Document Sample

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

DOCUMENT INFO

Shared By:

Categories:

Tags:

Stats:

views: | 16 |

posted: | 9/14/2012 |

language: | English |

pages: | 10 |

OTHER DOCS BY alicejenny

How are you planning on using Docstoc?
BUSINESS
PERSONAL

By registering with docstoc.com you agree to our
privacy policy and
terms of service, and to receive content and offer notifications.

Docstoc is the premier online destination to start and grow small businesses. It hosts the best quality and widest selection of professional documents (over 20 million) and resources including expert videos, articles and productivity tools to make every small business better.

Search or Browse for any specific document or resource you need for your business. Or explore our curated resources for Starting a Business, Growing a Business or for Professional Development.

Feel free to Contact Us with any questions you might have.