FIN 610 Midterm Exam Instructions: Write your name on your exam. STUDENT NAME:______________________ The exam is individual work. It is to be your work and your work alone, with no assistance from classmates, family, friends or others. Your completed exam is due by 11:59 PM, (upload to your Assignments folder) by March 12. Exams submitted late will be penalized 5 points for each day up to three days late. Exams received more than three days after the due date will automatically receive an F. Furthermore, by proceeding with the exam you are agreeing not to share the exam content or your answers with anyone, including students who may take FIN 610 in the future. Please fill in (use capital letters ) your best choice for each question on the attached answer sheet and post it in your assignment folder—by the due date----March 12 Please read the questions carefully; there may be a little more to it than might be obvious at first reading. If you find a question challenging, try to take the question in parts, working from what you know to what you are trying to solve. Frank’s Dogs has beginning net fixed assets of $480 and ending net fixed assets of $530. Assets valued at $300 were sold during the year. Depreciation was $40. What is the amount of capital spending?  A. $10 B. $50 C. $90 D. $260 E. $390 Please use the following Income Statement and Balance sheet for Questions 2 to 6 Income Statement for Fair Company 2016 Revenue $ 9,610 less COGS $ 6,310 less Depreciation $ 1,370 Gross Income $ 1,930 less S,G&A $ - EBIT $ 1,930 less Interest Expense $ 630 taxable income $ 1,300 Taxes $ 455 Net Income $ 845 Balance Sheet for Fair Company Assets Liabilities and Shareholder Equity 2015 2016 2015 2016 Cash 310 405 Accounts Payable 2720 2570 Accounts receivable 2640 3055 Notes Payable 100 0 Inventory 3275 3850 total current 2820 2570 Pre-paid expenses 0 0 Long-term debt 7875 8100 total current $ 6,225 $ 7,310 Common Stock 5000 5250 Next fixed assets (PPE) $ 10,960 10670 Retained Earnings 1490 2060 Total Assets $ 17,185 $ 17,980 $ 17,185 $ 17,980 What is the operating cash flow for 2016?  A. $845 B. $1,930 C. $2,215 D. $2,845 E. $3,060 The 2015 equity multiplier ratio is :  A. 11.53 B. 3.44 C. 2.65 D. 1.00 E. cannot compute with numbers given What are the accounts receivable turnover? A. 10.3 B. 3.44 C. 3.15 D. 3.37 E. cannot compute with numbers given What is the debt ratio for 2016? A. 80.7% B. 55.0% C. 59.3% D. 60.7% E. cannot compute with numbers given What is the ROE (Return on Equity) for 2016? A. 22.72% B. 13.02% C. 59.80% D. 18.75% E. 11.56% The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which ...

1. FIN 610 Midterm Exam
Instructions: Write your name on your exam.
STUDENT NAME:______________________
The exam is individual work. It is to be your work and your
work alone, with no assistance from classmates, family, friends
or others.
Your completed exam is due by 11:59 PM, (upload to your
Assignments folder) by March 12. Exams submitted late will be
penalized 5 points for each day up to three days late.
Exams received more than three days after the due date will
automatically receive an F.
Furthermore,
by proceeding with the exam you are agreeing not to share the
exam content or your answers with anyone, including students
who may take
FIN 610
in the future.
Please fill in (use
capital letters
) your best choice for each question on the attached answer
sheet and post it in your assignment folder—by the due date----
March 12
Please read the questions carefully; there may be a little more to
it than might be obvious at first reading. If you find a question
challenging, try to take the question in parts, working from

2. what you know to what you are trying to solve.
Frank’s Dogs has beginning net fixed assets of $480 and ending
net fixed assets of $530. Assets valued at $300 were sold during
the year. Depreciation was $40. What is the amount of capital
spending?
A. $10
B. $50
C. $90
D. $260
E. $390
Please use the following Income Statement and Balance sheet
for Questions 2 to 6
Income Statement for Fair Company
2016

3. Revenue
$
9,610
less
COGS
$
6,310
less
Depreciation
$
1,370

4. Gross Income
$
1,930
less
S,G&A
$
-
EBIT
$
1,930

5. less
Interest Expense
$
630
taxable income
$
1,300
Taxes
$
455
Net Income

6. $
845
Balance Sheet for Fair Company
Assets
Liabilities and Shareholder Equity
2015
2016

7. 2015
2016
Cash
310
405
Accounts Payable
2720
2570
Accounts receivable
2640
3055
Notes Payable
100
0
Inventory
3275
3850
total current
2820
2570
Pre-paid expenses
0
0
Long-term debt
7875
8100

8. total current
$
6,225
$
7,310
Common Stock
5000
5250
Next fixed assets (PPE)
$
10,960
10670
Retained Earnings
1490
2060
Total Assets
$
17,185
$ 17,980
$

9. 17,185
$
17,980
What is the operating cash flow for 2016?

10. A. $845
B. $1,930
C. $2,215
D. $2,845
E. $3,060
The 2015 equity multiplier ratio is :
A. 11.53
B. 3.44
C. 2.65
D. 1.00
E. cannot compute with numbers given
What are the accounts receivable turnover?
A. 10.3
B. 3.44
C. 3.15
D. 3.37
E. cannot compute with numbers given
What is the debt ratio for 2016?
A. 80.7%
B. 55.0%

11. C. 59.3%
D. 60.7%
E. cannot compute with numbers given
What is the ROE (Return on Equity) for 2016?
A. 22.72%
B. 13.02%
C. 59.80%
D. 18.75%
E. 11.56%
The Ajax Co. just decided to save $1,500 a month for the next
five years as a safety net for recessionary periods. The money
will be set aside in a separate savings account which pays
3.25% interest compounded monthly. It deposits the first $1,500
today. What is the value of this investment in 5 years?
A. $82,964.59
B. $97,847.3
C. $83,428.87
D. $83,687.23
E. $84,998.01
8. You are scheduled to receive annual payments of $10,000 for
each of the next 25 years. Your interest rate is 8.5%. What is
the value of this stream of payments?

12. A. $778,699
B. $900,217.67
C. $1,000,567.88
D. $786,677.92
E. cannot answer with given information
9. Consider a bond which pays 7% annually and has 8 years to
maturity. The market requires an interest rate of 8% on bonds of
this risk. What is this bond's price?
A. $ 942.53
B. $ 911.52
C. $ 941.74
D. $1,064.81
E. None of the above.
10. A General Co. bond has an 8% coupon and pays interest
annually. The face value is $1,000 and the current market price
is $1,020.50. The bond matures in 20 years. What is the yield to
maturity?
A. 7.79%
B. 7.82%
C. 8.00%
D. 8.04%

13. E. 8.12%
11. All else equal, the payback period for a project will
decrease whenever the:
A. duration of a project is lengthened.
B. cash inflows are moved earlier in time.
C. assigned discount rate decreases.
D. required return for a project increases.
E. initial cost increases.
12. Graphing the NPVs of mutually exclusive projects over
different discount rates helps demonstrate:
A. how decisions concerning mutually exclusive projects are
derived.
B. how the incremental IRR varies with changes in the discount
rate.
C. how the payback period and the initial cash outflow of a
project are related.
D. how the duration of a project affects the decision as to
which project to accept.
E. how the profitability index and the net present value are
related.
13. Matt is analyzing two mutually exclusive projects of similar
size and has prepared the following data. Both projects have 5
year lives.
Matt has been asked for his best recommendation given this
information. His recommendation should be to accept:
A. project B because it has the shortest payback period.
B. project A and reject project B based on their net present
values.

14. C. both projects as they both have positive net present values.
D. project B and reject project A based on their average
accounting returns.
E. project B and reject project A based on both the payback
period and the average accounting return.
14. What is the net present value of a project with the following
cash flows and a required return of 12%?
A. -$287.22
B. -$177.62
C. $177.62
D. $204.36
E. $287.22
15.
What is the net present value of a project that has an initial cash
outflow of $12,670 and the following cash inflows? The
required return is 12.5%.
A. $-218.68
B. $-124.46
C. $-76.10
D. $549.65
E. $671.02
16. You are considering the following two mutually exclusive
projects that will not be repeated. The required rate of return is
11.25% for project A and 10.75% for project B. Which project
should you accept and why?
Year
Cash Flow

15. Project A
Cash Flow
Project B
0
-$48,000
-$126,900
1
$18,400
$69,700
2
$31,300
$80,900
3
$11,700
$0
A. project A; because its NPV is about $335 more than the
NPV of project B
B. project A; because it has the higher required rate of return
C. project B; because it has the largest total cash inflow
D. project B; because it returns all its cash flows within two
years
E. project B; because it is the largest sized project
17.
It will cost $2,600 to acquire a small ice cream cart. Cart sales
are expected to be $1,400 a year for three years. After the three
years, the cart is expected to be worthless as that is the
expected remaining life of the cooling system. What is the
payback period of the ice cream cart?
A. .86 years
B. 1.46 years

16. C. 1.86 years
D. 2.46 years
E. 2.86 years
18.
Jamestown Ltd. currently produces boat sails and is considering
expanding its operations to include awnings for homes and
travel trailers. The company owns land beside its current
manufacturing facility that could be used for the expansion. The
company bought this land ten years ago at a cost of $250,000.
Today, the land is valued at $425,000. The grading and
excavation work necessary to build on the land will cost
$15,000. The company currently has some unused equipment
which it currently owns valued at $60,000. This equipment
could be used for producing awnings if $5,000 is spent for
equipment modifications. Other equipment costing $780,000
will also be required. What is the amount of the initial cash
flow for this expansion project?
A. $800,000
B. $1,050,000
C. $1,110,000
D. $1,225,000
E. $1,285,000
19. A project will increase sales by $140,000 and cash expenses
by $95,000. The project will cost $200,000 and be depreciated
using the straight-line method to a zero book value over the 5-
year life of the project. The company has a marginal tax rate of
34%. What is the yearly value of the depreciation tax shield?
A. $8,500
B. $13,600
C. $22,500

17. D. $25,000
E. $37,750
20. Leslie's Unique Clothing Stores offers a common stock that
pays an annual dividend of $2.00 a share. The company has
promised to maintain a constant dividend. How much are you
willing to pay for one share of this stock if you want to earn
12% return on your equity investments?
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00