Question Details

FIN 571 Week 6 Final Examination

 1. 
 
Which one of the following parties is considered a stakeholder of a firm?


2. 
 
A stakeholder is any person or entity:


 3. 
 
Financial managers primarily create firm value by:




 4. 
 
For a firm to create value it must:


 5.

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.):
  


 6.
a.	Compute the future value of $2,000 compounded annually for 10 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
  
  
b.	Compute the future value of $2,000 compounded annually for 10 years at 11 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
 
 
c.	Compute the future value of $2,000 compounded annually for 15 years at 6 percent. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
 
 7.
Gerold invested $111 in an account that pays 5 percent simple interest. How much money will he have at the end of 6 years?


 8.
You bought 360 shares of stock at a total cost of $7,754.40. You received a total of $403.20 in dividends and sold your shares for $19.98 a share. What was your total rate of return?


 9.
BCD shares are currently selling for $27.38 each. You bought 200 shares one year ago at $26.59 and received dividend payments of $1.27 per share. What was your percentage capital gain for the year?



 10.

Sankey, Inc., has current assets of $7,200, net fixed assets of $25,400, current liabilities of $6,350, and long-term debt of $15,100. (Do not round intermediate calculations.)
 
What is the value of the shareholders' equity account for this firm?
 
   
 
How much is net working capital?
 
  
 11.

Shelton, Inc., has sales of $389,000, costs of $177,000, depreciation expense of $42,000, interest expense of $23,000, and a tax rate of 35 percent. (Do not round intermediate calculations.)
  
What is the net income for the firm?
 
 
  
Suppose the company paid out $32,000 in cash dividends. What is the addition to retained earnings?
 
   

 12.
The financial statement summarizing a firm's accounting performance over a period of time is the:

 13. 
 
Which one of these accounts is classified as a current asset on the balance sheet?

 14. 
 
Jessica's Boutique has cash of $58, accounts receivable of $52, accounts payable of $210, and inventory of $160. What is the value of the quick ratio?


15.
Galaxy United, Inc.
2009 Income Statement
($ in thousands)  
  Net sales	$5,740     
  Less: Cost of goods sold	4,050     
  Less: Depreciation	    420     
  Earnings before interest and taxes	1,270     
  Less: Interest paid	      29     
  Taxable Income	1,241     
  Less: Taxes	    434     
  Net income	$   807     
 
  Galaxy United, Inc.
2008 and 2009 Balance Sheets
($ in thousands)  
 	2008	2009	 	 	2008	2009
  Cash	$     70     	$   160      	 	  Accounts payable	 $1,350     	  $1,260    
  Accounts rec.	970     	820      	 	  Long-term debt	    710     	    520    
  Inventory	1,500     	1,990      	 	  Common stock	$3,130     	$3,263    
  Total	$2,540     	$2,970      	 	  Retained earnings	    920     	1,227    
  Net fixed assets	3,570     	3,300      	 	 	 	 
  Total assets	$6,110     	$6,270      	 	  Total liab. & equity	$6,110    	$6,270    

What is the debt-equity ratio for 2009?


 16. 
 
A firm has total debt of $1,160 and a debt-equity ratio of .26. What is the value of the total assets?


 17. 
 
A firm has a debt-equity ratio of .36. What is the total debt ratio?


 18. 
 
A firm has net working capital of $366, net fixed assets of $2,258, sales of $6,000, and current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets?


 19. 
 
The external funds needed (EFN) equation projects the addition to retained earnings as:


 20. 
 
The sustainable growth rate:


 21. 
 
The return on equity can be calculated as:


22. 
 
The Wintergrass Company has an ROE of 13.2 percent and a payout ratio of 30 percent.
  
What is the company- sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 


 23.
 
Assume the following ratios are constant:
 
 	 	 	 
 
________________________________________
 
What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
 

 24. 
A prearranged, short-term bank loan made on a formal or informal basis, and typically reviewed for renewal annually, is called a:


 25. 
The length of time between the sale of inventory and the collection of cash from receivables is called the:

 26. 
 
Consider the following financial statement information for the Rivers Corporation:
 
  Item	Beginning	 	 	 	 	Ending	 
  Inventory	$	11,500  	 	 	 	 	$	12,500 	 
  Accounts receivable	 	6,500  	 	 	 	 	 	6,800 	 
  Accounts payable	 	8,700  	 	 	 	 	 	9,100 	 
     Net sales	 	 	 	$	95,000	 	 	 	 
     Cost of goods sold	 	 	 	 	75,000	 	 	 	 
________________________________________
 
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.)
 
 	 

________________________________________


27. 
 
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	$	32,000	 	$	31,250	 
  Accounts receivable	 	71,500	 	 	74,800	 
  Inventories	 	62,400	 	 	64,875	 
  Property, plant, and equipment	 	163,000	 	 	175,000	 
    Less: Accumulated depreciation	 	(47,200	)	 	(51,500	)
 	________________________________________	________________________________________	 	________________________________________	________________________________________	 
  Total assets	$	281,700	 	$	294,425	 
 	________________________________________________________________________________	________________________________________________________________________________	 	________________________________________________________________________________	________________________________________________________________________________	 
  Liabilities and Equity	 	 	 	 	 	 
  Accounts payable	$	46,500	 	$	48,750	 
  Accrued expenses	 	7,880	 	 	6,900	 
  Long-term debt	 	27,200	 	 	30,400	 
  Common stock	 	32,000	 	 	37,600	 
  Accumulated retained earnings	 	168,120	 	 	170,775	 
 	________________________________________	________________________________________	 	________________________________________	________________________________________	 
  Total liabilities and equity	$	281,700	 	$	294,425	 
 	
 	 
________________________________________

 28. 
If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21 percent, what is the nominal rate of return on the bond?

29. 
 
The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield.

 30. 
 
A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield of this stock is 9 percent, what is the dividend amount?


 31. 
 
Ancient Industries just paid a dividend of $1.03 a share. The company announced today that it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years. What is one share of this stock worth today if the required rate of return is 16 percent?

 32. 
Titan Mining Corporation has 8.3 million shares of common stock outstanding and 270,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $31 per share and has a beta of 1.15, and the bonds have 15 years to maturity and sell for 112 percent of par. The market risk premium is 7.1 percent, T-bills are yielding 4 percent, and the company- tax rate is 30 percent.
  
a.	What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
 
 	
  
b.	If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 


 33. 
Filer Manufacturing has 9.2 million shares of common stock outstanding. The current share price is $62, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $71.8 million and a coupon rate of 7.9 percent and sells for 107.4 percent of par. The second issue has a face value of $61.8 million and a coupon rate of 8.4 percent and sells for 110.7 percent of par. The first issue matures in 8 years, the second in 27 years.
 
Suppose the company- stock has a beta of 1.2. The risk-free rate is 4 percent, and the market risk premium is 7.9 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 35 percent. What is the company- WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  

 34. 
The weighted average cost of capital for a firm is the:
rate of return that the firm's preferred stockholders should expect to earn over the long term.

 35. 
 
The CAPM has an advantage over DDM because the CAPM:


36. 
 
When estimating the cost of equity using the DDM, which one of these is most apt to add error to this estimate?


 37. 
 
The present value of an investment's future cash flows divided by the initial cost of the investment is called the:

 38. 
 
Foamsoft sells customized boat shoes. Currently, it sells 16,850 pairs of shoes annually at an average price of $79 a pair. It is considering adding a lower-priced line of shoes which sell for $49 a pair. Foamsoft estimates it can sell 5,000 pairs of the lower-priced shoes but will sell 1,250 less pairs of the higher-priced shoes by doing so. What is the estimated value of the erosion cost that should be charged to the lower-priced shoe project?

 39. 
 
Accepting a positive net present value (NPV) project:


 40. 
 
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- 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?


 41. 
 
No matter how many forms of investment analysis you employ:

 42. 
 
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.


 43. 
 
Flatte Restaurant is considering the purchase of a $9,200 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 1,600 soufflés per year, with each costing $2.40 to make and priced at $4.85. Assume that the discount rate is 10 percent and the tax rate is 40 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.)
   
  
Should the company make the purchase?
 


44. 
 
Wilson- 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?


45. 
 
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3 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 $2,180,000 in annual sales, with costs of $875,000. The tax rate is 30 percent and the required return is 9 percent.
   
What is the project- NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)