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STR 581 Week 4 Capstone Exam.docx

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 What decision criteria should managers use in selecting projects when there is not enough
capital to invest in all available positive NPV projects?
the profitability index
 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?
1.11
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*#######!##+
'##)#*#!###,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. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in
inventory?
65.2
5. If a company’s weighted average cost of capital is less than the required return on equity,
then the firm:
has debt in its capital structure
6. 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?
$803,010
7. Process costing is used when:
the production process is continuous.
8. Horizontal analysis is a technique for evaluating a series of financial statement data over a
period of time:
to determine the amount and/or percentage increase or decrease that has taken place
9. The process of evaluating financial data that change under alternative courses of action is
called:
incremental analysis
10. The most important information needed to determine if companies can pay their current
obligations is the:

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relationship between current assets and current liabilities
11. The group of users of accounting information charged with achieving the goals of the
business is its:
Managers
12. 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)
$16,670
13. 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?
the statement of cash flows
14. Internal reports that review the actual impact of decisions are prepared by:
management accountants
15. Which of the following financial statements is concerned with the company at a point in time?
balance sheet
16. The major element in budgetary control is:
the comparison of actual results with planned objectives.
17. When a company assigns the costs of direct materials, direct labor, and both variable and
fixed manufacturing overhead to products, that company is using:
absorption costing
18. An activity that has a direct cause-effect relationship with the resources consumed is a(n):
cost driver
19. Which of the following is an advantage of corporations relative to partnerships and sole
proprietorships?
reduced legal liability for investors
20. 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?
25.1%
21. Which of the following is considered a hybrid organizational form?
limited liability partnership

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22. 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?
$3,594,524
23. Horizontal analysis is also known as:
trend analysis
24. A cost which remains constant per unit at various levels of activity is a:
variable cost
25. The break-even point is where:
contribution margin equals total fixed costs.
26. The convention of consistency refers to consistent use of accounting principles:
among accounting periods
27. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?
1.47
28. 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.
$1,787 million
29. 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.)
16%
30. An unrealistic budget is more likely to result when it:

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