Financial Management Final Exam

Which capital intensity ratio indicates the smallest need for fixed assets per dollar of sales?

.07 (smallest)

Oil Creek Auto has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory? *

12.22 percent

Which one of these statements related to growing annuities and perpetuities is correct?

The present value of a growing perpetuity will decrease if the discount rate is increased.

Which one of the following statements correctly defines a time value of money relationship?

Time and present value are inversely related, all else held constant.

Atlas Industries combines the investment proposals from each operational unit into one single project for planning purposes. This process is referred to as:

aggregation

Mortgage lenders probably have the most interest in the ________ ratios.

long-term debt and times interest earned

You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?

$102,138.76

Muder's Market has sales of $28,400, net income of $2,250, and a retention ratio of 60 percent. Assume the profit margin and the payout ratio are constant and sales increase by 6 percent. What is the pro forma retained earnings if the current retained earnings balance is $4,100? *

$5,531

When planning for the long run, the planning horizon is usually a period of:

2 to 5 years

Which one of the following is a source of cash?

Acquisition of debt

Which ratio identifies the amount of total assets a firm needs in order to generate $1 in sales?

Capital intensity ratio

Which one of the following is a use of cash?

Decrease in accounts payable

On the statement of cash flows, which one of the following is considered a financing activity?

Dividends paid

Financial planning includes the: I. determination of asset requirements. II. development of contingency plans. III. establishment of priorities. IV. analysis of funding options.

I, II, III, and IV

When developing a financial plan for a corporation you should consider which of the following? I. How much net working capital will be needed? II. Will additional fixed assets be required? III. Will dividends be paid to shareholders? IV. How much new debt must be obtained?

I, II, III, and IV

Which one of the following is a source of cash for a tax-exempt firm?

Increase in common stock

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. O

Option B has a higher present value at Time 0.

Project A has cash flows of $4,000, $3,000, $0, and $3,000 for Years 1 to 4, respectively. Project B has cash flows of $2,000, $3,000, $2,000, and $3,000 for Years 1 to 4, respectively. Which one of the following statements is correct assuming the discount rate is positive?

Project B is worth less today than Project A.

Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate?

Project X has both a higher present and a higher future value than Project Y.

The financial planning process is least apt to:

consider the development of future technologies.

Financial planning:

considers multiple options and scenarios

Which one of the following is a source of cash?

decrease in inventory

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay

interest to a lender

A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ________ loan.

interest-only

The internal growth rate of a firm is best described as the ________ growth rate achievable ________.

maximum; excluding external financing of any kind

The most acceptable method of evaluating the financial statements is to compare the company's current financial

ratios to the company's historical ratios

On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

total assets for the current year