1. A&D Inc. is projecting the following increases and decreases over the next year:

Inventory - increase by $3 million

Accounts receivable - decrease by $2 million

Accrued payroll taxes - increase by $1 million

Fixed assets - increase by $5 million

Long term debt - increase by $4 million

Revenues - increase by $6 million

As a result of its projections, A&D Inc. can expect it's net working capital to:

a. Not change.

b. increase by $7 million

c. Decrease by $1 million

d. Increase by $1 million.

10 points

QUESTION 2

1. You work for Sony Music and you are in charge of negotiating the price to purchase the publishing rights to Taylor Swift's songs published before 2018. Taylor Swift currently owns her own publishing rights. You estimate that they will bring in $7 million per year on average for the next 10 years. Your boss told you the appropriate interest rate to use is 8 percent. What is the most you should offer Taylor Swift for the publishing rights? Ignore taxes.

$26 million (rounded)

$51 million (rounded)

$70 million (rounded)

$47 million (rounded)

10 points

QUESTION 3

1. National Bark Company reported a current ratio of 2:1 last quarter and this quarter it has reported a ratio of 1:1. This means that over the last quarter

a. The company increased its net working capital

b. The change in its working capital increased by 50 percent.

c. The company went from reporting working capital to reporting zero working capital.

d. The change in its working capital dropped by 50 percent.

10 points

QUESTION 4

1. Rocky Corp. anticipates needing a new vehicle for its President 4 years from now. It believes the vehicle will cost $32,000 in four years. How much will the company need to save on a bi-annual (i.e., twice per year) basis starting six months from now if it believes it can earn 10 percent on the amount it saves? Ignore taxes.

$3,351 (rounded)

$6,895 (rounded)

$32,000 (rounded)

$545 (rounded)

10 points

QUESTION 5

1. You are the director of mergers and acquisitions for R&R Dog Company and you just purchased the Milk Bone Dog Biscuit product line from one of your competitors. You expect to generate cash flows of $10 million, $20 million, $30 million and $40 million, respectively, in each year over the next four years.. If R&R's appropriate interest rate is 10 percent, what do you estimate is the value today of Milk Bone's cash flows?

a. $10 million (rounded)

b. $45 million (rounded)

c. $75 million (rounded)

d. $100 million (rounded)

10 points

QUESTION 6

1. What is the annual cost of trade credit when the terms are 1/10, net 30? Assume a year has 360 days.

a. 12.3% (rounded)

b. 18.4% (rounded)

c. 18.2% (rounded)

d. 12.1% (rounded)

10 points

QUESTION 7

1. The present value of a stream of cash flows you expect to received will always increase when:

a. the interest rate is zero and the number of compounding periods decrease.

b. the interest rate is zero and the number of compounding periods increase.

c. the interest rate is greater than zero and the number of compounding periods increase.

d. the interest rate is greater than zero and the number of compounding periods decrease.

10 points

QUESTION 8

1. If we hold all other factors the same, an increase in interest rates will:

a. Decrease the present value of a stream of constant payments we expect to receive.

b. Increase the present value of a stream of constant payments we expect to receive.

c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account.

d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.

10 points

QUESTION 9

1. How much would you accept in a lump sum today, in place of a lottery payment of $35,000 at the end of the next 20 years ($700,000 in total), assuming you could invest it at a 6 percent rate?

a. $10,913 (rounded)

b. $700,000 (rounded)

c. $401,447 (rounded)

d. $8,028,946 (rounded)

10 points

QUESTION 10

1. Sun Magic Corp. consistently sells $60 million of product sales (with a cost of goods sold of $40 million) each year. Sun's inventory ratio has been 4.0 for the past few years. A new VP of Operations believes that a new inventory control system will increase inventory turnover to 6.0 without impacting sales. If the new VP is correct, how much working capital will be freed up?

a. $3.3 million (rounded)

b. $2.0 million

c. $6.7 million (rounded).

d. It cannot be determined from the information provided.