FIN419 Finance for Decision Making
University of Phoenix
FIN419T
Week 1 Apply Assessment SCORE 100 PERCENT
Question 1
Limited
liability companies are primarily designed to:
Multiple
Choice
allow a portion of their owners to enjoy limited liability while granting the
other portion of their owners control over the entity.
provide the benefits of the corporate structure only to foreign-based entities.
spin off a wholly owned subsidiary.
allow companies to reorganize themselves through the bankruptcy process.
provide limited liability while avoiding double taxation.
Question 2
A sole
proprietorship:
Multiple
Choice
provides limited financial liability for its owner.
involves significant legal costs during the formation process.
has an unlimited life.
has its profits taxed as personal income.
can generally raise significant capital from non-owner sources.
Question 3
Maria is
the sole proprietor of an antique store that is located in a rented warehouse.
The store has an outstanding loan with the local bank but no other debt
obligations. There are no specific assets pledged as security for the loan. Due
to a sudden and unexpected downturn in the economy, the store is unable to
generate sufficient funds to pay the loan payments due to the bank. Which of
the following options does the bank have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the
debt
III. Withdraw funds from Maria’s personal account at the bank to pay the
store’s debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store’s
debt
Multiple
Choice
I only
III only
I and II only
I, II, and III only
I, III, and IV only
Question 4
The
shareholders of Weil’s Markets would benefit if the firm were to be acquired by
Better Foods. However, Weil’s board of directors rejects the acquisition offer.
This is an example of:
Multiple
Choice
a corporate takeover.
a capital structure issue.
a working capital decision.
an agency conflict.
a compensation issue.
Question 5
Which one
of the following occupations best fits into the corporate area of finance?
Multiple
Choice
Mortgage broker
Treasury bill analyst
Chief financial officer
Insurance risk manager
Local bank manager
Question 6
Will and
Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided
to create a business together renting surfboards, paddle boats, and inflatable
devices in California. Will and Bill will equally share in the decision making
and in the business profits or losses. Which type of business did they create
if they both have full personal liability for the firm's debts?
Multiple
Choice
Sole proprietorship
Limited partnership
Corporation
Joint stock company
General partnership
Question 7
An
employee has a claim on the cash flows of Martin’s Machines. This claim is
defined as a claim by one of the firm's:
Multiple
Choice
residual owners.
shareholders.
financiers.
provisional partners.
stakeholders.
Question 8
Which one
of the following forms of business organization offers liability protection to
some of its owners but not to all of its owners?
Multiple
Choice
Sole proprietorship
General partnership
Limited partnership
Limited liability company
Corporation
Question 9
Matt and
Alicia created a firm that is a separate legal entity and will share ownership
of that firm on a 75/25 basis. Which type of entity did they create if they
have no personal liability for the firm's debts?
Multiple
Choice
Limited partnership
Corporation
Sole proprietorship
General partnership
Public company
Question
10
The
Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following
from the 1990s?
Multiple
Choice
Increased stock market volatility
Corporate accounting and financial fraud
Increased executive compensation
Increased foreign investment in U.S. stock markets
Increased use of tax loopholes
Question
11
Which one
of the following is included in the market value of a firm but not in the book
value?
Multiple
Choice
Raw materials
Partially built inventory
Long-term debt
Reputation of the firm
Value of a partially depreciated machine
Question
12
Over the
past year, a firm decreased its current assets and increased its current
liabilities. As a result, the firm's net working capital:
Multiple
Choice
had to increase.
had to decrease.
remained constant.
could have either increased, decreased, or remained constant.
was unaffected as the changes occurred in the firm's current accounts.
Question
13
Highly
liquid assets:
Multiple
Choice
increase the probability a firm will face financial distress.
appear on the right side of a balance sheet.
generally produce a high rate of return.
can be sold quickly at close to full value.
include all intangible assets.
Question
14
Cash flow
from assets is defined as:
Multiple
Choice
the cash flow to shareholders minus the cash flow to creditors.
operating cash flow plus the cash flow to creditors plus the cash flow to
shareholders.
operating cash flow minus the change in net working capital minus net capital
spending.
operating cash flow plus net capital spending plus the change in net working
capital.
cash flow to shareholders minus net capital spending plus the change in net
working capital.
Question
15
A firm’s
liquidity level decreases when:
Multiple
Choice
inventory is purchased with cash.
inventory is sold on credit.
inventory is sold for cash.
an account receivable is collected.
proceeds from a long-term loan are received.
Question
16
Given a
profitable firm, depreciation:
Multiple
Choice
increases net income.
increases net fixed assets.
decreases net working capital.
lowers taxes.
has no effect on net income.
Question
17
An income
statement prepared according to GAAP:
Multiple
Choice
reflects the net cash flows of a firm over a stated period of time.
reflects the financial position of a firm as of a particular date.
distinguishes variable costs from fixed costs.
records revenue when payment for a sale is received.
records expenses based on the matching principle.
Question
18
Which one
of the following is an intangible fixed asset?
Multiple
Choice
Inventory
Machinery
Copyright
Account receivable
Building
Question
19
Shareholders’
equity is best defined as:
Multiple
Choice
the residual value of a firm.
positive net working capital.
the net liquidity of a firm.
cash inflows minus cash outflows.
the cumulative profits of a firm over time.
Question
20
Cash flow
to stockholders is defined as:
Multiple
Choice
cash flow from assets plus cash flow to creditors.
operating cash flow minus cash flow to creditors.
dividends paid plus the change in retained earnings.
dividends paid minus net new equity raised.
net income minus the addition to retained earnings.
Question
21
Which one
of these is the best example of systematic risk?
Multiple
Choice
Discovery of a major gas field
Decrease in textile imports
Increase in agricultural exports
Decrease in gross domestic product
Decrease in management bonuses for banking executives
Question
22
Which one
of the following represents the amount of compensation an investor should
expect to receive for accepting the unsystematic risk associated with an
individual security?
Multiple
Choice
Security beta multiplied by the market rate of return
Market risk premium
Security beta multiplied by the market risk premium
Risk-free rate of return
Zero
Question
23
Which term
best refers to the practice of investing in a variety of diverse assets as a
means of reducing risk?
Multiple
Choice
Systematic
Unsystematic
Diversification
Security market line
Capital asset pricing model
Question
24
A stock is
expected to return 13 percent in an economic boom, 10 percent in a normal
economy, and 3 percent in a recessionary economy. Which one of the following
will lower the overall expected rate of return on this stock?
Multiple
Choice
An increase in the rate of return in a recessionary economy
An increase in the probability of an economic boom
A decrease in the probability of a recession occurring
A decrease in the probability of an economic boom
An increase in the rate of return for a normal economy
Question
25
Portfolio
diversification eliminates:
Multiple
Choice
all investment risk.
the portfolio risk premium.
market risk.
unsystematic risk.
the reward for bearing risk.
Question
26
Which
statement is true?
Multiple
Choice
The expected rate of return on any portfolio must be positive.
The arithmetic average of the betas for each security held in a portfolio must
equal 1.0.
The beta of any portfolio must be 1.0.
The weights of the securities held in any portfolio must equal 1.0.
The standard deviation of any portfolio must equal 1.0.
Question
27
Which one
of the following is the best example of unsystematic risk?
Multiple
Choice
Inflation exceeding market expectations
A warehouse fire
Decrease in corporate tax rates
Decrease in the value of the dollar
Increase in consumer spending
Question
28
The
systematic risk principle states that the expected return on a risky asset
depends only on the asset’s ___ risk.
Multiple
Choice
unique
diversifiable
asset-specific
market
unsystematic
Question
29
Which one
of the following best exemplifies unsystematic risk?
Multiple
Choice
Unexpected economic collapse
Unexpected increase in interest rates
Unexpected increase in the variable costs for a firm
Sudden decrease in inflation
Expected increase in tax rates
Question
30
The amount
of systematic risk present in a particular risky asset relative to that in an
average risky asset is measured by the:
Multiple
Choice
squared deviation.
beta coefficient.
standard deviation.
mean.
variance.
FIN419T
Week 2 Apply Assessment SCORE 95 PERCENT
Question 1
|
Bethesda Mining Company reports the following balance sheet information
for 2018 and 2019. |
|
|
|
Prepare the 2018 and
2019 common-size balance sheets for Bethesda Mining. (Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
|
|
Question 2
|
Bethesda Mining Company reports the following balance sheet
information for 2018 and 2019. |
|
|
|
BETHESDA
MINING COMPANY |
|||||||||||||
|
|
|
2018 |
|
|
2019 |
|
|
|
2018 |
|
|
2019 |
|
|
Assets |
|
|
|
|
|
|
Liabilities and Owners’ Equity |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Cash |
$ |
26,530 |
|
$ |
34,778 |
|
Accounts payable |
$ |
194,422 |
|
$ |
202,111 |
|
|
Accounts
receivable |
|
57,781 |
|
|
78,139
|
|
Notes
payable |
|
89,520 |
|
|
141,088 |
|
|
Inventory |
|
134,324 |
|
|
201,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
283,942 |
|
$ |
343,199 |
|
|
Total |
$ |
218,635 |
|
$ |
314,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt |
$ |
246,000 |
|
$ |
182,750 |
|
|
|
|
|
|
|
|
|
Owners’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and paid-in surplus |
$ |
209,000 |
|
$ |
209,000 |
|
|
|
|
|
|
|
|
|
Accumulated retained earnings |
|
136,940 |
|
|
168,456 |
|
|
Fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment |
$ |
657,247 |
|
$ |
589,228 |
|
Total |
$ |
345,940 |
|
$ |
377,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
875,882 |
|
$ |
903,405 |
|
Total liabilities and owners’ equity |
$ |
875,882 |
|
$ |
903,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Calculate the following financial ratios for each year:
a. Current ratio. (Do not
round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
b. Quick ratio. (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
c. Cash ratio. (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
d. Debt-equity ratio and
equity multiplier. (Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
e. Total debt ratio. (Do not
round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
|
|
|||||||||||||
|
|
|
||||||||||||
|
Question 3
Question 9 The cash ratio is used to evaluate the: Multiple Choice liquidity of a firm. speed at which a firm generates cash. length of time that a firm can pay its bills if no
additional cash becomes available. ability of a firm to pay the interest on its debt. relationship between the firm's cash balance and
its current liabilities. Question 10 If a firm has an inventory turnover of 15, the firm: Multiple Choice sells its entire inventory every 15 days. stocks its inventory only once every 15 days. delivers inventory to its customers every 15 days. sells its inventory by granting customers 15 days'
of free credit. sells its entire inventory an average of 15 times
each year. Question 11 |
|
||||||||||||
|
By definition, a bank that pays simple interest on a savings account
will pay interest: Multiple Choice only at the beginning of the investment period. on interest. only on the principal amount originally invested. on both the principal amount and the reinvested
interest. only if all previous interest payments are
reinvested. Question 12 |
|
||||||||||||
|
Financial statement analysis: Multiple Choice is primarily used to identify account values that
meet the normal standards. is limited to internal use by a firm's managers. provides useful information that can serve as a
basis for forecasting future performance. provides useful information to shareholders but not
to debt holders. is enhanced by comparing results to those of a
firm's peers but not by comparing results to prior periods. Question 13 |
|
||||||||||||
|
Which one of the following is the maximum growth rate that a firm can
achieve without any additional external financing? Multiple Choice DuPont rate External growth rate Sustainable growth rate Internal growth rate Cash flow rate Question 14 |
|
||||||||||||
|
Which one of the following will increase the profit margin of a firm,
all else held constant? Multiple Choice Increase in interest paid Increase in fixed costs Increase in depreciation expense Decrease in the tax rate Decrease in sales Question 15 |
|
||||||||||||
Katlyn needs to invest
$5,318 today in order for her savings account to be worth $8,000 six years from
now. Which one of the following terms refers to the $5,318?
Multiple Choice
Present value
Compound value
Future value
Complex value
Factor
value
Question 16
Given an interest rate
of zero percent, the future value of a lump sum invested today will always:
Multiple Choice
remain constant, regardless of the investment time period.
decrease if the investment time period is shortened.
decrease if the investment time period is lengthened.
be
equal to $0.
be
infinite in value.
Question 17
You need to have
$32,000 in 14 in years. You can earn an annual interest rate of 3 percent for
the first 4 years, 3.6 percent for the next 3 years, and 4.3 percent for the
final 7 years. How much do you have to deposit today?
Multiple Choice
$16,732.56
$18,032.49
$21,155.77
$19,042.84
$18,889.81
Question 18
You have just
deposited $8,500 into an account that promises to pay you an annual interest
rate of 6 percent each year for the next 6 years. You will leave the money
invested in the account and 10 years from today, you need to have $19,320 in
the account. What annual interest rate must you earn over the last 4 years to
accomplish this goal?
Multiple Choice
12.51%
11.55%
11.37%
14.07%
10.01%
Question 19
A firm has total debt
of $1,370 and a debt–equity ratio of .22. What is the value of the total
assets?
Multiple Choice
$3,014.00
$6,227.27
$7,597.27
$2,200.00
$1,671.40
Question 20
Lee Sun's has sales of
$4,100, total assets of $3,800, and a profit margin of 6 percent. The firm has
a total debt ratio of 42 percent. What is the return on equity?
Multiple Choice
11.16 percent
8.96 percent
6.00 percent
5.86 percent
6.47 percent
Question 1
When are funds generally transferred into zero-balance accounts?
Multiple Choice
Monthly
Weekly
Daily
As needed
Never
Question
2
Taylor's Market received five checks today and went to the bank to deposit all
of them. Unfortunately, the bank was closed for the day due to a robbery. How
does the bank closure affect the firm's float assuming these five checks are
the only outstanding bank items?
Multiple Choice
Collection float increased
Collection float decreased
Disbursement float increased
Disbursement float decreased
Net float remained unchanged
Question
3
The primary purpose of a cash discount is to:
Multiple Choice
compensate customers for an out-of-stock item.
compensate customers for faulty goods or services.
offset the interest charges on an account receivable.
induce customers to pay promptly.
induce customers to purchase specialty items.
Question
4
The terms of sale are best defined as the:
Multiple Choice
total invoice amount including all shipping costs and taxes.
period of time during which a sale price applies.
legal documents related to the credit sale of either goods or
services.
conditions under which a firm sells its goods or services for
either cash or credit.
process used to determine which customers will be granted credit
and which will not.
Question
5
Kelly just completed compiling a listing of her firm's accounts receivables
with each invoice segregated according to the length of time the invoice has
been outstanding. What is the name given to this listing?
Multiple Choice
Aging schedule
Collection report
Credit evaluation report
Invoice schedule
Terms of credit
Question
6
How quickly can a bank receive payment once it transmits a copy of a check to
the bank on which the check was drawn?
Multiple Choice
Immediately
In one day
Between one and two days
In two days
Between two and three days
Question
7
The optimal credit policy of any firm will:
Multiple Choice
maximize sales.
minimize bad debts.
maximize units sold.
minimize the total costs of granting credit.
minimize carrying costs.
Question
8
The primary goal of inventory management is to minimize the:
Multiple Choice
number of orders per year.
average inventory level.
total costs of holding inventory.
level of inventory for the most expensive items.
total opportunity costs.
Question
9
The process of determining the probability that potential customers will not
pay is called:
Multiple Choice
credit analysis.
collection policy.
account aging.
credit terms.
customer invoicing.
Question
10
A bill given to a customer for goods he or she purchased is called a(n):
Multiple Choice
account reconciliation.
invoice.
docket.
remittance advice.
shipping receipt.
Question
11
A firm grants credit with terms of 2/10, net 30. The firm's customers have ___
days to pay in order to receive a _____ percent discount.
Multiple Choice
2; 10
10; 2
15; 2
20; 2
30; 20
Question
12
Which statement is correct?
Multiple Choice
Firms cannot use lockboxes if they use cash concentration
accounts.
Firms prefer to increase processing delay on disbursements.
Firms prefer to eliminate all types of float.
Firms open regional offices so their employees can pick up
lockbox payments throughout the day.
The Check Clearing Act for the 21st Century is designed to reduce
total collection time to one day.
Question
13
Which one of the following will tend to increase the length of the credit
period?
Multiple Choice
Decrease in product cost
Decrease in consumer demand
Decrease in collateral value
Increase in credit risk
Increase in product standardization
Question
14
Float is defined as the difference between the:
Multiple Choice
beginning and ending cash balances as shown on a cash budget.
ledger balance and the available balance.
book balance and the ledger balance.
collections and disbursements for any given period of time.
available balance and the collected balance.
Question
15
Collection policy refers to the:
Multiple Choice
process of determining which customers will be granted credit.
process of determining the probability that customers will not
pay.
set of guidelines used by a firm to determine the cost of
offering credit to its customers.
daily process of handling cash inflows and outflows of cash.
set of procedures a firm follows in collecting accounts
receivable.
Question
16
Which report identifies the percentage of accounts receivable that are
delinquent by 90 days or more?
Multiple Choice
Cash budget
5 C\’s of credit
Credit analysis
Aging schedule
Credit scoring report
Question
17
Credit scoring is the:
Multiple Choice
categorizing of customers into groups based on the length of time
it takes each customer to pay for purchases.
compiling of a list of accounts receivables segregated by the
length of time each receivable has been outstanding.
evaluation of the opportunity costs of a credit policy.
process of quantifying the probability of default when granting
credit to customers.
tracking of both the number and the size of customer orders over
a period of time.
Question
18
Which of these is a speculative motive for holding cash?
Multiple Choice
Buying extra inventory because a key supplier offered a special
one-time discount
Paying a $100 bonus to all employees at year-end
Paying the annual insurance premium on the firm's assets
Needing to purchase a new delivery truck because the old one was
totally destroyed in an accident
Contributing $1,000 to help fund medical care for an uninsured
neighbor
Question
19
The basic factors that are reviewed when evaluating the creditworthiness of a
potential customer are called the:
Multiple Choice
terms of sale.
receivables factors.
five Cs of credit.
collection policy determinants.
credit scores.
Question
20
BJ\’s just reconciled its bank account and has $10,800 in outstanding deposits,
$26,300 in checks outstanding, and a positive checkbook balance. The firm sells
on a cash-only basis and deposits its receipts at the bank daily. The deposited
funds are available to the firm the following day. The firm writes and mails
checks on a daily basis also. These checks generally clear the bank in three
days. What do you know about the firm's float given this information?
Multiple Choice
The firm has disbursements float but no collection float.
The collection float generally exceeds the disbursement float.
The firm has a net collection float.
The disbursement float generally exceeds the collection float.
Since transactions occur daily, the firm has no float.
TRUE/FALSE. Write 'T' if the
statement is true and 'F' if the statement is false.
(Worth .25 points each or 2.5 points for this section)
1) For a
given positive interest rate, the future value of $100 increases with the
passage of time. Thus,
the longer the period of time, the greater the future value.
2) Future
value is the value of a future amount at the present time, found by applying
compound
interest over a specified period of time.
3) The
aggressive financing strategy is a strategy by which the firm finances its
current assets with
short-term funds and its fixed assets with long-term funds.
4)
Combining negatively correlated assets can reduce the overall variability of
returns.
5) A
portfolio that combines two assets having perfectly positively correlated
returns cannot reduce
the portfolio's overall risk below the risk of the least risky asset.
6) In
general, exchange rate risk is easier to protect against than political risk.
7) In
selecting the best group of unequal-lived projects, if the projects are
mutually exclusive, the
length of the projects lives is not critical.
8) The
EBIT-EPS analysis tends to concentrate on maximization of earnings rather than
maximization
of owners' wealth.
9) The
three basic types of risk associated with international cash flows are 1)
business and financial
risks, 2) inflation and foreign exchange risks, and 3) political risks.
10)
Accounts payable result from transactions in which merchandise is purchased but
no formal note is
signed to show the purchaser's liability to the seller.
MULTIPLE
CHOICE. Choose the one alternative that best completes the statement or answers
the question.
(Worth .50 points each or 9.5 points for this section)
11) When
the amount earned on a deposit has become part of the principal at the end of a
specified
time period the concept is called
A) future value. B) discount interest.
C) compound interest. D) primary interest.
12) The
future value of $100 received today and deposited at 6 percent for four years
is
A) $126. B) $124. C) $ 79. D) $116.
13) As
the interest rate increases for any given period, the future value interest
factor will
A) decrease. B) increase.
C) move toward 1. D) remain unchanged.
14) The
present value of $100 to be received 20 years from today, assuming an
opportunity cost of 8
percent, is
A) $ 42.24. B) $ 75. C) $23.60. D) $21.45.
15) The
________ financing strategy requires the firm to pay interest on excess funds
borrowed but not
needed throughout the entire year.
A) seasonal B) conservative C) permanent D) aggressive
16)
Strikes, lawsuits, regulatory actions, and increased competition are all
examples of
A) nondiversifiable risk. B) economic risk.
C) systematic. D) diversifiable risk.
Table 5.2
You are going to invest $20,000 in a portfolio consisting of assets X, Y, and
Z, as follows:
Asset Name Annual
Asset Return Probability Beta Proportion
X 10% .50
1.2 .333
Y 8% .25 1.6 .333
Z 16% .25 2.0 .333
17) Given
the information in Table 5.2, what is the expected annual return of this
portfolio?
A) 10.0% B) 11.7% C) 11.0% D) 11.4%
18) The
beta of the portfolio in Table 5.2, containing assets X, Y, and Z, is
A) 1.6. B) 2.4. C) 1.5. D) 2.0.
19) If
the required return is greater than the coupon rate, a bond will sell at
A) book value. B) a premium. C) a discount. D) par.
20) A
firm has an issue of $1,000 par value bonds with a 10 percent stated interest
rate outstanding. The
issue pays interest annually and has 10 years remaining to its maturity date.
If bonds of similar risk
are currently earning 8 percent, the firm's bond will sell for ________ today.
A) $851.50 B) $1,134.20 C) $805.20 D) $1,268.20
21) A
firm has an issue of $1,000 par value bonds with a 9 percent stated interest
rate outstanding. The
issue pays interest annually and has 20 years remaining to its maturity date.
If bonds of similar risk
are currently earning 11 percent, the firm's bond will sell for ________ today.
A) $840.67 B) $1,123.33 C) $1,000 D) $716.67
22) A
firm has an expected dividend next year of $1.20 per share, a zero growth rate
of dividends, and
a required return of 10 percent. The value of a share of the firm's common
stock is ________.
A) $100 B) $10 C) $12 D) $120
23) A
firm has experienced a constant annual rate of dividend growth of 9 percent on
its common stock
and expects the dividend per share in the coming year to be $2.70. The firm can
earn 12 percent on
similar risk involvements. The value of the firm's common stock is ________.
A) $9/share B) $90/share C) $22.50/share D) $30/share
Table
10.6
Yong Importers, an Asian import company, is evaluating two mutually exclusive
projects, A and B. The relevant cash flows for each project are given in the
table below. The cost of capital for use in evaluating each of these equally
risky projects is 10 percent.
Year
Project A Project B
0 $350,000 $425,000
Cash Inflows (CF)
1 $140,000 $175,000
2 165,000 150,000
3 190,000 125,000
4 100,000
5 75,000
6 50,000
24) The
NPVs of projects A and B are ________. (See Table 10.6):
A) $45,805 and -$19,312 respectively. B) $95,066 and $56,386, respectively.
C) -$45,805 and $19,312 respectively. D) none of the above.
25) In
the EBIT-EPS approach to capital structure, risk is represented by
A) shifts in the cost of debt capital. B) the slope of the capital structure
line.
C) shifts in the cost of equity capital. D) shifts in the times-interest-earned
ratio.
26) A
firm has a current capital structure consisting of $400,000 of 12 percent
annual interest debt and
50,000 shares of common stock. The firm's tax rate is 40 percent on ordinary
income. If the EBIT is
expected to be $200,000, two EBIT-EPS coordinates for the firm's existing
capital structure are
A) ($152,000, $3.50) and ($150,000, $1.82). B) ($36,000, $0) and ($200,000,
$3.04).
C) ($48,000, $0) and ($200,000, $1.82). D) ($0, $48,000) and ($200,000, $1.82).
Table
14.2
Flum Packages, Inc.
Assets Liabilities & Equity
Current assets $12,000 Current Liabilities $ 5,000
Fixed assets 20,000 Long-term debt 12,000
Equity 13,000
Total $30,000 Total $30,000
27) The
company earns 5 percent on current assets and 15 percent on fixed assets. The
firm's current liabilities cost 7 percent to maintain and the average annual
cost of long-term funds is 20 percent.
The firm's initial net working capital is ________. (See Table 14.2)
A) $ 5,000. B) $10,000. C) $7,000. D) -$ 5,000.
28) The
beta of the market
A) is less than 1. B) is greater than 1.
C) is 1. D) cannot be determined.
29) XYZ
Corporation borrowed $100,000 for six months from the bank. The rate is prime
plus 2
percent. The prime rate was 8.5 percent at the beginning of the loan and
changed to 9 percent after
two months. This was the only change. How much interest must XYZ corporation
pay?
A) $2,476. B) $5,417. C) $21,500. D) $18,212.
ESSAY.
Write your answer on the answer key.
(Worth 3 points)
30) Congratulations! You have just won the lottery! However, the lottery bureau
has just informed you that you can take your winnings in one of two ways.
Choice X pays $1,500,000 today. Choice Y pays $2,000,000 at the end of seven
years from now. Using a discount rate of 10 percent, based on present values,
which would you choose? Using the same discount rate of 10 percent, based on
future values, which would you choose? What do your results suggest as a
general rule for approaching such problems? (Make your choices based purely on
the time value of money.)
No comments:
Post a Comment