Strayer FIN534 2020 January Week 5 Midterm Exam Latest

FIN534 Financial Management

Week 5 Midterm Exam  

Question 1A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company’s balance sheet?

Question 2Which of the following formulas describes the calculation of cash flow from operating activities?

Question 3Which of the following is a reason why a company’s market value of equity differs from its book value of equity?

Question 4Which one of the following is a source of cash?

Question 5Which one of the following is a use of cash?

Question 6The book value of a firm is

Question 7On a common-size balance sheet, all accounts are expressed as a percentage of

Question 8Klamath Corporation has asset turnover of 3.5, a profit margin of 5.2%, and a current ratio of 0.5. What is Klamath Corporation’s return on equity?

Question 9A times-interest-earned ratio of 3.5 indicates that the firm

Question 10Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

 Question 11In comparison to industry averages, Okra Corp. has a low inventory turnover, a high current ratio, and an average quick ratio. Which of the following would be the most reasonable inference about Okra Corp.?

Question 12Ptarmigan Travelers had sales of $420,000 in 2016 and $480,000 in 2017. The firm’s current asset accounts remained constant. Given this information, which one of the following statements must be true?

Question 13Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm’s financial ratios?

Question 14Sol’s Sporting Goods is expanding and, as a result, expects additional operating cash flows of $26,000 a year for 4 years. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires an additional $3,000 of net working capital throughout the life of the project; Sol expects to recover this amount at the end of the project. What is the net present value of this expansion project at a 16-percent required rate of return?

Question 15Naomi plans on saving $3,000 a year and expects to earn an annual rate of 10.25 percent. How much will she have in her account at the end of 45 years?

Question 16Which of the following is NOT a reason why a dollar today is worth more than a dollar in the future?

Question 17Which of the following figures of merit might not use all possible cash flows in its calculations?

I. Payback period

II. Internal rate of return

III. Net present value (NPV)

IV. Benefit-cost ratio

Question 18What is the difference in the value of a $5,000 annual perpetuity and an annuity of $5,000 for 100 years? Assume that the discount rate is 8% and that cash flows are received at the end of the year.

Question 19Pro forma free cash flows for a proposed project should

 I. exclude the cost of employing existing assets that could be sold anyway.

II. exclude interest expense.

III. include the depreciation tax shield related to the project.

IV. exclude any required increase in operating current assets.

Question 20Honest Abe’s is a chain of furniture retail stores. Integral Designs is a furniture maker and a supplier to Honest Abe’s. Honest Abe’s has a beta of 1.38 as compared to Integral Designs' beta of 1.12. Both firms carry no debt, i.e., are 100% equity financed. The risk-free rate of return is 3.5 percent and the market risk premium is 8 percent. What discount rate should Honest Abe's use if it considers a project that involves the manufacturing of furniture?

Question 21The excess return earned by a risky asset, for example, with a beta of 1.4, over that earned by a risk-free asset is referred to as a

Question 22The after-tax cost of debt generally increases when

I. a firm’s bond rating improves.

II. the market-required rate of interest for the company’s bonds increases.

III. tax rates decrease.

IV. bond prices rise.

Question 23The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?

I. Firms that have a 100-percent retention ratio

II. Firms that pay an unchanging dividend

III. Firms that pay a constantly increasing dividend IV. Firms that pay an erratically growing dividend

Question 24JKL Corporation, a company devoted primarily to paper products, is estimating the cost of equity appropriate for a vegetable processing plant it is planning to build. JKL Corp. has an equity beta of 1.0 and a debt ratio (D/(D+E)) of 0.3. A comparable (vegetable processing) firm has an equity beta of 0.8 and a debt ratio of 0.2. Assume a risk-free rate of 5% and a market risk premium of 8%. What cost of equity should JKL use in this situation?

Question 25 The cost of equity for a firm