Exam 1 notes
Exam 1 notes Fi 302
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Date Created: 02/02/15
Lessons about the Structure of Finance Learning Module 1 List of Question and SelfTest Codes Entries below refer to codes for questions appearing on exam 1 All questions exist as ungraded and unrestricted practice SelfTests in the course shell accessible online anytimeanywhere Exam 1 Chapters 123 25 questions 16 fixed 9from30 115 maximum points 205 points 53 points Exam Question ORabs 50 chance question a is pOIHtS on exam 50 chance b etc 1 3 ORFF20 FF29 FF32 2 5 FA14 3 5 FA1 4 5 FA3j 5 5 FA3f 6 3 ORFF5 FF25 FF31 7 5 FA15c 8 5 BAG 9 3 ORFF9 FF10 FF22 10 5 ORBE2a BE4b BE7b 11 5 BE3 12 5 BA9c 13 5 BA11a 14 5 BA12b 15 3 ORBS30 FF12 TR38 TR42 16 5 ORFA5 FA8 FA16 17 5 EFN2b 18 5 EFN3a 19 5 ORGR1 GR4 BA3a BA4a 20 5 GR2d 21 5 GR3b 22 5 ORBA13 BA14 EFN1b CF2 23 5 CF1c 24 5 CF3a 25 3 ORBS17 BS23 BS29 Question 1 1 of 3 FF20 3 marks Which statement is most consistent with one or more of the principal agent relationships that exist in corporate finance a Management is the principal shareholders are the agents and the contested wealth is equity b Managementishareholders are the principals creditorbondholders are the agents and the contested wealth is loans and debt c Employees are the principals managementlshareholders are the agents and the contested wealth is pension contributions d Two choices B and C are correct e None of the ABC choices are correct Question 1 2 of 3 FF29 3 marks The typical management hierarchy is a pyramid headed by the Board of Directors Underneath that are senior management including the Chief Executive Office CEO and Chief Financial Officer CFO Which statement is most consistent with the textbook discussion a b The Office of the Controller typically administers the finance functions of the firm The Office of the Treasurer typically administers the accounting functions of the firm Besides the CEO there are in a typical large corporation many senior management positions eg Marketing Chief Head General Counsel CFO and no singleone can really be called most important Two choices A and C are correct The three ABC choices are all correct Also quiz 1 question 3 Answers always in the same order two possibles for each a The Office of the Controller accounting functions n finance functions a b The Office of the Treasurer finance functions n accounting functions a c Besides the CEO no single one can really be called most important n the next singlemost important is the CFO x a Accounting b Finance c Not important Question 1 3 of 3 FF32 3 marks Which statement most accurately describes the members on the Board of Directors a They usually are not employees of the company b They usually are company insiders with very close personal relationships with senior management c They are elected to the Board by senior management d Two choices B and C are correct e None of the A BC choices are correct WWW X a VFW Mumwe aw 39 Exam Questjon 2 4 FA 14 Find change in stock price from Iast year given ror etc Shareholders had a good year earning a 26 annual rate of return The PIE ratio today is 451 and the company just announced earnings per share of 210 The company has a 65 payout ratio How much did the stock price change over the past year a 1678 D 1387 c 1261 2 1526 e 1846 O W M W QORt P WWM Pbquot Pew P4 u 4 Picl P E mi E721 Neil s EPS apical 2 P EPS aw SWWW W pa ap P WE LVS EPS9MO P2ows t1r7i 39 w S Dow Pwmxw esy Dwr EPSxO S 2t0206 Pagan Zoo excl3 P Maud ll391 365 l 7 P gt 1525 g quot39 quotquot O 9 PG PG P rPo atom7425 8H E uestisn FA 5 marks Jeans qu e a el Ianges during the past The changes isrthe ir sli ereni balanse items lass year t This year she ehamges in pa a T f s are eslaines 39IEE39WiEE the shanges ase Enew 3 1 sens fer Reesheels 43 03 Payables 5 Tsar ash f Ethan fem Payeb e Tar Plant s Equipment and fer Leng Term De Mmentt is mess aseerate a The as r in marking i39stal is WEE and a ef maaeing I The in net seeming is 1i 4 and a sf aaesing e The in wasting pie is 19M and re a a sssrse ef mi The in pita is and a use If nansing e The is iv ing sisal is sense and a sf neness a i lied 391quot a ee Lizix twain F la es gt quot39 I Le game 4 La r511 Ar ME er 3 levees sen eh P 39 c 12 Liarig 15f Question 4 FA3j 5 marks The balance sheet for the Raider Company shows Total assets of 13000 financed by 3500 of Debt and 9500 of Stockholders equity The Raider Company has 670 common shares outstanding their equity pricetobook ratio is 370 and their price to earnings ratio is 464 For the Target Company Total assets of 8300 are financed by 2900 of Debt and 5400 of Stockholders equity The Target Company has 800 common shares outstanding their equity pricetobook ratio is 070 and their priceto earnings ratio is 126 The Raider Company plans to takeover the Target Company The Raider Company offers 3 shares of Raider stock to Target shareholders that tender 26 Target shares the exchange ratio is 0115385 assume fractional shares can be exchanged Suppose tax effects and synergistic gains and losses equal zero that is accumulated sales costs and profits remain the same After the Raider takes control of all Target shares what is the market capitalization for the new conglomerated Company a 32174 b 38930 C 42823 d 29249 e 35391 MC MN 00 4 onj MC 0AM MC WMC MC toGooL MC newt4 4 WW u W x a OWN M Pg BuzzhmEm ll QW 370 MC MC 35450 070 MC 2 MC I If gt 333339 Question 5 FA3f 5 marks The balance sheet for the Raider Company shows Total assets of 13000 financed by 3500 of Debt and 9500 of Stockholders equity The Raider Company has 670 common shares outstanding their equity pricetobook ratio is 370 and their price to earnings ratio is 464 For the Target Company Total assets of 8300 are financed by 2900 of Debt and 5400 of Stockholders equity The Target Company has 800 common shares outstanding their equity pricetobook ratio is 070 and their priceto earnings ratio is 126 The Raider Company plans to takeover the Target Company The Raider Company offers 3 shares of Raider stock to Target shareholders that tender 26 Target shares the exchange ratio is 0115385 assume fractional shares can be exchanged Suppose tax effects and synergistic gains and losses equal zero that is accumulated sales costs and profits remain the same After the Raider takes control of all Target shares what is the percentage change in Target shareholder wealth a 22 b 30 C 25 d 33 e 27 7 quot A It 7 A l 39 i l n J T 39 9 lquot L i quot x H T 1 1L l l i fquotquot T 39 quot t 1 i t39v Q t A v I 3 t T B Lmi39 r1 A P V I l l 1 CVquot UK quot1 g 39 xl Kikck NM C t gt 39 n L k 3 k NV 3 39 r k r L b 1 k 311 J j Iquot 1 i F r r 39 x at L y t r Kr i j J P 2 v4 l v i A IL I s k k k 1 z N m 3 r V quot N I K Tug 4 A lquot l V v uk 1 39 c 3 K 1 f x F A fv f quot f V xquot Exam Question 5 1 of 3 8 FF5 Legal organizational form Which one statement about the legal form of business is most consistent a An advantage of the corporation is that it has relatively low organizational costs b An advantage of the sole proprietorship is that they do not generally offer easy transferability of ownership 0 An advantage of the corporation is that they raise capital more easily d An advantage of the corporation is that they are subject to relatively fewer government regulations e An advantage of the sole proprietorship is that they offer limited liability to the ownerquot QWWW Mgmmmio rAM NeuL to mulwgwxu mmpjmw 9 MW Question 6 2 of 3 FF25 3 marks Choose the one statement that most correctly describes categorization schemes of the financial markets a the credit market includes trade credit notes and bonds that stipulate specific payments andor interest b the length of the financial contract is the distinguishing criterion when categorizing markets as either primary market or secondary market c the length of the financial contract is the distinguishing criterion when categorizing markets as either credit market or equity market d the capital market includes financial securities repayable within one year e the secondary market includes stocks and bonds issued by the company to investors Also quiz 1 question 4 Possible correct answers The nature of the repayment promise is the distinguishing criterion when categorizing markets as either credit market or equity market The equity market includes stocks that do not specify repayment schedules but instead represent a claim on residual cash flows The credit market includes trade credit notes and bonds that stipulate specific payments andor interest The length of the financial contract is the distinguishing criterion when categorizing markets as either money market or capital market The money market includes financial securities repayable within one year The capital market includes financial securities payable in more than one year The distinguishing criterion when categorizing markets as either primary or secondary is whether the security is new or used seasoned The primary market includes stocks and bonds issued by the company to investors The secondary market includes stocks and bonds sold by one investor to another investor Question 6 3 of 3 FF31 3 marks According to the new view of corporate finance which statement provides the best description for the proper goal of the company Maximize wealth creation Maximize the stock price Maximize sales revenue Minimize tax payments Maximize net income FDPPP39P Correct answer Maximize wealth creation Exam Question 7 1 1 FA15c Find stock ROR given next year s PE and operating margin At yearend 2525 the company has Total assets of 5400 nanced by Debt of 2700 and Stockholders equity of 2700 For 140 common shares outstanding the equity pricetobook ratio at yearend 2525 is 067 During 2526 the company expects an asset turnover ratio Sales Total assetsm of 36 and an operating margin Sales operating expenses Sales of 75 Interest charges will equal 12 of Debt Corporate taxes equal 30 of taxable income and the payout ratio always is 60 Your analyst tells you that at yearend 2526 the company pricetoearnings ratio will equal 25 What is the shareholders rate of return for year 2526 a 298 b 328 c 360 d 271 6 246 WOc olan M ROFL PDPc E MC DgU MCQ Pc MCa WW Mt P6 MAquot as oer We 7 Mccc ism SE SaxLEO 7 galex 2quot t 51oo Pre x 849 tomr Moat 7 757 1458 larva 1700 07 311 Tcwiam Lass312 er Tux ruin 307 Neth 3H xCi O3 2 quotGifyg PW 607 b M39s2 y 0e ins2 PE 29 MC 7 MC qgh g 763 147lle QoQ l lgk s39m m l 2 3t 367 l BOq Question 8 BA6 5 marks The DuPont formula relates return on equity Net income Stockholders equityt to the company39s net profit margin Net income Sales asset turnover Sales Total assets and equity multiplier Total assets Stockholders equity The Company s financial statements for year 2525 show Balance Sheet 12312525 Income 11 12312525 1700 Current assets 1800 Debt Sales 20770 5000 PPampE 4900 Stockholders quiu total costs 19250 6700 Total assets 6700 netincome 1520 This Company is in an industry where the average net profit margin is 739 the debt toasset ratio Debt Total assets is 380 and return on equity is 3734 For the company relative to the industry select the one statement most consistent with the DuPont analysis a The company39s asset turnover indicates sales are unusually small relative to its assets b The company s asset turnover indicates sales are unusually large relative to its assets 0 The company s equity multiplier indicates the firm has an unusually large debt burden d The company39s profit margin indicates its revenues are unusually small relative to its costs e The company s equity multiplier indicates the firm has an unusually small debt burden Nana th 3f Qty hm ow sacmi s I x TOM x S I NM 11 a P gk E N Z H H I H 1 m w n Guadtidn 1 Hi FFE 3 marks dzmdariyis market ddpi tdiizd dn addaid a Market dhard divided Hf eqtu bunk value i shard 1 Number di simres dutd sidndingi mariadt price per shard TI EEEEE divided by number f shards i t in i d Ed i ty bddk value per E hdrd divided by market price EhTE E Tdiai divided by numr EhEi39EE LitEta dng Exam Question 9 2 of 3 14 FF 10 Mergers and wealth transfers What usually happens when a raiding company takes over a target company a raider company shareholders generally gain wealth and target company shareholders gain wealth b raider company shareholders generally lose wealth and target company shareholders gain wealth c raider company shareholders generally gain wealth and target company shareholders lose wealth d raider company shareholders generally lose wealth and target company shareholders lose wealth e there are no wealth transfers and so each shareholders wealth is unchanged Exam Question 9 3 of 3 15 FF22 What are sources v uses of funds Which statement best describes how sources or uses of funds relate to asset or liability accounts on the balance sheet a decrease in a liability account represents a source of funds a decrease in an asset account represents a use of funds a decrease in a liability account represents a use of funds Two choices A and C are correct The three AB C choices are all correct EWCUMgtM44WI awoaiw W WgtWcoai 3 W a 5051099 Maw umcaguuzmsi Question 10 1 of 3 BE2a 5 marks The most recent annual report lists company Sales revenue at 68635 Cost analysis suggests that annual Total fixed costs equal 29750 and Total variable costs equal 35350 The company believes that the ratio of Sales revenue to Total variable costs is constant Find the company39s operating breakeven Sales revenue a 61346 b 67480 0 89816 d 74228 9 81651 TMMM Eisn quot9quot S a QMW Pu 339 tLW 6mg EB TO QFMTEQ tr 9 set Em A P 39 beliefsSS Question 10 2 of 3 BE4b 5 marks The company computes that each unit of production incurs variable operating costs of 38 and sells for 50 The company s fixed costs are 42500 per year Find the annual Sales revenue at which the company attains a 187 operating margin Sales revenue total operating costs Sales 8 882075 b 801887 C 970283 d 728988 6 662716 GWMW Lash T 04quot Total wax MWUMQ H 2Soo39s 6t SWWz SoaHl oo ggo 04 500 lZa AOsoo O39ig i so 60 al3Sa ilGL OL BSGL Hrl oo 26SG H2500 Q 142600 2 3033 265 301 W tsetse 7 50 agorss r Question 10 3 of 3 BETb 5 marks The most recent annual report lists company Sales revenue at 90600 Cost analysis suggests that annual Total xed costs equal 29925 and Total variable costs equal 45675 The annual Interest expense is 3825 and there is no preferred stock The company pays 35 of taxable income as taxes The annual report also shows ROE that is return on equity Net income Stockholders equityt equals 163 The company wants to increase its ROE to a target of 230 They plan to hold constant Stockholders equity Total assets Total fixed costs Interest and the ratio of Sales revenue to Total variable costs Find the target Sales revenue and net profit margin Net income Sales revenue that provides the target ROE a Target Sales revenue equals 114843 and the net profit margin is 103 b Target Sales revenue equals 99863 and the net profit margin is 103 c Target Sales revenue equals 99863 and the net profit margin is 89 d e Target Sales revenue equals 132069 and the net profit margin is 89 Target Sales revenue equals 114843 and the net profit margin is 89 PM W W39Mt Q0 OWEg swampy mm a McLWWM Sedim amsc 12 Fc rc LEC39t r910 401600 28 325 49615 3szs1oss 7764 HW ZOE 0443 77er 7 SE 7254 44561 SE 6493 1 werech Rots 093 073 N3 7 MI 4456110 93 ltt t 44567 bitEAC www cW WMt rea CeEl iLt wa k r A outtome gqq253825 03g qngi l 244 g 4139 0 g PM NI o 3 Exam Question 11 19 8E3 Find decline in sales to reach operating breakeven The most recent annual report lists company Sales revenue at 71050 Cost analysis suggests that annual Total xed costs equal 29750 and Total variable costs equal 35350 The company believes that the ratio of Sales revenue to Total variable costs is constant Find the percentage decline in annual Sales revenue that would cause the company to fall to its operating breakeven point a 52 b 202 c 467 d 138 e 483 1 Eelquot we ml W as Sumac 2 T oitaLFc 8er 955 1y magsquot gGJLMreo SoJM I 5q 1og E o 1E E f g Ti CW 39 quot 397 hYLOSo Exam Question 12 20 BA90 Find ROR given PB depreciation APPE and 100 new equity The Company balance sheet for yearend 2525 shows that Total assets of 6300 include Plant property amp equipment PPampE of 3200 The assets are financed by Debt of 700 and Stockholders equity of 5600 there are 500 shares outstanding For year 2526 the company forecasts sales of 13230 a net profit margin net income sales of 75 a dividend payout ratio dividends net income of 50 and depreciation that is 21 of beginningof year PPampE Throughout year 2526 Debt remains unchanged The company expects to make capital expenditures such that for the yearend 2526 balance sheet PPampE is 300 larger than it is on the 2525 balance sheet above Suppose the Capital expenditure is financed exclusively by issuing new equity at the stock price of yearend 2525 Also suppose the equity pricetobook ratio is constant at 21 Find the stockholder s annual rate of return for year 2526 a 205 b 186 c 140 d 154 e 169 UWM4WWK H at its WM PPampE 3oo W 3200 27mg Zzoootaf 32000021 2328 397 we 39 KF PEJE Soo gt PPampE Ma 2 569094328quot 0 79 Howma 96 24 P15 5600 14 2357 500 m qf ja HA3 M ak39lsl d39quot 2362 gag NPM V5230 x0075 aqz Dee N1 24 Du 0amp7 x i 213391 2 LL 9 z o 39 397 it Lawless 5443 S H s quot31 quxSof3 706g 80 202 SL3 seoo sol2 L p 6 1 2 2 7 a 1744 feastedquot to PDPo MZO S 392 HF 96 quot zits2 ELam Question 13 21 BA11a Contrast ROR and ROE numerically given ratios For year 2526 the company forecasts sales of 75000 an asset turnover ratio salest total assets of 19a net profit margin net income sales of 33 a dividend payout ratio dividends net income of 55 and a debttoequity ratio total debt stockholders equity of 144 The company expects the equity pricetobook ratio of 110 to remain constant Contrast for year 2526 the shareholder s book returnon equity net income stockholders equity and market rate of return the book retumonequity is 133 the market rate of return is 145 the book retumonequity is 116 the market rate of return is 167 the book retumonequity is 153 the market rate of return is 145 the book retum onequity is 153 the market rate of return is 167 the book retumon equity is 116 the market rate of return is 145 50000 UCM MQOEI NI 750 07 3393y39 52 5 5370 a E SE SE isms it be ililir 7 mamaMAE a SE A ra 1 7m box 7 TA 16 R m TPs xwia HSE 35 7 SE i m W TA beLJttSE 00 gem 74 Maw LOP 002 MM WPB If PM 202 ir Plea 20E 5 MO E a IS 3 i 1 H1452 C ues n 1 13M 2b 5 marks yearemail 2525 Et kh idef Eul1i l3F i5 33M and 35E wmm Shares utgtanding Fm 2526 5a shuuld equal 1 Es the pram margin quotEquot imam 1 331 i34501 1113 WWW ra Emmanua nE1 immune i5 6 and m shares are i ued r repumha o th Hui ram at yeairagnd E 131 and it mmrgg m 133 at year nd what is the E hEFEhiIEIEFI E annual inf Hum fagquot 2525 a 126 h 133 95 EL mm E 124 F5 39139 E FEE 2 in Big 7 is Q n SE35 E v Flierng 2 E g 3131 1 51G 1 A 1I 39 1 1quot 39n39 a gt u a r gfk m quot E m w 3 Wk 5mm H153 xx ETEEU 39 17 aI 4 39 ha FL 39 FE quot H j 3quot quotquot E 9 GH g m v r a n M 2r v55 EEEF n MEI Ma 15 E LT 7 19 139 1t 1 W and 39 q L if quot39 3 Ma Frag ya 121 air21 2 ALE EarE Ema 539M395 151 azuwa 31 rk Exam Question 15 1 of 4 23 3830 PO and best efforts v rm commitment A company going through an initial public offering IPO hires an investment banker to assist with the process The extreme types of contract arrangement between company and investment banker are the firm commitment contract and the best efforts contract Which statement most accurately describes these alternatives a Mth the firm commitment contract an investment banker buys the company shares at a fixed price resells the shares through the lPO and the company bears all the risk of adverse price movements b With the best efforts contract an investment banker receives a negotiated fee assists the company to sell its shares through the IPO at the best price the company can get and the company bears all the risk of adverse price movements c The initial one day average return on an IPO is about 15 to 25 and irrespective of the contract with the investment banker the issuing company does not receive that day s capital gain d Two choices B and C are correct e None of the ABC choices are correct a MELLa Ww4n 4wm l 7 L67 1W uMmac F la 5 mt rawhrevqu Lwn tbgkiaq pC G39X Exam Question 15 2 of A 24 FF 12 Compare ROE to shareholder ROR Whenever the pricetobook ratio is constant then which is the most accurate comparison of the return on equity Net income I Stockholders equitym with the stockholders market rate of return Sharepn39cet Dividend l Sharepn39cem a If the shareholder rate of return is bigger than the return on equity then the price to book ratio is smaller than one b If the price to book ratio is smaller than one the shareholder rate of return is smaller than the return on equity 0 If the price to book ratio is smaller than one the return on equity is bigger than the shareholder rate of return d If the shareholder rate of return is smaller than the return on equity then the price to book ratio is smaller than one e If the price to book ratio is bigger than one the return on equity is smaller than the shareholder rate of return 6 9333 gt1 7 R05 gtQOFL Exam Question 15 3 of 4 25 TR38 Special cases of relation between ROR and ROE When both the i equity pricetobook ratio and ii number of common shares outstanding are constant then a stable relation exists between the accounting measure for returnonequity quotROE Net income Stockholders equity and the market measure of shareholder rate of return RORF P dividendt PM PM Given that conditions i and ii hold what is an accurate description of that stable relation a When the company never pays dividends then the ROE always equals the ROR b When the equity pricetobook ratio is constant at unity 10 then the ROR always equals the ROE c When the company dividend payout ratio is 100 then the ROR equals the ROE multiplied by the equity pricetobook ratio d Two choices A and B are correct e None of the A BC choices are correct on gm W Lc tr QM atquot 1 1quot QOK ROE PB gm 0 efu h Exam Question 15 4 of 4 26 TR42 Characteristics of nancial ratio categories Select the statement below that is most consistent with the classroom and textbook discussion about typical financial ratios a A company characterized by the quotlandrich cash poor syndrome probably has relatively high liquidity ratios b A company with a lot of excess borrowing capacity probably has relatively low debt ratios 0 The asset turnover ratio Sales Total assets probably is lower for a discount grocery store than for a nuclear power plant d Two choices B and C are correct 9 None of the A BC choices are correct 03 WOTMaL W 1411401 W 1 1M ailede WW39W c J gal007 TMW Exam Question 16 1 om 27 FA5 Find market cap and pricebook for simplest setting The company share price in the stock market is 54 The equity book value per share according to the balance sheet is 64 There are 320 million shares outstanding Find the company market capitalization and equity price to book ratio Market cap equals 13070 million and pricetobook is 084 Market cap equals 15030 million and priceto book is 073 Market cap equals 13070 million and pricetobook is 073 Market cap equals 17280 million and priceto book is 073 Market cap equals 17280 million and pricetobook is 084 09969 MC 5 gt24 5 51 77 KOM Pastors L 3 5 393 th E Exam Question 16 2 of g 28 FA8 Find pe given net income shareprice and shares Today the company announces net income equals 48 million They have 20 million shares outstanding and today s share price is 9240 Find the company s priceto earnings ratio a 564 b 385 c 512 d 466 e 424 p Pm 0 E39 7 EP3 NCXW satH 335 e Exam Question 16 3 of 3 29 FA 16 Find ROR for two stocks given pb and roe Company X reports that next year they expect a 33 retum onequity Company Z expects exactly the same ROE Both companies also have a 30 dividend payout ratio You assume that the equity PIB ratios are likely to stay constant The current PIB equals 123 for company X and 075 for company Z What is the difference between expected shareholder rates of return ROR for each company The ROR equals 236 for company X and 417 for company Z The ROR equals 271 for company X and 417 for company Z The ROR equals 311 for company X and 363 for company Z The ROR equals 236 for company X and 363 for company Z The ROR equals 271 for company X and 363 for company Z OU J DD I WXPs 4 96 Rolz 139 X ZOQ 1 O FSU SB OEOQS 339 MW 1 23 Z 20K 1 3939 0 75 eeetien 11 EFHEE 5 meme Find belew the gleefe neneie etelzemen ite fer year 2525 Salem H a iE i E EE T E Eeeneeeeur iee 15 Eurren tfi ehi m ee Eelee 35513 33TH Imemew 1233 Debt tete e F39PeE ezeee Edieekheldjere39iequi y netineeme 333 4245 T tei aeeete dividends 1 Te newreteined eemi ge 11130 Fer the eemseny plane wine Thea r plan held eenetent eeeei turrmver Ante eeeeie end eeyeut re e iquot i ei eede enet in fl IE They plan te inereeee Eunent Lieeiili iee epemieraeeeew eelieei while hel ii g Debi eenetgerat g a the my 1 pen ed te ieeti lzute mat imr ase the gt margin g at mmm 53135 by ebee melee ef year 2525 pier l1 mum e emei ne ei g ie yeer 25235 Given a 28 25 e 23 13 e 21 5 Lee T ejeeeeeqlh EEG M when 1311 2 TH i1Th r calmLL ll393 23 7 Hi3 Emmi 1139 quot 39L 1TI 395 Evie M 155Q v 39L Lil 5 i332 E is e E E r em eeueee E meme em xii lie E MI L1 L71 quotTEES 39 gel EFMeee elwelle M q Exam Question 18 31 EFN3a Static EFN with stretching average payment period numerical choices For year 2525 the company s sales were 370000 and their annualcost of goods sold equaled 85 of sales The company has followed a policy that set the average payment period Accounts Payables dailycost ofgoodssold at 35 days The company realizes that relying on Payables as a financing source is free whereas relying on Debt costs 14 per annum Suppose they institute a policy that causes the average payment period to increase by 30 days Further suppose the policy has no effect on the firm s Total Assets or Sales Based on the numbers for year 2525 how much would the new policy affect annual financing costs due to the company s switch between high cost Debt and lowcost free Payables a 2991 b 3619 0 3981 d 3290 9 2719 Sainp 3 70 000 Conic 70000 x085 30500 SM 3065430 at illV 3lliScgto x mil x329 369 Maracaibo CW 63 Um ngwl usti n 1 9 1 Elf 4 mam Find belnw the in ame statement mama W 133132525 Salas 2211 3H 27131 Net imma ividenda retaian earnings 141K Tatar 33335 at aqua and is 533 mmpany i5 grmving at their suaiainable Fate are THE 3559 133132525 a 4551 l1 M19 a 5535 a 5145 a ma Km FEE 1 L11 min Bit P Ed Uquot bberEEf m h iik jfagt A Lii l TH at 3 meai Lama wt 3 F M co grow Exam Question 19 2 of 41 MM W W M 33 GR4 Find TA next year given components for g quot39 quota Find below the company39s income statement Income 11 12312525 Sales 20000 Total costs 18900 Net income 1 100 Dividends 460 New retained earnings 640 Total assets at 12312525 equal 3770 It the company is growing at their internal growth rate what are Total assets at 12l31l2526 a 6044 b 4541 0 5494 d 4995 e 4128 Not WW M TQTAo 1339M 24 Q1 At Qb 253 O201S 31104940 TR TC iii090453 5110 in izows lgsm 3i Exam Question 19 3 of 4 34 BA3a How much does venture capitalist receive in a oneperiod model The Company balance sheet for year 2525 shows that Total assets of 3300 are financed by Debt of 500 and Stockholders equity of 2800 There are 220 shares outstanding at yearend 2525 The company plans to obtain venture capital by selling 60 additional shares at their current book value to a venture capitalist The company agrees to repurchase the shares at yearend 2526 at a price equal to 134 of that year s book value For year 2526 the company forecasts sales of 21780 a net profit margin net income sales of 1360 and a dividend payout ratio dividends net income of 20 Assume debt remains unchanged How much total cash flow dividends plus repurchase price does the venture capitalist receive at yearend 2526 a 1831 b 2215 6 2437 d 2681 9 2014 3V 9300 1fl3 220 VC than soc2 1273 1536 gt New 352 28007636 35636 N1 32L x PM 1mm may 2 2352 RE NI 1 a W mm lotezx 807 2 2370 DID NI X 3 lqelxo39zv39 8 516 139 3563 2310 5613A W sze 5 3f 21m 110160 AW to reF Q 6147 car BV 30x 91 1lt 311 I10 Vcouu 5quotle 60 191 12060 Total CF lOH391391L1 18quot A 1016 g 702 Exam Question 19 4 of 4 35 BA4a Find 2nd year s cash flow in twoperiod venture capitalist model The Company balance sheet for year 2525 shows Total assets of 3300 financed by Debt of 600 and Stockholders equity of 2700 There are 190 shares outstanding at yearend 2525 The company plans to obtain venture capital by selling 80 additional shares at their current book value to a venture capitalist The company agrees to repurchase the shares at yearend 2527 at a price equal to 138 of that year s book value For year 2526 the company forecasts sales of 17820 a net profit margin net income sales of 740 and a dividend payout ratio dividends net income of 20 Assume debt remains unchanged For year 2527 sales should be higher by 15 but the net profit margin and payout ratio should remain constant Also assume that debt remains unchanged How much total cash flow dividends plus repurchase price does the venture capitalist receive at yearend 2527 a 2586 b 2351 c 1943 d 1766 e 2137 6V 21102 Iqo fC 3M1 Soe m2 ligt39l gt New 35 9100 H3quot 5337 N1 Sam x PM 182o x1Hv7 new RE NIL l Paawkmiio39 3iqxo8 tot3 s bi NI Wm h mayo7 51 65 541 qu Sv PMMAWWO a 2Embmuf63l57 RE Ream 5 iOSSst my Dawn D5 xit zeuxrlsz 3930 SE 3515 Q515QEH 3837l055t113 6 05 BVJJ 6 05 Ho 80 63m to W as 337 gal 3v 80x mm x 33 2mg 30 IC Dual1 301 xmoqo r A 2161 9 T014 CF11 99136 o 2584 Exam Questipn 20 36 GR2d Find new equity pricetobook ratio given constant pe and g quotquot Find below the Company s financial statements for year 2525 Balance Sheet 12312525 Income 11 12312525 555 Current assets 1955 Debt Sales 16200 3600 PPampE 2200 Stockholders39equity total costs 15600 4155 Total assets 4155 net income 600 dividends 290 new retained earnings 310 For 2526 the asset turnover salestotal assets net profit margin net income sales payout ratio dividendsnet income and price to earnings ratio now 181 will be constant The number of shares outstanding is 110 The firm seeks maximum growth by relying exclusively on retained earnings external financing will be zero What is the equity priceto book ratio at yearend 2526 6L i a 463 b 509 c 678 d 616 e 560 W 759 My 1 0 Dr bum M Ne 2616 241 3 3ol 310 1 lo 335 L 314 3067 MC PE 5 N114 5 953 N115 84 GOOKVOSOQ H735 5516 n m SE15 4 2200 335 PS Melt i 1 R SE15 2535 NED TQBAJSS Rea5310 3915 W W xi mate 95 654103 38166 a ll6 r mt lb 38l0806 l3 Exam Question 21 37 GR3b Find shareholder ROR given changing pe and gsustainable Find below the Company s financial statements for year 2525 Balance Sheet 12312525 Income 11 12312525 3300 Current assets 8500 Debt Sales 154500 27000 PPampE 21800 Stockholders equity total costs 147600 30300 Total assets 30300 net income 6900 dividends 2970 new retained earnings 3930 For 2526 the asset turnover salestota assets net profit margin net income sales and payout ratio dividendsnet income will be constant The priceto earnings ratio 256 at yearend 2525 is expected to equal 333 at yearend 2526 The number of shares outstanding is 10900 The rm seeks maximum growth by relying on internal and external financing such that the debttoequity ratio remains constant For the shareholder that buys a share at yearend 2525 and holds the stock through year end 2526 what is the rate of return a 889 b 809 C 607 d 735 9 668 NOMWMJA LO 3A8 ll CW bSE mL Iwgux 43M aft gums we M 202 Pib39P Mct l39DLJ MCo 7 7 7 7 7 if 5 PE 156 Mcls 9615 x NI 1568 655100 1766110 PE333 QUb sa 353001350041 12 DSE Wquot 339 A Q1 Digs 30300 quot 33300359211300 Itquot N126 N115 334 efqooxlZ39l II 3 MC PE NI 33393x8n8 2803i 7l bbz Duals 3M 3 quot112 Q00 1OBGIZ523Wb 0 2 6077 c J 116640 Exam Question 22 1 of 4 38 BA 13 Find stock price next year given asset turnover net margin and changing pb On January 1 the company has Total assets of 7200 financed by Debt of 4700 and Stockholders equity of 2500 for 200 common shares outstanding the equity pricetobook ratio is 137 During the subsequent year the company does not issue new shares They also expect an asset turnover ratio Sales Total assets of 44 a 520 net profit margin and a 60 payout ratio If the yearend equity pricetobook ratio were 128 what yearend shareprice is forecast a 2224 b 2691 c 2022 cl 2960 e 2447 com P w PB SE SEC 2500 36 2E 01M AH y Soot LP39A39X LQ OO39 T9 N1 Sale x PM 9680 5 2 4 Us 25 N1 0 Wm Le x oH 5541 39 35 350 ZE 1SOOQSG 235 MC 350 95 z 3350 x 2 8Jto3k P MC 103 er 2022 C Exam Question 22 2 of 4 39 BA14 Find stock ROR given asset turnover net margin and constant pe and growing income At yearend 2525 the company has total assets of 6200 financed by Debt 39of 3300 and Stockholders equity of 2900 For year 2526 the company forecasts an asset turnover ratio 381982526 total assetszsgs of 42 a net profit margin of 55 and a dividend payout ratio of 35 There are 230 shares outstanding and at yearend 2525 the pricetoearnings ratio is 345 Throughout year 2526 no additional shares are issued and the pricetoearnings ratio remains unchanged Suppose that the net income is 80 larger in 2526 than in 2525 Find the shareholder annual rate of return for year 2526 a 121 b 83 c 110 d 100 e 91 S 16 397 7 gain h Zx 200 260190 TRIS N12 Salaam y PM lama x567 1113 Di 23 P5 3hS N1 N115 02 gt NI 11514 31523 1 13261 108 108 MC15 NIzs P X git395 55750 in Hem9 x345 Lyman h 1 quot 39 39 r D M1 39 buoy 39qu W war may 5013 Eejbmwgvi Qorb McuaDcu MC Ll l1l 50 3quot S39152 1 Wk 0 MgS H3760 Exam Question 22 3 of 4 40 EFN1b Static EFN with average age of inventory change word choices Company sales equal 48000 for the year ending December 31 the costsof goods sold cgs equal 80 of sales and the inventory was replaced about every 76 days inventory turnover in days 365 inventory turnover ratio inventory turnover ratio annual cgs Inventory balance The Company is considering a change in their inventory ordering policy As a result they believe that sales would remain constant in the forthcoming year yet the length of time that inventory stays on the shelf would change by 38 days shelf time increases If the financing rate for inventories is 16 per year what is the effect on their annual inventory financing costs The policy change results in additional annual costs of 556 The policy change results in additional annual savings of 640 The policy change results in additional annual costs of 736 The policy change results in additional annual savings of 736 The policy change results in additional annual costs of 640 DQ012793 Soho 316000 Mu Lit3000 x807 Sal00 I W HoMaweva sw e 67u 22gt BSA 00 x 67 xii lpo 365 Eeem uestion 2214 of AL 41 CF2 nd cash ow to shareholders given 1 balance sheet and some ows Find below the Company s balance sheet at year end 2525 Balance Sheet 12312525 Cash 555 955 Debt PPampE 3400 3000 Stockholders equity 3955 3955 Total liabilities amp equity For the year 2526 the following items are forecast Depreciation is 340 Capital Expenditures equal 410 interest expense is 1 l0 Net Income is 510 Dividends eual 291 Seen Flew frerrl eeeete is 515 Net Debt leeuee ie 98 that iel debt increases There is no preferred stock or ee aerdinery items anti there are nee ether noncash expenses The balance sheet for yearend 2526 contains only the same line items as appear above For year 2526 how much is the cash flow to shareholders a 501 b 551 0 455 d 414 e 376 1ng 2 tweet WW CF to W lxo leMH cr mma thu WaCFtW 5SCF39QW7 LP quothcpto WSlsm Sol A 255 42 CF1c Find next year s SE given 1 balance sheet some ows and cash ow from assets Find below the Company39s balance sheet at year end 2525 Balance Sheet 12312525 Cash 390 1190 Debt PPampE 2900 2100 Stockholders equity 3290 3290 Total For the year 2526 the following items are forecast Depreciation is 380 Capital Expenditures equal 460 Interest expense is 110 Net Income is 530 Dividends equal 297 Cash Flow from Assets is 438 Net Debt Issues is 95 that is debt increases There is no preferred stock or extraordinary items and there are no other noncash expenses The balance sheet for yearend 2526 contains only the same line items as appear above For yearend 2526 how much is Stockholders Equity a 2207 b 1824 C 2006 d 2428 9 2670 CFMWT LH53 Ona39WVWMl CFhW MW 139 CF13 u I II llnpbkm NekM2 r1 wiMw u 0 to Marin heox MQLWCW 34 1OTQS51S 39 H33 LqI WM W s PMM 1763 v Cw all i 514 2OO 7 Alma as c 10r WM 95 NL bz 530 1377233 m 35 2oo16233 2707 A ues un 241 2133 marlin Find the E mpanf baElaen a far 3amp3er E135 EEEI 53 Ewmntliabili e s waning 31 Em 1 ammuem mum 53mm 3 Tania Fur 2525 me Emma gratin 335953525 Talia m a i5 pramia n teams 13 If PPEEE and margin II Eami gs Interest Tag35 a39 5 1137 lsnt arming leqiuaig Eni fe a Eff L Tierrn Debi Tax Equai Hamburg ri yrs 1 i5 are m lather an the mime atgrner 2525 There are quoti sham cumming fin 553135553 F a ia39 Wim F le 9 tn eaminQE raisin m y ar End 2525 E uais 293 E39igni t ant t yam is iii13 IE Shara a in crafting ash aw perquot Share E mpa f primeah nw ra39 n a h 1 313 d 2158 a A quot3 A m i39 7 Emma 55 2 Exxw EUHG RJiiJD TH m If 2 2 LT iquot H r 1 Ewtm j 3 LTD a 323 1 H3G w 3 H 4 EEIT W gm Hag L39Ei 3 H Err 1LT 1E Light E b M iw wi g LIME LEE si E f EggBM FEESquot El i im in 553 44Fng E F Wag3931 z ELF Ema ueatii ns 25 i If 3 BET mam r warms ahmt a EEHEUIE E a Unmer nan ineg typicain i5 like a l an interest payn 39IEnis 33nd repafm m n p npatl b Ugualiy their plans imhe a lirfe mg mmi nent m he piing mparay a a s 1 many inmwkr in e sianamaking d Venium nan i g represents mare ihana half f ale mnney by US mpanias 5 ii EEtElisihed large mmpanies wiitm impirEEEin a nancing higtries I 5 11quot A 7L 1 n Exam Question 25 2 of 3 45 8823 Initial public offering 2 of 3 statements Choose the most accurate statement about Initial Public Offerings lPOs a shareprices for lPOs during the first day of trading rise dramatically for some stocks fall for others but on average follow the overall market b shareprices for IPO stocks generally overperfon39n the overall market during the few years following the IPO 0 information disclosure requirements increase after the company goes public d Two choices A and B are correct 9 None of the A BC choices are correct a Swag Exam Question 25 iquot 3v 46 8829 Venture capitalist characteristics Venture capitalists represent a financing source for many businesses in the USA Select the statement that best describes the typical venture capital investment a the typical length of the commitment is 4 to 7 years b one of the four most typical means of liquidation is for the venture capitalist to sell shares to banks that are looking for profitable investments c the venture capitalist makes a loan to the business at interest rates that typically are more favorable than rates offered by banks d Two choices B and C are correct e The three AB C choices are all correct do Aron mat iotolo 0 3141140141 Cageco C A f