1.Which of the following is considered a hybrid organizational form? Corporation limited liability partnership sole proprietorship partnership 3. Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have? $1,844,022 $2,303,010 $2,123,612 $803,010 5. Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days's sales in inventory? 61.7 days 57.9 days 65.2 days 64.3 days 6. Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio? 1.74 0 0.60 1.47 8. Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.) $22,680 $26,454 $16,670 $19,444 9. PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round to the nearest dollar.) $2,735,200 $2,615,432 $2,431,224 $2,815,885 10. PV of multiple cash flows: Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company's opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.) $480,906 $414,322 $477,235 $429,560 11. Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for retirement early. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years? (Round to the nearest dollar.) $3,594,524 $5,233,442 $1,745,600 $2,667,904 12. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.) 40% 12% 16% 32% 13. Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company's bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.) $1,066 $923 $972 $1,014 14. PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 pe.

1. 1.Which of the following is considered a hybrid organizational
form?
Corporation
limited liability partnership
sole proprietorship
partnership
3. Teakap, Inc., has current assets of $ 1,456,312 and total
assets of $4,812,369 for the year ending September 30, 2006. It
also has current liabilities of $1,041,012, common equity of
$1,500,000, and retained earnings of $1,468,347. How much
long-term debt does the firm have?
$1,844,022
$2,303,010
$2,123,612
$803,010

2. 5. Efficiency ratio: Gateway Corp. has an inventory turnover
ratio of 5.6. What is the firm's days's sales in inventory?
61.7 days
57.9 days
65.2 days
64.3 days
6. Leverage ratio: Your firm has an equity multiplier of 2.47.
What is its debt-to-equity ratio?
1.74
0
0.60
1.47
8. Present value: Jack Robbins is saving for a new car. He needs
to have $ 21,000 for the car in three years. How much will he
have to invest today in an account paying 8 percent annually to
achieve his target? (Round to nearest dollar.)
$22,680

3. $26,454
$16,670
$19,444
9. PV of multiple cash flows: Ferris, Inc., has borrowed from
their bank at a rate of 8 percent and will repay the loan with
interest over the next five years. Their scheduled payments,
starting at the end of the year are as follows—$450,000,
$560,000, $750,000, $875,000, and $1,000,000. What is the
present value of these payments? (Round to the nearest dollar.)
$2,735,200
$2,615,432
$2,431,224
$2,815,885
10. PV of multiple cash flows: Ajax Corp. is expecting the
following cash flows—$79,000, $112,000, $164,000, $84,000,
and $242,000—over the next five years. If the company's
opportunity cost is 15 percent, what is the present value of these
cash flows? (Round to the nearest dollar.)
$480,906

4. $414,322
$477,235
$429,560
11. Future value of an annuity: Jayadev Athreya has started on
his first job. He plans to start saving for retirement early. He
will invest $5,000 at the end of each year for the next 45 years
in a fund that will earn a return of 10 percent. How much will
Jayadev have at the end of 45 years? (Round to the nearest
dollar.)
$3,594,524
$5,233,442
$1,745,600
$2,667,904
12. Serox stock was selling for $20 two years ago. The stock
sold for $25 one year ago, and it is currently selling for $28.
Serox pays a $1.10 dividend per year. What was the rate of
return for owning Serox in the most recent year? (Round to the
nearest percent.)
40%
12%

5. 16%
32%
13. Bond price: Regatta, Inc., has six-year bonds outstanding
that pay a 8.25 percent coupon rate. Investors buying the bond
today can expect to earn a yield to maturity of 6.875 percent.
What should the company's bonds be priced at today? Assume
annual coupon payments. (Round to the nearest dollar.)
$1,066
$923
$972
$1,014
14. PV of dividends: Next year Jenkins Traders will pay a
dividend of $3.00. It expects to increase its dividend by $0.25
in each of the following three years. If their required rate of
return is 14 percent, what is the present value of their dividends
over the next four years?
$13.50
$9.72
$11.63
$12.50

6. 15. Capital rationing. TuleTime Comics is considering a new
show that will generate annual cash flows of $100,000 into the
infinite future. If the initial outlay for such a production is
$1,500,000 and the appropriate discount rate is 6 percent for the
cash flows, then what is the profitability index for the project?
0.11
0.90
1.11
1.90
17. How firms estimate their cost of capital: The WACC for a
firm is 13.00 percent. You know that the firm's cost of debt
capital is 10 percent and the cost of equity capital is 20%. What
proportion of the firm is financed with debt?
30%
33%

7. 70%
50%
18. The cost of equity: Gangland Water Guns, Inc., is expected
to pay a dividend of $2.10 one year from today. If the firm's
growth in dividends is expected to remain at a flat 3 percent
forever, then what is the cost of equity capital for Gangland if
the price of its common shares is currently $17.50?
15.00%
14.65%
15.36%
12.00%
21. M&M Proposition 1: Dynamo Corp. produces annual cash
flows of $150 and is expected to exist forever. The company is
currently financed with 75 percent equity and 25 percent debt.
Your analysis tells you that the appropriate discount rates are
10 percent for the cash flows, and 7 percent for the debt. You
currently own 10 percent of the stock.
If Dynamo wishes to change its capital structure from 75
percent to 60 percent equity and use the debt proceeds to pay a
special dividend to shareholders, how much debt should they
issue?

8. $375
$225
$321
$600
22. Multiple Analysis: Turnbull Corp. had an EBIT of $247
million in the last fiscal year. Its depreciation and amortization
expenses amounted to $84 million. The firm has 135 million
shares outstanding and a share price of $12.80. A competing
firm that is very similar to Turnbull has an enterprise
value/EBITDA multiple of 5.40.
What is the enterprise value of Turnbull Corp.? Round to the
nearest million dollars.
$453.6 million
$1,787 million
$1,315 million
$1,334 million
23. External financing needed: Jockey Company has total assets

9. worth $4,417,665. At year-end it will have net income of
$2,771,342 and pay out 60 percent as dividends. If the firm
wants no external financing, what is the growth rate it can
support?
25.1%
32.9%
30.3%
27.3%
27. Firms that achieve higher growth rates without seeking
external financing
none of these.
have a low plowback ratio.
have less equity and/or are able to generate high net income
leading to a high ROE.
are highly leveraged.

10. 28. Payout and retention ratio: Drekker, Inc., has revenues of
$312,766, costs of $220,222, interest payment of $31,477, and a
tax rate of 34 percent. It paid dividends of $34,125 to
shareholders. Find the firm's dividend payout ratio and retention
ratio.
85%, 15%
15%, 85%
45%, 55%
55%, 45%
29. The cash conversion cycle
begins when the firm uses its cash to purchase raw materials
and ends when the firm collects cash payments on its credit
sales.
shows how long the firm keeps its inventory before selling it.
begins when the firm invests cash to purchase the raw materials
that would be used to produce the goods that the firm
manufactures.

11. estimates how long it takes on average for the firm to collect its
outstanding accounts receivable
balance.
You are provided the following working capital information for
the Ridge Company:
Ridge Company
Account
Inventory
$12,890
Accounts receivable

12. 12,800
Accounts payable
12,670
Net sales
$124,589
Cost of goods sold
99,630
Cash conversion cycle: What is the cash conversion cycle for

13. Ridge Company?
129.9 days
46.4 days
83.5 days
38.3 days
Archer Daniels Midland Company is considering buying a new
farm that it plans to operate for 10 years. The farm will require
an initial investment of $12.00 million. This investment will
consist of $2.00 million for land and $10.00 million for trucks
and other equipment. The land, all trucks, and all other
equipment is expected to be sold at the end of 10 years at a
price of $5.00 million, $2.00 million above book value. The
farm is expected to produce revenue of $2.00 million each year,
and annual cash flow from operations equals $1.80 million. The
marginal tax rate is 35 percent, and the appropriate discount
rate is 10 percent. Calculate the NPV of this investment. (Round
intermediate calculations and final answer to 2 decimal places,
e.g. 15.25.)

14. NPV
$
Bell Mountain Vineyards is considering updating its current
manual accounting system with a high-end electronic system.
While the new accounting system would save the company
money, the cost of the system continues to decline. The Bell
Mountain’s opportunity cost of capital is 10 percent, and the
costs and values of investments made at different times in the
future are as follows:
Year
Cost

15. Value of Future Savings
(at time of purchase)
0 $5,000 $7,000
1 4,500 7,000
2 4,000 7,000
3 3,600 7,000
4 3,300 7,000
5 3,100 7,000
Calculate the NPV of each choice. (Round answers to the
nearest whole dollar, e.g. 5,275.)
The NPV of each choice is:

16. NPV0 = $ 2000
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when should Bell Mountain buy the new accounting
system?
Bell Mountain should purchase the system in
Year 1

17. year 2
year 3
year 4
year 5
Chip’s Home Brew Whiskey management forecasts that if the
firm sells each bottle of Snake-Bite for $20, then the demand
for the product will be 15,000 bottles per year, whereas sales
will be 90 percent as high if the price is raised 10 percent.
Chip’s variable cost per bottle is $10, and the total fixed cash
cost for the year is $100,000. Depreciation and amortization
charges are $20,000, and the firm has a 30 percent marginal tax
rate. Management anticipates an increased working capital need
of $3,000 for the year. What will be the effect of the price
increase on the firm’s FCF for the year? (Round answers to
nearest whole dollar, e.g. 5,275.)
At $20 per bottle the Chip’s FCF is $38000 and at the new price
Chip’s FCF is $
.

18. Capital Co. has a capital structure, based on current market
values, that consists of 50 percent debt, 10 percent preferred
stock, and 40 percent common stock. If the returns required by
investors are 8 percent, 10 percent, and 15 percent for the debt,
preferred stock, and common stock, respectively, what is
Capital’s after-tax WACC? Assume that the firm’s marginal tax
rate is 40 percent. (Round intermediate calculations to 4
decimal places, e.g. 1.2514 and final answer to 2 decimal
places, e.g. 15.25%.)
After tax WACC =
%