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Question 1
Which of the following is considered a hybrid organizational form?
partnership
sole proprietorship
corporation
Question 2
Your answer is correct.
[a shareholder]
a company engineer
Question 3
Your answer is correct.
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]
$1,844,022
$2,303,010
$2,123,612
Question 4
Your answer is correct.
Which of the following presents a summary of the changes in a firms balance sheet from the
beginning of an accounting period to the end of that accounting period?
Question 5
Your answer is correct.
Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days's sales
in inventory?
64.3 days
[65.2 days]
61.7 days
57.9 days
Question 6
Your answer is correct.
Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?
[1.47]
1.74
0.60
Question 7
Your answer is correct.
Identify a group of firms that compete with the company being analyzed.
Question 8
Your answer is correct.
Present value: 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.)
$26,454
$19,444
[$16,670]
$22,680
Question 9
Your answer is correct.
PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will
repay the loan with interest over the next five years. Their scheduled payments, starting at the end of
the year are as follows$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the
present value of these payments? (Round to the nearest dollar.)
$2,735,200
$2,431,224
[$2,815,885]
$2,615,432
Question 10
Your answer is correct.
PV of multiple cash flows: Ajax Corp. is expecting the following cash flows$79,000, $112,000,
$164,000, $84,000, and $242,000over 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.)
$429,560
$414,322
$477,235
$480,906
Question 11
Your answer is correct.
Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for
retirement early. 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? (Round to the
nearest dollar.)
[$3,594,524]
$2,667,904
$1,745,600
$5,233,442
Question 12
Your answer is correct.
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.)
12%
[16%]
32%
40%
Question 13
Your answer is correct.
Bond price: 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.)
[$1,066]
$1,014
$972
$923
Question 14
Your answer is correct.
PV of dividends: 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 is 14 percent,
what is the present value of their dividends over the next four years?
$12.50
$13.50
[$9.72]
$11.63
Question 15
Your answer is correct.
Capital rationing. 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?
[1.11]
1.90
0.90
0.11
Question 16
Your answer is correct.
What decision criteria should managers use in selecting projects when there is not enough capital to
invest in all available positive NPV projects?
[The profitability index].
Question 17
Your answer is correct.
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?
30%
50%
33%
[70%]
Question 18
Your answer is correct.
The cost of equity: Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from
today. If the firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is
the cost of equity capital for Gangland if the price of its common shares is currently $17.50?
12.00%
[15.00%]
15.36%
14.65%
Question 19
Your answer is correct.
If a company's weighted average cost of capital is less than the required return on equity, then the
firm:
Is perceived to be safe
Question 20
Your answer is correct.
A firm's capital structure is the mix of financial securities used to finance its activities and can include
all of the following except
stock.
bonds.
[equity options].
preferred stock.
Question 21
Your answer is correct.
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 to 60 percent equity and use the
debt proceeds to pay a special dividend to shareholders, how much debt should they issue?
$375
[$225]
$321
$600
Question 22
Multiple Analysis: 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.
$1,315 million
$453.6 million
[$1,787 million]
$1,334 million
Question 23
Your answer is correct.
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?
32.9%
27.3%
30.3%
[25.1%]
Question 24
Your answer is correct.
[a limited partner]
a general partner
none of these
a sole proprietor
Question 25
Your answer is correct.
Which of the following does maximizing shareholder wealth not usually account for?
[Government regulation.]
Risk.
Question 26
Your answer is correct.
Question 27
Your answer is correct.
Firms that achieve higher growth rates without seeking external financing
none of these.
[have less equity and/or are able to generate high net income leading to a high ROE].
Question 28
Your answer is correct.
Payout and retention ratio: Drekker, Inc., has revenues of $312,766, costs of $220,222, interest
payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find
the firm's dividend payout ratio and retention ratio.
55%, 45%
15%, 85%
[85%, 15%]
45%, 55%
Question 29
Your answer is correct.
[begins when the firm invests cash to purchase the raw materials 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.
estimates how long it takes on average for the firm to collect its outstanding accounts receivable
balance.
Question 30
You are provided the following working capital information for the Ridge Company:
Ridge Company
Account
Inventory
$12,890
Accounts receivable
12,800
Accounts payable
12,670
Net sales
Cost of goods sold
$124,589
99,630
Cash conversion cycle: What is the cash conversion cycle for Ridge Company?
129.9 days
83.5 days
[38.3 days]
46.4 days