FIN 571 FINAL EXAM - FIN 571 FINAL EXAM Questions and Answers | Transwebetutors

FIN 571 Final Exam
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FIN 571 Week 1 Quiz -
Multiple Choice Question 42
Which of the following business organizational forms subjects the owner(s) to unlimited
liability?
 sole proprietorship
 partnership
 corporation
 a and b
Which of the following business organizational forms is easiest to raise capital?
 partnership
 corporation
 a and b

Which organizational form best enables the owners of the firm to monitor the actions of
other owners of the same firm?
 private corporation
 partnership
 public corporation
Which of the following factors or activities can be controlled by the management of the
firm?
 Stock market conditions.
 Capital budgeting.
 The level of economic activity.
 The level of interest rates.
The legal systemand market forces impose substantial costs on individuals and institutions
that engage in unethical behavior. Which of the following would not be an example of the
above?
 Agency conflicts.
 Jail time.
 Financial losses.
 Legal fines.
The most common reason that corporate firms use the futures and options markets is
 to make deposits.
 none of these.
 to hedge risk.
 to take risk.

Galan Associates prepared its financial statement for 2008 based on the information given
here. The company had cash worth $1,234, inventory worth $13,480, and accounts
receivables of $7,789. The company's net fixed assets are $42,331, and other assets are
$1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of
$22,000, and retained earnings of $14,008. How much long-term debt does the firm have?
 $76,342
 $18,334
 $54,342
 $12,314
Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company
had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had
accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of
$6,145. The net working capital of the firm is
 none of these
 $68,931
 $63,510
 $69,655
Which of the following best represents cash flows to investors?
 Net income, minus dividends paid to preferred stockholders.
 Earnings before interest and taxes times 1 minus the firm’s tax rate.
 Cash flow from operating activity, plus cash flow generated from net working capital.
 Cash flow from operating activity, minus cash flow invested in net working capital,
minus cash flow invested in long-term assets.
Which one of the following statements about trend analysis is NOT correct?

 It allows management to examine each ratio over time and determine whether the trend is
good or bad for the firm.
 This benchmark is based on a firm's historical performance.
 The Standard Industrial Classification (SIC) System is used to identify benchmark firms.
 All of these are true statements.
Coverage ratios: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800.
Its depreciation for the year is $1,434,500. What is its cash coverage ratio?
 None of these
 14.15 times
 15.42 times
 18.34 times
Multiples analysis: Turner Corp. has debt of $230 million and generated a net income of
$121 million in the last fiscal year. In attempting to determine the total value of the firm, an
investor identified a similar firm in Jacobs, Inc., an all-equity firm. This firm had 150
million shares outstanding, a share price of $14.25, and net income of $182 million. What is
the total value of Turner Corp.? Round to the nearest million dollars.
 $1,715 million
 $1,651 million
 $1,421 million
 $1,191 million
Coverage ratios, like times interest earned and cash coverage ratio, allow
 a firm's creditors to assess how well the firm will meet its interest obligations.
 a firm's creditors to assess how well the firm will meet its short-term liabilities other than
interest expense.
 a firm's management to assess how well they meet short-term liabilities.
 a firm's shareholders to assess how well the firm will meet its short-term liabilities.

Peer group analysis can be performed by
 management choosing a set of firms that are similar in size or sales, or who compete in
the same market.
 using the average ratios of this peer group, which would then be used as the benchmark.
 identifying firms in the same industry that are grouped by size, sales, and product lines, in
order to establish benchmark ratios.
 Only a and b relate to peer group analysis.
Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and net
sales of $3,436,812, what is its level of receivables?
 $13,403,567
 $881,234
 $1,340,357
 $81,234
The operating cycle
 ends not with the finished goods being sold to customers and the cash collected on the
sales; but when you take into account the time taken by the firm to pay for its purchases.
 To measure operating cycle we need another measure called the days' payables
outstanding.
 begins when the firm receives the raw materials it purchased that would be used to
produce the goods that the firm manufactures.
 begins when the firm uses its cash to purchase raw materials and ends when the firm
collects cash payments on its credit sales.
You are provided the following working capital information for the Ridge Company:

Ridge Company
Account $
Inventory $12,890
Accounts receivable 12,800
Accounts payable 12,670
Net sales $124,589
Cost of goods sold 99,630
Operating cycle: What is the operating cycle for Ridge Company?
 51 days
 47 days
 85 days
 36 days
Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is
$65 and it costs $85 per year to carry the alarm clock in inventory, use the EOQ formula to
calculate the optimal order size.
 26,154 clocks
 124 clocks
 15,294 clocks
 161 clocks
The asset substitution problem occurs when
 managers substitute less risky assets for riskier ones to the detriment of equity holders.
 managers substitute riskier assets for less risky ones to the detriment of bondholders.
 managers substitute less risky assets for riskier ones to the detriment of bondholders.
 managers substitute riskier assets for less risky ones to the detriment of equity holders.

M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expectedto
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.
How much are your cash flows today?
 $4.50
 $12.38
 $150
 $15
M&M Proposition 2: Melba's Toast has a capital structure with 30% debt and 70% equity.
Its pretax cost of debt is 6%, and its cost of equity is 10%. The firm's marginal corporate
income tax rate is 35%. What is the appropriate WACC?
 6.35%
 7.44%
 8.80%
 8.17%
According to the text, the financial plan covers a period of
 ten years.
 none of these.
 one year.
 three to five years.
The financing plan of a firm will indicate

 the firm's dividend policy, the desired capital structure for the firm, and the firm's
working capital policy.
 the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the desired capital structure for the firm, and the firm's dividend
policy.
available to the firm, the desired capital structure for the firm, and the firm's working
capital policy.
available to the firm, the firm's dividend policy, and the firm's working capital policy.
Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs of
$6,080,412, interest payment of $511,233, and a tax rate of 34 percent. It paid dividends of
$1,384,125 to shareholders. Find the firm's dividend payout ratio and retention ratio.
 25%, 75%
 66%, 34%
 34%, 66%
 69%, 31%
Present value: Tommie Harris is considering an investment that pays 6.5 percent annually.
How much must he invest today such that he will have $25,000 in sevenyears? (Round to
the nearest dollar.)
 $38,850
 $23,474
 $16,088
 $26,625
PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest rate
of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the next four
years as complete repayment of the loan with interest. How much did he loan out to his
brother? (Round to the nearest dollar.)

 $2,250
 $2,545
 $2,713
 $2,404
PV of multiple cash flows: Hassan Ali has made an investment that will pay him $11,455,
$16,376, and $19,812 at the end of the next three years. His investment was to fetch him a
return of 14 percent. What is the present value of these cash flows? (Round to the nearest
dollar.)
 $33,124
 $36,022
 $41,675
 $39,208
PV of multiple cash flows: Pam Gregg is expecting cash flows of $50,000, $75,000, $125,000,
and $250,000 from an inheritance over the next four years. If she can earn 11 percent on
any investment that she makes, what is the present value of her inheritance? (Round to the
nearest dollar.)
 $361,998
 $309,432
 $434,599
 $412,372
Present value of an annuity: Transit Insurance Company has made an investment in
another company that will guarantee it a cash flow of $37,250 each year for the next five
years. If the company uses a discount rate of 15 percent on its investments, what is the
present value of this investment? (Round to the nearest dollar.)
 $186,250
 $101,766
 $124,868

 $251,154
Future value of an annuity: Carlos Menendez is planning to invest $3,500 every year for
the next six years in an investment paying 12 percent annually. What will be the amount he
will have at the end of the six years? (Round to the nearest dollar.)
 $28,403
 $24,670
 $26,124
 $21,000
Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The
interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is
the present value of the bond? (Round to the nearest dollar.)
 $990
 $872
 $1,066
 $945
PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After
that it expects its dividend to grow at 7 percent for the next four years. What is the present
value of dividends over the next five-year period if the required rate of return is 10
percent?
 $10.76
 $11.50
 $9.80
 $11.88

PV of dividends: Givens, Inc., is a fast growing technology company that paid a $1.25
dividend last week. The company's expectedgrowth rates over the next four years are as
follows: 25 percent, 30 percent, 35 percent, and 30 percent. The company then expects to
settle down to a constant-growth rate of 8 percent annually. If the required rate of return is
12 percent, what is the present value of the dividends over the fast growth phase?
 $6.46
 $7.24
 $8.37
 $1.25
Genaro needs to capture a return of 40 percent for his one-year investment in a property.
He believes that he can sell the property at the end of the year for $150,000 and that the
property will provide him with rental income of $25,000. What is the maximum amount
that Genaro should be willing to pay for the property?
 $137,500
 $125,000
 $112,500
 $150,000
The process of identifying the bundle of projects that creates the greatest total value and
allocating the available capital to the projects is known as
 risk analysis.
 rationing.
 capital rationing.
 budgeting.

Capital rationing. You are considering a project that has an initial cost of $1,200,000. If
you take the project, it will produce net cash flows of $300,000 per year for the next six
years. If the appropriate discount rate for the project is 10 percent, what is the profitability
index of the project?
 2.09
 0.09
 1.09
 2.18
What might cause a firm to face capital rationing?
 If a firm rejects some capital investments that are expected to generate positive NPV’s.
 If investors require returns for their capital that are too high.
 If a firm has more than one project with a positive NPV.
 If a firm has several projects that are expected to generate negative IRR’s.
How firms estimate their cost of capital: The WACC for a firm is 19.75 percent. You know
that the firm is financed with $75 million of equity and $25 million of debt. The cost of debt
capital is 7 percent. What is the cost of equity for the firm?
 19.75%
 32.50%
 24.00%
 58.00%
The cost of debt: Bellamee, Inc., has semiannual bonds outstanding with five years to
maturity and are priced at $920.87. If the bonds have a coupon rate of 7 percent, then what
is the YTM for the bonds?
 4.5%
 9.0%
 7.0%

 9.2%
The cost of debt: Beckham Corporation has semiannual bonds outstanding with 13 years to
maturity and are currently priced at $746.16. If the bonds have a coupon rate of 8.5
percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 35%?
Assume that your calculation is made as on Wall Street.
 8.125%
 12.890%
 6.250%
 12.500%
The cost of equity: RadicalVenOil, Inc., has a cost of equity capital equal to 22.8 percent. If
the risk-free rate of return is 10 percent and the expectedreturn on the market is 18
percent, then what is the firm's beta if the firm's marginal tax rate is 35 percent?
 4.10
 1.0
 1.28
 1.60
Which type of project do financial managers typically use the highest cost of capital when
evaluating?
 New product projects
 Efficiency projects
 Market expansion projects
 Extension projects

Planning models that are more sophisticated than the percent of sales method have
 working capital accounts like inventory, accounts receivables, and accounts payables
vary directly with sales.
 fixed assets that do not always vary directly with sales.
 all of these are true.
 all variable costs change directly with sales.
Firms that achieve higher growth rates without seeking external financing
 have less equity and/or are able to generate high net income leading to a high ROE.
 are not highly leveraged.
 all of these are true.
 have a high plowback ratio.
External financing needed: Triumph Company has total assets worth $6,413,228. Next year
it expects a net income of $3,145,778 and will pay out 70 percent as dividends. If the firm
wants to limit its external financing to $1 million, what is the growth rate it can support?
 6.4%
 30.3%
 26.5%
 32.9%
FIN 571 Final Exam (Newest) -
FIN/571
Final
Exam
1. In a general partnership, the general partners have _____ liability and have _____
control over day-to-day operations.
 limited; no
 no; total
 unlimited; no
 limited; total

 unlimited; total
2. Which one of these is a correct definition?
 Long-term debt is defined as a residual claim on a firm’s assets.
 Net working capital equals current assets plus current liabilities.
 Current liabilities are debts that must be repaid in 18 months or less.
 Tangible assets are fixed assets such as patents.
 Current assets are assets with short lives, such as inventory.
3. The owners of a limited liability company generally prefer:
 being taxed personally on all business income.
 having liability exposure similar to that of a general partner.
 having liability exposure similar to that of a sole proprietor.
 being taxed like a corporation.
 being taxed like a corporation with liability like a partnership.
4. Which one of the following is least apt to help convince managers to work in the best
interest of the stockholders?pay raises based on length of service
 implementation of a stock option plan
 threat of a proxy fight
 management compensation tied to the market value of the firm’s stock
 threat of a takeover of the firm by unsatisfied stockholders
5.
a. Compute the future value of $2,000 compounded annually for 20 years at 4 percent. (Do
not round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
Future value $_________
b. Compute the future value of $2,000 compounded annually for 15 years at 10 percent. (Do
32.16.)

c. Compute the future value of $2,000 compounded annually for 25 years at 4 percent. (Do
32.16.)
6. For each of the following, compute the present value (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.):
Present Value Years Interest Rate Future value
$_________ 14 8 % $15,551
$_________ 5 14 $52,557
$_________ 30 15 $887,073
$_________ 35 8 $551,164
7. First City Bank pays 8 percent simple interest on its savings account balances, whereas
Second City Bank pays 8 percent interest compounded annually.
If you made a $74,000 deposit in each bank, how much more money would you earn from
your Second City Bank account at the end of 8 years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Difference in accounts $_________
8. Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of
3.8 percent. How much dividend income will you receive per year if you purchase 500
shares of this stock?
 $1,053
 $152
 $190
 $329
 $760

9. You bought 360 shares of stock at a total cost of $7,754.40. You received a total of
$403.20 in dividends and sold your shares for $19.98 a share. What was your total rate of
return?
 5.38%
 7.24%
 -1.29%
 3.67%
 -2.04%
10. According to generally accepted accounting principles (GAAP), revenue is recognized
as income when:
 income taxes are paid on the revenue earned.
 the transaction is complete and the goods or services are delivered.
 a contract is signed to perform a service or deliver a good.
 payment is requested.
 managers decide to recognize it.
11. Sankey, Inc., has current assets of $4,230, net fixed assets of $25,700, current liabilities
of $3,500, and long-term debt of $14,400. (Do not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity $_________
How much is net working capital?
Net working capital $_________
12. The financial statement summarizing a firm's accounting performance over a period of
time is the:
 statement of equity..
 income statement.
 tax reconciliation statement.
 balance sheet.

 statement of cash flows.
13. Net working capital is defined as:
 current assets minus current liabilities.
 total assets minus total liabilities.
 fixed assets minus long-term liabilities.
 current assets plus stockholders' equity.
 current assets plus fixed assets.
14. Jessica's Boutique has cash of $59, accounts receivable of $62, accounts payable of $210,
and inventory of $140. What is the value of the quick ratio?
 .30
 1.82
 .67
 .58
 1.24
15. Al's Sport Store has sales of $2,940, costs of goods sold of $2,090, inventory of $526, and
accounts receivable of $445. How many days, on average, does it take the firm to sell its
inventory assuming that all sales are on credit?
 90.6
 65.3
 119.9
 91.9
 120.4
16. Galaxy United, Inc.2009 Income Statement($ in millions)
Net sales $8,550
Less: Cost of goods sold 7,150
Less: Depreciation 410

Earnings before interest and taxes 990
Less: Interest paid 82
Taxable Income 908
Less: Taxes 318
Net income $ 590
Galaxy United, Inc.2008 and 2009 Balance Sheets($ in millions)
2008 2009 2008
2009
Cash $120 $140 Accounts payable $1,120
$1,130
Accounts rec. 940 790 Long-term debt
990 1,201
Inventory 1,480 1,520 Common stock $3,140
$2,940
Sub-total $2,540 $2,450 Retained earnings
510 799
Net fixed assets 3,220 3,620
Total assets $5,760 $6,070 Total liab. & equity $5,760
$6,070
What is the return on equity for 2009?
 14 percent
 17 percent
 11 percent
 16 percent
 19 percent

17. Reliable Cars has sales of $3,790, total assets of $3,350, and a profit margin of 5
percent. The firm has a total debt ratio of 41 percent. What is the return on equity?
 9.59 percent
 12.20 percent
 13.80 percent
 8.47 percent
 5.66 percent
18. A firm has a debt-equity ratio of .41. What is the total debt ratio?
 1.44
 .31
 .29
 1.41
 .69
19. The return on equity can be calculated as:
 ROA × Equity multiplier.
 ROA × Debt-equity ratio.
 ROA ×(Net income / Total assets).
 Profit margin × ROA × Total asset turnover.
 Profit margin × ROA.
20. One of the primary weaknesses of many financial planning models is that they:
 rely too much on financial relationships and too little on accounting relationships.
 are iterative in nature.
 ignore the goals and objectives of senior management.
 ignore cash payouts to stockholders.
 ignore the size, risk, and timing of cash flows.
21. In the financial planning model, the external financing needed (EFN) as shown on a pro
forma balance sheet is equal to the changes in assets:
 minus the change in retained earnings.

 minus the changes in both liabilities and equity.
 minus the changes in liabilities.
 plus the changes in both liabilities and equity.
 plus the changes in liabilities minus the changes in equity.
22. The Wintergrass Company has an ROE of 15.1 percent and a payout ratio of 40
percent.
What is the company’s sustainable growth rate? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Sustainable growth rate _________%
23. Assume the following ratios are constant:
Total asset turnover 2.50
Profit margin 5.4%
Equity multiplier 1.30
Payout ratio 35%
What is the sustainable growth rate? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate _________%
24. The length of time between the acquisition of inventory and its sale is called the:
 cash cycle.
 accounts payable period.
 accounts receivable period.
 inventory period.
 operating cycle.

25. A prearranged, short-term bank loan made on a formal or informal basis, and typically
reviewed for renewal annually, is called a:
 compensating balance.
 cleanup loan.
 roll-over.
 line of credit.
 letter of credit.
26. Here are the most recent balance sheets for Country Kettles, Inc. Excluding
accumulated depreciation, determine whether each item is a source or a use of cash, and
the amount. (Do not round intermediate calculations and round your answers to the
nearest whole number, e.g., 32. Input all amounts as positive values):
COUNTRY KETTLES, INC.
Balance Sheet
December 31, 2016
2015
2016
Assets
Cash $31,800 $31,030
Accounts receivable 71,300
74,560
Inventories 62,200
64,625
Property, plant, and equipment 161,000 172,600
Less: Accumulated depreciation (47,040) (51,300
)
Total assets $279,260
$291,515
Liabilities and Equity

Accounts payable $46,300 $48,530
Accrued expenses 7,680
6,740
Long-term debt 27,000
30,100
Common stock 30,000
35,400
Accumulated retained earnings 168,280 170,745
Total liabilities and equity $279,260
$291,515
Item Source/Use
Amount
Cash
$_________
Accounts receivable
$_________
Inventories
$_________
Property, plant, and equipment
$_________
Accounts payable
$_________
Accrued expenses
$_________
Long-term debt
$_________
Common stock
$_________
Accumulated retained earnings $_________

27. Consider the following financial statement information for the Rivers Corporation:
Item Beginning Ending
Inventory $10,900 $11,900
Accounts receivable 5,900 6,200
Accounts payable 8,100 8,500
Net sales $89,000
Cost of goods sold 69,000
Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
Operating cycle _________days
Cash cycle _________days
28. The _____ premium is that portion of the bond yield that represents compensation for
potential difficulties that might be encountered should the bond holder wish to sell the
bond prior to maturity.
 default risk
 liquidity
 taxability
 inflation
 interest rate risk
29. How much are you willing to pay for one share of stock if the company just paid an
annual dividend of $1.03, the dividends increase by 3 percent annually, and you require a
rate of return of 15 percent?
 $8.84
 $6.87
 $9.49
 $10.40

 $8.58
30. The rate at which a stock's price is expected to appreciate (or depreciate) is called the
_____ yield.
 total
 capital gains
 current
 earnings
 dividend
31. Which one of these applies to the dividend growth model of stock valuation?
 The rate of growth must be positive.
 The model cannot be applied if the growth rate is zero.
 The dividend must be for the same time period as the stock price.
 The dividend amount must be constant over time.
 The growth rate must be less than the discount rate.
32. You are given the following information for Huntington Power Co. Assume the
company’s tax rate is 40 percent.
Debt: 8,000 6.9 percent coupon bonds
outstanding, $1,000 par value, 20 years to maturity, selling for 105
percent of par; the bonds make semiannual payments.
Common stock: 410,000 shares outstanding, selling for $59 per share; the beta
is 1.15.
Market: 9 percent market risk premium and 4.9 percent risk-free
rate.
What is the company's WACC? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _________%

33. Filer Manufacturing has 7.7 million shares of common stock outstanding. The current
share price is $47, and the book value per share is $5. The company also has two bond
issues outstanding. The first bond issue has a face value of $68.8 million and a coupon rate
of 6.4 percent and sells for 108.9 percent of par. The second issue has a face value of $58.8
million and a coupon rate of 6.9 percent and sells for 107.7 percent of par. The first issue
matures in 9 years, the second in 26 years.
Suppose the company’s stock has a beta of 1.3. The risk-free rate is 2.5 percent, and the
market risk premium is 6.4 percent. Assume that the overall cost of debt is the weighted
average implied by the two outstanding debt issues. Both bonds make semiannual
payments. The tax rate is 40 percent. What is the company’s WACC? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
WACC _________%
34. A firm’s WACC can be correctly used to discount the expected cash flows of a new
project when that project:
 has the same level of risk as the firm’s current operations.
 will be financed solely with new debt and internal equity.
 will be financed with the same proportions of debt and equity as those currently used by
the overall firm.
 will be managed by the firm’s current managers.
 will be financed solely with internal equity.
35. When computing WACC, you should use the:
 pretax yield to maturity because it considers the current market price of debt.
 pretax cost of debt because it is the actual rate the firm is paying bondholders.
 pretax cost of debt because most corporations pay taxes at the same tax rate.
 current yield because it is based on the current market price of debt.
 aftertax cost of debt because interest is tax deductible.
36. The CAPM has an advantage over DDM because the CAPM:
 ignores changes in the overall market over time.
 is more simplistic.
 specifically considers a firm’s degree of operating leverage.

 applies to firms that pay dividends.
 explicitly adjusts for risk.
37. The net present value method of capital budgeting analysis does all of the following
except:
 consider all relevant cash flow information.
 provide a specific anticipated rate of return.
 use all of a project's cash flows.
 discount all future cash flows.
 incorporate risk into the analysis.
38. Lee's Furniture just purchased $24,000 of fixed assets that are classified as 5-year
MACRS property. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52
percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. What is the amount
of the depreciation expense for the third year?
 $4,800
 $2,507
 $4,608
 $2,765
 $2,304
39. Jamestown Ltd. currently produces boat sails and is considering expanding its
operations to include awnings. The expansion would require the use of land the firm
purchased three years ago at a cost of $142,000 that is currently valued at $137,500. The
expansion could use some equipment that is currently sitting idle if $6,700 of modifications
were made to it. The equipment originally cost $139,500 six years ago, has a current book
value of $24,700, and a current market value of $39,000. Other capital purchases costing
$780,000 will also be required. What is the amount of the initial cash flow for this
expansion project?
 $963,200
 $948,900
 $927,800
 $962,300
 $953,400

40. If you want to review a project from a benefit-cost perspective, you should use the
_______ method of analysis.
 internal rate of return
 profitability index
 net present value
 payback
 discounted payback
41. The profitability index of an investment project is the ratio of the:
 net present value of every project cash flow to the initial cost.
 net present value of the project’s cash outflows divided by the net present value of its
inflows.
 internal rate of return to the current market rate of interest.
 present value of the Time 1 and subsequent cash flows to the initial cost.
 average net income to the average investment.
42. A project costing $6,200 initially should produce cash inflows of $2,860 a year for three
years. After the three years, the project will be shut down and will be sold at the end of
Year 4 for an estimated net cash amount of $3,300. What is the net present value of this
project if the required rate of return is 11.3 percent?
 $2,903.19
 $2,474.76
 $935.56
 $1,980.02
 $3,011.40
43. Wilson’s Market is considering two mutually exclusive projects that will not be
repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for
Project B. Project A has an initial cost of $54,500, and should produce cash inflows of
$16,400, $28,900, and $31,700 for Years 1 to 3, respectively. Project B has an initial cost of
$69,400, and should produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3,
respectively. Which project, or projects, if either, should be accepted and why?
 Project B; because it has the largest total cash inflow
 Project A; because it has the higher required rate of return
 Project B; because it has a negative NPV which indicates acceptance

 neither project; because neither has an NPV equal to or greater than its initial cost
 Project A; because its NPV is positive while Project B’s NPV is negative
44. What is the net present value of a project that has an initial cash outflow of $7,670 and
cash inflows of $1,280 in Year 1, $6,980 in Year 3, and $2,750 in Year 4? The discount rate
is 12.5 percent.
 $270.16
 $86.87
 $68.20
 $371.02
 $249.65
45. A proposed project costs $300 and has cash flows of $80, $200, $75, and $90 for Years 1
to 4, respectively. Because of its high risk, the project has been assigned a discount rate of
16 percent. In dollars, how much will this project return in today’s dollars for every $1
invested?
 $.99
 $1.01
 $1.05
 $.97
 $1.03
FIN 571 Week 1 Connect Problems –
1. A business owned by a single individual is called a:
 corporation.
 sole proprietorship.
 general partnership.
 limited partnership.
 limited liability company.
2. The decisions made by ﬁnancial managers should all be ones which increase the:

 size of the firm.
 growth rate of the firm.
 marketability of the managers.
 market value of the existing owners' equity.
 firm’s current sales.
3. The primary goal of financial management is to:
 maximize current dividends per share of the existing stock.
 maximize the current value per share of the existing stock.
 avoid financial distress.
 minimize operational costs and maximize firm efficiency.
 maintain steady growth in both sales and net earnings.
4. Accounting concepts for a firm to create value it must:
 have a greater cash inflow from its stockholders than its outflow to them.
 create more cash flow than it uses.
 reduce its investment in fixed assets since fixed assets require the use of cash.
 avoid payments to the government so dividends can be increased.
 avoid the issuance of debt securities.
5. The primary goal of financial management is to:
 maximize current dividends per share of the existing stock.
 maximize the current value per share of the existing stock.
 avoid financial distress.
 minimize operational costs and maximize firm efficiency.
 maintain steady growth in both sales and net earnings.
6. Which one of the following business types is best suited to raising large amounts of
capital?
 limited liability company
 corporation
 general partnership

 limited partnership
7. Accounting profits and cash flows are generally:
 the same since they reflect current laws and accounting standards.
 the same since accounting profits reflect when cash flows occur.
 different because of GAAP rules regarding the recognition of income.
 different because cash inflows must occur before revenue recognition.
 the same due to the requirements of GAAP.
8. Some time ago, Julie purchased elevenacres of land costing $15,490. Today, that
land is valued at $49,957. How long has she owned this land if the price of the land
has been increasing at 5 percent per year?
 24.00 years
 23.51 years
 24.13 years
 23.67 years
 23.72 years
9. What is the future value of $3,088 invested for 11 years at 6.00 percent compounded
annually?
 $5,510.23
 $5,841.06
 $5,861.95
 $5,882.83
 $1,563.45
10. One year ago, you invested $3,440. Today it is worth $3,700.50. What rate of interest
did you earn?
 7.18 percent
 7.57 percent
 7.52 percent
 7.50 percent
 7.04 percent

11. First City Bank pays 7 percent simple interest on its savings account balances,
whereas Second City Bank pays 7 percent interest compounded annually.
If you made a $73,000 deposit in each bank, how much more money would you earn
from your Second City Bank account at the end of 9 years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Difference in accounts $__________
12. a. Compute the future value of $1,000 compounded annually for 20 years at 6
percent. (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Future value $__________
b. Compute the future value of $1,000 compounded annually for 15 years at 9 percent.
(Do not round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
c. Compute the future value of $1,000 compounded annually for 25 years at 6 percent.
(Do not round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
13. For each of the following, compute the present value (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.):
Present Value Years Interest Rate Future value
$__________ 12 6% $ 15,651
$__________ 3 12 53,557
$__________ 28 13 888,073
$__________ 30 10 552,164

14. Wilkinson Co. has identified an investment project with the following cash flows:
Year Cash Flow
1 $ 880
2 1,250
3 1,510
4 1,675
If the discount rate is 8 percent, what is the present value of these cash flows? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $ __________
15. You own 300 shares of Western Feed Mills stock valued at $36.72 per share. What is
the dividend yield if your annual dividend income is $322?
 2.9 percent
 4.5 percent
 3.2 percent
 11.4 percent
 9.2 percent
16. Suppose a stock had an initial price of $82 per share, paid a dividend of $1.20 per
share during the year, and had an ending share price of $90.
Compute the percentage total return. (Do not round intermediate calculations and

Total return __________%
17. You’ve observed the following returns on SkyNet Data Corporation’s stock over the
past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent.
Suppose the average inflation rate over this period was 1.5 percent, and the average
T-bill rate over the period was 3 percent.
a. What was the average real return on the stock? (Do not round intermediate
32.16.)
Average real return __________%
b. What was the average nominal risk premium on the stock? (Do not round
intermediate calculations and enter your answer as a percent rounded to 1 decimal
place, e.g., 32.1.)
Average nominal risk premium __________%
FIN 571 Week 2 Connect Problems -
1. Sankey, Inc., has current assets of $5,000, net fixed assets of $23,000, current
liabilities of $3,500, and long-term debt of $7,900. (Do not round intermediate
calculations.)
2. Which one of these accounts is classiﬁed as a current asset on the balance sheet?
 intangible asset
 accounts payable
 preferred stock

 inventory
 net plant and equipment
3. It is easierto evaluate a firm using its financial statements when the firm:
 is a conglomerate.
 is global in nature.
 uses the same accounting procedures as other firms in its industry.
 has a different fiscal year than other firms in its industry.
 tends to have one-time events such as asset sales and property acquisitions.
4. The cash flow resulting from a firm's ongoing, normal business activities is referred
to as the:
 operating cash flow.
 net capital spending.
 additions to net working capital.
 cash flow to retained earnings.
 cash flow to investors.
5. Which one of these is a non-cash item?
 depreciation
 interest expense
 current taxes
 dividends
 selling expenses
6. Sankey, Inc., has current assets of $5,000, net fixed assets of $23,300, current
liabilities of $4,450, and long-term debt of $11,000. (Do not round intermediate
calculations.)

7. Shelton, Inc., has sales of $401,000, costs of $189,000, depreciation expense of
$54,000, interest expense of $35,000, and a tax rate of 30 percent. (Do not round
intermediate calculations.)
What is the net income for the firm?
Net income $_________
Suppose the company paid out $44,000 in cash dividends. What is the addition to
retained earnings?
Addition to retained earnings $_________
8. During the year, the Senbet Discount Tire Company had gross sales of $1.17 million.
The firm’s cost of goods sold and selling expenses were $536,000 and $226,000,
respectively. The firm also had notes payable of $910,000. These notes carried an
interest rate of 6 percent. Depreciation was $141,000. The firm’s tax rate was 40
percent.
a. What was the firm’s net income? (Do not round intermediate calculations. Enter
your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to
the nearest whole number, e.g., 32.)
Net income $_________
b. What was the firm’s operating cash flow? (Do not round intermediate
calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.
Round your answer to the nearest whole number, e.g., 32.)
Operating cash flow $_________
9. Use the following information for Ingersoll, Inc., (assume the tax rate is 40 percent):

2014 2015
Sales $9,535 $ 10,109
Depreciation 1,295 1,296
Cost of goods sold 2,866 3,230
Other expenses 809 704
Interest 695 773
Cash 4,279 5,373
Accounts receivable 5,609 6,297
Short-term notes payable 964 916
Long-term debt 15,330 17,750
Net fixed assets 36,155 37,317
Accounts payable 4,656 4,355
Inventory 9,840 10,108
Dividends 1,126 1,221
Prepare an income statement for this company for 2014 and 2015. (Do not round
intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)
Ingersoll, Inc. Income Statement
2014 2015
Sales $____ $______
Cost of goods sold _____ _______

Other expenses _____
_______
Depreciation _____ _______
EBIT $_____% $______%
Interest ______
_______
EBT $_____% $______%
Taxes ______% _______%
Net income $_____% $______%
Dividends $_____ $______
Additions to RE ______% _______%
Prepare the balance sheet for this company for 2014 and 2015. (Do not round
intermediate calculations. Be sure to list the accounts in order of their
liquidity.)
Ingersoll, Inc. Balance Sheet as of Dec. 31
2014 2015
Assets
Cash $______ $______
Accounts receivable _______ _______
Inventory _______ _______
Current assets $______% $______
Net fixed assets _______ _______
Total assets $______% $_______%

Liabilities
Accounts payable $______ $______
Notes payable _______ _______
Current liabilities $______% $_______%
Long-term debt _______ _______
Owners' equity _______% ________%
Total liabilities & owners' equity $______%
$_______%
10. The total asset turnover ratio measures the amount of:
 total assets needed for every $1 of sales.
 sales generated by every $1 in total assets.
 ﬁxed assets required for every $1 of sales.
 net income generated by every $1 in total assets.
 net income than can be generated by every $1 of ﬁxed assets.
11. The current ratio is measured as:
 current assets minus current liabilities.
 current assets divided by current liabilities.
 current liabilities minus inventory, divided by current assets.
 cash on hand divided by current liabilities.
 current liabilities divided by current assets.
12. Which statement expresses all accounts as a percentage of total assets?

 pro forma balance sheet
 common-size income statement
 statement of cash flows
 pro forma income statement
 common-size balance sheet
13. Ratios that measure how efficiently a firm's management uses its assets and equity
to generate bottom line net income are known as _______ ratios.
 asset management
 long-term solvency
 short-term solvency
 profitability
 market value
14. Ratios that measure a firm's ability to pay its bills over the short run without undue
stress are known as:
 asset management ratios.
 long-term solvency measures.
 liquidity measures.
 profitability ratios.
 market value ratios.
15. Which one of the following sets of ratios would generally be of the most interest to
stockholders?
 return on assets and profit margin
 quick ratio and times interest earned
 price-earnings ratio and debt-equity ratio
 return on equity and price-earnings ratio
 cash coverage ratio and equity multiplier

16. The receivables turnover ratio is measured as:
 sales plus accounts receivable.
 sales divided by accounts receivable.
 sales minus accounts receivable, divided by sales.
 accounts receivable times sales.
 accounts receivable divided by sales.
17. The Purple Martin has annual sales of $4,800, total debt of $1,210, total equity of
$2,500, and a profit margin of 7 percent. What is the return on assets?
 7.00 percent
 9.06 percent
 13.44 percent
 11.74 percent
 27.77 percent
18. A firm has a debt-equity ratio of .38. What is the total debt ratio?
 .61
 .39
 .28
 1.63
 1.38
19. A firm has total debt of $1,100 and a debt-equity ratio of .31. What is the value of
the total assets?
 $3,100
 $4,648

 $1,441
 $3,420
 $3,548
20. The inventory turnover ratio is measured as:
 total sales minus inventory.
 inventory times total sales.
 cost of goods sold divided by inventory.
 inventory divided by cost of goods sold.
 inventory divided by sales.
21. A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for
every:
 $1 in total equity.
 $.53 in total assets.
 $1 in current assets.
 $.53 in total equity.
 $1 in fixed assets.
22. The higher the inventory turnover, the:
 less time inventory items remain on the shelf.
 higher the inventory as a percentage of total assets.
 longer it takes a firm to sell its inventory.
 greater the amount of inventory held by a firm.
 lesser the amount of inventory held by a firm.
23.
Galaxy United, Inc. 2009 Income Statement ($ in millions)

Net sales $ 8,500
Less: Cost of goods sold 7,150
Less: Depreciation 420
Earnings before interest and taxes 930
Less: Interest paid 82
Taxable Income 848
Less: Taxes 297
Net income $ 551
Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions)
2008 2009
2008 2009
Cash $ 130 $ 160 Accounts payable
$1,110 $1,140
Accounts rec. 950 780 Long-term debt
980 1,290
Inventory 1,480 1,520 Common stock
$3,130 $2,930
Sub-total $2,560 $2,460 Retained earnings
500 750
Net ﬁxed assets 3,160 3,650
Total assets $5,720 $6,110 Total liab. & equity
$5,720 $6,110
What is the return on equity for 2009?
 13 percent
 10 percent

 15 percent
 18 percent
 16 percent
24. If Wilkinson, Inc., has an equity multiplier of 1.47, total asset turnover of 1.6, and a
profit margin of 5.7 percent, what is its ROE? (Do not round intermediate
32.16.)
ROE _________%
25. The financial ratio measured as net income divided by sales is known as the firm's:
 profit margin.
 return on assets.
 return on equity.
 asset turnover.
 earnings before interest and taxes.
26. The financial ratio that measures the accounting profit per dollar of book equity is
referred to as the:
 profit margin.
 price-earnings ratio.
 equity turnover.
 market profit-to-book ratio.
27. Puffy's Pastries generates five cents of net income for every $1 in equity. Thus,
Puffy's has _______ of 5 percent.
 a return on assets
 a profit margin

 a return on equity
 an EV multiple
 a price-earnings ratio
28. If stockholders want to know how much profit the firm is making on their entire
investment in that firm, the stockholders should refer to the:
 profit margin.
 return on assets.
 equity multiplier.
 earnings per share.
29. The most effective method of directly evaluating the financial performance of a firm
is to compare the financial ratios of the firm to:
 thefirm?s ratios from prior time periods and to the ratios of firms with similar operations.
 the average ratios of all firms within the same country over a period of time.
 those of other firms located in the same geographic area that are similarly sized.
 the average ratios of the firm?s international peer group.
 those of the largest conglomerate that has operations in the same industry as the firm.
30. Which one of these equations is an accurate expression of the balance sheet?
 Assets ? Liabilities −Stockholders? equity
 Stockholders? equity ? Assets + Liabilities
 Liabilities ? Stockholders? equity −Assets
 Assets ? Stockholders? equity −Liabilities
 Stockholders? equity ? Assets –Liabilities
31. The financial statement summarizing a firm's accounting performance over a period
of time is the:

 income statement.
 balance sheet.
 statement of cash ﬂows.
 tax reconciliation statement.
 statement of equity.
1. If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 percent, what is its
sustainable growth rate? (Do not round intermediate calculations and enter your
Sustainable growth rate ____%
2. The most recent financial statements for Williamson, Inc., are shown here
(assuming no income taxes):
Income Statement Balance Sheet
Sales $ 6,700 Assets $22,050 Debt $ 8,050
Costs 3,850 Equity
14,000
Net income $ 2,850 Total $22,050 Total $22,050
Assets and costs are proportional to sales. Debt and equity are not. No dividends are
paid. Next year’s sales are projected to be $7,906.
What is the external financing needed? (Do not round intermediate calculations and
round your answer to the nearest whole number, e.g., 32.)
External financing needed $_____
3. Projected future ﬁnancial statements are called:
 plug statements.
 pro forma statements.

 reconciled statements.
 aggregated statements.
 comparative statements.
4. One of the primary weaknesses of many financial planning models is that they:
 rely too much on financial relationships and too little on accounting relationships.
 are iterative in nature.
 ignore the goals and objectives of senior management.
 ignore cash payouts to stockholders.
 ignore the size, risk, and timing of cash flows.
5. The maximum rate at which a firm can grow while maintaining a constant debt-
equity ratio is best defined by its:
 rate of return on assets.
 internal rate of growth.
 average historical rate of growth.
 rate of return on equity.
 sustainable rate of growth.
6. The external funds needed (EFN) equation projects the addition to retained
earnings as:
 PM × ? Sales.
 PM ×? Sales × (1 - d).
 PM × Projected sales × (1 - d).
 Projected sales × (1 - d).
 PM ×Projected sales.
7. Financial planning, when properly executed:
 ignores the normal restraints encountered by a firm.
 is based on the internal rate of growth.

 reduces the necessity of daily management oversight of the business operations.
 ensures internal consistency among the firm?s various goals.
 eliminates the need to plan more than one year in advance.
8. The return on equity can be calculated as:
 ROA × Equity multiplier.
 Profit margin × ROA.
 Profit margin × ROA × Total asset turnover.
 ROA ×(Net income / Total assets).
 ROA × Debt-equity ratio.
9. In the financial planning model, the external financing needed (EFN) as shown on a
pro forma balance sheet is equal to the changes in assets:
 plus the changes in liabilities minus the changes in equity.
 minus the changes in both liabilities and equity.
 minus the changes in liabilities.
 plus the changes in both liabilities and equity.
 minus the change in retained earnings.
10. The extended version of the percentage of sales method:
 assumes that all net income will be paid out in dividends to stockholders.
 assumes that all net income will be retained by the firm and offset by a reduction in debt.
 is based on a capital intensity ratio of 1.0.
 requires that all financial statement accounts change at the same rate.
 separates accounts that vary with sales from those that do not vary with sales.
11. The sustainable growth rate will be equivalent to the internal growth rate when, and
only when,:

 a firm has no debt.
 the growth rate is positive.
 the plowback ratio is positive but less than 1.
 a firm has a debt-equity ratio equal to 1.
 the retention ratio is equal to 1.
12. Which one of the following depicts a correct relationship?
 Dividend payout ratio = 1 – Retention ratio
 Total asset turnover = 1 + Capital intensity ratio
 ROA = ROE × (1 + Debt-equity ratio)
 ROE = 1 – ROA
 Equity multiplier = 1 – Debt-equity ratio
13. All of the following can provide credit information about a customer except:
 the customer’s financial statements.
 credit reports.
 the customer’s current payment history with the seller.
 the amount of goods the customer desires to purchase.
 banks.
14. The cash cycle is defined as the time between:
 the arrival of inventory and cash collected from receivables.
 selling a product and paying the supplier of that product.
 selling a product and collecting the accounts receivable.
 cash disbursements and cash collection for an item.
 the sale of inventory and cash collection.

15. The minimum level of inventory that a firm wants to keepon hand at all times is
referred to as:
 the base level.
 safety stock.
 the opportunity cost.
 the reorder point.
 keiretsu.
16. Given a fixed level of sales and a constant profit margin, an increase in the accounts
payable period can result from:
 an increase in the cost of goods sold account value.
 an increase in the ending accounts payable balance.
 an increase in the cash cycle.
 a decrease in the operating cycle.
 a decrease in the average accounts payable balance.
17. Selling goods and services on credit is:
 an investment in a customer.
 never necessary unless customers cannot pay for the goods.
 a decision independent of customers.
 permissible only if your bank lends the money.
 never a wise decision.
18. On September 1, a firm grants credit with terms of 2/10 net 30. The creditor:
 must pay a penalty of 2/10 of one percent when payment is made later than October 1.
 must pay a penalty of 10 percent when payment is made later than 2 days after October 1.
 receives a discount of 2 percent when payment is made at least 10 days prior to October
1.
 receives a discount of 2 percent when payment is made on September 1and pays a
penalty of 10 percent if payment is made after October 1.

 receives a discount of 2 percent when payment is made within 10 days.
19. The three components of credit policy are:
 collection policy, credit analysis, and interest rate determination.
 collection policy, credit analysis, and terms of the sale.
 collection policy, interest rate determination, and repayment analysis.
 credit analysis, repayment analysis, and terms of the sale.
 interest rate determination, repayment analysis and terms of sale.
20. The operating cycle can be decreased by:
 paying accounts payable faster.
 discontinuing the discount given for early payment of an accounts receivable.
 decreasing the inventory turnover rate.
 collecting accounts receivable faster.
 increasing the accounts payable turnover rate.
21. The credit period begins on the:
 shipping date.
 purchase order date.
 shipping arrival date.
 order process date.
 invoice date.
22. Since the credit decision usually includes riskier customers, the decision should
adjust for this by:
 determining the probability that customers will not pay and reducing the expected cash
ﬂow.

 discounting the net cash flows at a lower discount rate.
 discounting the cash inflows at a higher discount rate.
 increasing the variable cost per unit.
 decreasing the variable cost per unit.
23. A firm has an inventory turnover rate of 15.7, a receivables turnover rate of 20.2,
and a payables turnover rate of 14.6. How long is the cash cycle?
rev: 05_12_2016_QC_CS-51572
 28.46 days
 16.32 days
 32.87 days
 13.08 days
 23.37 days
24. Brown’s Market currently has an operating cycle of 76.8 days. It is planning some
operational changes that are expected to decrease the accounts receivable period by
2.8 days and decrease the inventory period by 3.1 days. The accounts payable
turnover rate is expectedto increase from 9 to 11.5 times per year. If all of these
changes are adopted, what will be the firm's new operating cycle?
 68.4 days
 73.4 days
 63.3 days
 57.9 days
 70.9 days
25. Jordan and Sons has an inventory period of 48.6 days, an accounts payable period
of 36.2 days, and an accounts receivable period of 29.3 days. Management is
considering offering a 5 percent discount if its credit customers pay for their
purchases within 10 days. This discount is expected to reduce the receivables period
by 17 days. If the discount is offered, the operating cycle will decrease from ___ days
to ___ days.
 28.3; 11.3

 77.9; 60.9
 28.3; 45.3
 77.9; 94.9
 54.2; 37.2
26. On average, D & M sells its inventory in 37 days, collects on its receivables in 3.4
days, and takes 35 days to pay for its purchases. What is the length of the ﬁrm’s
operating cycle?
 –1.4 days
 5.4 days
 33.6 days
 40.4 days
 41.6 days
FIN 571 Week 4 Connect Problems -
1. Microhard has issued a bond with the following characteristics:
Par: $1,000
Time to maturity: 11 years
Coupon rate: 9 percent
Semiannual payments
Calculate the price of this bond if the YTM is (Do not round intermediate calculations
and round your answers to 2 decimal places, e.g., 32.16.):
Price of the Bond
a. 9 percent $ _____
b. 11 percent $_____
c. 7 percent $ _____

2. Watters Umbrella Corp. issued20-year bonds 2 years ago at a coupon rate of 8.4
percent. The bonds make semiannual payments. If these bonds currently sell for 90
percent of par value, what is the YTM? (Do not round intermediate calculations and
YTM _____ %
3. Grand Adventure Properties offers a 7 percent coupon bond with annual payments.
The yield to maturity is 5.85 percent and the maturity date is 8 years from today.
What is the market price of this bond if the face value is $1,000?
 $1,071.84
 $788.73
 $1,082.17
 $1,019.29
 $947.45
4. The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are
anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells
for $31 per share.
What is the required return? (Do not round intermediate calculations and enter your
Required return _____ %
5. The Starr Co. just paid a dividend of $1.55 per share on its stock. The dividends are
expected to grow at a constant rate of 6 percent per year, indefinitely. Investors
require a return of 14 percent on the stock.
a. What is the current price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Current price $ _____
b. What will the price be in three years? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

Stock price $ _____
c. What will the price be in 7 years? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Stock price $ _____
6. The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are
anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells
for $31 per share.
a. What is the dividend yield? (Do not round intermediate calculations and enter your
Dividend yield _____%
b. What is the expected capital gains yield? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Capital gains yield ______ %
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the
market rate of return is 11.81 percent. What is the amount of the risk premium on
Zoom stock?
 8.09%
 12.76%
 9.59%
 10.25%
 17.24%
8. The risk premium for an individual security is computed by:
 multiplying the security's beta by the market risk premium.
 multiplying the security's beta by the risk-free rate of return.
 adding the risk-free rate to the security's expected return.

 dividing the market risk premium by the quantity (1 + Beta).
 dividing the market risk premium by the beta of the security.
9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84
percent. What is the expectedrate of return on a stock with a beta of 1.32?
 9.17%
 9.24%
 13.12%
 14.03%
 14.36%
10. Mullineaux Corporation has a target capital structure of 80 percent common stock
and 20 percent debt. Its cost of equity is 17 percent, and the cost of debt is 11
percent. The relevant tax rate is 35 percent.
What is the company’s WACC? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _____ %
11. Miller Manufacturing has a target debt–equity ratio of .65. Its cost of equity is 13
percent, and its cost of debt is 9 percent. If the tax rate is 40 percent, what is the
company’s WACC? (Do not round intermediate calculations and enter your answer
as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _____ %
12. Filer Manufacturing has 7 million shares of common stock outstanding. The current
share price is $79, and the book value per share is $6. The company also has two
bond issues outstanding. The first bond issue has a face value $70 million, a coupon
of 8 percent, and sells for 94 percent of par. The second issue has a face value of $40
million, a coupon of 9 percent, and sells for 107 percent of par. The first issue
matures in 23 years, the second in 6 years.

a. What are the company's capital structure weights on a book value basis? (Do not
round intermediate calculations and round your answers to 4 decimal places, e.g.,
32.1616.)
Equity / Value _____
Debt / Value _____
b. What are the company's capital structure weights on a market value basis? (Do not
round intermediate calculations and round your answers to 4 decimal places, e.g.,
32.1616.)
Equity / Value _____
Debt / Value _____
c. Which are more relevant?
13. Titan Mining Corporation has 8.8 million shares of common stock outstanding and
320,000 4 percent semiannual bonds outstanding, par value $1,000 each. The
common stock currently sells for $36 per share and has a beta of 1.4, and the bonds
have 10 years to maturity and sell for 117 percent of par. The market risk premium
is 7.6 percent, T-bills are yielding 5 percent, and the company’s tax rate is 38
percent.
a. What is the firm's market value capital structure? (Do not round intermediate
Weight
Debt _____ %
Equity _____ %
b. If the company is evaluating a new investment project that has the same risk as the
firm's typical project, what rate should the firm use to discount the project's cash
flows? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Discount rate _____%

1. The difference between the present value of an investment?s future cash flows and
its initial cost is the:
 net present value.
 internal rate of return.
 payback period.
 profitability index.
 discounted payback period.
2. Which statement concerning the net present value (NPV) of an investment or a
financing project is correct?
 A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
 An investment project should be accepted only if the NPV is equal to the initial cash
flow.
 Any type of project should be accepted if the NPV is positive and rejected if it is
negative.
 Any type of project with greater total cash inflows than total cash outflows, should
always be accepted.
 An investment project that has positive cash flows for every time period after the initial
investment should be accepted.
3. The primary reason that company projects with positive net present values are
considered acceptable is that:
 they create value for the owners of the firm.
 the project's rate of return exceeds the rate of inflation.
 they return the initial cash outlay within three years or less.
 the required cash inflows exceed the actual cash inflows.
 the investment's cost exceeds the present value of the cash inflows.
4. Accepting a positive net present value (NPV) project:
 indicates the project will pay back within the required period of time.
 means the present value of the expected cash flows is equal to the project’s cost.
 ignores the inherent risks within the project.

 guarantees all cash flow assumptions will be realized.
 is expected to increase the stockholders’ value by the amount of the NPV.
5. The net present value method of capital budgeting analysis does all of the following
except:
 incorporate risk into the analysis.
 consider all relevant cash flow information.
 use all of a project's cash flows.
 discount all future cash flows.
 provide a specific anticipated rate of return.
6. What is the net present value of a project with an initial cost of $36,900 and cash
inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount
rate is 13 percent.
 −$287.22
 −$1,195.12
 −$1,350.49
 $204.36
 $797.22
7. Maxwell Software, Inc., has the following mutually exclusive projects.
Year Project A Project B
0 –$17,000 –$20,000
1 10,500 11,500
2 7,000 8,000
3 2,600 7,000

a-1.Calculate the payback period for each project. (Do not round intermediate
Payback period
Project A ____years
Project B ____years
a-2. Which, if either, of these projects should be chosen?
Project __
b-1. What is the NPV for each project if the appropriate discount rate is 15 percent?
(A negative answer should be indicated by a minus sign. Do not round intermediate
NPV
Project A $____
Project B $____
b-2. Which, if either, of these projects should be chosen if the appropriate discount
rate is 15 percent?
Project __
8. Flatte Restaurant is considering the purchase of a $9,900 soufflé maker. The soufflé
maker has an economic life of six years and will be fully depreciated by the straight-
line method. The machine will produce 1,950 soufflés per year, with each costing
$2.35 to make and priced at $5.20. Assume that the discount rate is 14 percent and
the tax rate is 40 percent.
What is the NPV of the project? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
NPV $_____
Should the company make the purchase?
Yes/No

9. The Best Manufacturing Company is considering a new investment. Financial
projections for the investment are tabulated here. The corporate tax rate is 38
percent. Assume all sales revenue is received in cash, all operating costs and income
taxes are paid in cash, and all cash flows occur at the end of the year. All net
working capital is recovered at the end of the project.
Year 0 Year 1 Year 2 Year 3 Year 4
Investment $ 29,000
Sales revenue $ 15,000 $15,500 $16,000
$13,000
Operating costs 3,200 3,300 3,400
2,600
Depreciation 7,250 7,250 7,250
7,250
Net working capital spending 350 400 450 350 ?
a. Compute the incremental net income of the investment for each year. (Do not round
intermediate calculations.)
Year 1 Year 2 Year 3 Year 4
Net income $ ____ $ _____ $ _____ $____
b. Compute the incremental cash flows of the investment for each year. (Do not round
intermediate calculations. A negative answer should be indicated by a minus sign.)
Year 0 Year 1 Year 2 Year 3 Year
4
Cash flow $ _____ $ _____ $ _____ $ _____
$ _____
c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the
project? (Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
NPV $_____

The following courses are being offered under university of phoenix:-
FIN 571 Connect Problems
FIN 575 Final Exam
LAW 421 Final Exam
LAW 575 Final Exam
LDR 300 Final Exam
LDR 531 Final Exam
MKT 421 Final Exam
MKT 571 Final Exam
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