Finance Final

Birds of a Feather has bonds outstanding that carry an annual coupon of 6 percent. The bonds mature in 11 years and are currently priced at 94 percent of face value. What is the firm's pretax cost of debt?

6.79%

Which of these is a speculative motive for holding cash?

Buying extra inventory because a key supplier offered a special one-time discount

The cash cycle is equal to the:

accounts receivable period minus the accounts payable period plus the inventory period

Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises. Which type of motive for holding cash does this represent?

precautionary

Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision?

risk level of the project

Speculative motive for holding cash

take advantage of unexpected opportunities

transaction motive for holding cash

to pay day-to-day bills

disbursement float

when a firm writes a check, bank balance - book balance > 0

Which one of the following is the equity risk arising from the daily operations of a firm?

Business risk

Which of these is a use of cash?

decreasing accounts payable

float

difference between cash recorded in the cash account and the cash balance recorded at the bank

Float is defined as the difference between the:

ledger balance and the available balance

As of this morning, a firm had a ledger balance of $684 with no outstanding deposits or checks. Today, the firm deposited six checks in the amount of $49 each and wrote a check in the amount of $283. What is the amount of the collection float as of the end of the day assuming none of these checks had cleared?

$294

Ernst Electrical has 7,500 shares of stock outstanding and no debt. The new CFO is considering issuing $50,000 of debt and using the proceeds to retire 600 shares of stock. The coupon rate on the debt is 8.5 percent. What is the break-even level of earnings before interest and taxes (EBIT) between these two capital structure options?

$53,125

Design Interiors has a cost of equity of 14.9 percent and a pretax cost of debt of 8.6 percent. The firm's target weighted average cost of capital is 11 percent and its tax rate is 34 percent. What is the firm's target debt-equity ratio?

.73

Country Cook's cost of equity is 16.2 percent and its aftertax cost of debt is 5.8 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is .42 and the tax rate is 34 percent?

13.12%

The Green Balloon just paid its first annual dividend of $.87 a share. The firm plans to increase the dividend by 3.2 percent per year indefinitely. What is the firm's cost of equity if the current stock price is $4.75 a share?

22.10%

The HOT Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions. The company has annual sales of $489,500. Cost of goods sold average 59 percent of sales and the profit margin is 6.1 percent. The average accounts receivable balance is $41,700. On average, how long does it take this food truck to collect payment for its services?

31.09 days

BL Motors has sales for the year of $287,400, cost of goods sold equal to 68 percent of sales, and an average inventory of $37,800. The profit margin is 7 percent and the tax rate is 34 percent. How many days on average does it take the firm to sell an inventory item?

70.6 days

The 7.5 percent preferred stock of Rock Bottom Floors is selling for $84 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100?

8.93%

Donut Delites has a beta of 1.06, a dividend growth rate of 1.2 percent, a stock price of $12a share, and an expected annual dividend of $.68 per share next year. The market rate of return is 11.4 percent and the risk-free rate is 3.8 percent. What is the firm's cost of equity?

9.36%

Which one of the following terms refers to the termination of a firm as a going concern?

liquidation

collection float

checks increase book balance before the bank balance, bank balance - book balance < 0

Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the

cost of debt

uses of cash

decrease long-term debt, decrease equity, decrease current liabilities, increase current assets, increase fixed assets

precautionary motive for holding cash

in case of emergencies

sources of cash

increase long-term debt, increase equity, increase current liabilities, decrease current assets, decrease fixed assets