FIN 571 Final Exam

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FIN 571 Final Exam (Newest)

1. In a general partnership, the general partners have _____ liability
and have _____ control over day-to-day operations.

limited; no

no; total

unlimited; no

limited; total

unlimited; total

2. Which one of these is a correct definition?

Long-term debt is defined as a residual claim on a firms assets.

Net working capital equals current assets plus current liabilities.

Current liabilities are debts that must be repaid in 18 months or less.

Tangible assets are fixed assets such as patents.

Current assets are assets with short lives, such as inventory.

3. The owners of a limited liability company generally prefer:

being taxed personally on all business income.

having liability exposure similar to that of a general partner.

having liability exposure similar to that of a sole proprietor.

being taxed like a corporation.

being taxed like a corporation with liability like a partnership.

4. Which one of the following is least apt to help convince managers to

work in the best interest of the stockholders?pay raises based on
length of service

implementation of a stock option plan

threat of a proxy fight

management compensation tied to the market value of the firms stock

threat of a takeover of the firm by unsatisfied stockholders

5.
a. Compute the future value of $2,000 compounded annually for 20
years at 4 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Future value

$_________

b. Compute the future value of $2,000 compounded annually for 15

years at 10 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Future value
c.

Compute the future value of $2,000 compounded annually for 25

years at 4 percent. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

Future value

6.

$_________

$_________

For each of the following, compute the present value (Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.):
Present Value Years

Interest Rate

Future value

$_________

14

8%

$_________

14

$_________

30

15

$_________

35

$15,551
$52,557
$887,073
$551,164

7. First City Bank pays 8 percent simple interest on its savings account
balances, whereas Second City Bank pays 8 percent interest
compounded annually.
If you made a $74,000 deposit in each bank, how much more money would
you earn from your Second City Bank account at the end of 8 years? (Do not
round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
Difference in accounts

$_________

8. Winslow, Inc. stock is currently selling for $40 a share. The stock
has a dividend yield of 3.8 percent. How much dividend income will
you receive per year if you purchase 500 shares of this stock?

$1,053

$152

$190

$329

$760

9. You bought 360 shares of stock at a total cost of $7,754.40. You

received a total of $403.20 in dividends and sold your shares for
$19.98 a share. What was your total rate of return?

5.38%

7.24%

-1.29%

3.67%

-2.04%

10.
According to generally accepted accounting principles (GAAP),
revenue is recognized as income when:

income taxes are paid on the revenue earned.

the transaction is complete and the goods or services are delivered.

a contract is signed to perform a service or deliver a good.

payment is requested.

managers decide to recognize it.

11.
Sankey, Inc., has current assets of $4,230, net fixed assets of
$25,700, current liabilities of $3,500, and long-term debt of $14,400.
(Do not round intermediate calculations.)
What is the value of the shareholders' equity account for this firm?
Shareholders' equity

$_________

How much is net working capital?

Net working capital

$_________

12.
The financial statement summarizing a firm's accounting
performance over a period of time is the:

statement of equity..

income statement.

tax reconciliation statement.

balance sheet.

statement of cash flows.

13.

Net working capital is defined as:

current assets minus current liabilities.

total assets minus total liabilities.

fixed assets minus long-term liabilities.

current assets plus stockholders' equity.

current assets plus fixed assets.

14.
Jessica's Boutique has cash of $59, accounts receivable of
$62, accounts payable of $210, and inventory of $140. What is the
value of the quick ratio?

.30

1.82

.67

.58

1.24

15.
Al's Sport Store has sales of $2,940, costs of goods sold of
$2,090, inventory of $526, and accounts receivable of $445. How
many days, on average, does it take the firm to sell its inventory
assuming that all sales are on credit?

90.6

65.3

119.9

91.9

120.4

16.

Galaxy United, Inc.2009 Income Statement($ in millions)

Net sales
$8,550
Less: Cost of goods
sold

7,150

Less: Depreciation
410
Earnings before interest and taxes
990
Less: Interest paid
82
Taxable
Income

908

Less: Taxes
318
Net income
590

Galaxy United, Inc.2008 and 2009 Balance Sheets($ in millions)

2008
2008
Cash
$1,120
Accounts rec.
990
Inventory
$3,140
Sub-total
510
Net fixed assets
Total assets
$5,760

2009
2009

$120
$1,130
940
1,201
1,480
$2,940
$2,540
799
3,220
$5,760
$6,070

$140

Accounts payable

790

Long-term debt

1,520

Common stock

$2,450

Retained earnings

3,620
$6,070

What is the return on equity for 2009?

Total liab. & equity

14 percent

17 percent

11 percent

16 percent

19 percent

17.
Reliable Cars has sales of $3,790, total assets of $3,350, and a
profit margin of 5 percent. The firm has a total debt ratio of 41
percent. What is the return on equity?

9.59 percent

12.20 percent

13.80 percent

8.47 percent

5.66 percent

18.
A firm has a debt-equity ratio of .41. What is the total debt
ratio?

1.44

.31

.29

1.41

.69

19.

The return on equity can be calculated as:

ROA Equity multiplier.

ROA Debt-equity ratio.

ROA (Net income / Total assets).

Profit margin ROA Total asset turnover.

Profit margin ROA.

20.
One of the primary weaknesses of many financial planning
models is that they:

rely too much on financial relationships and too little on accounting

relationships.

are iterative in nature.

ignore the goals and objectives of senior management.

ignore cash payouts to stockholders.

ignore the size, risk, and timing of cash flows.

21.
In the financial planning model, the external financing needed
(EFN) as shown on a pro forma balance sheet is equal to the changes
in assets:

minus the change in retained earnings.

minus the changes in both liabilities and equity.

minus the changes in liabilities.

plus the changes in both liabilities and equity.

plus the changes in liabilities minus the changes in equity.

22.
The Wintergrass Company has an ROE of 15.1 percent and a
payout ratio of 40 percent. What is the companys sustainable
growth rate? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate

23.

_________%

Assume the following ratios are constant:

Total asset turnover

Profit margin
Equity multiplier
Payout ratio

2.50
5.4%
1.30
35%

What is the sustainable growth rate? (Do not round intermediate

calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Sustainable growth rate

_________%

24.
The length of time between the acquisition of inventory and
its sale is called the:

cash cycle.

accounts payable period.

accounts receivable period.

inventory period.

operating cycle.

25.
A prearranged, short-term bank loan made on a formal or
informal basis, and typically reviewed for renewal annually, is called
a:

compensating balance.

cleanup loan.

roll-over.

line of credit.

letter of credit.

26.
Here are the most recent balance sheets for Country Kettles,
Inc. Excluding accumulated depreciation, determine whether each
item is a source or a use of cash, and the amount. (Do not round

intermediate calculations and round your answers to the nearest

whole number, e.g., 32. Input all amounts as positive values):
COUNTRY KETTLES, INC.
Balance Sheet
December 31, 2016
2015
2016
Assets
Cash
$31,030

$31,800

Accounts receivable
71,300
Inventories
64,625

74,560
62,200

Property, plant, and equipment

172,600

161,000

Less: Accumulated depreciation

(51,300)

(47,040)

Total assets

$279,260
$291,515

Liabilities and Equity

Accounts payable
$48,530

$46,300

Accrued expenses
6,740

7,680

Long-term debt
30,100

27,000

Common stock
35,400

30,000

Accumulated retained earnings

170,745

168,280

Total liabilities and equity

$291,515

Item
Amount

$279,260

Source/Use

Cash
$_________
Accounts receivable
$_________
Inventories
$_________
Property, plant, and equipment
$_________
Accounts payable
$_________
Accrued expenses
$_________
Long-term debt
$_________
Common stock
$_________
Accumulated retained earnings
$_________

27.
Consider the following financial statement information for the
Rivers Corporation:
Item
Ending
Inventory
$11,900
Accounts receivable
6,200

Beginning
$10,900
5,900

Accounts payable
8,500

8,100

Net sales

$89,000

Cost of goods sold

69,000

Calculate the operating and cash cycles. (Use 365 days a year. Do not round
intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
Operating cycle
Cash cycle

_________days
_________days

28.
The _____ premium is that portion of the bond yield that
represents compensation for potential difficulties that might be
encountered should the bond holder wish to sell the bond prior to
maturity.

default risk

liquidity

taxability

inflation

interest rate risk

29.
How much are you willing to pay for one share of stock if the
company just paid an annual dividend of $1.03, the dividends
increase by 3 percent annually, and you require a rate of return of
15 percent?

$8.84

$6.87

$9.49

$10.40

$8.58

30.
The rate at which a stock's price is expected to appreciate (or
depreciate) is called the _____ yield.

total

capital gains

current

earnings

dividend

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