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FIN 370 Final Exam.doc

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Finance 370 Final Exam
Instructor: Tim Gould
Ch 1, 3, 4,5,9,10,12,14,15,16,18,19,20,22,23,24
There are 50 questions worth 0.2 points each for a total possible of 10 points toward your
class grade.
Please highlight the answer you want to give for each question in BOLD and yellow as follows:
a. All of the above.
1. Which of the following is a characteristic of an efficient market?
a. Small number of individuals.
a. Opportunities exist for investors to profit from publicly available information.
b. Security prices reflect fair value of the firm.
c.Immediate response occurs for new public information.
2. Diversification increases when ________ decreases.
a. variability
a. return
b. risk
c.a and c
d. all of the above
3. Corporations receive money from investors with:
a. initial public offerings.
a. seasoned new issues.
b. primary market transactions.
c.a and b.
d. all of the above.
4. Which of the following is true regarding an initial public offering?
a. The corporation gets proceeds from the investor.
a. Investors get proceeds from other investors.
b. The security is sold for the first time to the public.
c.Both a and c.
d. All of the above.
Table 1(Use this table for questions 5-8)
Smith Company Balance Sheet
Assets:
Cash and marketable securities $300,000
Accounts receivable 2,215,000
Inventories 1,837,500
Prepaid expenses 24,000
Total current assets $3,286,500
Fixed assets 2,700,000
Less: accumulated depreciation 1,087,500
Net fixed assets $1,612,500
Total assets $4,899,000
Liabilities:
Accounts payable $240,000
Notes payable 825,000

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Accrued taxes 42,500
Total current liabilities $1,107,000
Long-term debt 975,000
Owners equity 2,817,000
Total liabilities and owners equity $4,899,000
Net sales (all credit) $6,375,000
Less: Cost of goods sold 4,312,500
Selling and administrative expense 1,387,500
Depreciation expense 135,000
Interest expense 127,000
Earnings before taxes $412,500
Income taxes 225,000
Net income $187,500
Common stock dividends $97,500
Change in retained earnings $90,000
5. Based on the informaon in Table 1, the current rao is:
a. 2.97.
b. 1.46.
c. 2.11.
d. 2.23.
6. Based on the informaon in Table 1, the debt rao is:
a. 0.70.
b. 0.20.
c. 0.74.
d. 0.42.
7. Based on the information in Table 1, the net profit margin is:
a. 4.61%
b. 2.94%.
c. 1.97%.
d. 5.33%.
8. Based on the informaon in Table 1, the inventory turnover rao is:
a. 0.29 times.
b. 2.35 times.
c. 0.43 times.
d. 3.47 times.
9. Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%.
The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio.
a. 30%
b. 40%
c. 50%
d. 60%
Use the following information and the percent-of-sales method to Answer questions 10 -12.
Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and
are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay
$90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency
with the Answer selections provided, round your forecast percentages to two decimals.)

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Banner, Inc. Balance Sheet
December 31, 2004
Assets
Current assets $890,000
Net fixed assets 1,000,000
Total $1,890,000
Liabilities and Owners’ Equity
Accounts payable $160,000
Accrued expenses 100,000
Notes payable 700,000
Long-term debt 300,000
Total liabilities 1,260,000
Common stock (plus paid-in capital) 360,000
Retained earnings 270,000
Common equity 630,000
Total $1,890,000
10. Banners projected current assets for 2005 are:
a. $1,000,000.
b. $1,120,000.
c. $1,500,000.
d. $1,260,000.
11. Banners projected accounts payable balance for 2005 is:
a. $160,000.
b. $120,000.
c. $200,000.
d. $300,000.
12. Banners projected !xed assets for 2005 are:
a. $1,120,000.
b. $1,260,000.
c. $1,000,000.
d. $2,380,000.
13. What is the present value of $1,000 to be received 10 years from today? Assume that the
investment pays 8.5% and it is compounded monthly (round to the nearest $1).
a. $893
b. $3,106
c. $429
d. $833
14. What is the present value of $12,500 to be received 10 years from today? Assume a
discount rate of 8% compounded annually and round to the nearest $10.
a. $5,790
b. $11,574
c. $9,210
d. $17,010
15. The NPV method:
a. is consistent with the goal of shareholder wealth maximization.

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Anonymous
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