FIN 57422

A generous benefactor to a local ballet plans to make a one-time endowment that would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?
A) $ 300,000
B) $3,000,000
C) $ 750,000
D) $1,428,571

Table 4.3
The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000.

The ending cash balance for February is ________. (See Table 4.3)
A) $750
B) $1,750
C) $2,500
D) -$1,000

Table 4.3
The financial analyst for Sportif, Inc. has compiled sales and disbursement estimates for the coming months of January through May. Historically, 75 percent of sales are for cash with the remaining 25 percent collected in the following month. The ending cash balance in January is $3,000.

The total cash receipts for April are ________. (See Table 4.3)
A) $5,000
B) $7,500
C) $9,250
D) $10,000

If a manager prefers a higher return investment regardless of its risk, then he is following a ________ strategy.
A) risk-seeking
B) risk-neutral
C) risk-averse
D) risk-aware

________ is 100 percent minus total variable operating costs as a percentage of total sales.
A) Profit margin
B) Contribution margin
C) Expense ratio
D) Fixed coverage ratio

Which of the following is a disadvantage of factoring?
A) ensures an uneven pattern of cash flows
B) eliminates credit and collection departments
C) turns accounts receivable into cash quickly
D) highly expensive source of short-term financing

Bonds that can be redeemed at par at the option of their holders either at specific date after the date of issue and every 1 to 5 years thereafter or when and if the firm takes specified actions such as being acquired, acquiring another company, or issuing a large amount of additional debt are called ________.
A) zero coupon bonds
B) junk bonds
C) floating-rate bonds
D) putable bonds

Which of the following is a basic source of capital for a firm?
A) short-term debt
B) discounts from suppliers
C) current liabilities
D) common stock

When common stock is repurchased and retired, the underlying motive is to ________.
A) delay taxes
B) boost the stock’s dividends
C) distribute the excess cash to the owners
D) reduce the retained earnings balance

Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm’s cost of capital is 15 percent.
______________________________________________________________________

*Not applicable
For Proposal 3, the tax effect on the sale of the existing asset results in ________. (See Table 11.2)
A) $8,000 tax liability
B) $16,000 tax liability
C) $20,000 tax liability
D) $23,200 tax liability

The riskiness of publicly traded bond issues is rated by independent agencies. According to Moody’s rating system, an Aaa bond and a Caa bond are ________ and ________ respectively.
A) speculative; investment grade
B) prime quality; medium grade
C) prime quality; speculative
D) medium grade; lowest grade

Which of the following is true of annuities?
A) An ordinary annuity is an equal payment paid or received at the beginning of each period.
B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period.
C) An annuity due is an equal stream of cash flows is paid or received at the beginning of each period.
D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.

The modified DuPont formula relates the firm’s return on total assets (ROA) to its ________.
A) return on equity (ROE)
B) operating leverage multiplier
C) net profit margin
D) total asset turnover

Table 10.1

The cash flow pattern depicted is associated with a capital investment and may be characterized as ________. (See Table 10.1)
A) an annuity and a conventional cash flow
B) a mixed stream and a nonconventional cash flow
C) an annuity and a nonconventional cash flow
D) a mixed stream and a conventional cash flow

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.
A) Preferred stockholders
B) Common stockholders
C) Bondholders
D) Creditors

Which of the following affects the cost of a bond?
A) maturity of a bond
B) dividend policy
C) fixed assets purchased from the proceeds of bond issue
D) money market regulations

Table 3.2
Dana Dairy Products Key Ratios

Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013

Balance Sheet
Dana Dairy Products
December 31, 2013

The inventory turnover for Dana Dairy Products in 2013 was ________. (See Table 3.2)
A) 43
B) 5
C) 20
D) 25

A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The amount recorded for the paid-in capital in excess of par account is ________.
A) $420,000
B) $380,000
C) $400,000
D) $800,000

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is ________.
A) $ 50
B) $200
C) $518
D) $ 77

________ is a noncash charge.
A) Labor expense
B) Depreciation
C) Salaries
D) Rent

In the DuPont system of analysis, the return on total assets (asset) is equal to ________.
A) (return on equity) (financial leverage multiplier)
B) (return on equity) (total asset turnover)
C) (net profit margin) (fixed asset turnover)
D) (net profit margin) (total asset turnover)

The three basic ratios used in the DuPont system of analysis are ________.
A) net profit margin, total asset turnover, and return on investment
B) net profit margin, total asset turnover, and return on equity
C) net profit margin, total asset turnover, and equity multiplier
D) net profit margin, financial leverage multiplier, and return on equity

Global Logistics purchased a new machine on October 20th, 2014 for $1,000,000 on credit. The supplier has offered A&A terms of 2/10, net 45. The current interest rate the bank is offering is 16 percent.
(a) Compute the cost of giving up cash discount.
(b) Should the firm take or give up the cash discount?
(c) What is the effective rate of interest if the firm decides to take the cash discount by borrowing money on a discount basis?

Long-term debt instruments used by both government and business are known as ________.
A) preferred stocks
B) T-bills
C) bonds
D) equities

A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________.
A) general and administrative expenses
B) cost of goods sold
C) dividend payments
D) principal payments

A single-payment note generally has a maturity of ________.
A) 30 days to 9 months or more
B) 10 to 12 months or more
C) 12 to 24 months or more
D) 10 to 24 months or more

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is ________.
A) $236
B) $699
C) $ 42
D) $ 75

A firm has the following accounts and financial data for 2014:

The firm’s earnings per share for 2014 is ________.
A) $0.5335
B) $0.5125
C) $0.3204
D) $0.3024

________ is used to finance “rolling stock”-airplanes,trucks,boats,railroad cars.
A) Income bonds
B) Equipment trust certificates
C) Collateral trust bonds
D) Subordinated debentures

What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4?
A) 5.83%
B) 9.67%
C) 11.44%
D) 6.85%

Ashley’s Delivery Service is analyzing the credit terms of each of three suppliers, A, B, and C.

(a) Determine the approximate cost of giving up the cash discount (assume a 360-day year).
(b) Assuming the firm needs short-term financing, recommend whether or not the firm should give up the cash discount or borrow from the bank at 10 percent annual interest. Evaluate each supplier separately.

You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?
A) $ 2,738
B) $ 2,985
C) $15,347
D) $ 6,000

Evaluate the following projects using the payback method assuming a rule of 3 years for payback.

Year	Project A	Project B
0	-10,000	-10,000
1	4,000	4,000
2	4,000	3,000
3	4,000	2,000
4	0	1,000,000

A) Project A can be accepted because the payback period is 2.5 years but Project B cannot be accepted because it’s payback period is longer than 3 years.
B) Project B should be accepted because even though the payback period is 2.5 years for Project A and 3.001 for project B, there is a $1,000,000 payoff in the 4th year in Project B.
C) Project B should be accepted because you get more money paid back in the long run.
D) Both projects can be accepted because the payback is less than 3 years.

Higher financial leverage causes ________ to increase more for a given increase in ________.
A) EBIT; sales
B) EPS; sales
C) EPS; EBIT
D) EBIT; EPS

In calculating the cost of common stock equity, ________.
A) the use of the capital asset pricing model (CAPM) is often preferred, because the data required are more readily available
B) the use of the CAPM is preferred, because it directly considers risk and the effect of inflation on the stock prices
C) the use of the constant-growth valuation model is often preferred, because the data required are more readily available
D) the use of the constant-growth valuation model is often preferred, because it has a stronger theoretical foundation