FIN 370 Final Exam Guide (New 2017)

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The main objective of generating financial information is providing

useful information that can be used in decision-making... only if this
information is relevant, reliable, comparable, and consistent, can it be
useful for decision makers. (Kieso, 2003).

Relevance gives a basis for making decisions that will impact the future
of a business, and it confirms and corrects expectations from the past. If
the information makes a difference in making decisions, it is relevant.

Offering early payment discounts to customers will tend to increase the

cash cycle. Precise Machinery is analyzing a proposed project. The
company expects to sell 2100 units give or take 5 percent. The expected
variable cost per unit is $260 and the expected fixed costs are $589,000.
Cost estimates are considered accurate within a plus or minus 4 percent
range. The depreciation expense is $129,000. The sales price is
estimated at $750 per unit, give or take 2 percent. The tax rate is 35
percent. The company is conducting a sensitivity analysis on the sales
price using a sales price estimate of $755. What is the operating cash
flow based on this analysis? $86,675 $354,874 $368,015 $293,089
$337,975 You are doing some comparison shopping. Five stores offer
the product you want at basically the same price but with differing credit
terms. Which one of these terms is best-suited to you if you plan to forgo
the discount? 2/10, net 30 2/5, net 30 2/5, net 20 1/10, net 45 1/5, net 15
The plowback ratio is: The dollar increase in net income divided by the
dollar increase in sales. Equal to net income divided by the change in
total equity. Equal to one minus the retention ratio. The change in
retained earnings divided by the dividends paid. The percentage of net
income available to the firm to fund future growth. Which one of the
following is the financial statement that summarizes a firms revenue
and expenses over a period of time? Statement of cash flows Market
value report Tax reconciliation statement Balance sheet Income
statement Kellys Corner Bakery purchased a lot in Oil City six years
ago at a cost of $278000. Today, that lot has a market value of $264,000.
At the time of the purchase, the company spent $6,000 to level the lot
and another $8,000 to install storm drains. The company now wants to
build a new facility on that site. The building cost is estimated at $1.03
million. What amount should be used as the initial cash flow for this
project? -$1,294,000 -$1,322,000 -$1,045,000 -$1,308,000 -$1,308,000
Webster United is paying a dividend of $1.32 per share today. There are
350,000 shares outstanding with a market price of $22.40 per share prior
to the dividend payment. Ignore taxes. Before the dividend, the company
had earnings per share of $1.68. As a result of this dividend, the:
Retained earnings will decrease by $350,000. Earnings per share will
increase to $3. Total firm value will not change. Price-earnings ratio will
be 12.55. Retained earnings will increase by $462,000. The common
stock of Dayton Repair sells for $43.19 a share. The stock is expected to
pay $2.28 per share next year when the annual dividend is distributed.
The firm has established a pattern of increasing its dividends by 2.15
percent annually and expects to continue doing so. What is the market
rate of return on this stock? 7.67 percent 7.59 percent 7.43 percent 7.14
percent 7.28 percent Which one of the following should earn the most
risk premium based on CAPM? Diversified portfolio with returns similar
to the overall market. Stock with a beta of 1.38. Portfolio with a beta of
1.01. U.S. Treasury bill. Stock with a beta of 0.74. Which one of these
actions will increase the operating cycle? Assume all else held constant.
Decreasing the receivables turnover rate. Decreasing the payables
period. Decreasing the average inventory level. Increasing the payables
period. Increasing the inventory turnover rate. Oil Wells offers 6.5
percent coupon bonds with semiannual payments and a yield to maturity
of 6.94 percent. The bonds mature in seven years. What is the market
price per bond if the face value is $1,000? $902.60 $996.48 $913.48
$989.70 $975.93 Three Corners Markets paid an annual dividend of
$1.37 a share last month. Today, the company announced that future
dividends will be increasing by 2.8 percent annually. If you require a
return of 11.6 percent, how much are you willing to pay to purchase one
share of this stock today? $16.67 $16.00 $18.23 $17.68 $15.57 Which
one of the following is a source of cash? Granting credit to a customer
Purchase of inventory Acquisition of debt Payment to a supplier
Repurchase of common stock Nadines Home Fashions has $2.12
million in net working capital. The firm has fixed assets with a book
value of $31.64 million and a market value of $33.9 million. The firm
has no long-term debt. The Home Centre is buying Nadines for $37.5
million in cash. The acquisition will be recorded using the purchase
accounting method. What is the amount of goodwill that The Home
Centre will record on its balance sheet as a result of this acquisition?
$5.86 million $3.34 million $4.14 million $1.48 million $3.74 million
Chelsea Fashions is expected to pay an annual dividend of $1.10 a share
next year. The market price of the stock is $21.80 and the growth rate is
4.5 percent. What is the firms cost of equity? 9.55 percent 10.54 percent
9.24 percent 7.91 percent 9.77 percent Operating leverage is the degree
of dependence a firm places on its: Depreciation tax shield. Variable
costs. Fixed costs. Operating cash flows. Sales. Phillips Equipment has
75,000 bonds outstanding that are selling at par. Bonds with similar
characteristics are yielding 7.5 percent. The company also has 750,000
shares of 6 percent preferred stock and 2.5 million shares of common
stock outstanding. The preferred stock sells for $64 a share. The
common stock has a beta of 1.21 and sells for $44 a share. The U.S.
Treasury bill is yielding 2.3 percent and the return on the market is 11.2
percent. The corporate tax rate is 34 percent. What is the firms weighted
average cost of capital? 11.56 percent 11.30 percent 11.18 percent 10.64
percent 9.69 percent Andy deposited $3,000 this morning into an
account that pays 5 percent interest, compounded annually. Barb also
deposited $3,000 this morning into an account that pays 5 percent
interest, compounded annually. Andy will withdraw his interest earnings
and spend it as soon as possible. Barb will reinvest her interest earnings
into her account. Given this, which one of the following statements is
true? Barb will earn more interest the second year than Andy. Barb will
earn more interest the first year than Andy will. Andy will earn
compound interest. Andy will earn more interest in year three than Barb
will. After five years, Andy and Barb will both have earned the same
amount of interest. When utilizing the percentage of sales approach,
managers: 1. Estimate company sales based on a desired level of net
income and the current profit margin. 2. Consider only those assets
that vary directly with sales. III. Consider the current production
capacity level. 1. Can project both net income and net cash flows.
III and IV only I, III, and IV only II and III only II, III, and IV only I and
II only You are comparing two investment options that each pay 6
percent interest compounded annually. Both options will provide you
with $12000 of income. Option A pays $2,000 the first year followed by
two annual payments of $5,000 each. Option B pays three annual
payments of $4,000 each. Which one of the following statements is
correct given these two investment options? Assume a positive discount
rate. Option B is a perpetuity. Option B has a higher present value at
time zero. Both options are of equal value since they both provide
$12,000 of income. Option A has the higher future value at the end of
year three. Option A is an annuity. The condition stating that the interest
rate differential between two countries is equal to the percentage
difference between the forward exchange rate and the spot exchange rate
is called: Uncovered interest rate parity. The unbiased forward rates
condition. Purchasing power parity. Interest rate parity. The international
Fisher effect. The Dry Dock is considering a project with an initial cost
of $118400. The projects cash inflows for years 1 through 3 are $37200,
$54600 and $46900, respectively. What is the IRR of this project? 8.42
percent 7.48 percent 8.56 percent 8.04 percent 8.22 percent The 7
percent bonds issued by Modern Kitchens pay interest semiannually
mature in eight years and have a $1000 face value. Currently, the bonds
sell for $1,032. What is the yield to maturity? 7.20 percent 6.87 percent
6.48 percent 6.92 percent 6.08 percent Al invested $7200 in an account
that pays 4 percent simple interest. How much money will he have at the
end of five years? $8,678 $8,710 $8,299 $8,056 $8,640 All of the
following represent potential gains from an acquisition except the: Use
of surplus funds. Tax loss carryovers acquired in the acquisition.
Obtainment of a beachhead. Diseconomies of scale related to increased
labor demand. Lower costs per unit realized. Fresno Salads has current
sales of $6000 and a profit margin of 6.5 percent. The firm estimates that
sales will increase by 4 percent next year and that all costs will vary in
direct relationship to sales. What is the pro forma net income? $438.70
$327.18 $405.60 $303.33 $441.10 A news flash just appeared that
caused about a dozen stocks to suddenly drop in value by 20 percent.
What type of risk does this news flash best represent? Market
Unsystematic Portfolio Total Non-diversifiable Which one of the
following terms is defined as the mixture of a firms debt and equity
financing? Cash management Cost analysis Working Capital
Management Capital Structure Capital budgeting George and Pat just
made an agreement to exchange currencies based on todays exchange
rate. Settlement will occur tomorrow. Which one of the following is the
exchange rate that applies to this agreement? Forward exchange rate
Triangle rate Cross rate Current rate Spot exchange rate