STR581 Week 4 Final Exam Part 2

STR581 Week
4 Final Exam Part 2
1. 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?
2. 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.)
3. Variance reports are:
4. A cost which remains constant per unit at various levels of activity is
a:
5. 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.)
6. The convention of consistency refers to consistent use of
accounting principles:
7. The major element in budgetary control is:
8. Firms that achieve higher growth rates without seeking external
financing:
9. Gateway, Corp. has an inventory turnover of 5.6. What
is the firm’s days’s sales in inventory?
10. Which of the following financial statements is concerned with the
company at a point in time?
11.The cash conversion cycle?
12. The process of evaluating financial data that change under alternative
courses of action is called
13. 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?
14. If a company’s weighted average cost of capital is less than the
required return on equity, then the firm:
15. 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)
16. Horizontal analysis is a technique for evaluating a series of financial
statement data over a period of time:
17. Process costing is used when
18. What decision criteria should managers use in selecting projects when
there is not enough capital to invest in all available positive NPV projects?
19. Which of the following is considered a hybrid organizational form
20. Which of the following is an advantage of corporations relative to
partnerships and sole proprietorships?
21. Horizontal analysis is also known as:
22. In a process cost system, product costs are summarized:
23. An activity that has a direct cause-effect relationship with the
resources consumed is a(n):
24. The break-even point is where:
25. Your firm has an equity multiplier of 2.47. What is the
debt-to-equity ratio?
26. 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?
27. An unrealistic budget is more likely to result when it:
28. 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.
29. 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?
30. The most important information needed to determine if companies can pay
their current obligations is the:
31. 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?
32. Internal reports that review the actual impact of decisions are prepared
by:
33. TuleTime Comics is considering a new show that will generate annual cash
flows of $100,000 into the infinite future. If the initial outlay for such a
production is $1,500,000 and the appropriate discount rate is 6 percent for the
cash flows, then what is the profitability index for the project?
34. 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?
35. 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.)
36. The group of users of accounting information charged with achieving the
goals of the business is its:
37. 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:
38. 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?
39. When a company assigns the costs of direct materials, direct labor, and
both variable and fixed manufacturing overhead to products, that company is
using: