $2,788 four
years from today. He would like to set aside an equal amount at the end of each
year in order to accumulate the amount needed. He can earn 7% annual return. How
much should he set aside?
55. The following is the December 31, 2003 balance sheet for the Epics
Corporation
56. Given the financial information for the A.E. Neuman Corporation,