STR 581Capstone Final Exam Part 2
1. If a company’s weighted average cost of capital is less than the required return
on equity, then the firm:
has debt in its capital structure
2. Horizontal analysis is also known as:
trend analysis
3. An unrealistic budget is more likely to result when it:
has been developed in a top down fashion.
4. Jayadev Athreya has started his first job. He will invest $5,000 at the end of
each year for the next 45 years in a fund that will earn a return of 10 percent.
How much will Jayadev have at the end of 45 years?
$3,594,524
5. The accumulation of accounting data on the basis of the individual manager
who has the authority to make day-to-day decisions about activities in an area is
called:
responsibility accounting
6. The major element in budgetary control is:
the comparison of actual results with planned objectives.
7. Which of the following is considered a hybrid organizational form?
limited liability partnership
8. The convention of consistency refers to consistent use of accounting principles:
among accounting periods
9. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s
sales in inventory?
65.2
10.Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?
1.47
11.M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is
expected to exist forever. The company is currently financed with 75 percent
, equity and 25 percent debt. Your analysis tells you that the appropriate discount
rates are 10 percent for the cash flows, and 7 percent for the debt. You currently
own 10 percent of the stock.
If Dynamo wishes to change its capital structure from 75 percent equity to 60
percent equity and use the debt proceeds to pay a special dividend to shareholders,
how much debt should they use?
$225
12.Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon
rate. Investors buying the bond today can expect to earn a yield to maturity of
6.875 percent. What should the company’s bonds be priced at today? Assume
annual coupon payments. (Round to the nearest dollar.)
$1,066
13.The break-even point is where:
contribution margin equals total fixed costs.
14.Which of the following is an advantage of corporations relative to partnerships
and sole proprietorships?
reduced legal liability for investors
15.Ajax Corp. is expecting the following cash flows - $79,000, $112,000,
$164,000, $84,000, and $242,000 – over the next five years. If the company’s
opportunity cost is 15 percent, what is the present value of these cash flows?
(Round to the nearest dollar.)
$429,560
16.Firms that achieve higher growth rates without seeking external financing:
have less equity and/or are able to generate high net income leading to a high ROE.
17.Which of the following financial statements is concerned with the company at a
point in time?
balance sheet
18.The group of users of accounting information charged with achieving the goals
of the business is its:
managers
1. If a company’s weighted average cost of capital is less than the required return
on equity, then the firm:
has debt in its capital structure
2. Horizontal analysis is also known as:
trend analysis
3. An unrealistic budget is more likely to result when it:
has been developed in a top down fashion.
4. Jayadev Athreya has started his first job. He will invest $5,000 at the end of
each year for the next 45 years in a fund that will earn a return of 10 percent.
How much will Jayadev have at the end of 45 years?
$3,594,524
5. The accumulation of accounting data on the basis of the individual manager
who has the authority to make day-to-day decisions about activities in an area is
called:
responsibility accounting
6. The major element in budgetary control is:
the comparison of actual results with planned objectives.
7. Which of the following is considered a hybrid organizational form?
limited liability partnership
8. The convention of consistency refers to consistent use of accounting principles:
among accounting periods
9. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s
sales in inventory?
65.2
10.Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?
1.47
11.M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is
expected to exist forever. The company is currently financed with 75 percent
, equity and 25 percent debt. Your analysis tells you that the appropriate discount
rates are 10 percent for the cash flows, and 7 percent for the debt. You currently
own 10 percent of the stock.
If Dynamo wishes to change its capital structure from 75 percent equity to 60
percent equity and use the debt proceeds to pay a special dividend to shareholders,
how much debt should they use?
$225
12.Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon
rate. Investors buying the bond today can expect to earn a yield to maturity of
6.875 percent. What should the company’s bonds be priced at today? Assume
annual coupon payments. (Round to the nearest dollar.)
$1,066
13.The break-even point is where:
contribution margin equals total fixed costs.
14.Which of the following is an advantage of corporations relative to partnerships
and sole proprietorships?
reduced legal liability for investors
15.Ajax Corp. is expecting the following cash flows - $79,000, $112,000,
$164,000, $84,000, and $242,000 – over the next five years. If the company’s
opportunity cost is 15 percent, what is the present value of these cash flows?
(Round to the nearest dollar.)
$429,560
16.Firms that achieve higher growth rates without seeking external financing:
have less equity and/or are able to generate high net income leading to a high ROE.
17.Which of the following financial statements is concerned with the company at a
point in time?
balance sheet
18.The group of users of accounting information charged with achieving the goals
of the business is its:
managers
