FIN 571 Final Exam 2 with Answers (Comprehensive)

1. What is the primary goal of financial management? 2. The partnership form of organization 3. Increased productivity due to technology has 4. Insider trading occurs when 5. When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will: 6. The net worth of a firm 7. A statement of cash flows allows a financial analyst to determine 8. A firm has $200,000 in current assets, $400,000 in long-term assets, $80,000 in current liabilities, and $200,000 in long-term liabilities. What is its net working capital? 9. The ______________ method of inventory costing is least likely to lead to inflation-induced profits. 10. The Bubba Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is: 11. XYZ's receivables turnover is 10x. The accounts receivable at year-end are $600,000. The average collection period is 90 days (3 months). What was the sales figure for the year? 12. A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders equity is $900,000. What is the total debt to asset ratio? 13. Required production during a planning period will depend on the 14. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production? 15. The difference between total receipts and total payments referred to as 16. In developing the pro forma income statement we follow four important steps: 1) compute other expenses, 2) determine a production schedule, 3) establish a sales projection, 4) determine profit by completing the actual pro forma statement. What is the correct order for these four steps? 17. In break-even analysis the contribution margin is defined as 18. Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true? 19. Heavy use of long-term debt may be beneficial in an inflationary economy because 20. Under which of the following conditions could the overuse of financial leverage be detrimental to the firm? 21. Risk exposure due to heavy short-term borrowing can be compensated for by 22. When actual sales are greater than forecasted sales 23. Yield curves change daily to reflect 24. Retail companies like Target and Limited Brands are more likely to have 25. When using the economic order quantity model 26. Hedging 27. Which of the following is not a true statement about commercial paper? 28. Which of the following best describes the benefits to the borrower of selling asset backed securities? 29. Price Corp. is considering selling to a group of new customers and creating new annual sales of $70,000. 5% will be uncollectible. The collection cost on these accounts is 3.5% of new sales, the cost of producing and selling is 80% of sales and the firm is in the 31% tax bracket. What is the profit on new sales? 30. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his effective rate of interest? 31. The prime rate 32. Accounts receivable may be used as a source of financing by 33. The required compensating balance is usually computed as a 34. The concept of time value of money is important to financial decision making because 35. Mr. Nailor invests $5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period? 36. Mr. Fish wants to build a house in 10 years. He estimates that the total cost will be $170,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed? 37. A 20-year bond pays 12% on a face value of $1,000. If similar bonds are currently yielding 9%, What is the market value of the bond? Use annual analysis. 38. An issue of preferred stock is paying an annual dividend of $5. The growth rate for the firm's common stock is 14%. What is the preferred stock price if the required rate of return is 11%? 39. Which of the following does not influence the yield to maturity for a security? 40. The cost of common stock is usually greater than the simple dividend yield because 41. The dividend valuation model stresses the 42. Although debt financing is usually the cheapest component of capital, it cannot be used to excess because 43. Each project should be judged against 44. The cost of debt is determined by taking the 45. The pre-tax cost of debt for a new issue of debt is determined by 46. During the next ten years, the major threat to the dominance of the U.S. money and capital markets will come from 47. With respect to the United States and its relationship with the rest of the world, it can be said that 48. Financial instruments in the capital markets generally fall under what category in the Balance Sheet? 49. With regard to interest rates and bond prices it can be said that 50. Which one of these conditions must be met for a lease to qualify as a capital lease? 51. Which of the following is not a true statement? 52. Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If Kuhns earned $3 million this year, what could be the maximum payment to the preferred stockholders on a per share basis? 53. When comparing common stock of the same company it is fair to say that 54. Dr. J. wants to buy an IBM personal computer which will cost $2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?