FIN 571 Final Exam Guide Set 2 (NEW)
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FIN 571 Final Exam Guide Set 2 (NEW)

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1. Financial managers should primarily strive to: 2. The process of planning and managing a firm's long-term assets is called: 3. Which one of the following actions by a financial manager creates an agency problem? 4. Which one of these is a cash outflow from a corporation? 5. For each of the following, compute the present value 6. Gerold invested $115 in an account that pays 5 percent simple interest. How much money will he have at the end of 5 years? 7. What is the future value of $920 a year for 5 years at a 6 percent interest? 8. You bought 360 shares of stock at a total cost of $7,754.40. You received a total of $403.20 in dividends and sold your shares for $19.98 a share. What was your total rate of return? 9. A year ago, you purchased 500 shares of New Tech stock at a price of $49.03 per share. The stock pays an annual dividend of $.10 per share. Today, you sold all of your shares for $58.14 per share. What is your total dollar return on this investment? 10. The financial statement summarizing a firm's accounting performance over a period of time is the: 11. Which one of these accounts is classified as a current asset on the balance sheet? 12. Net working capital is defined as: 13. Which one of these equations is an accurate expression of the balance sheet? 14. The Purple Martin has annual sales of $4,900, total debt of $1,280, total equity of $2,300, and a profit margin of 5 percent. What is the return on assets? 15. A firm has a debt-equity ratio of .35. What is the total debt ratio? 16. Galaxy United, Inc. 2009 Income Statement ($ in millions) What is the quick ratio for 2009? 17. Reliable Cars has sales of $3,700, total assets of $3,050, and a profit margin of 5 percent. The firm has a total debt ratio of 41 percent. What is the return on equity? 18. A firm has total debt of $1,480 and a debt-equity ratio of .29. What is the value of the total assets? 19. The sustainable growth rate: 20. 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: 21. Which account is least apt to vary directly with sales? 22. If the Hunter Corp. has an ROE of 14 and a payout ratio of 17 percent, what is its sustainable growth rate? 23. The Wintergrass Company has an ROE of 13.2 percent and a payout ratio of 30 percent. What is the company’s sustainable growth rate? 24. The most common means of financing a temporary cash deficit is a: 25. The length of time between the acquisition of inventory and its sale is called the: 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. 27. Consider the following financial statement information for the Rivers Corporation: Calculate the operating and cash cycles. 28. The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent. What is the rate of inflation? 29. Unique Stores common stock pays a constant annual dividend of $1.75 a share. What is the value of this stock at a discount rate of 13.25 percent? 30. How much are you willing to pay for one share of stock if the company just paid an annual dividend of $1.03, the dividends increase by 3 percent annually, and you require a rate of return of 15 percent? 31. The relationship between nominal rates, real rates, and inflation is known as the: 32. Titan Mining Corporation has 9.5 million shares of common stock outstanding and 390,000 5 percentsemiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $43 per share and has a beta of 1.25, and the bonds have 15 years to maturity and sell for 114 percent of par. The market risk premium is 8.3 percent, T-bills are yielding 4 percent, and the company’s tax rate is 36 percent. a. What is the firm's market value capital structure? 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? 33. Filer Manufacturing has 8.9 million shares of common stock outstanding. The current share price is $59, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $71.2 million and a coupon rate of 7.6 percent and sells for 107.7 percent of par. The second issue has a face value of $61.2 million and a coupon rate of 8.1 percent and sells for 110.1 percent of par. The first issue matures in 8 years, the second in 27 years. Suppose the company’s stock has a beta of 1.2. The risk-free rate is 3.7 percent, and the market risk premium is 7.6 percent. 34. When estimating the cost of equity using the DDM, which one of these is most apt to add error to this estimate? 35. When computing WACC, you should use the: 36. The cost of preferred stock: 37. No matter how many forms of investment analysis you employ: 38. Which statement concerning the net present value (NPV) of an investment or a financing project is correct? 39. The net present value method of capital budgeting analysis does all of the following except: 40. Graham and Harvey (2001) found that _____ were the two most popular capital budgeting methods. 41. The primary reason that company projects with positive net present values are considered acceptable is that: 42. 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. 43. Flatte Restaurant is considering the purchase of a $10,800 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 2,400 soufflés per year, with each costing $2.80 to make and priced at $5.65. Assume that the discount rate is 16 percent and the tax rate is 35 percent. What is the NPV of the project? Should the company make the purchase? 44. 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? 45. Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000. The tax rate is 30 percent and the required return is 13 percent. What is the project’s NPV?

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