STR 581 FINALEXAM NEW PART-2

STR/581 Capstone Exam – Part 2

1. Which of the following financial statements is concerned with the company at a point

in time?

2. A cost which remains constant per unit at various levels of activity is a:

3. M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is

expected to exist forever. The company is currently financed with 75 percent equity and

25 percent debt. Your analysis tells you that the appropriate discount rates are 10

percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of

the stock.

If Dynamo wishes to change its capital structure from 75 percent equity to 60 percent

equity and use the debt proceeds to pay a special dividend to shareholders, how much

debt should they use?

4. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago,

and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the

rate of return for owning Serox in the most recent year? (Round to the nearest percent.)

5. The process of evaluating financial data that change under alternative courses of

action is called:

6. What decision criteria should managers use in selecting projects when there is not

enough capital to invest in all available positive NPV projects?

7. The convention of consistency refers to consistent use of accounting principles:

8. External financing needed: Jockey Company has total assets worth $4,417,665. At

year-end it will have net income of $2,771,342 and pay out 60 percent as dividends. If

the firm wants no external financing, what is the growth rate it can support?

9. Which of the following is considered a hybrid organizational form?

10. An activity that has a direct cause-effect relationship with the resources consumed is

a(n):

11. Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its

dividend by $0.25 in each of the following three years. If their required rate of return if

14 percent, what is the present value of their dividends over the next four years?

12. TuleTime Comics is considering a new show that will generate annual cash flows of

$100,000 into the infinite future. If the initial outlay for such a production is $1,500,000

and the appropriate discount rate is 6 percent for the cash flows, then what is the

profitability index for the project?

13. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?

14. If a company’s weighted average cost of capital is less than the required return on

equity, then the firm:

15. When a company assigns the costs of direct materials, direct labor, and both

variable and fixed manufacturing overhead to products, that company is using:

16. The major element in budgetary control is:

17. Horizontal analysis is a technique for evaluating a series of financial statement data

over a period of time:

.

18. Which of the following is an advantage of corporations relative to partnerships and

sole proprietorships?

19. The break-even point is where:

20. Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and

amortization expenses amounted to $84 million. The firm has 135 million shares

outstanding and a share price of $12.80. A competing firm that is very similar to

Turnbull has an enterprise value/EBITDA multiple of 5.40.

What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.

21. Which of the following is considered a hybrid organizational form?

22. The most important information needed to determine if companies can pay their

current obligations is the:

23. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days sales in

inventory?

24. Horizontal analysis is also known as:

25. Which of the following presents a summary of changes in a firm’s balance sheet

from the beginning of an accounting period to the end of that accounting period?

26. Ajax Corp. is expecting the following cash flows - $79,000, $112,000, $164,000,

$84,000, and $242,000 – over the next five years. If the company’s opportunity cost is

15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

27. Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent

coupon rate. Investors buying the bond today can expect to earn a yield to maturity of

6.875 percent. What should the company's bonds be priced at today? Assume annual

coupon payments. (Round to the nearest dollar.)

28. Process costing is used when:

.

29. Jack Robbins is saving for a new car. He needs to have $21,000 for the car in three

years. How much will he have to invest today in an account paying 8 percent annually to

achieve his target? (Round to nearest dollar)

30. The accumulation of accounting data on the basis of the individual manager who has

the authority to make day-to-day decisions about activities in an area is called:

31. Variance reports are:

32. The cash conversion cycle?

33. In a process cost system, product costs are summarized:

34. Internal reports that review the actual impact of decisions are prepared by:

35. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You

know that the firm’s cost of debt capital is 10 percent and the cost of equity capital is

20% What proportion of the firm is financed with debt?

36. The group of users of accounting information charged with achieving the goals of

the business is its:

37. An unrealistic budget is more likely to result when it:

38. Jayadev Athreya has started his first job. He will invest $5,000 at the end of each

year for the next 45 years in a fund that will earn a return of 10 percent. How much will

Jayadev have at the end of 45 years?

39. Firms that achieve higher growth rates without seeking external financing:

40. Teakap, Inc. has current assets of $1,456,312 and total assets of $4,812,369 for the

year ending September 30, 2006. It also has current liabilities of $1,041,012, common

equity of $1,500,000 and retained earnings of $1,468,347. How much long-term debt

does the firm have?