In a general partnership, the general partners have _____ liability and have _____ control over day-today operations. unlimited; total limited; total limited; no unlimited; no no; total The decisions made by financial managers should all be ones which increase the: firm’s current sales. marketability of the managers. growth rate of the firm. size of the firm. market value of the existing owners' equity. Financial managers primarily create firm value by: lowering the earnings per share. investing in assets that generate cash in excess of their cost. maximizing current sales. increasing the firm’s market share. maximizing current dividends. If a firm is currently profitable, then: the timing of the cash flows on proposed projects is irrelevant. its reported sales exceed its costs. its current cash inflows must exceed its current cash outflows. it will always have sufficient cash to pay its bills in a timely manner. its cash flows are known with certainty. What is the future value of $1,080 a year for 5 years at a 5 percent interest? $4,428.68 $7,018.28 $5,466.98 $5,967.68 $5,670.00 Gerold invested $113 in an account that pays 6 percent simple interest. How much money will he have at the end of 6 years? $141.25 $146.00 $159.83 $153.68 $146.90 For each of the following, compute the present value (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.): Present Value $ Years 13 Interest Rate 7% Future value $ 14,651 4 13 43,557 29 14 878,073 40 9 542,164 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_CS-54260 $3.40 $3.80 $2.10 $2.50 $3.70 Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share and have received total dividend payments of $.60 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investment? $3,840 $1,440 $1,920 $720 $1,200 On a balance sheet, deferred taxes are classified as: a current asset. stockholders’ equity. a long-term liability. a fixed asset. a current liability. Which one of these accounts is classified as a current asset on the balance sheet? net plant and equipment inventory intangible asset accounts payable preferred stock Which one of these equations is an accurate expression of the balance sheet? Assets ≡ Stockholders’ equity −Liabilities Liabilities ≡ Stockholders’ equity −Assets Stockholders’ equity ≡ Assets + Liabilities Stockholders’ equity ≡ Assets −Liabilities Assets ≡ Liabilities −Stockholders’ equity Sankey, Inc., has current assets of $5,400, net fixed assets of $23,700, current liabilities of $4,700, and long-term debt of $11,500. (Do not round intermediate calculations.) What is the value of the shareholders' equity account for this firm? Shareholders' equity $ How much is net working capital? Net working capital $ What is the days' sales in receivables? (use 2009 values) 22.1 38.0 34.1 Galaxy United, Inc. 2009 Income Statement ($ in millions) Net sales Less: Cost of goods sold Less: Depreciation Earnings before interest and taxes Less: Interest paid Taxable Income Less: Taxes Net income Cash Accounts rec. Inventory Sub-total Net fixed assets Total assets $8,450 7,210 410 830 84 746 261 $ 485 Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions) 2008 2009 $ 120 $ 140 Accounts payable 940 790 Long-term debt 1,480 1,510 Common stock $2,540 $2,440 Retained earnings 3,230 3,640 $5,770 $6,080 Total liab. & equity 2008 $1,100 1,010 $3,130 530 2009 $1,140 1,296 $2,930 714 $5,770 $6,080 What is the days' sales in receivables? (use 2009 values) 22.1 38.0 34.1 46.9 80.3 80.3 ©2016 McGraw-Hill Education. All rights reserved. Al's Sport Store has sales of $2,910, costs of goods sold of $2,130, inventory of $527, and accounts receivable of $449. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? 90.3 122.3 89.1 66.1 122.9 Galaxy United, Inc. 2009 Income Statement ($ in millions) Net sales $8,500 Less: Cost of goods sold 7,210 Less: Depreciation 400 Earnings before interest and taxes Less: Interest paid 86 Taxable Income 804 Less: Taxes 281 Net income $ 523 Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in millions) 2008 2009 2008 2009 890 Cash $ 110 $ 160 Accounts rec. 940 Accounts payable 790 Long-term debt $1,110 1,030 Inventory 1,480 1,530 Common stock$3,110 Sub-total $2,530 $2,910 $2,480 520 742 Net fixed assets 3,240 3,620 Total assets $5,770 $6,100 Total liab. & equity $5,770 $6,100 What is the quick ratio for 2009? 2.28 .95 .83 2.18 Retained earnings $1,140 1,308 1.34 A firm has sales of $1,140, net income of $188, net fixed assets of $539, and current assets of $322. The firm has $103 in inventory. What is the common-size statement value of inventory? 32.0 percent 12.0 percent 9.0 percent 56.3 percent 19.1 percent A firm has net working capital of $425, net fixed assets of $2,282, sales of $6,000, and current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets? $1.71 $2.63 $2.36 $1.35 $1.95 Which account is least apt to vary directly with sales? cost of goods sold inventory accounts payable accounts receivable notes payable The external funds needed (EFN) equation projects the addition to retained earnings as: PM × Δ Sales. PM ×Δ Sales × (1 - d). PM × Projected sales × (1 - d). PM ×Projected sales. Projected sales × (1 - d). 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: minus the changes in liabilities. plus the changes in liabilities minus the changes in equity. minus the change in retained earnings. plus the changes in both liabilities and equity. minus the changes in both liabilities and equity. If the Hunter Corp. has an ROE of 19 and a payout ratio of 27 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 % The Wintergrass Company has an ROE of 13.9 percent and a payout ratio of 40 percent. What is the company’s 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 % Given a fixed level of sales and a constant profit margin, an increase in the accounts payable period can result from: an increase in the cash cycle. a decrease in the average accounts payable balance. an increase in the cost of goods sold account value. an increase in the ending accounts payable balance. a decrease in the operating cycle. the cash cycle is defined as the time between: the arrival of inventory and cash collected from receivables. 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. selling a product and collecting the accounts receivable. 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. Balance Sheet December 31, 2016 2015 2016 Assets Cash Accounts receivable Inventories Property, plant, and equipment Less: Accumulated depreciation Total assets Liabilities and Equity Accounts payable Accrued expenses Long-term debt Common stock Accumulated retained earnings Total liabilities and equity $ 31,100 $ 30,260 70,600 73,720 61,500 63,750 154,000 164,200 (46,480) (50,600) $ 270,720 $ 281,330 $ 45,600 $ 47,760 $ 6,980 6,180 26,300 29,050 23,000 27,700 168,840 170,640 270,720 $ Item Cash Source/Use (Click to select) $ Accounts receivable (Click to select) $ Inventories (Click to select) $ Property, plant, and equipment (Click to select) $ Accounts payable (Click to select) $ Accrued expenses (Click to select) $ Long-term debt (Click to select) $ Common stock (Click to select) $ Accumulated retained earnings (Click to select) $ 281,330 Amount Consider the following financial statement information for the Rivers Corporation: Item Inventory Accounts receivable Accounts payable Net sales Cost of goods sold Beginning $10,500 5,500 7,700 Ending $ 11,500 5,800 8,100 $ 85,000 65,000 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 days Cash cycle days A corporate bond is currently quoted at 101.633. What is the market price of a bond with a $1,000 face value? $1,102.77 $1,016.33 $1,000.28 $1,002.77 $1,276.70 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? $6.87 $8.58 $8.84 $9.49 $10.40 Rosita's announced that its next annual dividend will be $1.65 a share and all future dividends will increase by 2.5 percent annually. What is the maximum amount you should pay to purchase a share of this stock if you require a 12 percent rate of return? $16.94 $17.37 $17.80 $15.46 $13.75 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? $12.88 $14.18 $13.21 $12.50 $13.33 32. Jack's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.6 percent. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4 percent and the market risk premium is 8 percent. Jack's tax rate is 34 percent. What is Jack's weighted average cost of capital? 10.43% 11.39% 10.65% 10.10% 11.47% 33. Filer Manufacturing has 8.8 million shares of common stock outstanding. The current share price is $58, 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 $71 million and a coupon rate of 7.5 percent and sells for 107.8 percent of par. The second issue has a face value of $61 million and a coupon rate of 8 percent and sells for 109.9 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 risk-free rate is 3.6 percent, and the market risk premium is 7.5 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. % The CAPM has an advantage over DDM because the CAPM: is more simplistic. ignores changes in the overall market over time. specifically considers a firm’s degree of operating leverage. applies to firms that pay dividends. explicitly adjusts for risk. 35. All else held constant, which one of these is most apt to increase the WACC of a leveraged firm? a decrease in the tax rate a decrease in the dividend growth rate a decrease in a firm’s equity beta an increase in the risk-free rate when the equity beta > 1 an increase in the weight of debt The cost of preferred stock: is generally calculated using the overall firm’s beta. should be adjusted for taxes when computing WACC. is equal to the stock’s dividend yield. is set equal to the pretax cost of debt since it is a fixed income security. is ignored by all firms when computing WACC. If you want to review a project from a benefit-cost perspective, you should use the _______ method of analysis. profitability index payback internal rate of return net present value discounted payback All else constant, the net present value of a typical investment project increases when: the initial cost of a project increases. each cash inflow is delayed by one year. all cash inflows occur during the last year instead of periodically throughout a project’s life. the rate of return decreases. the discount rate increases. 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? $1,100,000 $1,661,500 $1,498,000 $1,710,000 $1,208,635 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? $2,242,000 $2,058,000 $2,300,000 $2,987,000 $2,929,000 Accepting a positive net present value (NPV) project: ignores the inherent risks within the project. is expected to increase the stockholders’ value by the amount of the NPV. means the present value of the expected cash flows is equal to the project’s cost. indicates the project will pay back within the required period of time. guarantees all cash flow assumptions will be realized. Flatte Restaurant is considering the purchase of a $10,400 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 2,200 soufflés per year, with each costing $2.60 to make and priced at $5.45. Assume that the discount rate is 16 percent and the tax rate is 34 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ Should the company make the purchase? Yes No 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 it has the higher required rate of return Project B; because it has the largest total cash inflow Project A; because its NPV is positive while Project B’s NPV is negative neither project; because neither has an NPV equal to or greater than its initial cost Project B; because it has a negative NPV which indicates acceptance Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 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 $2,170,000 in annual sales, with costs of $865,000. The tax rate is 35 percent and the required return is 9 percent. What is the project’s NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in Year 1, $6,980 in Year 3, and $2,750 in Year 4? The discount rate is 12.5 percent. $249.65 $270.16 $86.87 $371.02 $68.20 
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