FIN 571 FINAL EXAM 2023 Business & Finance
2023 1 A proxy fight occurs when a competitor offers to sell their ownership interest in the
1. A proxy fight occurs when:
a competitor offers to sell their ownership interest in the firm.
the board of directors disagree on the members of the management team.
a group solicits voting rights to replace the board of directors.
the firm is declared insolvent.
the firm files for bankruptcy.
2. The process of planning and managing a firm’s longterm assets is called:
capital structure.
capital budgeting.
working capital management.
financial depreciation.
agency cost analysis.
3. Which one of the following actions by a financial manager creates an agency problem?
agreeing to pay bonuses based on the market value of the company’s stock
refusing to borrow money when doing so will create losses for the firm
agreeing to expand the company at the expense of stockholders’ value
increasing current costs in order to increase the market value of the stockholders’ equity
refusing to lower selling prices if doing so will reduce the net profits
4. Which one of these is a cash outflow from a corporation?
5. First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. 
If you made a $66,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 
Difference in accounts 

6. Gerold invested $125 in an account that pays 5 percent simple interest. How much money will he have at the end of 7 years?
$160.31
$168.75
$155.00
$175.50
$162.50
7.
8.
9.
10.Top of Form
7. What is the present value of $12,450 to be received 5 years from today if the discount rate is 4.75 percent?
$10,340.78
$9,871.86
$13,105.26
$9,761.00
$9,773.15
8. One year ago, you purchased 300 shares of IXC stock at a price of $22.05 per share, received $460 in dividends over the year, and today sold all of your shares for $29.32 per share. What was your dividend yield?
5.87%
5.23%
1.92%
6.95%
2.48%
9. One year ago, you purchased a stock at a price of $32.50. The stock pays quarterly dividends of $.40 per share. Today, the stock is worth $34.60 per share. What is the total dollar return per share to date from this investment?
rev: 06_21_2016_QC_CS54260
$2.50
$3.40
$2.10
$3.70
$3.80
10. Which one of these accounts is classified as a current asset on the balance sheet?
accounts payable
preferred stock
net plant and equipment
inventory
intangible asset
11. Net working capital is defined as:
current assets plus stockholders’ equity.
current assets minus current liabilities.
fixed assets minus longterm liabilities.
total assets minus total liabilities.
current assets plus fixed assets.
12. Which one of the following accounts is included in stockholders’ equity?
intangible assets
accumulated retained earnings
deferred taxes
longterm debt
plant and equipment
13. Which one of these equations is an accurate expression of the balance sheet?
Liabilities ≡ Stockholders’ equity −Assets
Stockholders’ equity ≡ Assets −Liabilities
Assets ≡ Stockholders’ equity −Liabilities
Stockholders’ equity ≡ Assets + Liabilities
Assets ≡ Liabilities −Stockholders’ equity
14. Galaxy United, Inc. 

Net sales 
$8,500 
Less: Cost of goods sold 
7,240 
Less: Depreciation 
410 
Earnings before interest and taxes 
850 
Less: Interest paid 
77 
Taxable Income 
773 
Less: Taxes 
270 
Net income 
$ 502 
Galaxy United, Inc. 


2008 
2009 


2008 
2009 
Cash 
$ 130 
$ 150 

Accounts payable 
$1,110 
$1,150 
Accounts rec. 
940 
790 

Longterm debt 
930 
1,239 
Inventory 
1,480 
1,520 

Common stock 
$3,150 
$2,950 
Subtotal 
$2,550 
$2,460 

Retained earnings 
530 
731 
Net fixed assets 
3,170 
3,610 




Total assets 
$5,720 
$6,070 

Total liab. & equity 
$5,720 
$6,070 
What is the days’ sales in receivables? (use 2009 values)
38.0
33.9
47.8
81.1
24.9
15. The Purple Martin has annual sales of $4,800, total debt of $1,350, total equity of $2,400, and a profit margin of 7 percent. What is the return on assets?
7.00 percent
8.96 percent
24.89 percent
14.00 percent
11.07ercent
16. A firm has a debtequity ratio of .40. What is the total debt ratio?
.67
1.40
.29
1.50
.33
17. Jessica’s Boutique has cash of $43, accounts receivable of $52, accounts payable of $210, and inventory of $150. What is the value of the quick ratio?
.25
.71
.45
1.17
1.62
18. A firm has sales of $1,140, net income of $152, net fixed assets of $534, and current assets of $320. The firm has $101 in inventory. What is the commonsize statement value of inventory?
31.6 percent
8.9 percent
11.8 percent
55.7 percent
18.9percent
19. If a firm bases its growth projection on the rate of sustainable growth, shows positive net income, and has a dividend payout ratio of 30 percent, then the:
debtequity ratio will remain constant while retained earnings increase.
fixed assets will have to increase at the same rate, even if the firm is currently operating at only 78 percent of capacity.
number of common shares outstanding will increase at the same rate of growth.
debtequity ratio will have to increase.
fixed assets, the debtequity ratio, and number of common shares outstanding will all increase.
20.The sustainable growth rate:
is based on receiving additional external debt and equity financing.
assumes there is no external financing of any kind.
assumes the debtequity ratio is variable.
assumes the dividend payout ratio is equal to zero.
is normally higher than the internal growth rate
21. In the financial planning model, the external financing needed (EFN) as shown on a pro forma balance sheet is equal to the changes in assets:
plus the changes in both liabilities and equity.
minus the change in retained earnings.
minus the changes in liabilities.
minus the changes in both liabilities and equity.
plus the changes in liabilities minus the changes in equity.
.
22. If the Hunter Corp. has an ROE of 15 and a payout ratio of 18 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
Sustainable growth rate 

23. Assume the following ratios are constant: 




Total asset turnover 

2.60 

Profit margin 

5.5 
% 
Equity multiplier 

1.40 

Payout ratio 

20 
% 


What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
Sustainable growth rate 

24. The most common means of financing a temporary cash deficit is a:
longterm unsecured bank loan.
shortterm issue of corporate bonds.
shortterm secured bank loan.
longterm secured bank loan.
shortterm unsecured bank loan
25. The cash cycle is defined as the time between:
cash disbursements and cash collection for an item.
the sale of inventory and cash collection.
selling a product and paying the supplier of that product.
the arrival of inventory and cash collected from receivables.
selling a product and collecting the accounts receivable.
.
26. Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. Input all amounts as positive values): 
COUNTRY KETTLES, INC. 


2015 

2016 


Assets 






Cash 
$ 
31,600 

$ 
30,810 

Accounts receivable 

71,100 


74,320 

Inventories 

62,000 


64,375 

Property, plant, and equipment 

159,000 


170,200 

Less: Accumulated depreciation 

(46,880 
) 

(51,100 
) 







Total assets 
$ 
276,820 

$ 
288,605 








Liabilities and Equity 






Accounts payable 
$ 
46,100 

$ 
48,310 

Accrued expenses 

7,480 


6,580 

Longterm debt 

26,800 


29,800 

Common stock 

28,000 


33,200 

Accumulated retained earnings 

168,440 


170,715 








Total liabilities and equity 
$ 
276,820 

$ 
288,605 









Item 
Source/Use 

Amount 

Cash 

Accounts receivable 

Inventories 

Property, plant, and equipment 

Accounts payable 

Accrued expenses 

Longterm debt 

Common stock 

Accumulated retained earnings 


27. Consider the following financial statement information for the Rivers Corporation: 
Item 
Beginning 




Ending 


Inventory 
$ 
11,600 




$ 
12,600 

Accounts receivable 

6,600 





6,900 

Accounts payable 

8,800 





9,200 

Net sales 



$ 
96,000 




Cost of goods sold 




76,000 





Calculate the operating and cash cycles. (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) 


Operating cycle 

Cash cycle 


28. In the formula, P_{3} = Div / R – g, the dividend is for period:
five.
four.
one.
three.
two.
29. Next year’s annual dividend divided by the current stock price is called the:
yield to maturity.
total yield.
earnings yield.
capital gains yield.
dividend yield
30. The _____ premium is that portion of the bond yield that represents compensation for potential difficulties that might be encountered should the bond holder wish to sell the bond prior to maturity.
taxability
default risk
interest rate risk
liquidity
inflation
.
31. What is the value of a 20year, zerocoupon bond with a face value of $1,000 when the market required rate of return is 9.6 percent, compounded semiannually?
$172.19
$153.30
$168.31
$192.40
$195.26
32. Titan Mining Corporation has 8.3 million shares of common stock outstanding and 270,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $31 per share and has a beta of 1.15, and the bonds have 15 years to maturity and sell for 112 percent of par. The market risk premium is 7.1 percent, Tbills are yielding 4 percent, and the company’s tax rate is 30 percent. 
a. 
What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) 

Weight 
Debt 

Equity 


b. 
If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
Discount rate 

33. Filer Manufacturing has 8.5 million shares of common stock outstanding. The current share price is $55, and the book value per share is $3. The company also has two bond issues outstanding. The first bond issue has a face value of $70.4 million and a coupon rate of 7.2 percent and sells for 108.1 percent of par. The second issue has a face value of $60.4 million and a coupon rate of 7.7 percent and sells for 109.3 percent of par. The first issue matures in 7 years, the second in 28 years. 

Suppose the company’s stock has a beta of 1.1. The riskfree rate is 3.3 percent, and the market risk premium is 7.2 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 
WACC 


34. A firm’s WACC can be correctly used to discount the expected cash flows of a new project when that project:
will be financed solely with internal equity.
will be managed by the firm’s current managers.
will be financed with the same proportions of debt and equity as those currently used by the overall firm.
has the same level of risk as the firm’s current operations.
will be financed solely with new debt and internal equity.
35. 35.35Top of Form
35. When computing WACC, you should use the:
pretax yield to maturity because it considers the current market price of debt.
pretax cost of debt because most corporations pay taxes at the same tax rate.
pretax cost of debt because it is the actual rate the firm is paying bondholders.
aftertax cost of debt because interest is tax deductible.
current yield because it is based on the current market price of debt.
36. When estimating the cost of equity using the DDM, which one of these is most apt to add error to this estimate?
37. Samson’s purchased a lot four years ago at a cost of $398,000. At that time, the firm spent $289,000 to build a small retail outlet on the site. The most recent appraisal on the property placed a value of $629,000 on the property and building. Samson’s now wants to tear down the original structure and build a new strip mall on the site at an estimated cost of $2.3 million. What amount should be used as the initial cash flow for new project?
$2,987,000
$2,929,000
$2,242,000
$2,300,000
$2,058,000
38. All else constant, the net present value of a typical investment project increases when:
the discount rate increases.
the initial cost of a project increases.
the rate of return decreases.
all cash inflows occur during the last year instead of periodically throughout a project’s life.
each cash inflow is delayed by one year.
39. Marshall’s purchased a corner lot five years ago at a cost of $498,000 and then spent $63,500 on grading and drainage so the lot could be used for storing outdoor inventory. The lot was recently appraised at $610,000. The company now wants to build a new retail store on the site. The building cost is estimated at $1.1 million. What amount should be used as the initial cash flow for this building project?
$1,498,000
$1,710,000
$1,208,635
$1,661,500
$1,100,000
40. The primary reason that company projects with positive net present values are considered acceptable is that:
the project’s rate of return exceeds the rate of inflation.
they return the initial cash outlay within three years or less.
the required cash inflows exceed the actual cash inflows.
the investment’s cost exceeds the present value of the cash inflows.
they create value for the owners of the firm.
41. Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
An investment project that has positive cash flows for every time period after the initial investment should be accepted.
Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
An investment project should be accepted only if the NPV is equal to the initial cash flow.
42. Wilson’s Market is considering two mutually exclusive projects that will not be repeated. The required rate of return is 13.9 percent for Project A and 12.5 percent for Project B. Project A has an initial cost of $54,500, and should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1 to 3, respectively. Project B has an initial cost of $69,400, and should produce cash inflows of $0, $48,300, and $42,100, for Years 1 to 3, respectively. Which project, or projects, if either, should be accepted and why?
Project A; because its NPV is positive while Project B’s NPV is negative
Project A; because it has the higher required rate of return
Project B; because it has the largest total cash inflow
Project B; because it has a negative NPV which indicates acceptance
neither project; because neither has an NPV equal to or greater than its initial cost
43.43
44.
45.
46.
47.Top of Form
43. A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?
$2,474.76
$3,011.40
$1,980.02
$2,903.19
$935.56
44. A proposed project costs $300 and has cash flows of $80, $200, $75, and $90 for Years 1 to 4, respectively. Because of its high risk, the project has been assigned a discount rate of 16 percent. In dollars, how much will this project return in today’s dollars for every $1 invested?
$1.03
$.99
$.97
$1.01
$1.05
45. What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.
$204.36
$797.22
−$287.22
−$1,350.49
−$1,195.12
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