FIN 341 PRACTICE EXAMS QUESTIONS & ANSWERS
T/F: If a company raises additional debt financing and uses it to buyback its common
stock, the credit spread on its debt should tighten (i.e. get smaller). - Answers -False:
Fin Risk ^, spread^
T/F: Shortening the term of accounts receivable is one potential method to shorten a
company's cash conversion cycle and increase FCF - Answers -True: CCC down, A/R
down
T/F: Increasing a venture's Dividend Payout Ratio will help increase its Sustainable
Growth Rate. - Answers -False: Dividend Payout Ratio down, Retention Ratio ^
A new venture company with high AFN requirements and limited financial flexibility
should consider:
A. Increasing its dividend payout ratio.
B. Reducing inventories.
C. Increasing Capex.
D. All of the above. - Answers -Reducing inventories. = need to raise money
Which of the following factors would have a positive impact on a company's corporate
credit strength and financial flexibility?
A. Lengthening the terms on the company's Accounts Receivable
B. Large new bond issuance.
C. Raising the company's dividend payout ratio.
D. Buying back common stock.
E. Repaying short-term debt. - Answers -Repaying short-term debt.
Your firm recorded sales for the most recent year of $10 million generated from an
asset base of $7 million, producing a $500,000 net income. Sales are projected to grow
at 20%, causing accounts payable and accrued liabilities to increase by $200,000. In
the most recent year, $200,000 was paid out as dividends, and the current payout ratio
will continue in the upcoming years. What is your firm's additional funds needed?
a. $200,000
b. $600,000
c. $840,000
d. $960,000
e. $1,400,000 - Answers -$840,000
Assets / Sales x Change in Sales
7/10 x 2 = 1.4 mil
- A/P + Acc Liab
^ 200k - 0.2 mil
- Sales 1 x NPM x rr
12 mil x 5% x 60% = 360k
T/F: If a company raises additional debt financing and uses it to buyback its common
stock, the credit spread on its debt should tighten (i.e. get smaller). - Answers -False:
Fin Risk ^, spread^
T/F: Shortening the term of accounts receivable is one potential method to shorten a
company's cash conversion cycle and increase FCF - Answers -True: CCC down, A/R
down
T/F: Increasing a venture's Dividend Payout Ratio will help increase its Sustainable
Growth Rate. - Answers -False: Dividend Payout Ratio down, Retention Ratio ^
A new venture company with high AFN requirements and limited financial flexibility
should consider:
A. Increasing its dividend payout ratio.
B. Reducing inventories.
C. Increasing Capex.
D. All of the above. - Answers -Reducing inventories. = need to raise money
Which of the following factors would have a positive impact on a company's corporate
credit strength and financial flexibility?
A. Lengthening the terms on the company's Accounts Receivable
B. Large new bond issuance.
C. Raising the company's dividend payout ratio.
D. Buying back common stock.
E. Repaying short-term debt. - Answers -Repaying short-term debt.
Your firm recorded sales for the most recent year of $10 million generated from an
asset base of $7 million, producing a $500,000 net income. Sales are projected to grow
at 20%, causing accounts payable and accrued liabilities to increase by $200,000. In
the most recent year, $200,000 was paid out as dividends, and the current payout ratio
will continue in the upcoming years. What is your firm's additional funds needed?
a. $200,000
b. $600,000
c. $840,000
d. $960,000
e. $1,400,000 - Answers -$840,000
Assets / Sales x Change in Sales
7/10 x 2 = 1.4 mil
- A/P + Acc Liab
^ 200k - 0.2 mil
- Sales 1 x NPM x rr
12 mil x 5% x 60% = 360k
