FIN 310 FINAL EXAMS ACTUAL QUESTIONS AND
ANSWERS SURE A+
✔✔Seed money - ✔✔Early-stage venture capital financing
✔✔Mezzanine financing - ✔✔Later-stage financing before IPO
✔✔Leverage - ✔✔Use of debt financing
✔✔Capital structure - ✔✔Mix of debt and equity financing
✔✔Financial leverage effect - ✔✔Debt amplifies EPS and ROE variability
✔✔Break-even EBIT - ✔✔EBIT level where EPS is same under different capital
structures
✔✔Interest tax shield - ✔✔Tax savings from interest deductibility
✔✔M&M Proposition I - ✔✔Firm value unaffected by capital structure without taxes and
bankruptcy costs
✔✔M&M Proposition II - ✔✔Cost of equity increases with leverage
✔✔Dividend declaration date - ✔✔Date board officially declares dividend
✔✔Date of record - ✔✔Date determining eligible shareholders for dividend
✔✔Ex-dividend date - ✔✔Date stock begins trading without upcoming dividend
✔✔Date of payment - ✔✔Date dividend checks mailed
, ✔✔Stock repurchase - ✔✔Company buys back its own shares
✔✔Tender offer - ✔✔Company offers fixed price to repurchase shares
✔✔Clientele effect - ✔✔Investors prefer different dividend payout policies
✔✔ Operating cycle - ✔✔Time required to receive inventory, sell it, and collect
receivables
✔✔Operating cycle formula - ✔✔Inventory period + Accounts receivable period
✔✔Cash cycle - ✔✔Time between paying for inventory and collecting cash from sales
✔✔Cash cycle formula - ✔✔Operating cycle - Accounts payable period
✔✔Inventory period - ✔✔Time inventory sits before being sold
✔✔Inventory period formula - ✔✔365 / Inventory turnover
✔✔Inventory turnover formula - ✔✔COGS / Average inventory
✔✔Accounts receivable period - ✔✔Time required to collect receivables
✔✔Accounts receivable period formula - ✔✔365 / Receivables turnover
✔✔Receivables turnover formula - ✔✔Credit sales / Average receivables
✔✔Accounts payable period - ✔✔Time between receiving inventory and paying
suppliers
✔✔Accounts payable period formula - ✔✔365 / Payables turnover
✔✔Payables turnover formula - ✔✔COGS / Average accounts payable
✔✔Shorter cash cycle meaning - ✔✔Firm needs financing for fewer days
✔✔Net working capital - ✔✔Current assets minus current liabilities
✔✔Flexible short-term policy - ✔✔High current assets and high liquidity
✔✔Restrictive short-term policy - ✔✔Low current assets and lower liquidity
✔✔Carrying costs - ✔✔Costs of holding current assets
ANSWERS SURE A+
✔✔Seed money - ✔✔Early-stage venture capital financing
✔✔Mezzanine financing - ✔✔Later-stage financing before IPO
✔✔Leverage - ✔✔Use of debt financing
✔✔Capital structure - ✔✔Mix of debt and equity financing
✔✔Financial leverage effect - ✔✔Debt amplifies EPS and ROE variability
✔✔Break-even EBIT - ✔✔EBIT level where EPS is same under different capital
structures
✔✔Interest tax shield - ✔✔Tax savings from interest deductibility
✔✔M&M Proposition I - ✔✔Firm value unaffected by capital structure without taxes and
bankruptcy costs
✔✔M&M Proposition II - ✔✔Cost of equity increases with leverage
✔✔Dividend declaration date - ✔✔Date board officially declares dividend
✔✔Date of record - ✔✔Date determining eligible shareholders for dividend
✔✔Ex-dividend date - ✔✔Date stock begins trading without upcoming dividend
✔✔Date of payment - ✔✔Date dividend checks mailed
, ✔✔Stock repurchase - ✔✔Company buys back its own shares
✔✔Tender offer - ✔✔Company offers fixed price to repurchase shares
✔✔Clientele effect - ✔✔Investors prefer different dividend payout policies
✔✔ Operating cycle - ✔✔Time required to receive inventory, sell it, and collect
receivables
✔✔Operating cycle formula - ✔✔Inventory period + Accounts receivable period
✔✔Cash cycle - ✔✔Time between paying for inventory and collecting cash from sales
✔✔Cash cycle formula - ✔✔Operating cycle - Accounts payable period
✔✔Inventory period - ✔✔Time inventory sits before being sold
✔✔Inventory period formula - ✔✔365 / Inventory turnover
✔✔Inventory turnover formula - ✔✔COGS / Average inventory
✔✔Accounts receivable period - ✔✔Time required to collect receivables
✔✔Accounts receivable period formula - ✔✔365 / Receivables turnover
✔✔Receivables turnover formula - ✔✔Credit sales / Average receivables
✔✔Accounts payable period - ✔✔Time between receiving inventory and paying
suppliers
✔✔Accounts payable period formula - ✔✔365 / Payables turnover
✔✔Payables turnover formula - ✔✔COGS / Average accounts payable
✔✔Shorter cash cycle meaning - ✔✔Firm needs financing for fewer days
✔✔Net working capital - ✔✔Current assets minus current liabilities
✔✔Flexible short-term policy - ✔✔High current assets and high liquidity
✔✔Restrictive short-term policy - ✔✔Low current assets and lower liquidity
✔✔Carrying costs - ✔✔Costs of holding current assets
