財務管理期中考

ㄧ、選擇題（60％）
1. At the beginning of the year, a firm has current assets of $380 and current liabilities of
$210. At the end of the year, the current assets are $410 and the current liabilities
are $250. What is the change in net working capital?
a. -$30
b. -$10
c. $0
d. $10
e. $30
2. Peggy Grey’s Cookies has net income of $360. The firm pays out 40 percent of the net
income to its shareholders as dividends. During the year, the company sold $80
worth of common stock. What is the cash flow to stockholders?
a. $64
b. $136
c. $144
d. $224
e. $296
3. The percentage of sales method:
a. requires that all accounts grow at the same rate.
b. separates accounts that vary with sales and those that do not vary with sales.
c. allows the analyst to calculate how much financing the firm will need to support the
predicted sales level.
d. Both A and B.
e. Both B and C.
4. An increase in which one of the following accounts increases a firm’s current ratio without
affecting its quick ratio?
a. accounts payable
b. cash
c. inventory
d. accounts receivable
e. fixed assets
5. If a firm decreases their operating costs, all else constant, then:
a. the profit margin increases while the equity multiplier decreases.
b. the return on assets increases while the return on equity decreases.
c. the total asset turnover rate decreases while the profit margin increases.
d. both the profit margin and the equity multiplier increase.
 e. both the return on assets and the return on equity increase.
6. Which of the following statements concerning the effective annual rate are correct?
I. When making financial decisions, you should compare effective annual rates rather
than annual percentage rates.
II. The more frequently interest is compounded, the higher the effective annual rate.
III. A quoted rate of 6% compounded continuously has a higher effective annual rate
than if the rate were compounded daily.
IV. When borrowing and choosing which loan to accept, you should select the offer
with the highest effective annual rate.
a. I and II only
b. I and IV only
c. I, II, and III only
d. II, III, and IV only
e. I, II, III,and IV
7. Which two of the following represent the most effective methods of
directly evaluating the financial performance of a firm?
I. comparing the current financial ratios to those of the same firm from prior time
periods
II. comparing a firm’s financial ratios to those of other firms in the firm’s peer
group who have similar operations
III. comparing the financial statements of the firm to the financial statements of similar
firms operating in other countries
IV. comparing the financial ratios of the firm to the average ratios of all firms located
in the same geographic area
a. I and II only
b. II and III only
c. III and IV only
d. I and IV only
e. I and III only
8. If a firm bases its growth projection on the rate of sustainable growth, and shows positive
net income, then the:
a. fixed assets will have to increase at the same rate, regardless of the current capacity
level.
b. number of common shares outstanding will increase at the same rate of growth.
c. debt-equity ratio will have to increase.
d. debt-equity ratio will remain constant while retained earnings increase.
e. fixed assets, debt-equity ratio, and number of common shares outstanding will all
increase.
9. The rate of return required by investors in the market for owning a bond is called the:
a. coupon.
b. face value.
c. maturity.
d. yield to maturity.
e. coupon rate.
10. An account managed by the bond trustee for early bond redemption payments is called a:
a. sinking fund.
b. collateral payment account.
c. deed in trust account.
d. call provision.
e. par value fund.
11. The relationship between nominal interest rates on default-free, pure discount securities
and the time to maturity is called the:
a. liquidity effect.
b. Fisher effect.
c. term structure of interest rates.
d. inflation premium.
e. interest rate risk premium.
12. The net present value of a growth opportunity, NPVGO, can be defined as
a. the present value of an investment in one new project.
b. the steady growth in dividends from continual re-investment with positive NPV.
c. continual reinvestment of earnings when r < g.
d. a single period investment when r > g.
e. None of the above.
13. Martin’s Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the
past three years, respectively. The company now predicts that it will maintain a
constant dividend since its business has leveled off and sales are expected to remain
relatively constant. Given the lack of future growth, you will only buy this stock if
you can earn at least a 15% rate of return. What is the maximum amount you are
willing to pay to buy one share of this stock today?
a. $10.00
b. $13.33
c. $16.67
d. $18.88
e. $20.00
14. The dividend growth model:
I. assumes that dividends increase at a constant rate forever.
 II. can be used to compute a stock price at any point of time.
III. states that the market price of a stock is only affected by the amount of the
dividend.
IV. considers capital gains but ignores the dividend yield.
a. I only
b. II only
c. III and IV only
d. I and II only
e. I, II, and III only
15. In actual practice, managers frequently use the:
I. AAR because the information is so readily available.
II. IRR because the results are easy to communicate and understand.
III. payback because of its simplicity.
IV. net present value because it is considered by many to be the best method of analysis.
a. I and III only
b. II and III only
c. I, III, and IV only
d. II, III, and IV only
e. I, II, III, and IV
16. Modified internal rate of return:
a. handles the multiple IRR problem by combining cash flows until only one change in
sign change remains.
b. requires the use of a discount rate.
c. does not require the use of a discount rate.
d. Both A and B.
e. Both A and C.
17. The two fatal flaws of the internal rate of return rule are:
a. arbitrary determination of a discount rate and failure to consider initial expenditures.
b. arbitrary determination of a discount rate and failure to correctly analyze mutually
exclusive investment projects.
c. arbitrary determination of a discount rate and the multiple rate of return problem.
d. failure to consider initial expenditures and failure to correctly analyze mutually
exclusive investment projects.
e. failure to correctly analyze mutually exclusive investment projects and the multiple
rate of return problem.
18 Toni’s Tools is comparing machines to determine which one to purchase. The
machines sell for differing prices, have differing operating costs, differing machine
 lives, and will be replaced when worn out. These machines should be compared
using:
a. net present value only.
b. both net present value and the internal rate of return.
c. their effective annual costs.
d. the depreciation tax shield approach.
e. the replacement parts approach.
19. Marshall’s & Co. purchased a corner lot in Eglon City five years ago at a cost of
$640,000. The lot was recently appraised at $810,000. At the time of the purchase,
the company spent $50,000 to grade the lot and another $4,000 to build a small
building on the lot to house a parking lot attendant who has overseen the use of the
lot for daily commuter parking. The company now wants to build a new retail store
on the site. The building cost is estimated at $1.2 million. What amount should be
used as the initial cash flow for this building project?
a. $1,200,000
b. $1,840,000
c. $1,890,000
d. $2,010,000
e. $2,060,000
20. Which of the following are examples of erosion?
I. the loss of sales due to increased competition in the product market
II. the loss of sales because your chief competitor just opened a store across the street
from your store
III. the loss of sales due to a new product which you recently introduced
IV. the loss of sales due to a new product recently introduced by your competitor
a. III only
b. III and IV only
c. I, III and IV only
d. II and IV only
e. I, II, III, and IV

二、解釋名詞（20％）
1. Internal growth rate
2. Du Pont Identity
3. Call provision
4. Floating-rate bounds
5. Fisher effect
6. NPVGO model
7. Side effects
8. Opportunity cost
9. Incremental cash flows
10. agency problem

三、問答與計算（20％）
1. Margarite’s Enterprises is considering a new project. The project will require $325,000
for new fixed assets, $160,000 for additional inventory and $35,000 for additional
accounts receivable. Short-term debt is expected to increase by $100,000 and long-term
debt is expected to increase by $300,000. The project has a 5-year life. The fixed assets
will be depreciated straight-line to a zero book value over the life of the project. At the
end of the project, the fixed assets can be sold for 25% of their original cost. The net
working capital returns to its original level at the end of the project. The project is
expected to generate annual sales of $554,000 and costs of $430,000. The tax rate is
35% and the required rate of return is 15%.（12％）
a. What is the initial cost of this project?
b. What is the amount of the earnings before interest and taxes for the first year of this
project?
c. What is the amount of the after-tax cash flow from the sale of the fixed assets at the
end of this project? (Round your answer to whole dollars)
d. What is the cash flow recovery from net working capital at the end of this project?
ANS：（a）$420,000
（b）$59,000
（c）$52,813
（d）$95,000

2. The IRR rule is said to be a special case of the NPV rule.  Explain why this is so and 
why it has some limitations NPV does not?（4％）
ANS：At some K, NPV = $0; by definition, when NPV=0, K=IRR.
Problems occur due to conflicts with mutually exclusive projects,  timing and size 
problems, multiple sign changes present problem for IRR
NPV always the best choice 

3. Explain why some bond investors are subject to liquidity risk, default risk, and/or 
taxability  risk. How do each of these risks affect the yield of a bon d？
ANS：Liquidity problems exist in thinly traded bonds making some bonds difficult
to sell at their actual value. Default risk is the likelihood the corporation will 
default on its bond obligations. Taxability risk reflects the fact that some bonds are
taxed disadvantageously compared to others. If any of these risks exist, investors 
will require compensation by demanding a high yield.