Can anyone help me with this? I have an exam on finance. I understand the multiple choice, but have no idea on questions 2-4

Charles E. D'Angelo, CPA Financial Management - Spring 2016 Examination #1 Do all questions on the Excel answer sheet provided (separate document) equally weighted in grade - show all your work QUESTION 1 - The Role and Environment of the Financial Manager A) Multiple Choice Questions: 1) Which of the following is a duty of a financial manager in a business firm? A) developing marketing plans B) controlling the stock price C) raising financial resources D) auditing financial records 2) Which of the following legal forms of organizations is characterized by unlimited liability? A) sole proprietorship B) limited partnership C) corporation D) C-corporation 3) Cash flows and risk are the key determinants in share price. Increased risk, other things remaining the same, results in ________. A) a lower share price B) a higher share price C) an unchanged share price D) an undetermined share price 4) Smith, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________. A) $3,000 and $10,000, respectively B) $3,000 and -$7,000, respectively C) $7,000 and -$3,000, respectively D) $3,000 and $7,000, respectively 5) Making investment decisions includes ________. A) inventory B) fixed assets C) accounts receivable D) notes payable Page 1 Charles E. D'Angelo, CPA 6) The agency problem may result from a manager's concerns about ________. A) job security B) maximizing shareholder value C) corporate goals D) increasing credit worthiness 7) The sale of a new security directly to an investor or a group of investors is called ________. A) arbitraging B) short selling C) a capital market transaction D) a private placement 8) Which of the following is true of preferred stock? A) It has features of bonds and a common stock. B) It has a claim on assets prior to creditors in the event of liquidation. C) Its dividends can be paid only after paying dividends to the common stockholders. D) It usually has a maturity of thirty years. 9) The primary risk of mortgage-backed securities is ________. A) that the prices of have high volatility B) that the prices of housing will increase C) that the government will not be able to meet the guarantees on the cash flows D) that homeowners may not be able to, or choose not to, repay their loans 10) The Glass-Steagall Act ________. A) was intended to regulate the activities in the secondary market B) created the Securities Exchange Commission C) separated the activities of commercial and investment banks D) was intended to regulate the activities in the primary market B) Corporation A has Income from operations of $300,000 and pays preferred stock dividends of $30,000 and interest expense of $15,000. Taxable Income Base Tax Rate x amount over base bracket $0 - 50,000 $0 15% of amount over $0 $50,000 - 75,000 $7,500 25% of amount over $50,000 $75,000 - 100,000 $13,750 34% of amount over $75,000 $100,000 - 335,000 $22,250 39% of amount over $100,000 $335,000 - 10,000,000 $113,900 34% of amount over $335,000 Over $10,000,000 $3,400,000 35% of amount over $10,000,000 REQUIRED: a. What is the taxable income? b. Calculate its tax liability using the tax table provided above. c. What is the marginal tax rate? d. The average tax rate? Page 2 Charles E. D'Angelo, CPA Question 2 - Financial Statements and Analysis Below are financial statements for C.E.D., a company that manufactures and sells rugged outdoor clothing and related items for people to wear in their sport utility vehicles on their way to the mall. Income statement for the Year ending December 31, 2015 Sales revenue 2,080,976 Less: Cost of Goods Sold 1,701,000 Gross profit 379,976 Less: Operating expenses 273,846 Operating profits 106,310 Less: Interest Expenses 19,296 Net profit before tax 86,834 Taxes 34,810 Net profit after tax 52,024 Balance Sheet for the year ending December 31, 2015 Current Assets Cash Accounts receivable Inventory Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total Assets Current Liabilities Accounts payable Notes payable Accruals Total Current Liabilities Long term debt Total Liabilities Stockholders Equity Common Stock Retained earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Page 3 95,000 237,000 243,000 575,000 500,000 75,000 425,000 1,000,000 89,000 169,000 87,000 345,000 188,000 533,000 255,000 212,000 467,000 1,000,000 Charles E. D'Angelo, CPA Ratio 2013 2014 2015 Industry Current ratio 1.6 1.7 1.6 Quick ratio .9 1.0 .9 Inventory turnover 8.1 9.3 8.4 Average collection period (days) 33 37 39 Total assets turnover 2.3 2.2 2.2 Debt ratio 60% 56% 58% Times Interest Earned 2.5 3.5 2.3 Gross Profit Margin 21.0% 19.7% 20.4% Operating Profit Margin 4.7% 4.8% 4.7% Net Profit Margin 1.8% 3.5% 3.1% Return on Equity 10.3% 7.9% 7.3% REQUIRED a. Calculate the ratios for the most recent year. b. Provide commentary on the financial situation of the company using the ratios as references. Your commentary should include a value judgment (better, worse or same) using industry and historic comparisons and the implications about the company drawn from the ratios and the value judgment (what does it mean to be better or worse). c. Provide separate commentary about the company's: a) Liquidity b) Activity c) Debt d) Profitability Page 4 Charles E. D'Angelo, CPA Question 3 - Cash Flow and Financial Planning The Academy of Motion Pictures Arts & Science Corporation specialized in the development and sale of transmission devices for avatars from earth to visit other planets. The company's Treasurer has assembled the following data for use in forecasting the company's cash position for the next six months. Current bank balance - assume January 1 $5,000 Estimated monthly payroll and related items $40,000 Estimated monthly depreciation $4,000 Interest payable in June $6,000 Real estate taxes payable in March $4,000 Other Forecasted items: Purchases Month Sales ($) Inventory ($) Capital Items ($) December 120,000 40,000 80,000 January 120,000 60,000 -0February 160,000 120,000 -0March 400,000 75,000 25,000 April 200,000 80,000 5,000 May 240,000 90,000 -0June 260,000 130,000 -0- Note: November Sales were $80,000 and October Sales were $100,000. Historically, credit sales have been collected 50% one month after the sale, 25% two months after the sale, and 20% three months after the sale, and 5% not collectible. There are no cash sales. The company has always paid their bills for inventory and capital items 30 days after receipt. REQUIRED A monthly forecast of cash inflows, outflows, bank balances, cash shortage or surplus and recommended management actions suggested by the forecast. Page 5 Charles E. D'Angelo, CPA Question 4 - Time Value of Money A) You borrow $4,000 to be repaid in 10 years with 12% annually compounded interest. The loan may be repaid at the end of any year with no loan prepayment penalty. a. What amount will be due if the loan is paid off in 1 year? b. What is the repayment at the end of year 5? c. What amount is due at the end of the tenth year? B) Drone's, Inc., a maker of video surveillance systems is considering selling the rights to market his technology to a well-known home security company. The proposed deal calls for the surveillance company to make the following year-end payments to Drone's, Inc. : Year Amount ($) 1 $30,000 2 25,000 3 15,000 4 15,000 5 15,000 6 15,000 7 15,000 8 15,000 9 15,000 10 15,000 Required: a) If Drone's applies a required rate of return of 14%, what is the present value of the series of payments? b) A second company has offered Drone's an immediate one-time payment of $100,000 for the rights to market the technology. Which offer should Drone's accept? Why? Page 6