UNT FINA 4300 exam 2

The sustainable growth rate: A. is the highest growth rate attainable for a firm that pays no dividends. B. is the highest growth rate attainable for a firm without issuing new stock. C. can never be greater than the return on equity. D. can be increased by decreasing leverage

C. can never be greater than the return on equity.

Which one of the following will increase the sustainable rate of growth a corporation can achieve? A. decrease in the dividend payout ratio B. decrease in sales given a positive profit margin C. reduction in the retention ratio D. None of the options are correct. E. avoidance of external equity financing F. increase in corporate tax rates

A. decrease in the dividend payout ratio

Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement? A. net working capital policy B. capital structure policy C. dividend policy D. capital budgeting policy E. capacity utilization policy F. None of the above.

C. dividend policy

In the development of the pro forma financial statements, the last step in the process is the development of the: A. pro forma income statement B. cash budget C. pro forma balance sheet D. capital budget

C. pro forma balance sheet

CHAPTER 3

CHAPTER 3

CHAPTER 4

CHAPTER 4

Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The asset turnover ratio is 1.6, and the assets-to-equity ratio (using beginning-of-period equity) is 1.77. What is Komatsu's sustainable rate of growth? A. 11.26% B. 6.12% C. 1.91% D. 10.83% E. 12.74% F. None of the options are correc

D. 10.83%

Westcomb, Inc. had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equity. Net income for the year was $72,000, and dividends were $44,640. What is Westcomb's sustainable growth rate? A. 15.79 percent B. 18.01 percent C. 15.32 percent D. 17.78 percent D. 18.24 percent

D. 18.24 percent

Please refer to Oscar's financial statements above. Sales are projected to increase by 3 percent next year. The profit margin and the dividend payout ratio are projected to remain constant. What is the projected addition to retained earnings for next year? A. $1,309.19 B. $1,421.40 C. $1,884.90 D. $2,667.78 E. $3,001.40 F. None of the above.

B. $1,421.40

Please refer to the selected financial information for Boss Stores above. What is the actual sales growth rate for 2013? A. - 17.6% B. - 7.9% C. 8.51% D. 21.4% E. None of the above.

D. 21.4%

Please refer to Oscar's financial statements above. All of Oscar's costs and current asset accounts vary directly with sales. Sales are projected to increase by 10 percent. What is the pro forma accounts receivable balance for next year? A. $949 B. $1,034 C. $1,113 D. $1,730 E. $2,670

B. $1,034

Please refer to Oscar's financial statements above. What was Oscar's increase in retained earnings during 2014? A. $450 B. $1,380 C. $1,830 D. $2,280 E. None of the above.

B. $1,380

If projected net cash flow for November is ($10,000); beginning cash balance is $4,000; minimum cash balance is $3,000; beginning loan balance is $8,000, what will be the cumulative loan balance at the end of November? A. $5,000 B. $17,000 C. $22,000 D. $14,000

B. $17,000

Which of the following securities has a purely FIXED claim against a firm's cash flows?

Bonds

Steve has estimated the cash inflows and outflows for his sporting goods store for next year. The report that he has prepared summarizing these cash flows is called a: A. pro forma income statement. B. sales projection. C. cash budget. D. receivables analysis. E. credit analysis. F. None of the above.

C. cash budget.

Principal amounts are usually exchanged A. in currency swaps. B. in interest rate swaps. C. in both currency swaps and interest rate swaps. D. in neither currency swaps nor interest rate swaps.

C. in both currency swaps and interest rate swaps.

CHAPTER 5

CHAPTER 5

Which of the following are viable techniques to cope with the uncertainty inherent in realistic financial projections? I. Simulation II. Ad hoc adjustments III. Scenario analysis IV. Sensitivity analysis A. II and IV only B. III and IV only C. II, III, and IV only D. I, II, and III only E. I, III, and IV only F. I, II, III, and IV

E. I, III, and IV only

BUDGETING

BUDGETING

Which of the following securities has a purely RESIDUAL claim against a firm's cash flows?

Common Stock

Ginormous Oil entered into an agreement to purchase all of the outstanding shares of Slick Company for $60 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of liabilities on the balance sheet of Slick Co. was $1.46 billion. Immediately prior to the Ginormous Oil bid, the shares of Slick Co. traded at $33 per share. What value did Ginormous Oil place on the control of Slick Co.?

$2.21 billion

Consider the following premerger information about a bidding firm (Buyitall Inc.) and a target firm (Tarjay Corp.). Assume that neither firm has any debt outstanding. Buyitall Tarjay Shares outstanding 1,500 1,100 Price per share $32 $26 Buyitall has estimated that the present value of any enhancements that Buyitall expects from acquiring Tarjay is $2,600. What is the NPV of the merger assuming that Tarjay is willing to be acquired for $28 per share in cash

$400

What would be the carried interest (at 20%) on a private equity portfolio with an initial value of $500 million that was subsequently liquidated for $750 million?

$50 million

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end. What holding period return, measured in yen, did you earn on the bond?

-7.38 You paid $1,000 for the bond (¥100,000/100). At the end of the year, you had interest income and a yen bond worth a total of $926.23 (¥113,000/122). Your dollar return was -7.38 percent ([$926.23 - $1,000]/$1,000). Another way to find the dollar return is to use the following equation,(1+$ return) - (1+ Y return)(1+ % appreciation in $)(1+.13)(1+((1/22) - (1/100))/ (1/100)) = )1+.13)(1-.18) - 1 = -.0738

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the dividend yield in fiscal year 2012?

1.79% Dividend yield = 0.55/30.75 = 1.79%

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end. What was your U.S. dollar holding period return on the bond?

13% The holding period return in yen was [3%*100,000 + 10,000]/100,000 = 13 percent.

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the percentage change in the share price in fiscal year 2012?

13.43% Percentage change in share price = (34.88- 30.75)/30.75 = 4.13/30.75 = 13.43%.

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What rate of return did the common stock owners earn in fiscal year 2012?

15.22 Rate of return = ((34.88 + 0.55) - 30.75)/30.75 = 15.22%

In March, with the spot price of wheat at $5.75 per bushel, Hollywood Bakery longs 100 July wheat futures contracts (5,000 bushels each) on the CBOE at a futures price of $5.90 per bushel. In June, Hollywood Bakery closes out its futures contracts when the futures price is $5.80 per bushel. What is Hollywood Bakery's gain (or loss) on the futures contracts?

A loss of $50,000

Wax Music expects sales of $437,500 next year. The profit margin is 4.8 percent and the firm has a 30 percent dividend payout ratio. What is the projected increase in retained earnings? A. $14,700 B. $17,500 C. $18,300 D. $20,600 E. $21,000 F. None of the above.

A. $14,700 Change in retained earnings = $437,500 × 0.048 × (1 - 0.30) = $14,700

To estimate Missed Places Inc.'s (MP) external financing needs, the CFO needs to figure out how much equity her firm will have at the end of next year. At the end of the most recent fiscal year, MP's retained earnings were $158,000. The Controller has estimated that over the next year, gross profits will be $360,700, earnings after tax will total $23,400, and MP will pay $12,400 in dividends. What are the estimated retained earnings at the end of next year? A. $169,000 B. $170,400 C. $181,400 D. $506,300 E. $518,700 F. None of the above.

A. $169,000 158,000 + 23,400 - 12,400 = $169,000

You are estimating your company's external financing needs for the next year. At the end of the year you expect that owners' equity will be $80 million, total assets will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the year? A. $20 million B. $70 million C. $150 million D. $160 million E. $180 million F. None of the above.

A. $20 million

Please refer to the pro forma financial statements for Royal Corporation above. If Royal Corporation plans to issue $100 in new equity in 2014, what should be the projection for shareholders' equity for 2014? A. $5,349 B. $5,436 C. $5,451 D. $5,536

A. $5,349

Which of the following would increase a company's need for external finance, all else equal? A. An increase in the dividend payout ratio B. A decrease in sales growth C. An increase in profit margin D. A decrease in the collection period

A. An increase in the dividend payout ratio

Which of the following is most likely to increase the final number for notes payable in the pro forma balance sheet? A. Decrease in accounts payable. B. Decrease in accounts receivable. C. Decrease in inventory. D. Decrease in inventory.

A. Decrease in accounts payable

In the above financial statements, Royal Corporation has prepared (incomplete) pro forma financial statements for 2014, based on actual financial statements for 2013. Royal Corp. used the percent-of-sales method assuming a sales growth rate of 10% for 2014. If capital expenditures are planned to be $1,615 in 2014, then what would be the appropriate projection for net fixed assets in 2014? A. $4,453 B. $4,563 C. $4,663 D. $5,663

B. $4,563

You are preparing pro forma financial statements for 2014 using the percent-of-sales method. Sales were $100,000 in 2013 and are projected to be $120,000 in 2014. Net income was $5,000 in 2013 and is projected to be $6,000 in 2014. Equity was $45,000 at year-end 2012 and $50,000 at year-end 2013. Assuming that this company never issues new equity, never repurchases equity, and never changes its dividend payout ratio, what would be projected for equity at year-end 2014? A. $55,000 B. $56,000 C. $60,000 D. Insufficient information is provided to project equity in 2014.

B. $56,000 All of net income was added to equity in 2013, so all of net income will be added to equity in 2014. $50,000 + $6,000 = $56,000.

Please refer to Oscar's financial statements above. Assume a constant profit margin and dividend payout ratio, and further assume all of Oscar's assets and current liabilities vary directly with sales. Assume long-term debt and common stock remain unchanged. Sales are projected to increase by 10 percent. What is Oscar's external financing need for next year? A. -$410 B. -$260 C. $235 D. $1,320 E. $7,240 F. None of the above.

B. -$260

Gujarat Corporation doubled its shareholders' equity during the year 2014. Gujarat did not issue any new equity, repurchase any equity, or pay out any dividends during the year. What is Gujarat's sustainable growth rate for 2014? A. 50% B. 100% C. 150% D. 200%

B. 100% If equity doubled, then g* = change in equity/equitybop = 100%. For example, if equitybop was 25, the change in equity must also be 25 in order to double equity.

Please refer to the spreadsheet above. Selected assumptions are given for preparing pro forma financial statements for 2015. Which of the following formulas would correctly give the forecast for sales in cell C8? A. =B8*B2 B. =B8 + B8*B2 C. =(1 + B8)*B2 D. =(1/B2)*B8 E. None of the above.

B. =B8 + B8*B2

Which of the following statements regarding junk bonds is true? A. Junk bonds typically offer lower yields to maturity than investment-grade bonds. B. Junk bonds have higher priority in bankruptcy than preferred stock. C. Junk bonds offer no coupon payments to investors. D. Junk bonds are typically defined as bonds with default probabilities of 25% or higher

B. Junk bonds have higher priority in bankruptcy than preferred stock.

The need for an increase or decrease in short-term borrowing can be predicted by A. ratio analysis. B. a cash budget. C. an income statement. D. trend analysis

B. a cash budget

Which one of the following correctly defines the retention ratio? A. one plus the dividend payout ratio B. additions to retained earnings divided by net income C. additions to retained earnings divided by dividends paid D. net income minus additions to retained earnings E. net income minus cash dividends F. None of the above.

B. additions to retained earnings divided by net income

Pro forma financial statements are A. often required by prospective creditors. B. all of these. C. often required by prospective creditors. D. the most comprehensive means of financial forecasting.

B. all of these

In the construction of the cash payments schedule, the major cash payment is generally A. interest and dividends. B. costs associated with inventory manufactured. C. the general and administrative expense. D. payments for new plant and equipment.

B. costs associated with inventory manufactured.

In a cash budget, the cumulative cash balance is equal to: A. cumulative loan balance plus the ending cash balance. B. net cash flow plus the beginning cash balance. C. net cash flow minus the beginning cash balance. D. cumulative loan balance minus the ending cash balance.

B. net cash flow plus the beginning cash balance

A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that A. all sales were from current production. B. sales were from current production until current production was depleted, and then use sales from beginning inventory. C. all sales were for cash. D. all sales were from beginning inventory.

B. sales were from current production until current production was depleted, and then use sales from beginning inventory.

The retention ratio is: A. equal to net income divided by the change in total equity. B. the percentage of net income available to the firm to fund future growth. C. equal to one minus the asset turnover ratio. D. the change in retained earnings divided by the dividends paid. E. the dollar increase in net income divided by the dollar increase in sales. F. None of the above.

B. the percentage of net income available to the firm to fund future growth.

Please refer to Oscar's financial statements above. Assume a constant debt-equity ratio, net profit margin and dividend payout ratio, and further assume all of Oscar's expenses, assets and current liabilities vary directly with sales. What is the pro forma net fixed asset value for next year if sales are projected to increase by 7.5 percent? A. $10,857.50 B. $10,931.38 C. $11,663.75 D. $15,587.50 E. $18,987.50 F. None of the above.

C. $11,663.75

On May 1, Vaya Corp. had a beginning cash balance of $175. Vaya's sales for April were $430 and May sales were $480. During May, the firm had cash expenses of $110 and made payments on accounts payable of $290. Vaya's accounts receivable period is 30 days. What is the firm's beginning cash balance on June 1? A. $145 B. $155 C. $205 D. $215 E. $265

C. $205 Cash balance = $175 - $110 - $290 + $430 = $205

Please refer to the selected financial information for Boss Stores above. What is the difference between Boss's sustainable growth rate and its actual growth rate for 2014? A. - 11.40% B. - 7.09% C. - 3.04% D. 5.47% E. 13.98% F. 21.40%

C. - 3.04%

Please refer to the selected financial information for Boss Stores above. What is the retention ratio for 2013? A. 0.32 B. 0.68 C. 0.97 D. 1.00 E. None of the above.

C. 0.97

Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio. The asset turnover ratio is 1.6 and the assets-to-equity ratio (using beginning-of-period equity) is 1.77. What is Komatsu's sustainable rate of growth? A. 1.91% B. 6.12% C. 10.83% D. 11.26% E. 12.74% F. None of the above.

C. 10.83% Sustainable growth = PRAT = 0.045 × (1 - 0.15) × 1.6 × 1.77 = 10.83%

The Limited collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect: A. 60 percent of February sales. B. 15 percent of April sales. C. 60 percent of March sales. D. 15 percent of March sales. E. 25 percent of February sales.

C. 60 percent of March sales

Please refer to the selected financial information for Boss Stores above. What is the sustainable growth rate for 2013? A. - 17.6% B. - 7.9% C. 9.97% D. 10.27% E. 12.23% F. 21.40%

C. 9.97%

Please refer to the spreadsheet above. Selected assumptions are given for preparing pro forma financial statements for 2015. Assume that no new equity will be issued in 2015. When the pro formas are completed, which of the following formulas would correctly give the forecast for shareholders' equity in cell G19? A. =F19*B2 B. =F19*(1 + B2) C. =F19 + (1 - B4)*C16 D. =F19 + B4*C16 E. None of the above.

C. =F19 + (1 - B4)*C16

Which of the following statements are true? I. Underwriters help private companies access public stock markets through IPOs. II. Shelf registrations and private placements are examples of seasoned security issues. III. Issue costs for debt are typically greater than issue costs for equity. IV. Bearer bonds make it easier for investors to avoid paying taxes on interest income. A. I and II only B. I and III only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV

C. I, II, and IV only

Milano Corporation has experienced growth of 20% for each of the last 5 years. Over this 5-year period, Milano's return on equity has never exceeded 15%, its profit margin has held steady at 5%, and its total asset turnover has not changed. Over the 5-year period, Milano paid no dividends and issued no new equity. Based on this information, which of the following can you most likely infer about Milano's performance over the past 5 years? A. Milano's leverage has decreased. B. Milano's leverage has remained constant. C. Milano's leverage has increased. D. None of the above.

C. Milano's leverage has increased. Note first that g > g because g = 20% and g<15%.With g > g* one of PRAT must increase. P has held steady at 5%, R has remained at 100%, A has not changed. Thus T (leverage) must have increased.

Which of the following statements is correct if a firm's pro forma financial statements project net income of $12,000 and external financing required of $5,000? A. Total assets cannot grow by more than $10,000. B. Dividends cannot exceed $10,000. C. Retained earnings cannot grow by more than $12,000. D. Long-term debt cannot grow by more than $5,000.

C. Retained earnings cannot grow by more than $12,000.

Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1900-2010 period)?

Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills

Mike just purchased a bond which pays $40 each year in interest. The $40 interest payment is also called the:

Coupon

Please refer to the pro forma financial statements for Royal Corporation above. Assume that net fixed assets are projected to be 5,000 for 2014 and that shareholders' equity is projected to be 5,500 for 2014. If long-term debt is the plug figure, what should be the projection for long-term debt for Royal Corporation in 2014? A. $2,206 B. $2,363 C. $2,455 D. $2,847

D. $2,847

A firm has a retention ratio of 40 percent and a sustainable growth rate of 6.2 percent. Its asset turnover ratio is 0.85 and its assets-to-equity ratio (using beginning-of-period equity) is 1.80. What is its profit margin? A. 3.79% B. 5.69% C. 6.75% D. 10.13% E. 18.24%

D. 10.13% 0.062 = PRAT = profit margin × 0.40 × 0.85 × 1.80profit margin = 0.062/(0.40 × 0.85 × 1.80) = 10.13%

Carbon8 Corporation wants to raise $120 million in a seasoned equity offering, net of all fees. Carbon8 stock currently sells for $28.00 per share. The underwriters will require a fee of $1.25 per share, and indicate that the issue must be underpriced by 7.5%. In addition to the underwriter's fee, the firm will incur $785,000 in legal, administrative, and other costs. How many shares must Carbon8 sell in order to raise the desired amount of capital? A. 4.3 million B. 4.5 million C. 4.6 million D. 4.9 million

D. 4.9 million

Hayesville Corporation had net income of $5 million this year on net sales of $125 million per year. At the beginning of this year, its debt-to-equity ratio was 1.5 and it held $75 million in total liabilities. It paid out $2 million in dividends for the year. What is Hayesville Corporation's sustainable growth rate? A. 3% B. 4% C. 5% D. 6%

D. 6% ROEbop × Retention ratio = (5/50) × 0.6 = 6%

Which one of the following statements is correct concerning the cash balance of a firm? A. Most firms attempt to maintain a zero cash balance at all times. B. The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. C. Most firms attempt to maximize the cash balance at all times. D. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds. E. The ending cash balance must equal the minimum desired cash balance

D. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds.

In forecasting a firm's cash needs for some future period A. the percent-of-sales method is a "broad-brush" approach B. cash budgets are more exact than the percent-of-sales method C. a cash budget approach can deal effectively with both level and seasonal production schedules D. All of these

D. All of these

You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e., the company projected a financing surplus). Which of the following options, all else equal, would NOT correct the projected imbalance? A. A stock repurchase B. A decrease in accounts payable C. An increase in cash and marketable securities D. An increase in the retention ratio

D. An increase in the retention ratio

Which one of the following statements is true? A. Equity securities offer fixed claims on future cash payouts. B. Unlike bondholders, for their returns, shareholders rely entirely on price appreciation. C. In theory, common shareholders exercise very little control over company decisions. D. Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation

D. Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds.

Which of the following actions would help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth? I. Increase prices II. Decrease financial leverage III. Decrease dividends IV. Prune away less-profitable products A. I and II only B. I and III only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV F. None of the above.

D. I, III, and IV only

Which of the following is NOT a reason for why U.S. corporations haven't issued more equity in recent years? A. Managers try to avoid dilution of earnings per share. B. Equity is relatively expensive to issue. C. Companies in the aggregate had sufficient funds through profits and new debt. D. Managers usually believe that their stock is overvalued. E. Managers perceive the stock market to be an unreliable funding source.

D. Managers usually believe that their stock is overvalued.

Which of the following statements regarding preferred stock is true? A. Holders of preferred stock have the same voting rights as common stockholders. B. Preferred stock dividend payments are a deductible expense for corporate tax purposes C. Almost all public corporations are at least partly financed with preferred stock. D. None of the above.

D. None of the above.

The sustainable growth rate of a firm is best described as the: A. minimum growth rate achievable assuming a 100 percent retention ratio. B. minimum growth rate achievable if the firm maintains a constant equity multiplier. C. maximum growth rate achievable excluding external financing of any kind. D. maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio. E. maximum growth rate achievable with unlimited debt financing.F. None of the above.

D. maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio.

In the percent-of-sales method, if (A/S) and (L/S) both increase: A. RNF goes up. B. RNF stays the same. C. RNF goes down. D. more information is needed.

D. more information is needed.

The most common approach to developing pro forma financial statements is called the: A. cash budget method. B. financial planning method. C. seasonality approach. D. percent-of-sales method. E. market-oriented approach. F. None of the above.

D. percent-of-sales method.

When the cost of raw materials is increasing, FIFO accounting A. All of these. B. yields higher cost of goods sold than LIFO. C. produces higher unit sales than using LIFO. D. yields higher ending inventory values than LIFO. E. None of these

D. yields higher ending inventory values than LIFO.

Ruff Wear expects sales of $560, $650, $670, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August? A. $621 B. $628 C. $633 D. $639 E. $643

E. $643 August collections = 0.20($610) + 0.70($670) + 0.08($650) = $643

Westcomb, Inc. had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equity. Net income for the year was $72,000 and dividends were $44,640. What is Westcomb's sustainable growth rate? A. 15.32 percent B. 15.79 percent C. 17.78 percent D. 18.01 percent E. 18.24 percent

E. 18.24 percent Change in Equity = Retained earnings = $72,000 - $44,640 = $27,360Sustainable growth rate = g* = Change in Equity/Equitybop = $27,360/$150,000 = 18.24%Alternative: g* = R × ROEbop = (72,000 - 44,640)/72,000 × 72,000/150,000 = 0.38 × 0.48 = 0.1824

XYZ Co. has forecasted June sales of 400 units and July sales of 700 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? A. 725 units B. 750 units C. -0- units D. 425 units E. 775 units

E. 775 units

Which of the following statements is true? A. Rapid growth spurs increases in market share and profits and thus, is always a blessing. B. Firms that grow rapidly only very rarely encounter financial problems. C. The cash flows generated in a given time period are equal to the profits reported. D. Profits provide assurance that cash flow will be sufficient to maintain solvency. E. Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke". F. None of the above.

E. Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".

Assume each month has 30 days and AmDocs has a 60-day accounts receivable period. During the second calendar quarter of the year (April, May, and June), AmDocs will collect payment for the sales it made during which of the months listed below? A. October, November, and December B. November, December, and January C. December, January, and February D. January, February, and March E. February, March, and April

E. February, March, and April

Which of the following can affect a firm's sustainable rate of growth?I. Asset turnover ratio II. Profit margin III. Dividend policy IV. Financial leverage A. III only B. I and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV F. None of the above.

E. I, II, III, and IV

Which of the following questions are appropriate to address upon conducting sustainable growth analysis and the financial planning process? I. Should the firm merge with a competitor? II. Should additional equity be sold? III. Should a particular division be sold? IV. Should a new product be introduced? A. I, II, and III only B. I, II, and IV only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV F. None of the above.

E. I, II, III, and IV

You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan? I. How much will our sales grow? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained? A. I and IV only B. II and III only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV

E. I, II, III, and IV

Which of the following statements related to market efficiency tends to be supported by current evidence? I. Markets tend to respond quickly to new information. II. It is difficult for the typical investor to earn above-average returns without taking above-average risks. III. Short-run prices are difficult to predict accurately based on public information. IV. Markets are most likely strong-form efficient. A. I and III only B. II and IV only C. I and IV only D. I, III, and IV only E. I, II, and III only

E. I, II, and III only

Which of the following actions would help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth? I. Increase prices II. Decrease financial leverage III. Decrease dividends IV. Prune away less-profitable products A. I, II, III, and IV B. I, II, and IV only C. I and II only D. I and III only E. I, III, and IV only F. None of the options are correct

E. I, III, and IV only

Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement II. Investors need time to digest the information prior to reacting III. The information has no bearing on the value of the firm IV. The information was anticipated A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only F. None of the above.

E. III and IV only

Please refer to the spreadsheet above. Selected assumptions are given for preparing pro forma financial statements for 2015. When the pro formas are completed, which of the following formulas would correctly give the forecast for cost of goods sold in cell C9? A. =B9*B3 B. =B9 + B9*B3 C. =B8*B3 D. =B9*B2 E. None of the above.

E. None of the above.

Which one of the following statements is true? A. Debt instruments offer residual claims to future cash payouts. B. Bonds with call provisions will have lower coupon rates than otherwise identical bonds. C. Bondholders enjoy a direct voice in company decisions. D. Bonds are low-risk investments that do well in inflationary periods. E. None of the above.

E. None of the above.

The sustainable growth rate A. assumes there is no external financing of any kind. B. assumes all income is retained by the firm. C. None of the options are correct. D. assumes no additional long-term debt is available. E. assumes the debt-equity ratio is 1.0. F. assumes the debt-equity ratio is constant.

F. the debt-equity ratio is constant.

Which one of the following statements is false?

Financial instruments are greatly constrained by law and regulation.

Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement II. Investors need time to digest the information prior to reacting III. The information has no bearing on the value of the firm IV. The information was anticipated

III and IV only

Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the:

Par Value

Which of the following factors, when increased, will tend to cause the value of a put to decrease (all else equal)?

The price of the underlying stock

The price of a call option tends to be lower when which of the following is higher (all else equal)?

The strike price

Individuals who continually monitor the financial markets seeking mispriced securities:

make the markets increasingly more efficient.