QUESTION

# STR581 STR/581 FINAL EXAM CAPSTONE

1. Which of the following financial statements is concerned with the company at a point in time?

income statement

statement of cash flows

retained earnings statement

balance sheet

2. A cost which remains constant per unit at various levels of activity is a:

fixed cost

mixed cost

variable cost

manufacturing cost

3. M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock. If Dynamo wishes to change its capital structure from 75 percent equity to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they use?$600

$375$225

$321 4. Serox stock was selling for$20 two years ago. The stock sold for $25 one year ago, and it is currently selling for$28.  Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.) 32% 16% 12% 40% 5. The process of evaluating financial data that change under alternative courses of action is called: contribution margin analysis cost-benefit analysis double entry analysis incremental analysis 6. What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects? the discounted payback the profitability index the internal rate of return the modified internal rate of return 7. The convention of consistency refers to consistent use of accounting principles: among firms within industries throughout the accounting period among accounting periods 8. External financing needed: Jockey Company has total assets worth$4,417,665. At year-end it will have net income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the growth rate it can support? 27.3% 32.9% 25.1% 30.3% Growth rate = RR x ROE = (1-Divident payout ratio) x ($2,771,342 /$4,417,665) = 25.1% 9. Which of the following is considered a hybrid organizational form? limited liability partnership partnership sole proprietorship corporation 10. An activity that has a direct cause-effect relationship with the resources consumed is a(n): overhead rate product activity cost driver cost pool 11. Next year Jenkins Traders will pay a dividend of$3.00.  It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return if 14 percent, what is the present value of their dividends over the next four years?$11.63

$13.50$9.72

$12.50 12. TuleTime Comics is considering a new show that will generate annual cash flows of$100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project? 1.90 0.90 0.11 1.11 13. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio? 0 1.74 0.60 1.47 14. If a company’s weighted average cost of capital is less than the required return on equity, then the firm: partnership is perceived to be safe is financed with more than 50% debt has debt in its capital structure 15. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using: operations costing variable costing absorption costing product costing 16. The major element in budgetary control is: the comparison of actual results with planned objectives. the valuation of inventories the preparation of long-term plans the approval of the budget by the stockholders 17. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time: to determine which items are in error. that has been arranged from the highest number to the lowest number. to determine the amount and/or percentage increase or decrease that has taken place. that has been arranged from the lowest number to the highest number. 18. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships? lower taxes most common form of organization harder to transfer ownership reduced legal liability for investors 19. The break-even point is where: contribution margin equals total fixed costs. total variable costs equal total fixed costs. total sales equal total variable costs. total sales equal total fixed costs. 20. Turnbull Corp. had an EBIT of$247 million in the last fiscal year.  Its depreciation and amortization expenses amounted to $84 million. The firm has 135 million shares outstanding and a share price of$12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40.

What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.

$1,787 million$1,344 million

$1,315 million$453.6 million

21. Which of the following is considered a hybrid organizational form?

partnership

limited liability partnership

corporation

sole proprietorship

22. The most important information needed to determine if companies can pay their current obligations is the:

projected net income for next year

relationship between short-term and long-term liabilities

relationship between current assets and current liabilities

net income for this year

23. Gateway, Corp.  has an inventory turnover of 5.6.  What is the firm’s days’s sales in inventory?

61.7

57.9

65.2

64.3

Solution: 365 days /5.6=65.2 days

24. Horizontal analysis is also known as:

vertical analysis

linear analysis

trend analysis

common size analysis

25. Which of the following presents a summary of changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period?

the statement of net worth

the statement of working capital

the statement of cash flows

the statement of retained earnings

26.  Ajax Corp. is expecting the following cash flows - $79,000,$112,000, $164,000,$84,000, and $242,000 – over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)$477,235

$429,560$414,322

$480,906 27. Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company's bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.)$972

$1,066$1,014

$923 28. Process costing is used when: dissimilar products are involved production is aimed at fulfilling a specific customer order. the production process is continuous. costs are to be assigned to specific jobs. 29. Jack Robbins is saving for a new car. He needs to have$21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar)

$22,680$26,454

$19,444$16,670

30. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called:

flexible accounting

static reporting

master budgeting

responsibility accounting

31. Variance reports are:

SEC financial reports

internal reports for management

external financial reports

all of these

32. The cash conversion cycle?

shows how long the firm keeps its inventory before selling it.

estimates how long it takes on average for the firm to collect its outstanding accounts receivables balance.

begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures.

33. In a process cost system, product costs are summarized:

when the products are sold.

on job cost sheets.

on production cost reports.

after each unit is produced.

34. Internal reports that review the actual impact of decisions are prepared by:

the controller

factory workers

management accountants

35. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm’s cost of debt capital is 10 percent and the cost of equity capital is 20% What proportion of the firm is financed with debt?

70%

50%

30%

33%

36. The group of users of accounting information charged with achieving the goals of the business is its:

auditors

investors

managers

creditors

37. An unrealistic budget is more likely to result when it:

has been developed in a bottom up fashion.

has been developed by all levels of management.

is developed with performance appraisal usages in mind.

has been developed in a top down fashion.

38. Jayadev Athreya has started his first job. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years?$3,594,524

$2,667,904$1,745,600

$5,233,442 39. Firms that achieve higher growth rates without seeking external financing: Have a low plowback ratio are highly leveraged have less equity and/or are able to generate high net income leading to a high ROE. None of these 40. Teakap, Inc. has current assets of$1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of$1,041,012, common equity of $1,500,000 and retained earnings of$1,468,347. How much long-term debt does the firm have?

$803,010$1,844,022

$2,123,612$2,303,010

1. balance sheet

2. variable cost

3. $225 Solution: Debt = 0.25 x$1,500=$375 After restructuring =0.40 x$1,500=$600 Total debt issuance =$600-$375 =$225

4. 16%

Solution: 2 years ago the price was $20 After one year it was sold for$25 (Po=$25) & Now it is selling for$28 (p1=$28) Dividend (D1=110) Rate of return (R) = D1+(P1-Po)/ Pox100 = [$1.10+$(28-25)]x100=16% 5. incremental analysis 6. the profitability index 7. among accounting periods 8. 25.1% Solution: Total Assets =$4,417,665

Net income = $2,771,342 Dividend payout ratio = 60% 9. limited liability partnership 10. cost driver 11.$9.72

Solution: Given n=3,D1=$3.00,G=0.25,R=14% Present value of dividends over the next 4 years =$(3.00/1.14)+$3.25/(1.14)2+$3.50/(1.14)3+$3.75/(1.14)4=$(2.63+2.50+2.36+2.22)=$9.72 12. 1.11 Solution: Annual cashflow=$100,000

Initial outflow ==$1,500,000, i=6% Profitability index = Cash Inflow/Cash outflow=${100,000/.06}/$1,500,000=1.11 13. 1.47 Solution: Equity multiplier = Total Assets/Stockholders equity Also, Equity Multiplier =1/Equity Ratio Or, 2.47/1=Equity Ratio Equity proportion = 2.47 Debt proportion = 2.47-1=1.47 14. has debt in its capital structure 15. absorption costing 16. the comparison of actual results with planned objectives. 17. to determine the amount and/or percentage increase or decrease that has taken place. 18. reduced legal liability for investors 19. contribution margin equals total fixed costs. 20.$1,787 million

Solution: Enterprise value is 5.4 * EBITA =5.4*(247+84)=1787.4 million

21. limited liability partnership

22. relationship between current assets and current liabilities

23. 65.2

Solution: 365 days /5.6=65.2 days

24. trend analysis

25. the statement of cash flows

26.  $429,560 Solution:$79,000/1.15+$112,000/(1.15)2+$164,000/(1.15)3+$84,000/(1.15)4+$2,42,000/(1.15)5

=$(68696+84,688+107833+48027+120316)=429,560 27.$1,066

Solution: Given n=6 years, i=8.25%, YTM=6.875%, PV of Bond=?

PV of Bond = (1000x8.25%)x [1-1/(1.06875)6/.06875]+1000/(1.06875)6=(82.5x4.8)+671=$1,067 28. the production process is continuous. 29.$16,670

Solution: PV=$21,000/(1.08)3=$16,670

30. responsibility accounting

31. internal reports for management

32. begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures.

33. on production cost reports.

34management accountants

35. 70%

Solution: XDebt=Y, XEquity = (1-Y)

kfirm= XDebt kDebt + XEquity kEquity = = >0.13=(Yx0.1) + ((1-Y) x 0.20)= => Y=0.7

36. managers

37. has been developed in a top down fashion.

38. $3,594,524 Solution: Future value of ordinary annuity = A X[(1+i)n-1/i] =$5,000x[(1.10)n-1/10)

=$3,594,524 39. have less equity and/or are able to generate high net income leading to a high ROE. 40.$803,010

Solution: Current Assets = $1, 456, 312 Total Assets =$, 812, 369

Current Liabilities = $1, 041, 012 Common equity =$1, 500, 000 $Retained Earnings =$1,468, 347

Long term debt = $4,812,369-$1,041,012 $15,00,000-$1,468,347=$803,010 • @ • 170 orders completed ANSWER Tutor has posted answer for$25.00. See answer's preview

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accounting 31

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years ago

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****** ***

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the ************* ******

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****** *

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***************** Initial

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************* index * ****

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********** *

Total ******************* ******* **** Equity ********** *********

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** *** **** **

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*** ********** **

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for investors 19 ************ ****** ******

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****** *********

Given

*** years

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(1000x825%)x ******************************************************** ** *** production process

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***************** * ************************