Final Exam Finance

Which of the following is NOT a correct way of calculating a liquidity ratio? Operating Cash Flow Ratio = Current Liabilities / Operating Cash Flow
Which of the following is NOT information used to calculate an asset’s book value? The current market price of the asset.
Which of the following is NOT an event that would be included in the investing section of a company’s cash flow statement? Paying interest to an investor who holds the company’s debt.
Which of the following transactions would be a financing activity on the statement of cash flows? purchase of treasury stock
A company’s retained earnings at the beginning of the year is $1 million. It paid $100,000 in dividends, had $250,000 in net income, and its goodwill increased by $10,000. What is its retained earnings as of the end of the year? $1,150,000
A company has earnings before income tax of $2 million and a 15% tax rate. It had $250,000 in depreciation expenses with a $50,000 increase in working capital. It had another $100,00 in capital expenditures. What is its free cash flow. $1,800,000
A business has $1,500,000 in accounts receivable. Its annual sales for the fiscal year is $30,000,000. What is its days sales outstanding ratio? 18.25
A company wants to have $7 million in sales with $2 million in profit. It will have fixed costs of $3 million. Each unit of its product sells for $25. How much contribution per unit must the company have to meet its goals? $17.86
Balance analysis is primarily based on ratios. Which of the following statements regarding ratio analysis associated with balance sheets is correct? Profitability analysis concerns return on capital: risk analysis concerns credit risk.
What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% compound interest rate every year (rounded up to the nearest dollar)? 134785
A security offers to pay the holder $1000 at the end of every month for five years. What type of annuity is this? Ordinary annuity.
A sinking fund is used by firms to retire some of its outstanding debt every year. Which of the following is a way that a sinking fund may operate? The firm may buy the bonds at a special call price stipulated in the bond’s sinking fund provision.The firm may repurchase the bonds in the open market.The firm may repurchase the bonds at the current market price or the call price, whichever is lower.All of these answers *this answer*
A company issues a bond with a coupon rate of 5%. Since the bond was issued, market interest rates have decreased. What effect will this decrease have on the bond’s market price and its current yield? The bond will trade above par and its current yield will decrease.
A zero-coupon bond has a face value of $1000 and a market value of $800. The bond will mature in 5 years. What is its yield to maturity? 4.56%
A company a constant growth rate of 3%. The company’s risk adjusted discount rate is 5%. The company has a $2 dividend. What is the per share value of the stock? $103
A company has cost of equity of 8% and a dividend growth rate of 3%. Its dividends for next year is $2.20 per share. What should the stock’s price be? $44.00
The adequately diversify your portfolio, you need to do more than just own a variety of securities. Which of the following is a necessary component of a well-diversified portfolio that has a low variance? All of these answers. *this answer*The component securities have small or negative correlation coefficients.The portfolio’s components are in a variety of asset classes, such as commodities and derivatives.The portfolio is reviewed and rebalanced based on updated projections and new information.
A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio? 7.5%
A company has a risk free rate of 3% and a risk premium of 6%. Its tax rate is 35%. What is the company’s cost of debt? 5.85%
A company has issued preferred stock that are valued at $75 a share. The preferred dividend is $5. The company’s growth rate is 5%. What is the cost of the company’s preferred stock 11.67%
A company makes an initial $10,000 investment in a project. This project is projected to earn $8000 in year one, $10,000 in year 2, $12,000 in year 3, and $20,000 in year 4. If the interest rate is 5%, what is the project’s net present value? $33,509
A company made $10 million in revenue. It is interested in pursuing a new project that costs $2 million, but will make them $7 million in the long run. How much should the company pay in dividends under the Residual Dividend Model? $8 million
Which of the following is a benefit shareholders can obtain by repurchasing its shares? Shareholders have a higher percent ownership in the company at a higher per share price.
Which of the following accurately describes how a stock dividend differs from a stock split? A stock dividend is paid using already issued shares; a split requires new shares to be issued.
A company has $350,000 in accounts receivable, $100,000 in current inventory, and $125,000 in accounts payable. What is its working capital? $325,000
Which of the following correctly defines one of the four main areas of variability that must be considered during working capital management? Cash management balances having enough cash for expenses while minimizing cash holding costs.All of these answers. *This Answer*Debtors management finds the appropriate credit policy.Inventory management ensures uninterrupted production while minimizing investment in raw materials.
Which of the following should a company ALWAYS do with regards to its collection policy? Tailor its collection policy based on each customer’s needs and importance.
A customer has 45 days from the date of invoice to pay a bill in full, but if he pays within 15 days of the invoice, he gets a 10% discount. Which of the following describes these terms of trade? 10/15, net 45.
If a company has yet to receive payment for its goods, which of the following describes a situation when it can recognize revenue from the sale? When the goods have been delivered and the title has been transferred to the buyer.
Which of the following correctly describes a method companies can use to analyze their collections? All of these answers. *This Answer*An aging schedule categorizes accounts by the number of days they have been on the books.The receivable turnover ratio measures the number of times, on average, receivables are collected.The account receivable days is the average number of days it takes a firm to collect on its sales.
One of the most underestimated challenges encountered by companies when entering a new global region is recognition. For example, Best Buy failed in China as a direct result of not localizing their brand and product offerings. This is a failure of: Public relations
A company is concerned that the value of its accounts receivable from overseas will decrease due to a shift in exchange rate. What type of exchange exposure is the company concerned about? Short-run exposure.
Frank is goining on vacation to Italy, so he will have purchase some euros (e). How many euros will he get for $375 if the exchange rate is $1 = 1.2769 euros? Give your answer to the nearest euro. 479 euros
You have just arrived in the US from your vacation in Switzerland. While unpacking your luggage you find you have 250 Swiss francs (CHF). How many USD are your Swiss francs worth? The exchange rate is $1 = CHF 1.5347. Give your answer to the nearest dollar. 163

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