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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 $1,500,000 and the
appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for
the project?
1.11
  !"##
"#$%#&#' #(# #)#
*#######!##+
'##)#*#!###,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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