FINC 331 FINC331 Final Exam Part 1 Multiple Choice Answers

FINC 331 FINC331 Final Exam Part 1 Multiple Choice Answers

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FINC 331 Final Exam Part 1 Multiple Choice

  1. Which of the following is NOT a correct way of calculating a liquidity ratio?
  2. Which of the following is NOT a way to calculate the debt to equity ratio?
  3. Which of the following is NOT information used to calculate an asset's book value?
  4. Which of the following is NOT an event that would be included in the investing section of a company's cash flow statement?
  5. Which of the following transactions would be a financing activity on the statement of cash flows?
  6. 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?
  7. 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.
  8. Assume a businesses's return on investment capital is 8%,its weighted average cost of capital is 4%, and its economic capital employed is $1,000,000. What is its EVA?
  9. A business has $1,250,000 in accounts receivable. Its annual sales for the fiscal year is $30,000,000. What is its days sales outstanding ratio?
  10. A business begins its fiscal year with $10,000,000 in total assets. During the year it has net sales revenue of $45,000,000. At the end of the year it has $8,000,000 in total assets. What is its total assets turnover ratio?
  11. Which of the following is NOT a benefit associated with using the DuPont Equation?
  12. A company wants to have $5 million in sales with $1 million in profit. It will have fixed costs of $3 million. Each unit of its product sells for $20. How much contribution per unit must the company have to meet its goals?
  13. Balance analysis is primarily based on ratios. Which of the following statements regarding ratio analysis associated with balance sheets is correct?
  14. 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)?
  15. An annuity pays $1500 at the beginning of every month for five years. The interest rate of the annuity is 4%. What is this annuity's future value?
  16. A security offers to pay the holder $1000 at the end of every month for five years. What type of annuity is this?
  17. A bond currently valued at $100,000 has a quarterly interest rate of 5%. The bond matures in 3 years. What is its future value?
  18. 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?
  19. 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?
  20. 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?
  21. An annuity has an interest rate of 7% and makes a quarterly payment of $2000. The annuity is to last for 5 years. What is the present value of the annuity.
  22. 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?
  23. 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?
  24. 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?
  25. 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?
  26. 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?
  27. 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?
  28. 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 present value?
  29. Suppose that a company has total financing where 10% comes from bonds, 10% from a loan, and 80% from shareholders’ equity. The bonds pay on average a 10% interest rate, the loan has a 10% interest rate, and shareholders require a 10% return. The interest payment on the loan is tax deductible and the tax rate is 20%. What is the simple average cost of capital equal to?
  30. A company is considering a project that has a discount rate of 5%. In the first year, it will have -$100,000 in cash flows. In year 2, it will have cash flows of $100,000, and in year 3 the project will generate $200,000. What is the project's NPV?
  31. Under the present value concept, a lottery winner would rather receive:
  32. Which of the following criteria is NOT taken into consideration when analyzing a possible replacement project?
  33. 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?
  34. Which of the following is a benefit shareholders can obtain by repurchasing its shares?
  35. Which of the following accurately describes how a stock dividend differs from a stock split?
  36. A company has $350,000 in accounts receivable, $100,000 in current inventory, and $125,000 in accounts payable. What is its working capital?
  37. Which of the following correctly defines one of the four main areas of variability that must be considered during working capital management?
  38. Which of the following should a company ALWAYS do with regards to its collection policy?
  39. 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?
  40. 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?
  41. Which of the following correctly describes a method companies can use to analyze their collections?
  42. 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:
  43. 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?
  44. 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.
  45. 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.

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