BUS 332 FINAL EXAM

You are doing some comparison shopping. Five stores offer the product you want at basically the same price but with differing credit terms. Which one of these terms is best-suited to you if you plan to forgo the discount?

1/10, net 45

At the accounting break-even point, Swiss Mountain Gear sells 22,940 ski masks at a price of $19 each. At this level of production, the depreciation is $67,000 and the variable cost per unit is $6. What is the amount of the fixed costs at this production level?

231,220

A company currently has a 51-day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, increases its inventory period by 3 days, and increases its payables period by 4 days. What will the length of the cash cycle be after these changes?

48 days

Chelsea Fashions is expected to pay an annual dividend of $1.10 a share next year. The market price of the stock is $21.80 and the growth rate is 4.5 percent. What is the firm's cost of equity?

9.55 percent

A repurchase agreement generally has a maximum life of:

A few days

PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances. This firm is facing:

Hard Rationing

Money market securities have which of the following characteristics

High liquidity, low risk, low return

When the credit policy is at the optimal point, the:

Carrying costs will equal the opporutnity costs

Which one of the following actions will tend to increase the inventory period?

Increasing Inventory selection to attract more customers

Which one of the following will decrease the operating cycle? Which one of these is a use of cash?

Increasing the accounts receivable turnover rate.

Which one of these combinations must increase the contribution margin?

Increasing the sales price and decreasing the variable cost per unit

Evidence seems to support the view that studying public information to identify mispriced stocks is:

Ineffective

The EOQ model is designed to determine how much:

inventory should be purhchased at a time

Relative purchasing power parity

relates differences in inflation rates to differences in exchange rates.

Which one of the following conditions is not required for absolute purchasing power parity to exist?

spot and forward rates must be equal

Party A has agreed to exchange $1 million U.S. for $1.21 million Canadian. What is this agreement called?

swap

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?

uncovered interest parity

Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?

Capitve finance company

When the operating cash flow of a project is equal to zero, the project is operating at the:

Cash Break-even point

Central Supply purchased a toboggan for inventory this morning and paid cash for it. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Cash Cycle

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Character, capacity, capital, collateral, and conditions

Money deposited by a borrower with the bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

Compensating balance

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called?

Cost of equity

Which of the following variables will be forecast at their highest expected level under a worst case scenario?

Fixed and variable costs.

A firm's overall cost of equity is:

Highly dependent upon the risk level of the firm.

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):

Inventory Loan

A jumbo CD:

Is a loan of 1$ million or more on a short term basis

Triangle arbitrage:

Is a profitable situation involving three separate currency exchange transactions.

A cash concentration account:

Is frequently used as a source of funds for short-term investments.

A zero-balance account:

Is funded on an as-needed basis only.

A compensating balance:

Is required when a firm acquires any bank finacning other than a line of credit.

Check kiting is:

Is unethical and has mostly been eliminated.

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Just in time invetory

Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n):

Line Of credit

Which one of the following statements is correct?

Lines of credit frequently require a cleanup period

Adjustment costs is another name for which one of the following?

Shortage costs

An analysis that combines scenario analysis with sensitivity analysis is called ________ analysis.

Simulation

Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £.5928. The traders agree to settle this trade within two business days. What is this exchange called?

Spot trade

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600. This $3,600 represents which one of the following to the firm?

Target Cash balance

Which one of the following will be used in the computation of the best-case analysis of a proposed project?

The lowest variable cost per unit thta can resnably be expected

Which one of the following statements related to the capital asset pricing model approach to equity valuation is correct? Assume the firm uses debt in its capital structure.

The model is dependent upon reliable estimate of the market risk premium

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2013 (or 1926-2010)

U.S. Treasury Bills

Which one of the following statements best defines the efficient market hypothesis?

All securities in an efffiecnet market are zero net present value investments.

Wilderness Adventures specializes in back-country tours and resort management. Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an after tax cost of capital of 13 percent and Travel Excitement has an after tax cost of capital of 11 percent. Both firms are considering investing in new web sites that will enhance online reservations. The estimated net present value of such a project is estimated at $87,000 at a discount rate of 11 percent and -$12,500 at a 13 percent discount rate. Which firm or firms, if either, should accept this project?

Both Wilderness Adventures and Travel Excitment

By definition, which one of the following must equal zero at the cash break-even point?

Net Income

By definition, which one of the following must equal zero at the accounting break-even point?

Net income

Which one of the following is defined by its mean and its standard deviation?

Normal Distribution

Which one of the following statements is correct?

Overall, a firm makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects.

Which one of these is a use of cash?

Paying empoyee wages

Jenner's is a multi division firm that uses its overall WACC as the discount rate for all proposed projects. Each division is in a separate line of business and each presents risks unique to those lines. Given this, a division within the firm will tend to:

Prefer higher risk projects over lower risk projects

Steve is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is Steve using?

Scenario Analysis

Which type of analysis identifies the variable, or variables, that are most critical to the success of a particular project?

Sensitivit

An analysis of the change in a project's NPV when a single variable is changed is called ________ analysis.

Sensitivity

Assume that $1 is equal to ¥102.32 and also equal to C$1.0958. Based on this, you could say that C$1 is equal to: C$1(¥102.32 / C$1.0958) = ¥93.37. The exchange rate of C$1 = ¥93.37 is referred to as the:

cross rate

Under credit terms of 1/5, net 15, customers should:

either take the discount or pay on the 15th day