The fixed charge coverage ratio is a more comprehensive version of the times interest
earned ratio.
Net working capital is the difference between current assets and current liabilities.
In a consolidation, a new firm is formed from the assets of the combining firms.
Studies have shown that the high premiums paid in many mergers are just about always
justified by increased post-merger cash flows that come from synergies and economies
of scale.
The return on any stock investment is the rate that makes the present value of estimated
future cash flows equal to the price paid for the stock today.
Sunk costs are also called opportunity or alternative costs.
The return on a share of stock is based on the expected dividend plus the projected
selling price, all divided by the projected selling price.
A consolidation occurs when all of the combining legal entities dissolve, and a new
entity with a new name is formed to continue into the future.
Factoring involves the sale of accounts receivable by the firm that originally generated
the receivables.
A cash forecast is a financial projection made with the explicit purpose of predicting
short-term cash needs. Most large firms do monthly cash forecasts.
The money market is comprised of debt instruments that mature with-in one year.
Which of the following is true regarding pledged receivables?
A.They are collateral for a loan.
B.Uncollected accounts are usually the responsibility of the lender.
C.The process involves factoring.
D.Both a & b
The board of Oschmann Enterprises declared a dividend on March 12 for payment on
May 13. The ex-dividend date was established as April 25 and the record date is April
27. In order to receive the dividend, you must buy the stock:
A.on March 12.
B.before April 25.
C.before April 27.
D.before May 13.
E.Cannot determine from the information given
The ex-dividend date is ____ before the record date.
A.2 business days
B.2 calendar days
C.3 business days
D.3 calendar days
E.5 business days
A consumer loan that charges 1.50% interest per month has an annual percentage rate
of:
A.18.5%.
B.15.0%.
C.19.56%.
D.None of the above
A distribution’s variance and standard deviation:
A.indicates the mean or expected return.
B.measures the area under the curve.
C.shows the likelihood that an actual return will be some distance away from the
expected value.
D.All of the above
Many capital projects require increases in net working capital. Which of the following
would be included in the net working capital requirements of a capital project?
A.Machinery and equipment
B.Accounts receivable and accounts payable
C.Long term debt
D.Fixed assets net of depreciation
E.All of the above would be included in net working capital requirements.
What is the rate of interest on a $10,000 loan that is to be repaid in 10 equal annual
installments of $1,917.
A.8%
B.10%
C.14%
D.16%
E.15%
The coupon rate that is shown on the face of a bond:
A.can be multiplied by the par value of the bond to calculate the semiannual interest
payment.
B.should be used as the discount rate when calculating the present value of the future
cash flows from the bond.
C.is normally close to the interest rate that a company will have to pay when the bonds
are issued.
D.Both a. and c. are correct.
E.All of the above are correct.
Given the following selected information on McMillen’s Chocolate, Inc., calculate Cash
Flow from Operating Activities for 2001.
A.$350,000
B.$550,000
C.$1,750,000
D.$2,050,000
The term maturity risk emphasizes the fact that:
A.repayment is less assured as maturity lengthens.
B.shorter-term bonds are worth more than longer-term bonds.
C.bond prices change when interest rates change.
D.the prices of longer term bonds change more than the prices of shorter term bonds
when interest rates change.
What amount received at the end of 15 years is equivalent to $100 received at the end
of each year for 15 years if the interest rate is 12%?
A.$3,728
B.$4,042
C.$2,676
D.$547
E.$625
What is the value of a share of Wisconsin Gas $2.55 preferred stock if the investor’s
expected return is 8 percent?
Why does the stock market generally price stocks above the net value of the firm’s
assets? Your explanation should include the market’s perception of the firm as a going
concern.
You have been asked to evaluate the purchase of a new machine for your company. It
will cost $60,000, and it falls into the MACRS 3-year class (Yr. 1 – 33.3%; Yr. 2 –
44.4%; Yr. 3 – 14.8%; Yr. 4 – 7.5%). The purchase will require a $6,000 increase in
repair parts inventory. Parts are expensed for tax purposes at the time they are acquired.
The machine will replace one $25,000/year operator. It is expected to last for four years
when it can be sold including any spare parts still on hand for $5,000. The tax rate is
40% and your company’s cost of capital is 12%.
Project the project’s cash flows and calculate its NPV and IRR
What is Monte Carlo simulation? How is it used in the capital budgeting?
A firm is planning to lower its ACP by ten days next year. Receivables are currently
$15M on credit sales of $120M Credit sales are expected to grow by 20% next year.
Calculate next year’s ending receivables balance (make calculations using ending
balances and a 360 day year).