1. In a general partnership, the general partners have _____ liability and have _____ control over day-to-day operations.

• limited; no
• no; total
• unlimited; no
• limited; total
• unlimited;total
• 2.Whichoneoftheseisacorrectdefinition?
• Long-term debt is defined as a residual claim on a firms assets.
• Net working capital equals current assets plus current liabilities.
• Current liabilities are debts that must be repaid in 18 months or less.
• Tangible assets are fixed assets such as patents.
• Currentassetsareassetswithshortlives,suchasinventory.
• 3.Theownersofalimitedliabilitycompanygenerallyprefer:
• being taxed personally on all business income.
• having liability exposure similar to that of a general partner.
• having liability exposure similar to that of a sole proprietor.
• being taxed like a corporation.
• beingtaxedlikeacorporationwithliabilitylikeapartnership.
• 4.Whichoneofthefollowingisleastapttohelpconvincemanagerstoworkinthebestinterestofthestockholders?
• payraisesbasedonlengthofservice
• implementation of a stock option plan
• threat of a proxy fight
• management compensation tied to the market value of the firms stock
• threatofatakeoverofthefirmbyunsatisfiedstockholders
• 5.a.Computethefuturevalueof$2,000compoundedannuallyfor20yearsat4percent.(Donotroundintermediatecalculationsandroundyouranswerto2decimalplaces,e.g.,32.16.)Futurevalue$_________
• b.Computethefuturevalueof$2,000compoundedannuallyfor15yearsat10percent.(Donotroundintermediatecalculationsandroundyouranswerto2decimalplaces,e.g.,32.16.)Futurevalue$_________
• c.Computethefuturevalueof$2,000compoundedannuallyfor25yearsat4percent.(Donotroundintermediatecalculationsandroundyouranswerto2decimalplaces,e.g.,32.16.)Futurevalue$_________
• 6.Foreachofthefollowing,computethepresentvalue(Donotroundintermediatecalculationsandroundyouranswersto2decimalplaces,e.g.,32.16.):
• PresentValueYearsInterestRateFuturevalue
  • $_________148% $15,551
  • $_________514 $52,557
  • $_________3015 $887,073
  • $_________358$551,164
  • 7.FirstCityBankpays8percentsimpleinterestonitssavingsaccountbalances,whereasSecondCityBankpays8percentinterestcompoundedannually.Ifyoumadea$74,000depositineachbank,howmuchmoremoneywouldyouearnfromyourSecondCityBankaccountattheendof8years?(Donotroundintermediatecalculationsandroundyouranswerto2decimalplaces,e.g.,32.16.)
  • Differenceinaccounts$_________
• 8.Winslow,Inc.stockiscurrentlysellingfor$40ashare.Thestockhasadividendyieldof3.8percent.Howmuchdividendincomewillyoureceiveperyearifyoupurchase500sharesofthisstock?
• $1,053
• $152
• $190
• $329
• $760
• 9.Youbought360sharesofstockatatotalcostof$7,754.40.Youreceivedatotalof$403.20individendsandsoldyoursharesfor$19.98ashare.Whatwasyourtotalrateofreturn?
• 5.38%
• 7.24%
• -1.29%
• 3.67%
• -2.04%
• 10.Accordingtogenerallyacceptedaccountingprinciples(GAAP),revenueisrecognizedasincomewhen:
• income taxes are paid on the revenue earned.
• the transaction is complete and the goods or services are delivered.
• a contract is signed to perform a service or deliver a good.
• payment is requested.
• managersdecidetorecognizeit.
• 11.Sankey,Inc.,hascurrentassetsof$4,230,netfixedassetsof$25,700,currentliabilitiesof$3,500,andlong-termdebtof$14,400.(Donotroundintermediatecalculations.)Whatisthevalueoftheshareholders'equityaccountforthisfirm?
• Shareholders'equity$_________
• Howmuchisnetworkingcapital?Networkingcapital$_________
• 12.Thefinancialstatementsummarizingafirm'saccountingperformanceoveraperiodoftimeisthe:
• statement of equity..
• income statement.
• tax reconciliation statement.
• balance sheet.
• statementofcashflows.
• 13.Networkingcapitalisdefinedas:
• current assets minus current liabilities.
• total assets minus total liabilities.
• fixed assets minus long-term liabilities.
• current assets plus stockholders' equity.
• currentassetsplusfixedassets.
• 14.Jessica'sBoutiquehascashof$59,accountsreceivableof$62,accountspayableof$210,andinventoryof$140.Whatisthevalueofthequickratio?
• .30
• 1.82
• .67
• .58
• 1.24
• 15.Al'sSportStorehassalesof$2,940,costsofgoodssoldof$2,090,inventoryof$526,andaccountsreceivableof$445.Howmanydays,onaverage,doesittakethefirmtosellitsinventoryassumingthatallsalesareoncredit?
• 90.6
• 65.3
• 119.9
• 91.9
• 120.4
• 16.GalaxyUnited,Inc.2009IncomeStatement ($inmillions)
• Netsales$8,550
• Less:Costofgoodssold7,150
• Less:Depreciation410
• Earningsbeforeinterestandtaxes990
• Less:Interestpaid82
• TaxableIncome908
• Less:Taxes318
• Netincome$590
• GalaxyUnited,Inc.2008and2009BalanceSheets($inmillions)
• 2008200920082009
• Cash$120$140Accountspayable$1,120$1,130
• Accountsrec.940790Long-termdebt9901,201
• Inventory1,4801,520Commonstock$3,140$2,940
• Sub-total$2,540$2,450Retainedearnings510799
• Netfixedassets3,2203,620
• Totalassets$5,760$6,070Totalliab.&equity$5,760$6,070
• Whatisthereturnonequityfor2009?
• 14 percent
• 17 percent
• 11 percent
• 16 percent
• 19percent
• 17.ReliableCarshassalesof$3,790,totalassetsof$3,350,andaprofitmarginof5percent.Thefirmhasatotaldebtratioof41percent.Whatisthereturnonequity?
• 9.59 percent
• 12.20 percent
• 13.80 percent
• 8.47 percent
• 5.66percent
• 18.Afirmhasadebt-equityratioof.41.Whatisthetotaldebtratio?
• 1.44
• .31
• .29
• 1.41
• .69
• 19.Thereturnonequitycanbecalculatedas:
• ROA Equity multiplier.
• ROA Debt-equity ratio.
• ROA (Net income / Total assets).
• Profit margin ROA Total asset turnover.
• ProfitmarginROA.
• 20.Oneoftheprimaryweaknessesofmanyfinancialplanningmodelsisthatthey:
• rely too much on financial relationships and too little on accounting relationships.
• are iterative in nature.
• ignore the goals and objectives of senior management.
• ignore cash payouts to stockholders.
• ignorethesize,risk,andtimingofcashflows.
• 21.Inthefinancialplanningmodel,theexternalfinancingneeded(EFN)asshownonaproformabalancesheetisequaltothechangesinassets:
• minus the change in retained earnings.
• minus the changes in both liabilities and equity.
• minus the changes in liabilities.
• plus the changes in both liabilities and equity.
• plusthechangesinliabilitiesminusthechangesinequity.
• 22.TheWintergrassCompanyhasanROEof15.1percentandapayoutratioof40percent.Whatisthecompanyssustainablegrowthrate?(Donotroundintermediatecalculationsandenteryouranswerasapercentroundedto2decimalplaces,e.g.,32.16.)Sustainablegrowthrate_________%
• 23.Assumethefollowingratiosareconstant:
• Totalassetturnover2.50
• Profitmargin5.4%
• Equitymultiplier1.30
• Payoutratio35%Whatisthesustainablegrowthrate?(Donotroundintermediatecalculationsandenteryouranswerasapercentroundedto2decimalplaces,e.g.,32.16.)Sustainablegrowthrate_________%
• 24.Thelengthoftimebetweentheacquisitionofinventoryanditssaleiscalledthe:
• cash cycle.
• accounts payable period.
• accounts receivable period.
• inventory period.
• operatingcycle.
• 25.Aprearranged,short-termbankloanmadeonaformalorinformalbasis,andtypicallyreviewed
• forrenewalannually,iscalleda:
• compensating balance.
• cleanup loan.
• roll-over.
• line of credit.
• letterofcredit.
• 26.HerearethemostrecentbalancesheetsforCountryKettles,Inc.Excludingaccumulateddepreciation,determinewhethereachitemisasourceorauseofcash,andtheamount.(Donotroundintermediatecalculationsandroundyouranswerstothenearestwholenumber,e.g.,32.Inputallamountsaspositivevalues):
• COUNTRYKETTLES,INC.
• BalanceSheet
• December31,2016
• 20152016
• Assets
• Cash$31,800$31,030
• Accountsreceivable71,30074,560
• Inventories 62,20064,625
• Property,plant,andequipment 161,000 172,600
• Less:Accumulateddepreciation(47,040)(51,300)Totalassets$279,260$291,515
• LiabilitiesandEquity
• Accountspayable$46,300$48,530
• Accruedexpenses7,6806,740
• Long-termdebt27,00030,100
• Commonstock30,00035,400
• Accumulatedretainedearnings168,280170,745
• Totalliabilitiesandequity$279,260$291,515
• ItemSource/UseAmount
• Cash$_________
• Accountsreceivable$_________
• Inventories$_________
• Property,plant,andequipment$_________
• Accountspayable$_________
• Accruedexpenses$_________
• Long-termdebt$_________
• Commonstock$_________
• Accumulatedretainedearnings$_________
• 27.ConsiderthefollowingfinancialstatementinformationfortheRiversCorporation:
• ItemBeginningEnding
• Inventory$10,900$11,900
• Accountsreceivable5,9006,200
• Accountspayable8,1008,500
• Netsales$89,000
• Costofgoodssold69,000
• Calculatetheoperatingandcashcycles.(Use365daysayear.Donotroundintermediatecalculationsandroundyouranswersto2decimalplaces,e.g.,32.16.)
• Operatingcycle_________days
• Cashcycle_________days
• 28.The_____premiumisthatportionofthebondyieldthatrepresentscompensationforpotentialdifficultiesthatmightbeencounteredshouldthebondholderwishtosellthebondpriortomaturity.
• default risk
• liquidity
• taxability
• inflation
• interestraterisk
• 29.Howmuchareyouwillingtopayforoneshareofstockifthecompanyjustpaidanannualdividendof$1.03,thedividendsincreaseby3percentannually,andyourequirearateofreturnof15percent?
• $8.84
• $6.87
• $9.49
• $10.40
• $8.58
• 30.Therateatwhichastock'spriceisexpectedtoappreciate(ordepreciate)iscalledthe_____yield.
• total
• capital gains
• current
• earnings
• dividend
• 31.Whichoneoftheseappliestothedividendgrowthmodelofstockvaluation?
• The rate of growth must be positive.
• The model cannot be applied if the growth rate is zero.
• The dividend must be for the same time period as the stock price.
• The dividend amount must be constant over time.
• Thegrowthratemustbelessthanthediscountrate.
• 32.YouaregiventhefollowinginformationforHuntingtonPowerCo.Assumethecompanystaxrateis40percent.
• Debt:8,0006.9percentcouponbondsoutstanding,$1,000parvalue,20yearstomaturity,sellingfor105percentofpar;thebondsmakesemiannualpayments.
• Commonstock:410,000sharesoutstanding,sellingfor$59pershare;thebetais1.15.
• Market:9percentmarketriskpremiumand4.9percentrisk-freerate.
• Whatisthecompany'sWACC?(Donotroundintermediatecalculationsandenteryouranswerasapercentroundedto2decimalplaces,e.g.,32.16.)
• WACC_________%
• 33.FilerManufacturinghas7.7millionsharesofcommonstockoutstanding.Thecurrentsharepriceis$47,andthebookvaluepershareis$5.Thecompanyalsohastwobondissuesoutstanding.Thefirstbondissuehasafacevalueof$68.8millionandacouponrateof6.4percentandsellsfor108.9percentofpar.Thesecondissuehasafacevalueof$58.8millionandacouponrateof6.9percentandsellsfor107.7percentofpar.Thefirstissuematuresin9years,thesecondin26years.
• Supposethecompanysstockhasabetaof1.3.Therisk-freerateis2.5percent,andthemarket
• riskpremiumis6.4percent.Assumethattheoverallcostofdebtistheweightedaverageimpliedbythetwooutstandingdebtissues.Bothbondsmakesemiannualpayments.Thetaxrateis40percent.WhatisthecompanysWACC?(Donotroundintermediatecalculationsandenteryouranswerasapercentroundedto2decimalplaces,e.g.,32.16.)WACC_________%
• 34.AfirmsWACCcanbecorrectlyusedtodiscounttheexpectedcashflowsofanewprojectwhenthatproject:
• has the same level of risk as the firms current operations.
• will be financed solely with new debt and internal equity.
• will be financed with the same proportions of debt and equity as those currently used by the overall firm.
• will be managed by the firms current managers.
• willbefinancedsolelywithinternalequity.
• 35.WhencomputingWACC,youshouldusethe:
• pretax yield to maturity because it considers the current market price of debt.
• pretax cost of debt because it is the actual rate the firm is paying bondholders.
• pretax cost of debt because most corporations pay taxes at the same tax rate.
• current yield because it is based on the current market price of debt.
• aftertaxcostofdebtbecauseinterestistaxdeductible.
• 36.TheCAPMhasanadvantageoverDDMbecausetheCAPM:
• ignores changes in the overall market over time.
• is more simplistic.
• specifically considers a firms degree of operating leverage.
• applies to firms that pay dividends.
• explicitlyadjustsforrisk.
• 37.Thenetpresentvaluemethodofcapitalbudgetinganalysisdoesallofthefollowingexcept:
• consider all relevant cash flow information.
• provide a specific anticipated rate of return.
• use all of a project's cash flows.
• discount all future cash flows.
• incorporateriskintotheanalysis.
• 38.Lee'sFurniturejustpurchased$24,000offixedassetsthatareclassifiedas5-yearMACRSproperty.TheMACRSratesare20percent,32percent,19.2percent,11.52percent,11.52percent,and5.76percentforYears1to6,respectively.Whatistheamountofthedepreciationexpenseforthethirdyear?
• $4,800
• $2,507
• $4,608
• $2,765
• $2,304
• 39.JamestownLtd.currentlyproducesboatsailsandisconsideringexpandingitsoperationstoincludeawnings.Theexpansionwouldrequiretheuseoflandthefirmpurchasedthreeyearsagoatacostof$142,000thatiscurrentlyvaluedat$137,500.Theexpansioncouldusesomeequipmentthatiscurrentlysittingidleif$6,700ofmodificationsweremadetoit.Theequipmentoriginallycost$139,500sixyearsago,hasacurrentbookvalueof$24,700,andacurrentmarketvalueof$39,000.Othercapitalpurchasescosting$780,000willalsoberequired.Whatistheamountoftheinitialcashflowforthisexpansionproject?
• $963,200
• $948,900
• $927,800
• $962,300
• $953,400
• 40.Ifyouwanttoreviewaprojectfromabenefit-costperspective,youshouldusethe_______methodofanalysis.
• internal rate of return
• profitability index
• net present value
• payback
• discountedpayback
• 41.Theprofitabilityindexofaninvestmentprojectistheratioofthe:
• net present value of every project cash flow to the initial cost.
• net present value of the projects cash outflows divided by the net present value of its inflows.
• internal rate of return to the current market rate of interest.
• present value of the Time 1 and subsequent cash flows to the initial cost.
• averagenetincometotheaverageinvestment.
• 42.Aprojectcosting$6,200initiallyshouldproducecashinflowsof$2,860ayearforthreeyears.Afterthethreeyears,theprojectwillbeshutdownandwillbesoldattheendofYear4foranestimatednetcashamountof$3,300.Whatisthenetpresentvalueofthisprojectiftherequiredrateofreturnis11.3percent?
• $2,903.19
• $2,474.76
• $935.56
• $1,980.02
• $3,011.40
• 43.WilsonsMarketisconsideringtwomutuallyexclusiveprojectsthatwillnotberepeated.Therequiredrateofreturnis13.9percentforProjectAand12.5percentforProjectB.ProjectAhasaninitialcostof$54,500,andshouldproducecashinflowsof$16,400,$28,900,and$31,700forYears1to3,respectively.ProjectBhasaninitialcostof$69,400,andshouldproducecashinflowsof$0,$48,300,and$42,100,forYears1to3,respectively.Whichproject,orprojects,ifeither,shouldbeacceptedandwhy?
• Project B; because it has the largest total cash inflow
• Project A; because it has the higher required rate of return
• Project B; because it has a negative NPV which indicates acceptance
• neither project; because neither has an NPV equal to or greater than its initial cost
• ProjectA;becauseitsNPVispositivewhileProjectBsNPVisnegative
• 44.Whatisthenetpresentvalueofaprojectthathasaninitialcashoutflowof$7,670andcashinflowsof$1,280inYear1,$6,980inYear3,and$2,750inYear4?Thediscountrateis12.5percent.
• $270.16
• $86.87
• $68.20
• $371.02
• $249.65
• 45.Aproposedprojectcosts$300andhascashflowsof$80,$200,$75,and$90forYears1to4,respectively.Becauseofitshighrisk,theprojecthasbeenassignedadiscountrateof16percent.Indollars,howmuchwillthisprojectreturnintodaysdollarsforevery$1invested?
• $.99
• $1.01
• $1.05
• $.97
• $1.03