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    Multiple Choice And Short Answer

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    Please see attached sheet for problems and instructions. Do not take if not willing to follow instructions.

    For the multiple choice/true false answers only submit the question number and answer -- do not include the question in your answer sheet. For other questions/problems, please show all of your work. One Excel attachment is preferred.

    TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

    1. The required rate of return reflects the costs of funds needed to finance a
    2. The weighted average cost of capital is computed using before-tax costs of
    each of the sources of financing that a firm uses to finance a project.
    2) _______
    3. Tax credits that cannot be used by one firm can take on value if the firm is
    acquired by another firm.

    4. For the risk-averse financial manager, the more risky a given course of
    action, the higher the expected return must be.
    5. Economic exposure refers to the overall impact of exchange rate changes on
    the value of the firm.

    6. Tax credits that cannot be used by one firm can take on value if the firm is
    acquired by another firm.
    7. The cash budget can be used as an accurate standard for control purposes
    by adjusting the cost figures for planned sales in proportion to total assets

    8. Carrying inventory reduces the costs associated with periodic bad debt
    9. A conflict can occur when using NPV and IRR to evaluate a project because
    the IRR assumes reinvestment at the IRR rate while the NPV assumes
    reinvestment at the cost of capital.

    10. Corporate debt markets clearly dominate the corporate equity markets when
    new funds are being raised.
    .MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

    11. A project costs $10,000 and is expected to return after-tax cash flows of
    $3,000 each year for the next 10 years. This project's payback period is:
    a. three years.
    b. three and one-third years.
    c. four years.
    d. 10 years

    12. Which of the following financial ratios is the best measure of how effectively
    a firm's management is serving its stockholders?
    a. Current ratio
    b. Debt ratio
    c. ACP
    d. Return on equity

    13. The rate that a subsidiary or parent of the multinational corporation charges
    other divisions of the firm for its products is called a(n):
    a. forward price.
    b. transaction price.
    c. transfer price.
    d. exchange price.

    14. __________ is a method of offering securities to a limited number of
    a. Initial public offering
    b. Private placement
    c. Public offering
    d. Syndicated underwriting

    15. Fixed costs include all of the following EXCEPT:
    a. administrative salaries.
    b. property taxes.
    c. sales commissions.
    d. Insurance

    MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Please provide any back-up of your calculations on a separate sheet of paper so that partial credit can be assigned. You may provide either a Word document or an Excel spreadsheet.

    16. A company collects 60% of its sales during the month of the sale, 30% one
    month after the sale, and 10% two months after the sale. The company
    expects sales of $10,000 in August, $20,000 in September, $30,000 in
    October, and $40,000 in November. How much money is expected to be
    collected in October?
    a. $25,000
    b. $15,000
    c. $35,000
    d. None of the above

    17. National Geographic is replacing an old printing press with a new
    one. The old press is being sold for $350,000 and it has a net
    book value of $75,000. Assume that National Geographic is in the
    40% income tax bracket. How much will National Geographic pay in
    income taxes from the sale?
    a. $140,000
    b. $45,000
    c. $110,000
    d. $87,010

    18. Three years from now, Barbara Waters will purchase a laptop computer that
    will cost $2,250. Assume that Barbara can earn 6.25% (compounded
    monthly) on her money. How much should she set aside today for the
    purchase? Round off to the nearest $1.
    a. $1,250
    b. $900
    c. $1,866
    d. $3,775

    19. How much would an investor be willing to pay today for an investment that
    returns $1,000 every year at year-end for five years if he wants to earn a
    10% annual return on the investment?
    a. $1,000
    b. $3,791
    c. $5,000
    d. $7,700
    20. Kannan Carpets, Inc. has asked you to calculate the company's current
    ratio for 2001. All you have is a partial balance sheet and some
    assumptions. Using the information provided, calculate Kannan's quick ratio
    for 2001.

    Gross profit margin = 50%
    Inventory turnover (COGS/Inv) = 5
    2001 sales = $3,000

    Assets Liabilities & Equity
    Cash ? Accounts payable $50
    AR $40 Accruals ?
    Inventory ? Long-term debt $400
    Net fixed assets $500 Equity $250
    Total assets $900 Total liab. & equity ?

    a. 0.2
    b. 0.4
    c. 0.6
    d. 0.8

    21. If Challenge Corporation has sales of $2 million per year (all credit) and an
    average collection period of 35 days, what is its average amount of
    accounts receivable (assume a 360-day year)?
    a. $194,444
    b. $ 57,143
    c. $ 5,556
    d. $ 97,222

    22. The cost of capital for a firm which uses 45% debt at an after-tax cost of 10%
    and 55% common stock at a 15% cost is:
    a. 12.25%.
    b. 12.50%.
    c. 12.75%.
    d. 13.00%.
    e. 13.25%.

    John R. Scherzi Page 4 6/22/2009

    PROBLEMS. Write your answer in the space provided and provide back-up of your work on a separate sheet of paper so that partial credit can be assigned. You may provide either a Word document or an Excel
    spreadsheet. Each problem is worth

    23. As the financial manager for a manufacturing firm, you have constructed
    the following partial pro forma income statement for the next fiscal year.

    Sales $11,200,000
    Variable costs 5,600,000
    Revenue before fixed costs 5,600,000
    Fixed costs 2,400,000
    EBIT 3,200,000
    Interest expenses 1,600,000
    Earnings before taxes 1,600,000
    Taxes (40%) 640,000
    Net income $ 960,000

    a. What is the degree of operating leverage at this level of output?
    b. What is the degree of financial leverage?
    c. What is the degree of combined leverage?
    d. What is the break-even point in sales dollars for the firm?
    e. If the average variable unit cost is $8, what is the break-even point in

    24. TABLE 1
    Financial Data for Dooley Sportswear December 31, 1996
    Inventory $206,250
    Long-Term Debt $300,000
    Interest Expense $ 5,000
    Accumulated Depreciation $442,500
    Cash $180,000
    Net Sales $1,500,000
    Common Stock $800,000
    Accounts Receivable $225,000
    Operating Expenses $525,000
    Notes Payable - Current $187,500
    Cost of Goods Sold $937,500
    Plant and Equipment $1,312,500
    Accounts payable $168,750
    Marketable Securities - current $95,000
    Prepaid Insurance $80,000
    Accrued Wages $65,000
    Federal income Taxes $5,750

    From the information presented in Table 5, calculate the following financial ratios for the Dooley Sportswear Company. Assume a 360 day year.
    a. current ratio d. operating profit margin
    b. Inventory Turns e. net profit margin
    c. average collection period


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    Solution Summary

    The solution explains various multiple choice and short answer questions relating to finance