FIN Exam 2.2

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

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?

$1,034

A $1,000 par value bond with a fixed 10% rate of interest pays coupons semiannually. What amount will the bondholder receive on the bond's maturity date?

$1,050

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?

An increase in the retention ratio

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. What is JM Case's book value per share?

Book Value per share = equity/shares outstanding. 1,750,000/5,000,000=$3.50

Which of the following would NOT be considered a use of cash?

Depreciation

An advantage of the percent-of-sales approach to financial forecasting is that effective forecasts can be prepared without consulting historical financial statements.

False

One advantage of ROE is that it is a risk-adjusted measure of performance.

False

The notes to the financial statements are only important to the accountants; the financial analyst can skip over them to save time.

False

The only reason why the price would fall on a corporate bond is if market interest rates increase.

False

The only way a company can grow at a rate above its current sustainable growth rate is by increasing leverage.

False

Which one of the following will increase the sustainable rate of growth a corporation can achieve?

decrease in the dividend payout ratio

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?

$1,421.40

Suppose you purchase a put option on XYZ stock when the stock price is $40. The option premium is $2, and the strike price is $39. What is your net profit on the put option if the stock price is $41 at maturity?

-$2

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 2017?

-3.04%

Which one of the following statements is correct?

The assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio.

Ellsbury increases the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products.

The collection period decreased.

When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.

True

On a common-size balance sheet, all accounts are expressed as a percentage of

total assets.

Please refer to the financial information for Foodtek, Inc.above. During 2017, what was the cost of merchandise (in millions of dollars) produced by Foodtek?

$218

At the end of 2017, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2017, Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2017?

$3,000,000

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

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?

$643

JM Case Inc. has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000. If the company repurchases 20 percent of its shares in the stock market, what will be the book value of equity if all else remains the same?

$750,000

Please refer to the income statement for VGA Associates below. Assuming that cost of goods sold are variable and operating expenses are fixed, what was VGA Associates' breakeven sales volume in 2017?

$80,000

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 1928-2016 period)?

1. Common stocks, 2. long-term corporate bonds, 3. long-term government bonds, 4. short-term government bills

At the end of 2016, 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 2017?

13.43%

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?

18.24 percent

Please refer to the financial data for Link, Inc. above. The current ratio for Link at the end of 2017 is

2.76 (current assets/current liabilities)

Please refer to the selected financial information for Boss Stores above. What is the actual sales growth rate for 2016?

21.4%

Please refer to the financial data for Link, Inc. above. Assume a 365-day year for your calculations. Link's days' sales in cash at the end of 2017 is:

249.7

Please refer to the selected financial information for Boss Stores above. What is the sustainable growth rate for 2016?

9.97%

Which of the following statements concerning a firm's cash flows and profits is false?

A company that sells merchandise at a profit will generate cash soon enough to replenish cash flows required for continued production.

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

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

Bonds

The sources and uses of cash over a stated period of time are reflected in the...

Cash flow statement

Which one of the following is the financial statement that summarizes changes in the company's cash balance over a period of time?

Cash flow statement

All else equal, an increase in a company's asset turnover will decrease its ROE.

False

Ellsbury Corporation has a goal to reduce its cash conversion cycle. Which of the following actions, holding all else equal, is likely to accomplish this goal?

Ellsbury increases the efficiency of its production process, reducing by 10% the average time it takes to convert raw materials to finished products.

A company's price-to-earnings ratio is always equal to one minus its earnings yield.

False

A company's return on assets will always equal or exceed its profit margin.

False

A decline in the Net fixed assets account between year-end 2016 and year-end 2017 is a clear indication that fixed assets were sold during 2017.

False

According to GAAP, revenue should not be recognized until cash is received.

False

Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method.

False

Which of these ratios, or levers of performance, are the determinants of ROE? I. profit margin II. financial leverage III. times interest earned IV. asset turnover

I, II, and IV only

A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet?

Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

Which of the following would allow a corporation to issue a bond at a lower coupon rate, all else equal?

None are correct

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?

ROE is a forward-looking, one-period measure, while business decisions span the past and present.

Assume you are a banker who has loaned money to a firm, but that firm is now facing increased competition and reduced cash flows. Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan?

Times-burden-covered ratio

A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities.

True

A company experiencing balanced growth does not generate cash surpluses or cash deficits.

True

Across companies, ROA and financial leverage tend to be inversely related.

True

After issue, the market price of a fixed-rate bond can differ substantially from its par value.

True

Principal amounts are usually exchanged

in currency swaps.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

Which one of the following is a source of cash?

increase in accounts payable

An increase in cash and cash equivalents should appear as a source of cash on the sources and uses statement.

False

If a company seeks to maximize firm value, it should never grow at a rate above its sustainable growth rate.

False

If a firm increases its accounts payable period, other things equal, it increases the cash conversion cycle.

False

In the steps a company takes to prepare for an IPO, the "road show" precedes the "bake-off".

False

One way to manage an actual growth rate above the sustainable growth rate is to decrease prices.

False

Premature revenue recognition is acceptable under GAAP.

False

Principal is exchanged in interest rate swaps but not in currency swaps.

False

The accrual principle requires that revenue not be recognized until payment from a sale is received.

False

The cost of equity is usually reported on the income statement right below interest expense.

False

The percent-of-sales approach to financial forecasting works well for forecasting the income statement but is not useful for forecasting the balance sheet.

False

The quality of reported earnings is a minor element in evaluating financial statement data.

False

Valuing a call option requires an accurate estimate of the future value of the underlying asset.

False

You can construct a sources and uses statement for 2017 if you have a company's year-end balance sheets for 2017 and 2018.

False

Which of the following is NOT a typical reason for differences between profits and cash flow?

Goodwill

A times-interest-earned ratio of 3.5 indicates that the firm

Has EBIT equal to 3.5 times its interest expense.

Which one of the following is a use of cash?

Increase in inventory

Klamath Corporation has asset turnover of 3.5, a profit margin of 5.2%, and a current ratio of 0.5. What is Klamath Corporation's return on equity?

Insufficient information to find ROE

Which of the following statements regarding junk bonds is true?

Junk bonds have higher priority in bankruptcy than preferred stock.

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?

Milano's leverage has increased.

Which of the following variables does NOT affect the value of a stock option?

The predicted future price of the underlying stock

All else equal, a firm would prefer to have a higher gross margin.

True

All else equal, increasing the assumed collection period in a financial forecast will decrease external funding required.

True

Bond investors should be more concerned with real returns than with nominal returns.

True

Cash flow forecasts are less informative than pro forma financial statements.

True

Current liabilities are defined as liabilities with a maturity of less than one year.

True

Given the same assumptions, cash flow forecasts and pro forma projections will yield the same need for external funding.

True

In a strong-form efficient market, insider trading is not profitable.

True

In evaluating a business firm it is essential that the financial analyst consider the qualitative as well as the quantitative components of earnings for an accounting period.

True

In recent years, U.S. companies as a whole have repurchased more equity than they have issued.

True

Investment-grade bonds are usually defined as bonds with ratings of BBB- or higher.

True

Issue costs of equity are high relative to those of debt.

True

One way to manage an actual growth rate below the sustainable growth rate is to repurchase shares.

True

Return on assets can be calculated as profit margin times asset turnover.

True

Shelf registration is possible for both debt and equity issues.

True

The allowance for doubtful accounts is a type of account that can be manipulated to over or under estimating bad debt expense and so influence earnings.

True

The sustainable growth rate is the only growth rate in sales that is consistent with stable values of the profit margin, retention rate, asset turnover, and leverage (assets/equitybop).

True

The times-interest-earned ratio always equals or exceeds the times-burden-covered ratio.

True

Which of the following is a reason why a company's market value of equity differs from its book value of equity?

Values of assets on the balance sheet typically reflect historical cost, adjusted for appropriate depreciation.

A balance sheet reports the value of a firm's assets, liabilities, and equity

at any point in time.

Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?

balance sheet

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

cash budget

Individuals who continually monitor the financial markets seeking mispriced securities.

make the markets increasingly more efficient.

The sustainable growth rate of a firm is best described as the:

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

The most common approach to developing pro forma financial statements is called the

percent-of-sales-method

Depreciation expense:

reduces both taxes and net income.


Kaugnay na mga set ng pag-aaral

Exam review #1 - Emergency chapter

View Set

APUSH notes Shay's Rebellion and Reaction

View Set

Maternity Week 11 Practice Questions

View Set

REGULACION DE LA PRESION ARTERIAL

View Set

AP World History 5th Six Weeks Exam Free Response Questions

View Set

Antiviral Agents II: drug for HIV infection

View Set

CHAPTER 41: Incident Response, Communication, and Professionalism

View Set

Ms. Hulet's Semester 1 Study Guide

View Set

Chapter 8 Communications and Networks

View Set

Quiz 3 Prokaryotic and Eukaryotic Cells

View Set