# WGU Principles of Finance C708 Pre-Assessment

 \$227 million A company has fixed assets of \$509 million, total equity of \$218 million, current liabilities of \$128 million, and long-term debt of \$390 million.What is the total for the company’s current assets?a.) \$262 millionb.) \$119 millionc.) \$128 milliond.) \$227 million \$114.9 million A company has just reported sales of \$557 million, costs of goods sold of \$150 million, depreciation of \$190 million and interest expense of \$40.2 million.What is the company’s net income if the tax rate is 35%? (Round your answer to the nearest decimal place.)a.) \$407.0 millionb.) \$217.0 millionc.) \$114.9 milliond.) \$187.6 million Intangibles Which item from a company’s financial statement is considered a non-cash item?a.) Interestb.) Taxesc.) Utilitiesd.) Intangibles \$185,000 Use the financial statements for WG Enterprises. What is the cash flow from financing?a.) \$185,000b.) (\$19,000)c.) (\$17,000)d.) \$194,000 (\$1,430) With the accompanying information on page 5, what is the cash flow from investing in millions?a.) (\$1,430)b.) \$1,430c.) (\$1,039)d.) \$1,039 6.99 With the accompanying information on page 6, what is the correct times interest earned?a.) 1.50b.) 2.05c.) 2.91d.) 3.59e.) 6.99 a.) Average collection period= AR/Daily credit salesb.) Fixed asset turnover=Sales/Fixed assetsc.) Return on equity=Net income/Total equityd.) Inventory turnover=COGS/Inventorye.) Quick ratio=(Current assets-Inventory)/Current liabilities Match the following ratios with the appropriate ratio formulas.Average collection period, fixed asset turnover, return on equity, inventory turnover, and quick ratio.a.) Average collection periodb.) Fixed asset turnoverc.) Return on equityd.) Inventory turnovere.) Quick ration 2.39 With the accompanying balance sheets on page 8, what was XYZ’s quick ratio in 2012?a.) 2.39b.) 2.99c.) 1.16d.) 3.14 24.43% A company as sales of \$132 million, net income of \$24 million, a total asset turnover of .84, and a leverage multiplier of 1.6.Using the DuPont Formula, what is the company’s return on equity? (Round your answer to two decimal places.)a.) 24.43%b.) 18.18%c.)16.79 %d.) 15.41% 39.90% A company has sales of \$56 million, net income of \$19 million, a total asset turnover of .98, and a leverage multiplier of 1.2.Using the DuPont Formula, what is the company’s return on equity? (Round your answer to two decimal places.)a.) 39.90%b.) 41.20%c.) 19.80%d.) 32.50% Firm A has significantly reduced depreciation expense.Firm A has increased the company’s return on assets relative to Firm B. As an analyst, you have been given the responsibility to determine effectiveness of management’s business decisions for two competing firms over the past 3 years. Firm A has increased its return on equity (ROE) more than Firm B.Which business decisions may have contributed to Firm A’s larger increase in ROE during the past three years? (Choose 2 answers.)a.) Firm A has significantly reduced depreciation expense.b.) Firm B has significantly reduced depreciation expense.c.) Firm A has increased the company’s return on assets relative to Firm B.d.) Firm B has increased the company’s return on assets relative to Firm A. Firm A Two Firms have the same net profit margin and asset turnover. However, Firm A has made the business decision to have a higher debt-to-equity ratio than Firm B.Assuming a positive return on assets (ROA), which firm will have a greater return on equity (ROE)?a.) Firm Ab.) Firm Bc.) Both firms will have the same ROE.d.) The result cannot be determined. Deal with discretionary accounts Which step in the percent-of-sales method comes directly after forecasting change in spontaneous balance sheet accounts?a.) Project sales and expensesb.) Deal with discretionary accountsc.) Calculate retained earningsd.) Calculate discretionary financing need Calculate retained earnings Which step in the percent-of-sales method comes immediately before determining total financing need?a.) Forecast change in spontaneous balance sheet accountsb.) Deal with discretionary accountsc.) Calculate retained earningsd.) Calculate discretionary financing need An account on the balance sheet and income statement that tends to vary when sales are changed What does a spontaneous account refer to?a.) An account of the balance sheet that changes when net income is changedb.) An account on the income statement that cyclically appearsc.) An account on the balance sheet and income statement that is calculated using the time value of moneyd.) An account on the balance sheet and income statement that tends to vary when sales are changed \$8 million A firm has projected assets to be \$22 million, liabilities to be \$11 million, and owner’s equity to be \$3 million.What is the discretionary financing need?a.) \$11 millionb.) \$33 millionc.) \$18 milliond.) \$8 million \$6 million A firm has projected current assets to be \$10 million, fixed assets to be \$73 million, current liabilities to be \$5 million, long-term debt to be \$57 million, and owner’s equity to be \$15 million.What is the discretionary financing need?a.) \$4 millionb.) \$18 millionc.) \$21 milliond.) \$6 million \$54.6 million A company currently has \$50 million in sales, \$23 million in current assets, \$39 million in fixed assets, and \$15 million in accounts payable. The fixed assets are currently operated with full capacity and will change proportionally with the sales growth.Sales are projected to be \$70 million, current assets are projected to be \$32.2 million, and accounts payable are projected to be \$21.0 million.What are fixed assets projected to be, given this information? (Round your answer to one decimal place.)a.) \$45.8 millionb.) \$74.1 millionc.) \$54.6 milliond.) \$41.4 million \$32.2 million A company currently has \$50 million in sales, \$23 million in current assets, \$39 million in fixed assets, and \$15 million in accounts payable. The fixed assets are currently operated with full capacity and will change proportionally with the sales growth.Sales are projected to be \$70 million, fixed assets are projected to be \$54.6 million, and accounts payable are projected to be \$21.0 million.What are current assets projected to be, given this information? (Round your answer to one decimal place.)a.) \$19.4 millionb.) \$32.2 millionc.) \$40.1 milliond.) \$22.1 million 13.76% A firm has a net income of \$68.0 million and pays out \$9.1 million in dividends. The firm has total assets of \$987 million and total liabilities of \$559 million. What is the firm’s sustainable growth rate,given this information? (Round your answer to two decimal places.)a.) 17.51%b.) 19.11%c.) 13.76%d.) 11.21% Increased net margin Which strategy is a possible method for reducing the discretionary financing need?a.) Stronger sales growthb.) Higher dividend payoutsc.) Increased net margind.) Higher projected assets Compounding finds the future value of a present value and discounting finds the present value of a future value. What is the difference between compounding and discounting of cash flows?a.) Compounding finds the present value of a future value and discounting finds the future value of a present value.b.) Discounting finds the future value of the present value and compounding finds the present value of the future value.c.) Compounding finds the future value of a present value and discounting finds the present value of a future value.d.) Discounting finds the future value of the future value and compounding finds the present value of a present value. Prepare a timeline to identify the size and timing of the cash flows.Calculate the future value of each individual cash flow using an appropriate discount rate.Add up the present values of the individual cash flows to obtain the present value of a cash flow stream. What are the steps involved in computing the future value of cash flows? (Choose 3 answers)a.) Prepare a timeline to identify the size and timing of the cash flows.b.) Calculate the present value of each individual cash flow using an appropriate discount rate.c.) Calculate the future value of each individual cash flow using an appropriate discount rate.d.) Add up the present values of the individual cash flows to obtain the present value of a cash flow stream.e.) Add up the discounted cash flows and divide by the number of cash flows. \$33,795 What is the present value of a 10-year \$5,000 annuity due if the discount rate is 10%? (Round your answer to the nearest dollar.)a.) \$30,723b.) \$40,723c.) \$51,541d.) \$57,410e.) \$33,795 \$44,970 What is the present value of a 12-year \$6,000 annuity due if the discount rate is 10%? (Round your answer to the nearest dollar.)a.) \$40,882b.) \$44,970c.) \$50,970d.) \$46,882e.) \$7,200 \$15,665 Year 1 \$0Year 2 \$0Year 3 \$0Year 4 \$0Year 5 \$12,000Year 6 \$12,000Year 7 \$12,000What is the present value of this stream of future cash flows if the discount rate is 15%? (Round your answer to the nearest dollar.)a.) \$15,665b.) \$27,399c.) \$34,622d.) \$49,925 \$5,625 What would the present value be if a person received \$900 in perpetuity and the interest rate is 16%?a.) \$1,044b.) \$5,625c.) \$9,722d.) \$14,400 \$1,350.00 A small-business owner has a debt of \$81,319.50 at a rate of 10%. The goal is to pay off this debt in 7 years. What should the monthly payment be in order to meet this goal?a.) \$968.09b.) \$1,064.90c.) \$1,350.00d.) \$6,776.00e.) \$12,007.52 \$4,300 A person is planning to open a savings account with the intent to buy a house in 5 years. They will invest an equal amount each month for 5 years. This account will earn 6% per year (0.5% per month) and will have \$300,000 at the end of the 5-year term.What is the amount of the monthly investment? (Round your answer to the nearest dollar.)a.) \$4,169b.) \$4,300c.) \$4,435d.) \$5,296 \$3,217.59 A person is planning to open a savings account with the intent to buy a house in 8 years. They will invest an equal amount each month for 8 years. This account will earn 9% annually and will have \$450,000 at the end of the 8-year term.What is the amount of the monthly investment?a.) \$4,687.50b.) \$5,487.30c.) \$3,217.59d.) \$4,803.47 \$1022.50 A-Z Inc. is planning to issue a \$1,000 face-value bond with an annual coupon rate of 4.5% that matures in 10 years. A-Z is planning to pay semi-annual interest payments. Similar A-Z bonds are quoting at 95% of par. What is the amount of the final cash flow that a bond holder will receive?a.) \$1022.50b.) \$1011.25c.) \$972.50d.) \$961.25 \$950 A-Z Inc. is planning to issue a \$1,000 face-value bond with an annual coupon rate of 4% that matures in 10 years. A-Z is planning to pay quarterly interest payments. Similar A-Z bonds are quoting at 95% of par.What is the price that bond holders will pay for this bond?a.) \$950b.) \$1004c.) \$1000d.) \$988 8.49% Company A expects to issue a \$1,000 face-value bond that matures in 10 years. The annual coupon rate is 8.25% and interest payments are expected to be paid annually. Similar bonds are currently priced at 98.4% of face value.What is the required return by bond holders?a.) 8.49%b.) 8.77%c.) 9.08%d.) 9.26% 3.3% Current government treasury bills (i.e., short-term bonds) are priced at 96.8% of par, which is \$1,000. These bonds mature 1 year from today and do not pay a coupon.What is the yield to maturity on these bonds?a.) 3.5%b.) 2.2%c.) 4.1%d.) 3.3% 13.89% Current government treasury bills (i.e., short-term bonds) are priced at 96.8% of par, which is \$1,000. These bonds mature 3 months from today and do not pay a coupon.What is the yield to maturity on these bonds?a.) 3.20%b.) 9.68%c.) 12.80%d.) 13.89% 6.94% An investor bought a 10-year \$1,000 face-value bond for \$925 one year ago. The annual coupon rate is 7%, and interest payments are paid annually. The price today is \$1,004, and the yield to maturity was 8.12% at the time of purchase.What is the yield to maturity today?a.) 6.94%b.) 8.11%c.) 7.06%d.) 9.56% \$53.81 One year ago, an investor bought a 15-year \$1,000 face-value bond that has an annual coupon rate of 6%, and interest payments are paid semi-annually. The yield to maturity was 8.3% when the investor bought the bond, but the yield to maturity is 9.2% today.How much has the price of the bond decreased since the date of purchase?a.) \$61.56b.) \$62.29c.) \$53.07d.) \$53.81e.) \$90.00 Decreased What have bond prices done if returns required by bond holders have increased 1.5% from last year?a.) Increased by 1.5%b.) Decreasedc.) Remain unchangedd.) Increased by more than 1.5% Lower Bond A and Bond B have the same face value and the same coupon rate. However, Bond B has a longer time until maturity than Bond A.When comparing the returns required by bond holders, how should Bond A’s required rate of return compare to that of Bond B?a.) Higherb.) Lowerc.) Similard.) Cannot be determined c. Which word describes the relation between a bond’s yield to maturity and time to maturity?a.) Independentb.) Inversec.) Directd.) Uncorrelated Common stockPreferred Which security represents ownership in the firm? (Choose 2 answers.)a.) Common stockb.) Bondc.) Dividendd.) Preferred First claim to dividends=Preferred StockHas company voting rights=Common stockDividend payments are fixed=Preferred stockDividend payments vary depending on the company’s dividend policy=Common stock Match the following statements with the type of stock it defines.First claim to dividends, has company voting rights, dividend payments are fixed, and dividend payments vary depending on the company’s dividend policy.a.) First claim to dividendsb.) Has company voting rightsc.) Dividend payments are fixedd.) Dividend payments vary depending on the company’s dividend policy \$28.96 A-Z Inc. has a unique dividend policy. This recent startup is expecting to pay a dividend of \$2.00 in the next year, a dividend of \$2.50 in year 2, and a dividend of \$3.00 in the third year. After year 3, the company is anticipating increasing its dividend by 2.5% per year indefinitely. The required return by share holders is currently 12%.What is the price of the stock?a.) \$24.71b.) \$26.10c.) \$27.90d.) \$28.96 13.98% A company has a beta of 1.2. The expected return on the market is 12% while the risk-free rate is 2.1%.What is the return required by share holders? (Round your answer to two decimal places.)a.) 9.90%b.) 11.88%c.) 12.00%d.) 13.98% 20.8% A recent startup technology company that has a very low market cap is looking to calculate the return required by share holders using the build-up method. Historically, long-term government bonds have been 4.8%, and the equity risk premium is approximately 6%. The startup premium and the micro-cap premium are both 5%.What is the return required by share holders?a.) 20.8%b.) 15.8%c.) 10.8%d.) 6.0% 11.30% A company is looking to invest in new machinery. The current financing is 30% debt, 45% common stock, and 25% preferred stock. The company anticipates the new debt issue will consist of 10-year \$1,000 face-value bonds that will be priced at par. The bonds will pay an annual coupon of \$80. Flotation costs for this new bond issue will be \$35 per bond. The company has recently paid a dividend of \$2.30 and is expecting to increase the dividend by 5% per year, indefinitely. The current share price for the company’s common stock is \$29.76. The company also plans to issue preferred stock that will pay a dividend per share of \$3.50 per year in perpetuity. The market price of the preferred stock will be \$32. The flotation costs of both the common stock issue and preferred stock issue will be \$4.50 per share.What is the weighted average cost of capital for this company if the company’d marginal tax rate is 39%?a.) 11.30%b.) 12.41%c.) 10.44%d.) 13.84%e.) 9.41% 11.85% A company is looking to invest in new production machinery. The market value of common stock is \$44 million, the market value of preferred stock is \$9 million, and the market value of total debt is \$33 million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity to be 12%, and the cost of debt to be 9.5%.What is the weighted average cost of capital if the marginal tax rate is 34%? (Round your answer to two decimal places.)a.) 10.41%b.) 9.88%c.) 14.51%d.) 12.33%e.) 11.85% The method must account for the time value of money. Which statement describes an ideal criteria for the methods used to evaluate a capital investment project?a.) The method must account for the success of previous projects.b.) The method must consider sales of previous products as a benchmark.c.) The method must account for the time value of money.d.) The method must consider only the cash flows of the payback period of the investment. 3.14 years Year 0 (\$102.4 million)Year 1 \$37.4 million Year 2 \$33.1 millionYear 3 \$28.4 millionYear 4 \$24.9 millionYear 5 \$17.1 millionYear 6 \$15.9 millionWhat is the payback period for this stream of cash flows if the discount rate is 16%?a.) 2.84 yearsb.) 2.96 yearsc.) 3.05 yearsd.) 3.14 yearse.) 3.55 years (\$4,881) Year 0 (\$54,000)Year 1 \$21,000Year 2 \$14,000Year 3 \$23,400What is the net present value of this stream of cash flows if the discount rate is 9%?a.) \$8,421b.) \$3,128c.) \$107d.) (\$2,415)e.) (\$4,881) Yes, because the net present value is greater than zero. An analyst has conducted thorough analysis and has estimated the net present value of a project to be \$1.4 million, the internal rate of return to be 12%, and the payback period to be 2.34 years.Should the company recommend that the capital project be accepted?a.) Yes, because the internal rate of return is less than 15%.b.) Yes, because the payback period is less than 4 years.c.) Yes, because the net present value is greater than zero.d.) No, because the internal rate of return is not greater than 15%.e.) No, because the payback period is not less than 2 years. Yes, because the NPV is greater than zero. An analyst has conducted thorough analysis and has estimated the net present value (NPV) of a project to be \$2.3 million, the internal rate of return (IRR) to be 11%, and the payback period to be 4.24 years.Should the company recommend that the capital project be accepted?a.) Yes, because the IRR is greater than 10%.b.) No, because the IRR is less than 15%.c.) Yes, because the NPV is greater than zero.d.) No, because the payback eriod is less than 5 years. \$9.17 million A company is looking to invest in a new asset. The cost of the asset, including shipping and installation costs, is \$8.4 million. The company has a buyer for the old asset who is willing to pay \$1.2 million. Currently the book value of the old asset is \$0. The company will also invest working capital in additional inventory in order to sustain the higher levels of efficiency that come with the new machinery. The total investment in net working capital will be \$1.5 million.What is the initial outlay if the company’s marginal tax rate is 39%?a.) \$10.63 millionb.) \$11.10 millionc.) \$9.17 milliond.) \$8.10 millione.) 8.70 million The replacement cost method attempts to determine the cost of replacing the balance sheet equity. Which statement correctly describes the replacement cost method for determining firm value?a.) The replacement cost method attempts to replace unspecified cash flows with realizable cash flows.b.) The replacement cost method attempts to replace inefficient labor.c.) The replacement cost method attempts to determine the cost of replacing negative NPV projects with positive NPV projects.d.) The replacement cost method attempts to determine the cost of replacing the balance sheet equity. \$1,578.95 million What is the value of this firm? (Round your answer to two decimal places.)a.) \$1,984.53 millionb.) \$1,578.95 millionc.) \$2,147.03 milliond.) \$1,178.35 millione.) \$2,341.78 million \$2,829,325 With the accompanying information on page 56, what is the value of this firm if the weighted average cost of capital is 10%?a.) \$2,829,325b.) \$1,984,525c.) \$2,668,484d.) \$1,845,541e.) \$3,510,189 \$87.36 Firm A has a price-to-sales ratio of 3.9-to-1. Firm B has recently reported sales of \$56 million. Firm B also has shares outstanding of 2,500,000.What is the price per share of Firm B, according to the comparable multiples approach?a.) \$102.54b.) \$54.79c.) \$87.36d.) \$91.79e.) \$61.88 \$135.33 Firm A has a price-to-earnings ratio of 3.9-to-1. Firm B has recently reported sales of \$56 million. Firm B also has shares outstanding of 2,500,000 and a reported net income of \$86,750,000.What is the price per share of Firm B according to the comparable multiples approach?a.) \$99.87b.) \$61.42c.) \$87.36d.) \$91.08e.) \$135.33 Small companies In which type of company is the unpaid salary issue most likely to be of consequence?a.) Public companiesb.) Large companiesc.) Small companiesd.) Private companies
Share