FIN final exam

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

$1.00

Tricki Corp stock sells for $45 rights-on, and the subscription price is $35. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is the price of Tricki expected to be when it begins trading ex-rights?

$44.09

If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a(n):

sunk cost

With regard to depreciation, the time value of money concept tells us that:

taking the depreciation expense sooner is always better. ****

The purpose of cumulative voting is

to allow minority stockholders the possibility of a voice on the board of directors.

The effect of a rights offering on a stockholder is

to decrease his/her wealth if nothing is done.

A stock is said to sell "ex-rights"

when transfer of stock ownership no longer carries with it the privilege of subscription.

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $3.00 per share and has not been paid for three years. If Kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

$5.00 per share

Elle Mae Industries has a cash balance of $50,000; accounts payable of $150,000; inventory of $190,000; accounts receivable of $250,000; notes payable of $210,000; and accrued wages and taxes of $40,000. How much net working capital does the firm need to fund?

$90,000

Which of the following statements is true with respect to cumulative voting?

(All of these options are true) Cumulative voting permits multiple votes for a single director. Cumulative voting gives minority shareholders a better chance of being represented on the board of directors. If six directors are to be elected and you own 100 shares.

Suppose that Tucker Industries has annual sales of $5 million, cost of goods sold of $2.78 million, average inventories of $1,125,000, and average accounts receivable of $500,000. Assuming that all of Tucker's sales are on credit, what will be the firm's operating cycle?

184.21

An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

5.7%

Buggy Whip Manufacturing Company is issuing preferred stock yielding 8%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 34%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%.

7.64%

To the corporate investor, preferred stock offers which of the following advantages?

70% of preferred dividends are tax-exempt. ***

For most businesses, particularly smaller ones, the most common way to cover a short-term financing need is to apply at a bank for which of the following?

Commercial loan

Which of these is the requirement of the firm to keep a certain percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to lend money to the firm?

Compensating Balance

Which statement is true regarding cost-cutting proposals?

Cost-cutting proposals main benefits come from the change in sales due to the response from the cost-cutting proposal. ****

ABC Engineering just purchased a new machine. All of the following are examples of incremental cash flows EXCEPT:

Developmental costs to determine which machine would best work with their unique process

The best approach to convert an infinite series of asset purchases into a perpetuity is known as the:

Equivalent annual cost approach

Which of these is an entity who will buy accounts receivable before they are due on a discounted basis, with the spread between the discounted price and the receivable's face value providing them with the expected compensation for both the time value of money and for the expected level of defaults amongst the accounts receivable?

Factor

Which of the following current asset financing policies reflects the decision to finance the peaks of current assets with long-term debt and equity that provides the firm with a surplus of cash and marketable securities most of the time, except during peak asset demand?

Flexible financing policy

Which of the following is the IRS convention that requires that all property placed in service during a given period is assumed to be placed in service at the midpoint of that period?

Half-year convention

Why do firms offer customers discounts for paying early?

If customers pay early, the firm's cash cycle is shortened

Why do firms offer customers discounts for paying early?

If customers pay early, the firm's cash cycle is shortened.

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.

Which of the following actions will provide the shareholders with the most total wealth when a company conducts a rights offering?

None of these options

The area of management concerned with designing and overseeing the process of production is which of the following?

Operations Management

Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

Pro Forma Analysis

The process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements is referred to as:

Pro forma analysis

Which of the following statements is false with respect to the use of rights in financing?

Shares are usually priced at a premium.

Which of the following is defined as costs associated with not having sufficient cash, inventory, or accounts receivable?

Shortage Costs

A manufacturing firm is planning on expanding its existing operations. The expansion project is significant and will require the firm to house the expansion in a different location. The firm is considering building on a lot they own across town. The lot is currently vacant and it was paid for nearly 20 years ago. Given this information, which of the following statements is correct?

The lot is an incremental cash flow because it represents an opportunity cost

Which of the following is NOT a reason for holding cash?

Transaction opportunities

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

a poison pill

When comparing common stock of the same company, it is fair to say that

companies sometimes have two different classes of shares with unequal rights to dividends and votes

Concerning incremental project cash flow, which of these is a cost one would never count as an expense of the project?

financing costs