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FIN 571 Week 1 Quiz – 01.Which of the following business organizational subjects the owner(s) to unlimited liability?    

forms

sole proprietorship partnership corporation a and b

02.Which of the following business organizational forms is easiest to raise capital?    

sole proprietorship partnership corporation a and b

03.Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?    

private corporation sole proprietorship partnership public corporation

04.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.

05.The legal system and 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.

06.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.

07.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 s receivables of $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had s payables of $9,558, notes payables of $2,756, common stock

of $22,000, and retained earnings of $14,008. How much longterm debt does the firm have?    

$76,342 $18,334 $54,342 $12,314

08.Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had s receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had s 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

09.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. 10.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 seven years? (Round to the nearest dollar.)  $38,850  $23,474

 $16,088  $26,625 11.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

12.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

13.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

14.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

15.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

16.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

17.PV of dividends: Cortez, Inc., is expecting dividend of $2.50 next year. After that it expects grow at 7 percent for the next four years. What value of dividends over the next five-year period rate of return is 10 percent?

to pay out a its dividend to is the present if the required

   

$10.76 $11.50 $9.80 $11.88

18.PV of dividends: Givens, Inc., is a fast growing technology company that paid a $1.25 dividend last week. The company's expected growth 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

19.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. 20.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

21.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 $1,651 $1,421 $1,191

million million million million

22.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 shortterm liabilities.  a firm's shareholders to assess how well the firm will meet its short-term liabilities.

23.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.

24.Efficiency ratio: If Viera, Inc., has an s 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

25.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 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. 26.You are provided the following working capital information for the Ridge Company: Ridge Company $ Inventory $12,890 s receivable 12,800 s payable 12,670 Net sales $124,589 Cost of goods sold 99,630 Operating cycle: What is the operating cycle for Ridge Company?    

51 47 85 36

days days days days

27. 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

28. The asset substitution problem occurs when  managers substitute less risky assets for riskier detriment of equity holders.  managers substitute riskier assets for less risky detriment of bondholders.  managers substitute less risky assets for riskier detriment of bondholders.  managers substitute riskier assets for less risky detriment of equity holders.

ones to the ones to the ones to the ones to the

29. 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. How much are your cash flows today?    

$4.50 $12.38 $150 $15

30.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%

31.According to the text, the financial plan covers a period of    

ten years. none of these. one year. three to five years.

32.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.  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 working capital policy.  the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the firm's dividend policy, and the firm's working capital policy.

33.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 paiddividends of $1,384,125 to shareholders. Find the firm's dividend payout ratio and retention ratio.  25%, 75%  66%, 34%

 34%, 66%  69%, 31%

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