FIN 3715 Exam 1 Practice

B) $1.03

2.4 (10) Refer to the income statement above. For the year ending December 31, 2006 Lutherʹs earnings per share is closest to ________. A) $0.51 B) $1.03 C) $0.82 D) $1.23

B) an increase of 0.01

2.3 (8) Refer to the balance sheet above. The change in Lutherʹs quick ratio from 2005 to 2006 is closest to ________. A) a decrease of 0.01 B) an increase of 0.01 C) a decrease of 0.02 D) an increase of 0.02

B) $41.93

1.5 (12) Using the above information, how much would you pay for a share of BHP Billiton stock? A) $41.91 B) $41.93 C) $41.65 D) $41.59

B) $677.62

1.5 (13) Using the above information, how much would you receive if you sold a share of Washington Post stock? A) $683.00 B) $677.62 C) $678.50 D) $677.64

D) $91,650

1.5 (14) Based on the information shown above, what would it cost to buy 1,000 shares of the above stock? A) $91,110 B) $91,300 C) $91,320 D) $91,650

B) $40,740

1.5 (15) Based on the information shown above, how much would you receive from selling 2,000 shares of the above stock? A) $40,840 B) $40,740 C) $41,000 D) $42,560

B) 3 cents

1.5 (16) What is the bid-ask spread on the stock shown above? A) 1 cent B) 3 cents C) 6 cents D) 12 cents

A) $250

1.5 (17) How much money would a stock exchange make from buying and selling 500 shares of the stock under the conditions shown above? A) $250 B) $3,000 C) $5,875 D) $210,375

D) $45 million

2.2 (10) The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the companyʹs net working capital? A) $133 million B) $2 million C) $89 million D) $45 million

D) $45 million

2.2 (11) The above diagram shows a balance sheet for a certain company. If the company pays back all of its accounts payable today using cash, what will its net working capital be? A) $131 million B) $6 million C) $88 million D) $45 million

A) -$12 million

2.2 (12) The above diagram shows a balance sheet for a certain company. If the company buys new property, plant and equipment today using its entire cash balance, what will its net working capital be? A) -$12 million B) $12 million C) -$24 million D) $24 million

B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholdersʹ equity would be adjusted accordingly.

2.2 (13) The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the companyʹs long -term assets were judged to depreciate at an extra $5 million per year? A) Net property, plant, and equipment would rise to $126 million, and total assets and stockholdersʹ equity would be adjusted accordingly. B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholdersʹ equity would be adjusted accordingly. C) Long-term liabilities would rise to $131 million, and total liabilities and stockholdersʹ equity would be adjusted accordingly. D) Long-term liabilities would fall to $111 million, and total liabilities and stockholdersʹ equity would be adjusted accordingly.

C) Investors consider that the firmʹs market value and its book value are roughly equivalent.

2.2 (14) The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. If the company has 5 million shares outstanding, and these shares are trading at a price of $6.39 per share, what does this tell you about how investors view this firmʹs book value? A) Investors consider that the firmʹs market value is worth very much less than its book value. B) Investors consider that the firmʹs market value is worth less than its book value. C) Investors consider that the firmʹs market value and its book value are roughly equivalent. D) Investors consider that the firmʹs market value is worth more than its book value.

A) $16.8 million

2.2 (20) Refer to the balance sheet above. What is Lutherʹs net working capital in 2006? A) $16.8 million B) $296.0 million C) $33.6 million D) $8.4 million

A) The company is having difficulties selling its product.

2.3 (15) If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in the balance sheet between 2007 and 2008? A) The company is having difficulties selling its product. B) The company has reduced its debt. C) The company has added a major new asset in terms of plant and equipment. D) The company has experienced a significant rise in its market value.

C) The companyʹs net income in 2008 was negative.

2.3 (16) If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in stockholdersʹ equity between 2007 and 2008? A) The company is very profitable because it is obviously collecting receivables faster. B) The company is selling its property, plant and equipment, which may result in a long-term deficiency in production capacity. C) The companyʹs net income in 2008 was negative. D) No conclusions can be drawn regarding stockholdersʹ equity without additional information.

D) The company has increased the risk that it will experience a cash shortfall in the near future.

2.3 (17) If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in quick ratio between 2007 and 2008? A) The company has eliminated the risk that it will experience a cash shortfall in the near future. B) The company has reduced the risk that it will experience a cash shortfall in the near future. C) The risk that the company will experience a cash shortfall in the near future is unchanged. D) The company has increased the risk that it will experience a cash shortfall in the near future.

D) The company has experienced a significant increase in its leverage.

2.3 (18) If the above balance sheet is for a retail company, how has the companyʹs leverage changed between 2007 and 2008? A) The company has experienced a very significant decrease in its leverage. B) The company has experienced a significant decrease in its leverage. C) The company has experienced no significant change in its leverage. D) The company has experienced a significant increase in its leverage.

1.89

2.3 (19) Refer to the partial balance sheet above. If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share, then what is Lutherʹs market -to-book ratio?

C) 1.29

2.3 (2) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Lutherʹs market-to-book ratio would be closest to ________. A) 2.58 B) 0.64 C) 1.29 D) 1.80

$276.90

2.3 (20) Refer to the balance sheet above. If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share, then what is Lutherʹs enterprise value?

B) 2.25

2.3 (3) Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio for Luther in 2006 is closest to ________. A) 4.51 B) 2.25 C) 1.13 D) 3.16

B) 1.72

2.3 (4) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt -equity ratio for Luther in 2006 is closest to ________. A) 3.45 B) 1.72 C) 0.86 D) 2.41

C) $385.7 million

2.3 (5) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Lutherʹs enterprise value? A) -$540.0 million B) $771.4 million C) $385.7 million D) $521.4 million

D) 1.11

2.3 (6) Refer to the balance sheet above. Lutherʹs current ratio for 2006 is closest to ________. A) 1.67 B) 2.22 C) 0.56 D) 1.11

A) 0.87

2.3 (7) Refer to the balance sheet above. Lutherʹs quick ratio for 2006 is closest to ________. A) 0.87 B) 1.75 C) 0.88 D) 1.31

A) $1.03

2.4 (11) Refer to the income statement above. Assuming that Luther has no convertible bonds outstanding, then for the year ending December 31, 2006 Lutherʹs diluted earnings per share are closest to ________. A) $1.03 B) $0.51 C) $0.82 D) $1.23

A) $0.50

2.4 (5) Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. If Xenon Manufacturing has 20 million shares outstanding, what is its EPS in 2008? A) $0.50 B) $0.25 C) $0.40 D) $0.60

C) $1.67

2.4 (6) Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp. has 4 million shares outstanding, and its managers and employees have stock options for 2 million shares, what is its diluted EPS in 2008? A) $0.83 B) $1.33 C) $1.67 D) $2.00

B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets it employs than firm B.

2.5 (10) Above are portions of the balance sheet and income statement for two companies in 2008. Based upon this information, which of the following statements is most likely to be true? A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets it employs than firm B. C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. D) Fixed asset turnover ratios indicate that firm A generating more sales for the assets it employs than firm B.

A) It takes on average about 4 weeks to collect payment from its customers.

2.5 (11) The balance sheet and income statement of a particular firm are shown above. What does the account receivable days ratio tell you about this company? A) It takes on average about 4 weeks to collect payment from its customers. B) It takes on average about 6 weeks to collect payment from its customers. C) It takes on average about 7 weeks to collect payment from its customers. D) It takes on average about 11 weeks to collect payment from its customers.

B) Firm B

2.5 (16) The above data is for four regional trucking firms. Based on price-earnings ratios, which firmʹs stock is the best value? A) Firm A B) Firm B C) Firm C D) Firm D

C) 20.36%

2.5 (2) Refer to the income statement above. Lutherʹs operating margin for the year ending December 31, 2005 is closest to ________. A) 10.18% B) 16.29% C) 20.36% D) 24.43%

A) 11.61%

2.5 (3) Refer to the income statement above. Lutherʹs net profit margin for the year ending December 31, 2005 is closest to ________. A) 11.61% B) 5.80% C) 9.28% D) 13.93%

D) $135.9 million

2.5 (4) Refer to the income statement above. Lutherʹs earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ending December 31, 2005 is closest to ________. A) $271.8 million B) $108.7 million C) $163.1 million D) $135.9 million

C) 123.56%

2.5 (5) Refer to the income statement above. Lutherʹs return on equity (ROE) for the year ending December 31, 2005 is closest to ________. A) 247.12% B) 98.85% C) 123.56% D) 148.27%

A) 17.43%

2.5 (6) Refer to the income statement above. Lutherʹs return on assets (ROA) for the year ending December 31, 2005 is closest to ________. A) 17.43% B) 34.86% C) 13.94% D) 1.99%

C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009.

2.5 (7) Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operating margin between these two years imply about the company? A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. C) The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009.

2.5 (8) Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2008 and 2009. What does the change in the gross margin between these two years imply about the company? A) The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2008 and 2009. D) The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

D) All of the above are true.

2.6 (10) Consider the above statement of cash flows. Which of the following is true of AOS Industriesʹ operating cash flows? A) It collected more cash from its customers than it charged. B) It sold more inventory than it bought. C) It charged more on its accounts payable back than it paid back. D) All of the above are true.

B) It would have $2,925,000 less cash at the end of 2008.

2.6 (11) Consider the above statement of cash flows. In 2008, AOS Industries had contemplated buying a new warehouse for $3 million, the cost of which would be depreciated over 10 years. If AOS Industries has a tax rate of 25%, what would be the impact for the amount of cash held by AOS at the end of the 2008? A) It would have $3,000,000 less cash at the end of 2008. B) It would have $2,925,000 less cash at the end of 2008. C) It would have $1,500,000 less cash at the end of 2008. D) It would have an additional $7,500,000 in cash at the end of 2008.

B) $2.2 million

2.6 (8) Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what were AOS Industriesʹ retained earnings for 2008? A) $5.2 million B) $2.2 million C) $4.4 million D) $3.1 million

D) by issuing debt

2.6 (9) Consider the above statement of cash flows. What were AOS Industriesʹ major means of raising money in 2008? A) from investment activities B) by sale of stock C) from its operations D) by issuing debt

B) $1550

3.1 (12) As an oil refiner, you are able to produce $77 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $78 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,150 bbl of Alaska North Slope (ANS) crude oil for 10,000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 bbl of WTI crude, the added benefit (cost) to you if you take the trade is closest to ________. A) ($1550) B) $1550 C) ($3475) D) $3475

D) $3908

3.1 (13) As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you currently have 10,000 bbl of WTI crude, the added benefit (cost) to you if you were to sell the 10,000 bbl of WTI crude and use the proceeds to purchase and refine ANS crude is closest to ________. A) ($1400) B) $1400 C) ($3908) D) $3908

B) $766,150

3.1 (14) As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you just purchased 9950 bbl of WTI crude at the current market price, the total revenue (cost) to you if you were to refine this crude oil and sell the unleaded gasoline is closest to ________. A) ($766,150) B) $766,150 C) ($770,032) D) $770,032

C) $767,600

3.1 (15) As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,100 bbl of Alaska North Slope (ANS) crude oil for 9950 bbl of West Texas Intermediate (WTI) crude oil. Assuming you just purchased 9950 bbl of WTI crude at the current market price, the total revenue (cost) to you if you take the trade is closest to ________. A) $755,650 B) $766,150 C) $767,600 D) $776,650

D) $784,091

3.1 (16) As an oil refiner, you are able to produce $77 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $78 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Assuming you currently have 10,000 bbl of WTI crude, the total benefits to you if you were to sell the 10,000 bbl of WTI crude and use the proceeds to purchase and refine ANS crude is closest to ________. A) $794,274 B) $780,000 C) $781,550 D) $784,091

A) Sell 10,000 bbl WTI crude on the market and use the proceeds to purchase and refine ANS crude.

3.1 (17) As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 10,150 bbl of Alaska North Slope (ANS) crude oil for 10,000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 bbl of WTI crude, what should you do? A) Sell 10,000 bbl WTI crude on the market and use the proceeds to purchase and refine ANS crude. B) Do nothing; refine the 10,000 bbl of WTI crude. C) Trade the 10,000 bbl WTI crude with the other refiner and refine the 10,150 bbl of ANS crude. D) Trade the 10,000 bbl WTI crude with the other refiner and then sell the 10,150 bbl of ANS crude.

D) $13,333

3.1 (22) Refer to the table above. An international seafood supplier is offered 9.52 million yen today for 1000 pounds of abalone frozen in the shell. One thousand pounds of abalone can be sourced from various countries at the prices shown above. The current market exchange rates between the United States and the other relevant currencies are also shown. In addition, $1 U.S. = 102 yen. What is the value, in U.S. dollars, of the best deal the international seafood supplier can make? A) $12,333 B) $14,333 C) $14,833 D) $13,333

Coloma should not trade. It should keep the high grade ore and refine it.

3.1 (28) A mining company is offering to trade 7,250 tons of low-grade copper ore for 5,000 tons of high-grade copper ore. Assuming Coloma currently has 5,000 tons of high -grade ore, what should it do?

C) $5.44

3.2 (12) A McDonaldʹs Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fries. Assuming that there is a competitive market for McDonaldʹs food items, at what price must a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the Law of One Price? A) $4.08 B) $4.62 C) $5.44 D) $6.80

A) Yes, buy a value meal and then sell the Big Mac, Coke, and fries to make arbitrage profit of $0.67.

3.2 (13) A McDonaldʹs Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fries. Assume that there is a competitive market for McDonaldʹs food items and that McDonaldʹs sells the Big Mac value meal for $4.59. Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on one value meal? A) Yes, buy a value meal and then sell the Big Mac, Coke, and fries to make arbitrage profit of $0.67. B) No, no arbitrage opportunity exists. C) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $1.34. D) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $0.67.

C)

3.3 (4) A lender lends $10,100, which is to be repaid in annual payments of $2070 for 6 years. Which of the following shows the timeline of the loan from the lenderʹs perspective?

D)

3.3 (5) A tenant wants to lease a building for $50,000 per year. She signs a five-year rental agreement that states that she will pay $25,000 every six months for the next five years. Which of the following is the timeline for her rental payments, assuming she makes the first payment immediately?

C)

3.3 (6) Samantha enters a rent-to-own agreement for living room furniture. She will pay $60 per month for one year. Which of the following shows the timeline for her payments if the first payment is one month from now?

C) Karen, who loans a friend $3,500, which friend then pays back the loan in four annual installments of $1,000

3.3 (7) Whose cash flow is best described by the timeline shown below? A) Joe, who puts down $3,500 to buy a car, and then makes annual payments of $1,000 B) Harry, who borrows $3,500, and then receives an annual payment of $1,000 C) Karen, who loans a friend $3,500, which friend then pays back the loan in four annual installments of $1,000 D) Leo, who borrows $3,500, and then pays back the loan in four annual payments of $1,000

A) You make payments of $250 per month for six months.

3.3 (8) Which of the following situations is best described by the timeline shown below? A) You make payments of $250 per month for six months. B) You receive payments of $250 per month for six months. C) You make payments of $250 per month for five months. D) You receive payments of $250 per month for five months.

A) $502

3.4 (17) Consider the following timeline: If the current market rate of interest is 8%, then the present value (PV) of this timeline as of year 0 is closest to ________. A) $502 B) $653 C) $600 D) $1004

B) -$98.7

3.4 (18) Consider the following timeline: If the current market rate of interest is 13%, then the value of the cash flows in year 0 and year 2 as of year 1 is closest to ________. A) $167.35 B) -$98.7 C) $98.7 D) -$70

D) $68

3.4 (19) Consider the following timeline: If the current market rate of interest is 7%, then the value as of year 1 is closest to ________. A) $0 B) $1000 C) $570 D) $68