This document contains a practice exam for FIN 515 with multiple choice and calculation questions covering topics like types of business organizations, weighted average cost of capital, capital budgeting, bond valuation, and the cash conversion cycle. There are 13 multiple choice questions and calculations related to net present value, internal rate of return, dividend valuation, bond prices, weighted average cost of capital, and the cash conversion cycle. The goal is to practice concepts and calculations relevant to corporate finance.
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1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method?
A) Compute the value of the investment, including the tax benefit of leverage, by discounting the free cash flow of the investment using the WACC.
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1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method?
A) Compute the value of the investment, including the tax benefit of leverage, by discounting the free cash flow of the investment using the WACC.
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FIN 515 Week 2 Project Financial Statement Analysis (Nike)
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FIN 515 Week 2 Project Financial Statement Analysis (Nike)
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FIN 515 Week 6 Project Calculating the Weighted Average Cost of Capital (Nike)
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1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method?
A) Compute the value of the investment, including the tax benefit of leverage, by discounting the free cash flow of the investment using the WACC.
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1. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method?
A) Compute the value of the investment, including the tax benefit of leverage, by discounting the free cash flow of the investment using the WACC.
Fin 515 Education Redefined - snaptutorial.comDavisMurphyC88
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FIN 515 Week 2 Project Financial Statement Analysis (Nike)
FIN 515 Week 3 Project Financial Statement Analysis (Nike)
FIN 515 Week 6 Project Calculating the Weighted Average Cost of Capital (Nike)
Fin 515 Education Organization / snaptutorial.comBaileya98
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FIN 515 Week 2 Project Financial Statement Analysis (Nike)
FIN 515 Week 3 Project Financial Statement Analysis (Nike)
FIN 515 Week 6 Project Calculating the Weighted Average Cost of Capital (Nike)
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Analysis of Financial Statements.(Ratio analysis, Du Pont system ,Effects of ...Tanjin Tamanna urmi
Five Categories of Fin. Ratios
Liquidity: Ability to meet current obligations
Asset Mgmt: Proper & effective use of assets
Asset utilization (i.e., Total Asset Turnover Ratio:
TAT = Sales / T. Assets
Debt Mgmt: extent of debt & level of safety afforded creditors
Debt utilization (i.e., Equity Multiplier:
EM = T. Assets / T. Eqty
Profitability: reflects effects of liquidity, asset mgmt, & debt on operating results
Expense Control: Profit Margin:
PM = Net Income / Sales
Market Value: indicators of what investors think of firm’s past results & future prospects
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Analysis of Financial Statements.(Ratio analysis, Du Pont system ,Effects of ...Tanjin Tamanna urmi
Five Categories of Fin. Ratios
Liquidity: Ability to meet current obligations
Asset Mgmt: Proper & effective use of assets
Asset utilization (i.e., Total Asset Turnover Ratio:
TAT = Sales / T. Assets
Debt Mgmt: extent of debt & level of safety afforded creditors
Debt utilization (i.e., Equity Multiplier:
EM = T. Assets / T. Eqty
Profitability: reflects effects of liquidity, asset mgmt, & debt on operating results
Expense Control: Profit Margin:
PM = Net Income / Sales
Market Value: indicators of what investors think of firm’s past results & future prospects
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(TCO A) Which one of the following is an advantage of corporatio.docxmercysuttle
(TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole proprietorships? (Points : 5)
Reduced legal liability for investors
Harder to transfer ownership
Lower taxes
Most common form of organization
Question 2. 2. (TCO A) When a corporation distributes a dividend, _____. (Points : 5)
the most common form of distribution is a cash dividend
the Dividends account will be increased with a credit
the Retained Earnings account will be directly increased with a debit
the Dividends account will be decreased with a debit
Question 3. 3. (TCOs A, B) Below is a partial list of account balances for Cerner Company:
Cash $5,000
Prepaid insurance 500
Accounts receivable 2,500
Accounts payable 2,000
Notes payable 3,000
Common stock 1,000
Dividends 500
Revenues 15,000
Expenses 12,500
What did Cerner Company show as total credits? (Points : 5)
$21,500
$21,000
$20,500
$22,000
Question 4. 4. (TCOs B, E) Under the accrual basis of accounting, _____. (Points : 5)
cash must be received before revenue is recognized
net income is calculated by matching cash outflows against cash inflows
events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles
Question 5. 5. (TCO D) Three companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)
LIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
All three companies will have the same value for ending inventory.
average cost will have an ending inventory value that falls between FIFO and LIFO
Question 6. 6. (TCO A, E) Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? (Points : 5)
$6,680
$3,340
$2,860
$5,720
Question 7. 7. (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a _____. (Points : 5)
debit to Cash of $500,000
credit to Discount on Bonds Payable for $20,000
...
(TCO A) Which one of the following is an advantage of corporations.docxmercysuttle
(TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole proprietorships? (Points : 5)
Reduced legal liability for investors
Harder to transfer ownership
Lower taxes
Most common form of organization
Question 2.2. (TCO A) The Dividends account _____. (Points : 5)
appears on the income statement along with the expenses of the business
must show transactions every accounting period
is increased with debits and decreased with credits
is considered a long-term asset of the firm
Question 3.3. (TCOs A, B) Below is a partial list of account balances for Denton Company:
Cash $7,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 1,400
Dividends 700
Revenues 21,000
Expenses 17,500
What did Denton Company show as total credits? (Points : 5)
$30,100
$29,400
$28,700
$30,800
Question 4.4. (TCOs B, E) Under the accrual basis of accounting, _____. (Points : 5)
cash must be received before revenue is recognized
net income is calculated by matching cash outflows against cash inflows
events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles
Question 5.5. (TCO D) Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)
LIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
FIFO will have the highest ending inventory
LIFO will have the lowest cost of goods sold
Question 6.6. (TCO A, E) Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? (Points : 5)
$6,680
$3,340
$2,860
$5,720
Question 7.7. (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a _____. (Points : 5)
debit to Cash of $500,000
credit to Discount on Bonds Payable for $20,000
credit to Bonds Payable for $480,000
debit to Cash for $480,000
Question 8.8. (TCO C) Accounts receivable arising fro ...
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1. FIN 515 Final Exam Set 1
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1. (TCO A) In the United States, which of the following types of organization has the
greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
1.1) Which of the following is not a step in the WACC valuation method?
A) Compute the value of the investment, including the tax benefit of leverage, by
discounting the free cash flow of the investment using the WACC.
B) Compute the weighted average cost of capital.
C) Determine the free cash flow of the investment.
D) Adjust the WACC for the firm's current debt/equity ratio.
1. (TCO H) Zervos Inc. had the following data for 2008 (in millions). The new CFO
believes (a) that an improved inventory management system could lower the average
inventory by $4,000, (b) that improvements in the credit department could reduce
receivables by $2,000, and (c) that the purchasing department could negotiate better
credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks
that these changes would not affect either sales or the costs of goods sold. If these
changes were made, by how many days would the cash conversion cycle be lowered?
2. (TCO A) Sole proprietorships have all of the following advantages except (Points :
5)
a. easy to set up.
2. b. single taxation of income.
c. limited liability.
d. ownership and control are not separated.
2. (TCO C) A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it
actually pays after 58 days. What is the effective annual percentage cost of its nonfree
trade credit? (Use a 365-day year.)
Question 2. 2. (TCO A) A sole proprietorship is owned by (Points : 5)
a. one person.
b. one or two people, but if there are two owners, they must be married to each other.
c. up to 100 owners.
d. up to 64 owners.
3. (TCO B) Which of the following would cause the present value of an annuity to
decrease? (Points : 5)
a. Reducing the number of payments.
b. Increasing the number of payments.
c. Decreasing the interest rate.
d. Decreasing the liquidity of the payments.
3. Church Inc. is presently enjoying relatively high growth because of a surge in the
demand for its new product. Management expects earnings and dividends to grow at a
rate of 25% for the next 4 years, after which competition will probably reduce the
growth rate in earnings and dividends to zero. The company’s last dividend, D0, was $
1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is
3.00%. Which is the current price of the common stock?
3. (TCO E) Your firm is planning to invest in a new power generation system. Galt
Industries is an all-equity firm that specializes in this business. Suppose Galt’s equity
beta is 0.75, the risk-free rate is 3%, and the market risk premium is 6%. If your firm’s
project is all equity financed, then which is your estimate of your cost of capital
closest to?
3. 4. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing cash
flows must be (Points : 5)
a. positive.
b. negative.
c. either positive or negative. It really doesn’t matter.
d. stated in time units that are different from the time units in which the interest rates
are stated.
4. (TCO B)
You expect CCM Corporation to generate the following free cash flows over the next
5 years.
Year
1
2
3
4
5
FCF ($ millions)
25
28
32
37
40
Following Year 5, you estimate that CCM’s free cash flows will grow at 5% per year
and that CCM’s weighted average cost of capital is 13%.
Which is the enterprise value of CCM Corporation closest to?
4. (TCO B)
4. You expect CCM Corporation to generate the following free cash flows over the next
5 years.
Year 1 2 3 4 5
FCF ($ millions) 25 28 32 37 40
If CCM has $200 million of debt and 8 million shares of stock outstanding, then
which is the share price for CCM closest to?
Question 4. 4. (TCO B) Which of the following is an annuity due? (Points : 5)
a. A typical car loan.
b. A typical mortgage.
c. A typical apartment rental agreement.
d. A credit card balance.
5. If you were a manager of a company, which of the three right side components of
the DuPont Identity would you want to increase and which would you want to
decrease, other things being equal? Give a specific example for how to do that for
each of the three. (Points : 20)
Question 5. 5. (TCO G) If net income, total assets, and book value of equity stayed the
same, what would be the effect on the DuPont Identity of an increase in sales? (Points
: 20)
5. (TCO G)
Consider the information for the following four firms.
Firm
Cash
Debt
Equity
rD
rE
τc
6. 15%
30%
Which is the weighted average cost of capital for Meenie closest to?
5. (TCO D)
Which is the standard deviation of the returns on Stock A from 2000 to 2009 closest
to?
Year End
Stock A Realized Return
(R – R)
(R – R)2
2000
46.3%
29.85%
0.0891023
2001
26.7%
10.25%
0.0105063
2002
86.9%
70.45%
0.4963203
2003
23.1%
6.65%
0.0044223
8. 6. A stock pays an annual dividend of $2.50 and that dividend is not expected to
change. Similar stocks pay a return of 10%. What is P0? (Points : 20)
Question 6. 6. (TCO D) A stock has just paid a dividend and will pay a dividend of
$3.00 in a year. The dividend will stay constant for the rest of time. The return on
equity for similar stocks is 14%. What is P0? (Points : 20)
7. A stock has just paid a dividend and has declared an annual dividend of $2.00 to be
paid one year from today. The dividend is expected to grow at a 5% annual rate. The
return on equity for similar stocks is 12%. What is P0? (Points : 20)
Question 7. 7. (TCO D) A stock has just declared an annual dividend of $2.25 to be
paid one year from today. The dividend is expected to grow at a 7% annual rate. The
return on equity for similar stocks is 12%. What is P0? (Points : 20)
8. A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its
semiannual coupons are $50. What is the bonds current market price? (Points : 10)
9. A bond currently sells for $1,000 and has a par of $1,000. It was issued two years
ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments
are made semiannually. What is its YTM? (Points : 10)
Question 9. 9. (TCO D) A bond currently sells for $1,030 even though it has a par of
$1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is
7% and the interest payments are made semiannually. What is its YTM? (Points : 10)
10. A company has 10 million shares outstanding trading for $7 per share. It also has
$300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost
of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted
average cost of capital? (Points : 30)
Question 10. 10. (TCO D) Explain thoroughly how stock portfolios affect the risk to
an investor. (Points : 30)
11. Name and describe the three functions of managerial finance. For each, give an
example other than those used in the text and lecture. (Points : 25)
Question 11. 11. (TCO E) A company has 30 million shares outstanding trading for $8
per share. It also has $90 million in outstanding debt. If its equity cost of capital is
15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%,
what is its weighted average cost of capital? (Points : 30)
12. Explain thoroughly how stock portfolios affect the risk to an investor. (Points : 30)
9. 13. What is the Cash Conversion Cycle (CCC)? Name the components of the CCC
and explain why the CCC is important to business.
Question 13. 13. (TCO H) What is the difference between the cash cycle and the
operating cycle? Under what condition would they be the same? (Points : 30)
14. A company has the opportunity to do any of the projects for which the net cash
flows per year are shown below. The company has a cost of capital of 12%. Which
should the company do and why? You must use at least two capital budgeting
methods. Show your work.
Year A B C
0 -300 -100 -300
1 100 -50 100
2 100 100 100
3 100 100 100
4 100 100 100
5 100 100 100
6 100 100 100
7 -100 -200 0
(Points : 40)