WGU C214 Study Guide
Intel reported the following for 2014: Net Income 100,000 Depreciation 20,000 Change in A/R 10,000 What is the cash flow from operating activities (CF0)? a. 100,000 b. 110,000 c. 120,000 d. (130,000)
b
Common stock is valued at 1,000,000 and costs .20. Bonds are valued at 850,000 and costs .04, Preferred stock is valued at 500,000 and costs .06. The tax rate is 40%. What is the pre-tax WACC? a. .1590 b. .1728 c. .1500 d. .1275
a
If a company has a capital structure of $100,000 common stock, $50,000 bonds and $10,000 preferred stock and the respective rates are 15% common stock, 3% bonds (after tax) and 4% preferred stock, what is the Weighted Average Cost of Capital? a. .1057 b. .2200 c. .0733 d. .1128
a
If a company has a capital structure of internal equity of $15 million at 15%, a new offering of external equity of $5 million at 17% with flotation costs of 3%, and $10 million of bonds at 5% after tax, what is the Weighted Average Cost of Capital? a. .1207 b. .1250 c. .1632 d. .1025
a
If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio? a. higher b. lower c. the same d. it doesn't matter
a
Suppose a firm has a financial leverage ratio of 2.50. What percentage of the firm's assets is financed by equity? a. 40% b. 70% c. 50% d. 60%
a
The matching principle in accrual accounting requires that: a. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized. b. Expenses are matched to the year in which they are incurred c. Revenues are matched to the year in which they are booked d. Revenues should be large enough to match expenses
a
What does the beta coefficient represent? a. It is a statistically-derived measure of volatility b. It is the Expected Return minus the Growth Rate c. It is the volatility of the Risk Free Return d. It is the expected return for a basket of preferred stocks
a
What is the Cash Flow from Investing? Beginning Net PP&E 250,000 Ending Net PP&E 300,000 Depreciation Expense 40,000 Change in Long Term Investments 100,000 Change in Short Term Investments 50,000 a. 190,000 b. 150,000 c. 340,000 d. 90,000
a
A company has sales of 300, expenses of 200 and interest expense of 25, what is its Times Interest Earned ratio? a. 2.00 b. 4.00 c. 1.75 d. 3.00
b
Ham Corp. is seeking to buy Eggs, Inc. Eggs is a private company. Eggs had an EPS of 2.80 last year and has 125,000 shares outstanding. Ham Corp. stock sells for $43.00 and has an EPS of 5.00. Ham is larger than Eggs, but sees both companies as operating in similar markets. What is the value of Eggs? a. 1,920,000 b. 3,010,000 c. 2,800,000 d. 5,375,000
b
If a company has current assets of 90 and fixed assets of 140, if it has debt of 125, what is its debt ratio? a. 1.12 b. 0.54 c. 1.36 d. 1.84
b
If a product is made 100% domestically, what can affect its domestic market? a. International exchange rates b. International competition c. Product tariffs d. International political regulations
b
If the value of a dollar increases, the price of imports: a. Increases b. Decreases c. Stays the same d. Fluctuates
b
The OIROI (Operating Income Return on Investment) uses what elements on the income statement? a. Operating Income, EBIT, Total Liabilities b. EBIT, Total Assets c. Sales, Total Assets, Equity d. Net Margin, Total Current Assets
b
The market rate is .14, Treasury bonds are returning .025. A stock has a beta of .75. What is that stock's expected return? a. .3007 b. .1113 c. .1052 d. .2491
b
What is the Cash Flow from Investing? Increase in Gross PP&E 125,000 Beginning Net PP&E 750,000 Ending Net PP&E 850,000 Depreciation Expense 25,000 a. 850,000 b. 125,000 c. 150,000 d. 75,000
b
What is the Degree of Operating Leverage given Sales of 100,000. Variable Costs of 75,000 and EBIT of 10,000? a. 1.00 b. 2.50 c. 10.00 d. 2.05
b
What is the Sustained Growth Rate given the following: • Sales are 2.5 million • Total Expenses (including cost of goods sold through taxes) 2.0 million • Total Assets are 3.0 million • Equity is 1.3 million • Dividend payout ratio is .25 a. .2552 b. .2885 c. .7500 d. .3846
b
Which components are part of total assets? a. Cash, Accounts Receivable, Short Term Debt b. Cash Accounts Receivable, Inventory, Long Term Assets c. Accounts Payable, Long Term Assets, Long Term Debt d. Accounts Payable, Net Income, Equity
b
You want to sell a bond for over $1,000. Can you do that if the coupon rate is 6.5% and the bond yield is 6.8%? a. Yes b. No
b
. Financial data for Intel is given below for 2014: • EBIT 1,000,000 • Depreciation 30,000 • Change in working capital (10,000) • Net capital expenditures 15,000 • Tax rate 40% Compute the Free Cash Flow for 2014 a. 610,000 b. 675,000 c. 625,000 d. 600,000
c
.A company has cash sales of 200 and credit sales of 750. It's average accounts receivable is 90. What is the A/R turnover? What is the Average Collection Period? a. Turnover: 8.33 ACP: .694 b. Turnover: 10.56 ACP: 43.8 c. Turnover 8.33 ACP : 43.8 d. Turnover 10.56 ACP: 24.9
c
A $1,000 bond matures in six years. It pays $35 every six months. The current market price is 1,075. What is the yield? a. 2.76 b. 3.12 c. 5.51 d. 6.03
c
A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3, the firm reports retained earnings of $400 and pays dividends of $25. What was net income in 20x3 a. 300 b. 400 c. 125 d. 100
c
A high-quality customer just purchased $500,000 worth of product from your company. The contract calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been paid to your supplier. Under accrual based accounting system, you will most likely report a. revenues of $300,000 and expenses of $300,000. b. revenues of $300,000 and expenses of $200,000. c. revenues of $500,000 and expenses of $300,000. d. revenues of $500,000 and expenses of $200,000.
c
A company has cash of 100, accounts receivable of 250, inventory of 300, and accounts payable of 300. What is the quick ratio? a. 0.33 b. 2.17 c. 1.00 d. 1.17
d
A couple has $25,000 in their retirement savings today. How many years do they have to save at 6%, putting in $1,000 at the beginning of each year to achieve $80,000? a. 20.0 b. 34.8 c. 22.2 d. 36.7
d
A project has net income of 750,000 including depreciation expense of 42,000. What is the differential cash flow? a. 750,000 b. 708,000 c. 42,000 d. 792,000
d
What does the Sarbanes-Oxley Act require companies to do? a. Have a board of directors b. Register all foreign sales c. Make estimated tax payments d. Have internal control audits
d
What is the Cash Flow from Financing? Accounts Payable 100,000 Accrued Expenses 50,000 Increase in Mortgage Payable 300,000 Decrease in Bonds Payable 75,000 Dividends Paid 80,000 a. 505,000 b. 225,000 c. 230,000 d. 145,000
d
What is the Discounted Cash Flow of the company with the following Cash Flows: Cash Flows: Yr 1 $100,000, Yr 2 $150,000 Yr 3 $150,000 Future Forecasted Annual Cash Flows $100,000 Discount Rate 5% a. 2,400,000 b. 2,360,868 c. 1,727675 d. 2,088,543
d
What is the IRR given the following: Investment is $250,000, Yr 1: 50,000, Yr 2 is 60,000, Yr 3 is 80,000, Yr 4 is 100,000, Yr 5 is 90,000, the terminal cash flow is 45,000? a. 15.949% b. 13.997% c. 11.549% d. 17.213%
d
What is the cash cycle? a. The speed of collecting cash from customers b. The amount of cash kept in banks c. The comparison of debt to cash d.The amount of time to regenerate cash
d
What is the increase in Retained Earnings given the following: • Sales are $10 million • Net Earnings pre-tax are $1 million • Dividend payout ratio is .12 • Tax rate is 40% a. 400,000 b. 726,000 c. 880,000 d. 528,000
d
If a company has a capital structure of $5 million common stock with a cost of 17%, $2 million bonds at 4%, $1 million of Short Term Debt with a cost of 7%, and $2 million preferred stock with a cost of 3%, what is the Weighted Average Cost of Capital? The company has a 40% tax rate. a. .1322 b. .1196 c. .1000 d. .0899
c
If the Investment is 140,000, then what is the Net Present Value, given a Total Present Value of 154,606? a. 140,000 b. -71,448 c. 14,606 d. -123,420
c
Intel reported the following for 2014: Gross Equipment (1/1/14) 50,000 Gross Equipment (12/31/14) 65,000 Net income 100,000 Depreciation 20,000 What is the cash flow from investing activities for 2014? a. 100,000 b. 80,000 c. (15,000) d. 15,000
c
Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F)
F
Stocks and bonds are two types of financial instruments (T/F)
True
A $1000 3% bond with a yield of 2.4% matures in 6 years. What is the price if the interest payments are made semiannually? a. 1,033.34 b. 950.26 c. 1,056.20 d. 981.29
a
A basic equation for the balance sheet is: a. Equity = Assets - Liabilities b. Liabilities = Equity + Assets c. Assets = Liabilities - Equity d. Assets = Equity - Liabilities
a
A stock has a beta of 1.42. The stock market is returning .11 and treasury bills are trading at a rate of .014. What is the expected return? a. .1503 b. .1562 c. .1085 d. .1240
a
An investor wants to maximize the YTM. Which bond would they choose? Bond 1 has a price of $954 with a coupon rate of 7% and a maturity of 4 years. Bond 2 has a price of $972 with a coupon rate of 6.5 percent and a maturity of 6 years. Both have a face value of $1,000 and the coupon payments are paid semiannually. a. Bond 1: 8.38 Bond 2: 7.08 b. Bond 1: 4.17 Bond 2: 3.54 c. Bond 1: 5.22 Bond 2: 7.08 d. Bond 1: 8.38 Bond 2: 3.54
a
Dinosaur Chicken Co. had sales of 70,000,000, expenses of 50,000,000 and paid 40% in taxes. It has equity of 42,000,000. The board approved dividends totaling 4,500,000. What is the company's Sustainable Growth Rate? a. .1786 b. .1667 c. .6015 d. .1429
a
What is the company valuation given the following: Cash Flows: Yr 1 $80,000 Yr 2 $100,000 Yr 3 $95,000 Yr 4 $80,000 Discount Rate 7% a. 300,690 b. 61,032 c. 355,000 d 242,090
a
What is the differential cash flow given the following: • Sales 50,000 • Expenses (w/o Depn) 30,000 • Depreciation 10,000 • Taxes (.40) 4,000 a. 16,000 b. 10,000 c. 6,000 d. 50,000
a
What should a company do to manage its working capital? a. Collect quickly and pay slowly b. Keep a large cash balance c. Maximize the use of long term investment d. Depreciate assets more slowly
a
What would be a source of information to determine Replacement Cost? a. Building Appraisal b. Accumulated Depreciation Expense c. Stock price d. Statement of Cash Flows
a
You are interested in buying a preferred stock and want to know what the rate of return is. The stock is selling for $85.00 and pays a dividend today of $2.25. What is the rate of return? a. .0265 b. .3176 c. .2650 d. .2250
a
Suppose that an investment will pay 24% APR for a year and the interest will be compounded monthly. What is the expected APY for the investment? a. 24.50% b. 26.82% c. 25.41% d. 28.00%
b
Which of the following gives the largest effective rate (APY) a. 18.6% compounded monthly b. 18.6% compounded daily c. 18.6% compounded weekly d. 18.6% compounded yearly
b
Why is the Balance Sheet known as a permanent statement? a. Because the statement is sent to the SEC. b. Because the other statements are reset at the end of the fiscal year c. Because it is printed out and archived d. Because it persists in the minds of the shareholders.
b
Why would a farmer buy a hedge when he signs a contract to sell produce overseas? a. To avoid tariffs b. To reduce currency risk c. To increase profits d. To avoid competition
b
Why is the NPV preferred over the IRR? Pick Two a. It has a higher dollar value b. It measures the dollar value c. It is more reliable d. It is harder to calculate
b, c
Ajax, Inc. is seeking to sell the company, but it is a private company with no sales of stock to determine its market value. It has Earnings of $1,200,000 on 350,000 shares. Epsilon Manufacturing is a direct competitor and of equal size and profitability. Its stock sells for $21 per share and has earnings per share of $3.80. What is value of Ajax? a. 7,350,000 b. 1,330,000 c. 6,632,000 d. 7,000,000
c
A person wants to put aside $500 at the beginning of each month for 10 years. If she estimates an interest rate of 5.5%, what will she have in her savings account at the end? a. 86,437.68 b. 70,154.99 c. 80,118.33 d. 76,905.66
c
A piece of equipment is to be sold at the end of the project. Its appraised value is 420,000. A company makes an offer for 350,000. The equipment has a book value of 75,000. The tax rate is 40%. What is the salvage value if the company accepts the offer? a. 252,000 b. 207,000 c. 240,000 d. 350,000
c
A stock has an expected return of .16. The market premium is .11 and federal funds are returning .025. What is the beta? a. 1.4545 b. 2.2758 c. 1.2273 d. 0.9870
c
One of your friends is recommending a stock if it sells for more than $165.00 per share. The growth rate is 4% and the latest dividend was $6.00. You are expecting an 11% return. Why should you buy or not buy the stock? a. Buy - The dividend is higher than the return b. Not Buy - The return is higher than growth c. Not Buy - The calculated price is too low d. Buy - The calculated price is higher
c
Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely? a. The firm has lower liquidity than the industry average. b. The firm has too much inventory thus impairing overall liquidity. c. The firm has too little inventory resulting in lost sales or stock-outs. d. The firm has low sales volume.
c
The company expected to pay a dividend of $13.85 at the end of the year. Management has estimated growth at 2.75% and the stock is currently selling for $290.00. What is the expected rate of the return for this investment? a. .0411 b. .0375 c. .0753 d. .0408
c
What does a stock have to sell for one year in the future, if it currently sells for $75, has a planned dividend of $1.87 a share and an expected return of 14%? a. 71.00 b. 76.87 c. 83.63 d. 85.42
c
What does the Degree of Financial Leverage indicate? a. The firms cash balance b. The cost of financed assets c. The reliance on debt d. The reliance on assets
c
What is the Cash Flow from Operations given the following information? Net Income 450,000 Change in Accounts Receivable 120,000 Change in Inventory - 90,000 Change in PP&E 60,000 Depreciation Expense 110,000 Change in Accounts Payable 50,000 Change in Accrued Expenses - 75,000 Change in Common Stock 300,000 a. $570,000 b. $410,000 c. $505,000 d. $375,000
c
When Fixed Assets increase what happens to Cash? a. Cash stays the same b. Cash increases c. Cash decreases d. Assets decrease
c
Which components are part of Total Liabilities? a. Accounts Payable, Accounts Receivable, Short Term Debt b. Long Term Debt, Common Stock, Retained Earnings c. Bonds, Accounts Payable, Mortgage d. Common Stock, Long Term Debt, Short Term Investments
c
Which is the purpose of the statement of cash flows? a. serves as the replacement for the income statement and balance sheet b. explains the change in cash balance at one point in time c. explains the change in cash balance for one period of time d. both (a) and (b) above
c
Which of the following is generally true? a. Gross Profit and Operating Income are the same b. Cost of Goods Sold + Operating Expenses = Net Income c. Operating Income and EBIT are the same d. EBIT + Income Taxes = Net income
c
Why would a company be interested in the TAT(Total Asset Turnover) ratio? a. How efficient assets are at producing income b. What the turnover of sales is to liabilities c. How efficient assets are at producing sales d. How efficient assets are to liabilities and equity
c
You are contemplating buying an annual bond or a semi-annual bond. Is there any difference in the price if the bond has the same data: 1,000 face value with a 4% coupon rate. The bonds mature in 5 years having identical YTMs of 4.8%. Why is there a price difference? a. There isn't a price difference b. The payment is lower, so the price will be lower c. Price is higher with additional compounding periods d. Different payments make the price increase
c
If a common stock is worth $75 and the growth rate is 5% with a dividend expected to pay $2.00 in a year's time, what is the expected rate of return? a. .0267 b. .0550 c. .0750 d. .0767
d
A couple wants to save up for a down payment on a house. They think they need to save 100,000 in five years. If the interest rate is 4% and they start at the end of the year when they both get bonuses from their employers, what do they have to put aside annually? a. 22,096.37 b. 17,752.61 c. 15,962.84 d. 18,462.71
d
A mother wants to help her child's higher education fund. She wishes to have $15,000 available each year for six years. Her child starts college in 15 years and she can save 6% before school starts if she puts her end-of-year bonus into a trust fund and figures that the fund will earn 4% after her child begins her college education. What does she have to put aside annually if the money is withdrawn for college at the beginning of each year attending college? a. 5,802.74 b. 3,346.19 c. 4,159.87 d. 3,513.38
d
A piece of equipment was sold at the end of the project. The project received 85,000 for the equipment that carried a book value of 75,000. The tax rate is 35%. What is the salvage value? a. 10,000 b. 26,250 c. 85,000 d. 81,500
d
A project has sales of 300,000, general expenses of 195,000 and depreciation expense of 25,000. The tax rate is 35%. What is the differential cash flow? a. 52,000 b. 105,000 c. 80,000 d. 77,000
d
A project is closing. Equipment is sold for 50,000 even though the book value was 75,000. The tax rate is 30%. The project started with 100,000 in working capital. What is the terminal cash flow? a. 127,500 b. 75,000 c. 152,500 d. 157,500
d
A stock has a beta of 2.1, a market premium of .14 where the market rate is .17. What is the expected rate of return? a. .2949 b. .3571 c. .1703 d. .3240
d
A stock sells for 87.00 one year from now giving a total return of 8%. What is the dividend if the stock was originally purchased for 82.00. a. 5.00 b. 3.12 c. 8.06 d. 1.56
d
An investor wishes to know what the value of a common stock is if it pays a dividend of $6.00 today. The company's growth rate is 4.5% and the investor wants expects the stock to earn 7%. What is the value? a. 179.14 b. 240.00 c. 85.71 d. 250.80
d
Capital is valued at 3,000,000 consisting of 1,600,000 of common stock, 1,000,000 of bonds, 400,000 of short-term debt. CAPM expected return is .135. Bonds before tax are .045. Short term debt costs .065. What is the after tax WACC if the tax rate is 35%? a. .0784 b. .1007 c. .0991 d. .0874
d
FINRA (Financial Industry Regulatory Authority) does the following: (pick one) a. No foreign bribery by corporations b. Regulates bond prices c. Establishes Credit Unions d. Prosecutes naughty stock brokers e. Regulates Hedge Funds
d
From the following information, calculate the terminal cash flow. • Proceeds from sale of equipment 100,000 • Book Value of equipment sold 50,000 • Year 3 Diff Cash Flow 225,000 • Tax rate 40% • Depreciation Yrs 1 to 5 125,000 • Working Capital Return 75,000 a. 485,000 b. 175,000 c. 125,000 d. 155,000
d
How do you calculate the change in Retained Earnings? a. Ending Retained Earnings - Change in Cash b. EBIT divided by Total Assets + Dividends c. EBIT - Change in Cash - Dividends d. Net Income - Dividends
d
If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile? a. Low Risk b. Appropriate Risk c. Higher ability to pay debt d. Higher profits to shareholders
d
If a company has current assets of 80 and fixed assets of 120, if Sales are 150 and EBIT is 35, what is the Fixed Asset Turnover? a. 5.71 b. 2.29 c. 0.80 d. 1.25
d
If a company makes its product in a foreign country where labor costs are much lower, what happens? a. Profits and domestic employment goes up b. Costs go up and domestic employment goes down c. Costs stay the same and domestic employment increases d. Profits go up and domestic employment decreases.
d
Intel provides the following data for 2014: • A/R 600 • Inventory 800 • Fixed Assets 1,000 • A/P 500 • Long term debt 900 • Common Stock 400 What is the current ratio? a. 1.2 b. 1.5 c. 2.0 d. 2.8
d
Last year a firm recorded Net PP&E of $4,600 while this year the same firm recorded Net PP&E of $4,500. If the depreciation expense for last year and this year are $500 and $800 respectively, what is the CFI of the company? (assume no asset disposals) a. 100 outflow b. 900 outflow c. 100 inflow d. 700 outflow
d
UltraGrunge, Inc. earned 25 million after tax in the last year. The company has 100 million in assets and 85 million in equity. It has a policy of paying 12% of earnings as dividends. What is the SGR of UltraGrunge? a. .2200 b. .1285 c. .0353 d. .2588
d
Which components are part of current assets? a. Cash, Accounts Receivable, Property Plant & Equipment b. Accounts Receivable, Accounts Payable, Inventory c. Long Term Debt, Property Plant & Equipment, Common Stock d. Inventory, Cash, Accounts Receivable, Short Term Investments
d
Why is depreciation expense taken out of the net income calculation, yet added back at the end? a. Because fixed assets should remain on the balance sheet b. Because depreciation is not a current asset c. Because depreciation is a non-cash liability d. Because depreciation expense is tax deductible
d
Why is float important to understand? a. To know how to keep the company profitable b. To know why the company needs cash c. To determine when to buy fixed assets d. To time cash expenditures e. None of the above
d
You are interested in a quarterly $1,000 bond that matures in 7 years and has a coupon rate of 6% and a YTM of 8%. What is the price? a. 1,033.21 b. 895.87 c. 901.36 d. 893.59
d