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1. STR 581 Capstone Final Examination, Part Two
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STR 581 Week 4 Capstone Final Examination, Part Two
1. Internal reports that review the actual impact of decisions are prepared by:
 the controller
 department heads
 factory workers
 management accountants
2. Horizontal analysis is also known as:
 trend analysis
 vertical analysis
 linear analysis
 common size analysis
3. Which of the following is an advantage of corporations relative to partnerships and sole
proprietorships?
 most common form of organization
 reduced legal liability for investors
 lower taxes
 harder to transfer ownership
4. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it
is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of
return for owning Serox in the most recent year? (Round to the nearest percent.)
 32%
 16%
 12%
 40%

2. 5. External financing needed: Jockey Company has total assets worth $4,417,665. At year-
end it will have net income of $2,771,342 and pay out 60 percent as dividends. If the
firm wants no external financing, what is the growth rate it can support?
 30.3%
 27.3%
 32.9%
 25.1%
6. An unrealistic budget is more likely to result when it:
 has been developed by all levels of management.
 has been developed in a top down fashion.
 has been developed in a bottom up fashion.
 is developed with performance appraisal usages in mind.
7. Which of the following financial statements is concerned with the company at a point in
time?
 balance sheet
 retained earnings statement
 statement of cash flows
 income statement
8. Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend
by $0.25 in each of the following three years. If their required rate of return if 14
percent, what is the present value of their dividends over the next four years?
 $12.50
 $11.63
 $9.72
 $13.50
9. An activity that has a direct cause-effect relationship with the resources consumed is
a(n):
 product activity
 cost driver
 cost pool
 overhead rate
10. The major element in budgetary control is:
 the approval of the budget by the stockholders

3.  the valuation of inventories
 the preparation of long-term plans
 the comparison of actual results with planned objectives.
11. Tule Time Comics is considering a new show that will generate annual cash flows of
$100,000 into the infinite future. If the initial outlay for such a production is $1,500,000
and the appropriate discount rate is 6 percent for the cash flows, then what is the
profitability index for the project?
 0.11
 1.11
 0.90
 1.90
12. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know
that the firm’s cost of debt capital is 10 percent and the cost of equity capital is 20%
What proportion of the firm is financed with debt?
 70%
 50%
 33%
 30%
13. The most important information needed to determine if companies can pay their
current obligations is the:
 relationship between current assets and current liabilities
 relationship between short-term and long-term liabilities
 projected net income for next year
 net income for this year
14. Process costing is used when:
 dissimilar products are involved
 production is aimed at fulfilling a specific customer order.
 the production process is continuous.
 costs are to be assigned to specific jobs.
15. A cost which remains constant per unit at various levels of activity is a:
 fixed cost
 mixed cost
 manufacturing cost

4.  variable cost
16. 16.The group of users of accounting information charged with achieving the goals of the
business is its:
 investors
 auditors
 creditors
 managers
17. Teakap, Inc. has current assets of $1,456,312 and total assets of $4,812,369 for the year
ending September 30, 2006. It also has current liabilities of $1,041,012, common equity
of $1,500,000 and retained earnings of $1,468,347. How much long-term debt does the
firm have?
 $803,010
 $2,303,010
 $1,844,022
 $2,123,612
18. The cash conversion cycle?
 begins when the firm invests cash to purchase the raw materials that would be used
to produce the goods that the firm manufactures.
 estimates how long it takes on average for the firm to collect its outstanding
accounts receivables balance.
 begins when the firm uses its cash to purchase raw materials and ends when the
firm collects cash payments on its credit sales.
 shows how long the firm keeps its inventory before selling it.
19. Ajax Corp. is expecting the following cash flows - $79,000, $112,000, $164,000, $84,000,
and $242,000 – over the next five years. If the company’s opportunity cost is 15
percent, what is the present value of these cash flows? (Round to the nearest dollar.)
 $480,906
 $429,560
 $414,322
 $477,235
20. Jack Robbins is saving for a new car. He needs to have $21,000 for the car in three years.
How much will he have to invest today in an account paying 8 percent annually to
achieve his target? (Round to nearest dollar)

5.  $26,454
 $19,444
 $22,680
 $16,670
21. Which of the following presents a summary of changes in a firm’s balance sheet from
the beginning of an accounting period to the end of that accounting period?
 the statement of net worth
 the statement of cash flows
 the statement of working capital
 the statement of retained earnings
22. M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected
to exist forever. The company is currently financed with 75 percent equity and 25
percent debt. Your analysis tells you that the appropriate discount rates are 10 percent
for the cash flows, and 7 percent for the debt. You currently own 10 percent of the
stock. If Dynamo wishes to change its capital structure from 75 percent equity to 60
percent equity and use the debt proceeds to pay a special dividend to shareholders,
how much debt should they use?
 $225
 $600
 $375
 $321
23. Horizontal analysis is a technique for evaluating a series of financial statement data over
a period of time:
 that has been arranged from the highest number to the lowest number.
 to determine the amount and/or percentage increase or decrease that has taken
place.
 to determine which items are in error.
 that has been arranged from the lowest number to the highest number.
24. Jayadev Athreya has started his first job. He will invest $5,000 at the end of each year
for the next 45 years in a fund that will earn a return of 10 percent. How much will
Jayadev have at the end of 45 years?
 $2,667,904
 $5,233,442
 $1,745,600

6.  $3,594,524
25. Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and
amortization expenses amounted to $84 million. The firm has 135 million shares
outstanding and a share price of $12.80. A competing firm that is very similar to
Turnbull has an enterprise value/EBITDA multiple of 5.40. What is the enterprise value
of Turnbull Corp.? Round to the nearest million dollars.
 $1,344 million
 $453.6 million
 $1,315 million
 $1,787 million
26. Firms that achieve higher growth rates without seeking external financing:
 Have a low plowback ratio
 are highly leveraged
 have less equity and/or are able to generate high net income leading to a high ROE.
 None of these
27. In a process cost system, product costs are summarized:
 on job cost sheets.
 when the products are sold.
 after each unit is produced.
 on production cost reports.
28. The convention of consistency refers to consistent use of accounting principles:
 within industries
 among accounting periods
 throughout the accounting period
 among firms
29. If a company’s weighted average cost of capital is less than the required return on
equity, then the firm:
 is financed with more than 50% debt
 is perceived to be safe
 partnership
 has debt in its capital structure
30. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?

7.  0
 1.74
 0.60
 1.47
31. The accumulation of accounting data on the basis of the individual manager who has the
authority to make day-to-day decisions about activities in an area is called:
 master budgeting
 static reporting
 responsibility accounting
 flexible accounting
32. Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate.
Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent.
What should the company’s bonds be priced at today? Assume annual coupon
payments. (Round to the nearest dollar.)
 $1014
 $972
 $923
 $1,066
33. Variance reports are:
 internal reports for management
 SEC financial reports
 external financial reports
 all of these
34. The break-even point is where:
 contribution margin equals total fixed costs.
 total sales equal total variable costs.
 total sales equal total fixed costs.
 total variable costs equal total fixed costs.
35. When a company assigns the costs of direct materials, direct labor, and both variable
and fixed manufacturing overhead to products, that company is using:
 operations costing
 product costing
 absorption costing

8.  variable costing
36. Which of the following is considered a hybrid organizational form?
 sole proprietorship
 partnership
 limited liability partnership
 corporation
37. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in
inventory?
 57.9
 61.7
 65.2
 64.3
38. The process of evaluating financial data that change under alternative courses of action
is called:
 incremental analysis
 contribution margin analysis
 cost-benefit analysis
 double entry analysis
39. What decision criteria should managers use in selecting projects when there is not
enough capital to invest in all available positive NPV projects?
 the modified internal rate of return
 the profitability index
 the discounted payback
 the internal rate of return

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