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```					1. A firm has targeted a 20% growth in sales this year. Last year's cash as a percent of
sales was 15%, accounts receivable 30%, and inventory 35%. What percentage growth in
current liabilities is required to support the growth in sales under the percent-of-sales
forecasting method?

A) 32%

B) 20%

C) 16%

D) Not enough information to tell

Use the following to answer questions 2-5:

2. The Degree of Combined Leverage (D.C.L.) is

A)3.08x

B)5.45x

C)2.73x

D)6.83x

3. The Degree of Financial Leverage (DFL) is

A)3.50x

B)1.40x

C)1.95x

D)1.58x
4.The Degree of Operating Leverage (DOL) is

A)1.58x

B)1.95x

C)3.50x

D)1.40x
5. This firm's break-even point is

A)4,800 units

B)14,634 units

C)7,142 units

D)18,000 units

6. A firm has \$400,000 in current assets, \$400,000 in long-term assets, \$80,000 in current
liabilities, and \$200,000 in long-term liabilities. What is its net working capital?

A)\$120,000

B)\$320,000

C)\$520,000

D)none of the above

Working Capital = \$400,000 - \$80,000

= \$320,000

7. A firm has total current liabilities of \$100,000. It has \$900,000 in long-term debt. The
stockholders equity is \$1,500,000. What is the total debt to asset ratio?

A)45%

B)40%

C)55%

D)none of the above

Total Liabilities = \$100,000 + \$900,000
= \$1,000,000

Total Assets = Liabilities + Equity

= \$1,000,000 + \$1,500,000
= \$2,500,000

Debt-to-Assets ratio = \$1,000,000 / \$2,500,000

= 0.4

8. Joe Lewis borrows \$10,000 to be repaid over 10 years at 9 percent. Repayment of
principal in the first year is:

A)\$1,558

B)\$658

C)\$742

D)\$885

Calculations are on the attached excel sheet

9. Given the following, what is free cash flow? Cash flow from operating activities
\$175,000; capital expenditures \$35,000 and dividends \$25,000

A)\$115,000.

B)\$235,000.

C)\$185,000.

D)\$165,000.

Free Cash Flow = Cash Flow from Operating Activities – Capital Expenditures –
Dividends

= \$175,000 – (\$35,000 + \$25,000)

= \$115,000

10. If a firm has fixed costs of \$30,000, a price of \$4.00, and a breakeven point of 15,000
units, the variable cost per unit is:

A)\$5.00

B)\$2.00
C)\$.50

D)\$4.00

Breakeven Point = Fixed Costs ÷ Unit Contribution Margin

15,000 = \$30,000 ÷ Unit Contribution Margin

Unit Contribution Margin = \$30,000 ÷ 15,000

= \$2

Variable Cost per Unit = Sales Price – Unit Contribution Margin

= \$4 - \$2

= \$2

11. A firm has \$1,000,000 in its common stock account and \$2,500,000 in its paid-in
capital account. The firm issued 100,000 shares of common stock. What was the original
issue price if only one stock issue has ever been sold?

A)\$35 per share

B)\$25 per share

C)\$10 per share

D)Not enough information to tell

Total Proceeds from issuing 100,shares = \$1,000,000 + \$2,500,000

= \$3,500,000

Price per share = \$3,500,000 ÷ 100,000

= \$35

12. A firm has \$2,000,000 in its common stock account and \$20,000,000 in its paid-in
capital account. The firm issued 500,000 shares of common stock. What is the par value
of the common stock?

A)\$40 per share
B)\$44 per share

C)\$4 per share

D)\$3.00 per share

Par value = \$2,000,000 ÷ 500,000

= \$4

13. A firm has forecasted sales of \$3,000 in April, \$4,500 in May and \$6,500 in June. All
sales are on credit. 30% is collected the month of sale and the remainder the following
month. What will be balance in accounts receivable at the beginning of July?

A)\$1,950

B)\$6,500

C)\$4,550

D)\$5,100

Calculations are on the attached excel sheet

Balance in Accounts Receivable in July would equal 70% of June Sales = \$6,500 ×
70%

= \$4,550

14. Assuming a tax rate of 40%, the after-tax cost of a \$200,000 dividend payment is

A)\$200,000

B)\$70,000

C)\$130,000

D)none of the above.

The After-tax cost of equity is the same as the before tax cost of equity.

15. Mike Carlson will receive \$10,000 a year from the end of the third year to the end of
the 12th year (10 payments). The discount rate is 10%. The present value today of this
deferred annuity is:
A)\$61, 450

B)\$42,185

C)\$46,149

D)\$50,757

Calculations are on the attached excel sheet

16. You will deposit \$2,000 today. It will grow for 6 years at 10% interest compounded
semiannually. You will then withdraw the funds annually over the next 4 years. The
annual interest rate is 8%. Your annual withdrawal will be:

A)\$2,340

B)\$4,332

C)\$797

D)\$1,085

FV of the \$2,000 annuity = \$2,000 × (1.05)12

= \$3,591.71

This amount represents the present value of the 4 year withdrawals

Therefore:
1
1
(1.08)4
\$3,591.71  C 
0.08

\$3,591.71 = 3.31213C

C = \$3,591.71 ÷ 3.31213

= \$1,084.41

17. XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The
company maintains ending inventory equal to 125% of next month's sales. June
beginning inventory reflects this policy. What is June's required production?

A)1100 units
B)-0- units

C)500 units

D)400 units

Calculations are on the attached excel sheet

18. John Doeber borrowed \$125,000 to buy a house. His loan cost was 11% and he
promised to repay the loan in 15 equal annual payments. What is the principal
outstanding after the first loan payment?

A)\$121,367

B)\$123,088

C)\$107,617

D)None of the above

Calculations are on the attached excel sheet

19. A firm has operating profit of \$120,000 after deducting lease payments of \$20,000.
Interest expense is \$40,000. What is the firm's fixed charge coverage?

A)6.00x

B)2.33x

C)2.00x

D)3.00x

Fixed Charge Coverage =

Income before Fixed Charges and Taxes = \$120,000 + \$20,000 = \$140,000

Fixed Charges = \$20,000 + \$40,000 = \$60,000

Fixed Charge Coverage = \$140,000 ÷ \$60,000

= 2.33
20. A firm has a debt to asset ratio of 75%, \$240,000 in debt, and net income of \$48,000.
Calculate return on equity.

A)60%

B)20%

C)26%

D)not enough information

Total Debt
Debt to Assets Ratio =
Total Assets

\$240,000
0.75=
Total Assets

Total Assets = \$240,000 ÷ 0.75

= \$320,000

Return on Assets = Net Income ÷ Total Assets

= \$48,000 ÷ \$320,000

= 0.15

ROE = 0.15 ÷ (1-0.75)

= 0.6

21. Assuming a tax rate of 35%, depreciation expenses of \$400,000 will

A) reduce income by \$140,000.

B) reduce taxes by \$140,000.

C) reduce taxes by \$400,000.
D) have no effect on income or taxes, since depreciation is not a cash expense.

Depreciation Tax Shield = Depreciation × Tax Rate

= \$400,000 × 35%

= \$140,000

22. A firm with earnings per share of \$5 and a price-earnings ratio of 15 will have a stock
price of

A)\$20.00

B)\$75.00

C)\$3.00

D)the market assigns a stock price independent of EPS and the P/E ratio.

Price = PE × EPS

= 15 × \$5

= \$75

23. A firm has a debt to equity ratio of 50%, debt of \$300,000, and net income of
\$90,000. The return on equity is

A)60%

B)15%

C)30%

D)not enough information

Debt to equity ratio = Total Debt ÷ Total Equity

0.5 = \$300,000 ÷ Total Equity

Total Equity = \$300,000 ÷ 0.5

= \$600,000

Return on Equity = Net Income ÷ Total Equity
= \$90,000 ÷ \$600,000

= 0.15

24. A firm has beginning inventory of 300 units at a cost of \$11 each. Production during
the period was 650 units at \$12 each. If sales were 700 units, what is the cost of goods
sold (assume FIFO)?

A)\$9,000

B)\$8,000

C)\$7,700

D)\$8,100

Cost of Goods Sold (FIFO) = (300 × \$11) + (400 × \$12)

= \$8,100

25. BHS Inc. determines that sales will rise from \$300,000 to \$500,000 next year.
Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BHS
has a 10% profit margin and a 40% dividend payout ratio. What is the level of required
new funds?

A)\$50,000

B)\$20,000

C)\$100,000

D) BHS is in balance and no new funds are needed.

A        L
( RNF )     (S )  ( S )  PS 2 (1  D)
S         S
 (0.7  \$200, 000)  (0.3  \$200, 000)  [(0.10  \$500, 000)  (1  0.4)]

= \$50,000

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 views: 16 posted: 9/14/2012 language: English pages: 10