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Reference 14-2: Use the following to answer questions 60-61: Jensen Autos, one of the largest car dealers in Eau Claire, sells about 700 vehicles a year. The cost of placing an order with their supplier is $1,100, and the inventory carrying costs are $120 for each car. Most of their sales are in late fall of each year. How many orders will the dealer need to place this year? Round your answer to the whole number.

Question 1 options:

	7 orders
	4 orders
	6 orders
	5 orders

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Question 2 (0.2 points)

Float is the time taken by a credit customer to pay the firm.

Question 2 options:

	True
	False

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Question 3 (0.2 points)

An offer of 3/10, net 40 means that the selling firm offers a 10 percent discount if the buyer pays the full amount of the purchase in cash within 3 days of the invoice date. Otherwise, the buyer has 40 days to pay the balance in full from the date of delivery.

Question 3 options:

	True
	False

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Question 4 (0.2 points)

Wolfgang Electricals estimates that the company takes 31 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 54 days and days sales' outstanding of 34 days. What is its cash conversion cycle?

Question 4 options:

	46 days
	57 days
	119 days
	34 days

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Question 5 (0.2 points)

Which of the following statements about working capital trade-off is true?

Question 5 options:

	All of these.
	Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy.
	If carrying costs are greater than shortage costs, then the firm will maximize value by adopting a more restrictive strategy.
	If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy.

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Question 6 (0.2 points)

Kearns, Inc. sells its goods with terms of 3/15 EOM, net 60. What is the implicit cost of the trade credit? Round your final answer to the nearest whole percent. Do not round your intermediate calculations.

Question 6 options:

	28%
	34%
	15%
	45%

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Question 7 (0.2 points)

Which of the following statements about just-in-time inventory management policy is NOT true?

Question 7 options:

	It calls for the exact day-by-day, or even hour-by-hour raw material needs to be delivered by the suppliers.
	It eliminates obsolescence or loss to theft.
	If the supplier fails to make the needed deliveries, then production shuts down.
	A big disadvantage in this system is that there are high raw inventory costs.

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Question 8 (0.2 points)

Which of the following statements about working capital trade-off is NOT true?

Question 8 options:

	Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy.
	If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy.
	Management will try to find the level of current assets that minimizes the sum of the carrying costs and shortage costs.
	If carrying costs are smaller than shortage costs, then the firm will maximize value by adopting a more restrictive strategy.

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Question 9 (0.2 points)

Which of the following is the equation for net working capital?

Question 9 options:

	Current assets / current liabilities
	Current assets current liabilities
	Total assets total liabilities
	Total assets / total liabilities

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Question 10 (0.2 points)

Liquidity is the ability of a company to convert assetsreal or financialinto cash quickly without suffering a financial loss.

Question 10 options:

	True
	False

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Question 11 (0.2 points)

Which of the following is a short-term financing instrument?

Question 11 options:

	Commercial paper
	Accounts payable
	All of these
	Bank loans with a maturity of less than 1 year

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Question 12 (0.2 points)

Which of the following statements is NOT true?

Question 12 options:

	Working capital efficiency refers to the length of time between when a working capital asset is acquired and when it is converted into cash.
	Net working capital (NWC) refers to the difference between current assets and current liabilities.
	Gross working capital is the funds invested in a company's current liabilities.
	Working capital management involves making decisions regarding the use and sources of current assets.

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Question 13 (0.2 points)

If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy.

Question 13 options:

	True
	False

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Question 14 (0.2 points)

The flexible current asset management strategy is perceived to be a high-risk and low-return course of action for management to follow.

Question 14 options:

	True
	False

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Question 15 (0.2 points)

A factor is an individual or financial institution that buys accounts receivable without recourse.

Question 15 options:

	True
	False

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Question 16 (0.2 points)

The aging schedule shows the breakdown of the firm's accounts receivable by their date of sale.

Question 16 options:

	True
	False

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Question 17 (0.2 points)

Sun Prairie Traders borrowed $63,000 at an APR of 10 percent. The loan called for a compensating balance of 10 percent. What is the effective interest rate on the loan? Round your final percentage answer to two decimal places.

Question 17 options:

	10.00%
	11.11%
	12.50%
	8.00%

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Question 18 (0.2 points)

Once capital investments are made, they are almost impossible to be reversed.

Question 18 options:

	True
	False

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Question 19 (0.2 points)

The sales forecasts used in financial planning

Question 19 options:

	utilize macroeconomic variables as input.
	are developed using a variety of techniques.
	are generated within the firm.
	All of these

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Question 20 (0.2 points)

Corporations, which are legal persons under state law, automatically have a finite life.

Question 20 options:

	True
	False

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Question 21 (0.2 points)

The financing plan deals with how a firm is going to secure the funds needed to pay for the capital resources required.

Question 21 options:

	True
	False

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Question 22 (0.2 points)

Neucon company needs to sell 6,000 circuit breakers to break even. Its unit variable cost is $441, and its unit selling price is $800. What is the fixed cost of this company?

Question 22 options:

	$2,154,000
	$1,497,250
	$4,652,500
	$2,855,250

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Question 23 (0.2 points)

Which of the following statements about the sustainable growth rate (SGR) is true?

Question 23 options:

a)	The higher a firm's ROE, the higher the SGR.

b)	The higher the plowback ratio, the larger the proportion of net income retained in the firm and the greater the firm's SGR.

c)	Both a and b are true statements.

d)	None of these are true

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Question 24 (0.2 points)

Which of the following statements is NOT true?

Question 24 options:

	Firms that have high capital intensive ratios are riskier than similar firms that use less fixed assets.
	The higher the capital intensity ratio, the more capital a firm needs to generate sales.
	The ratio of total assets to sales is called the capital intensity ratio.
	The ratio of sales to total equity is called the capital intensity ratio.

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Question 25 (0.2 points)

In the free cash flow from the firm (FCFF) approach, the total value of the firm, VF, is computed as the present value of the FCFF:

Question 25 options:

	discounted by the firm's cost of equity.
	discounted by the firm's cost of debt.
	discounted by the firm's WACC.
	discounted by the inflation rate prevailing in the economy.

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Question 26 (0.2 points)

The inputs used in building financial planning models include

Question 26 options:

	None of these
	pro forma statements, sales forecasts, and financing decisions.
	financial statements, sales forecasts, and a firm's investment and financial policy decisions.
	pro forma statements, sales forecasts, and macroeconomic variables.

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Question 27 (0.2 points)

In valuing a business, analysts must also consider whether it is appropriate to adjust the estimated value of the business for the likelihood that the key people may not remain with the firm as long as expected.

Question 27 options:

	True
	False

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Question 28 (0.2 points)

The financial plan focuses only on strategic planning and investment planning.

Question 28 options:

	True
	False

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Question 29 (0.2 points)

Which of the following is a part of a financing plan?

Question 29 options:

	A firm's dividend policy
	All of these
	The desired capital structure for a firm
	The dollar amount of funds that has to be raised externally and the sources of funds available to a firm

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Question 30 (0.2 points)

A strategic investor is interested in buying the firm and not just its financial performance.

Question 30 options:

	True
	False

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Question 31 (0.2 points)

A business plan includes a detailed discussion of the marketing and sales activities that will enable a business to achieve the sales and margin levels reflected in the financial forecasts.

Question 31 options:

	True
	False

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Question 32 (0.2 points)

Starting a business is less risky than buying and growing a business that someone else has already established.

Question 32 options:

	True
	False

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Question 33 (0.2 points)

Decision makers must understand business valuation concepts in order to be able to:

Question 33 options:

	calculate the deferred tax assets.
	identify the optimal capital structure and the payout policy.
	prepare the financial statements of the business.
	identify the break-even point and the payout policy.

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Question 34 (0.2 points)

Nederland Finance Company has total assets worth $9,751,223. It is expecting to grow its revenue at a rate of 20 percent next year and will have a net income of $2,213,564 next year. The firm pays out 65 percent of its net income as dividends. What is the external financing needed by this firm to meet its growth expectations?

Question 34 options:

	No external funding is needed.
	$1,175,497.20
	None of these
	$511,428.00

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Question 35 (0.2 points)

In the free cash flow to equity (FCFE) approach, an analyst values the free cash flows that the assets of the firm are expected to produce in the future.

Question 35 options:

	True
	False

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Question 36 (0.2 points)

Financial planning models

Question 36 options:

	All of these
	help management make investment decisions.
	make the analysis faster and accurate.
	help management make financing decisions.

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Question 37 (0.2 points)

A business at the start up has a better chance to succeed if calculated risks are taken.

Question 37 options:

	True
	False

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Question 38 (0.2 points)

Which of the following statements is true of sole proprietorship?

Question 38 options:

	The liability of owners of a sole proprietorship is limited.
	The life of a sole proprietorship is limited.
	Sole proprietorships must rely on equity contributions from the public.
	A sole proprietorship is the most expensive type of business to start.

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Question 39 (0.2 points)

Swan Supply Company has net income of $1,212,335 on assets of $12,522,788 and retains 70 percent of its income every year. What is the company's internal growth rate? (Do not round intermediate calculations. Round final answer to one decimal place.)

Question 39 options:

	6.8%
	9.3%
	8.6%
	7.6%

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Question 40 (0.2 points)

Access to capital for a sole proprietorship is excellent compared to a C-Corporation.

Question 40 options:

	True
	False

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Question 41 (0.2 points)

Investment and financing policy decisions are not considered inputs in financial planning models.

Question 41 options:

	True
	False

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Question 42 (0.2 points)

A business plan presents the results from a strategic planning process that focuses on how a business will be developed over time.

Question 42 options:

	True
	False

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Question 43 (0.2 points)

In cases where fixed assets are added as large discrete units, and much of a firms capacity may not be utilized for some period of time. These types of assets are called lumpy assets.

Question 43 options:

	True
	False

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Question 44 (0.2 points)

When using the multiples analysis approach to valuing a business, one must be aware:

Question 44 options:

	of the presence of a marketability premium that can be sizable.
	of the adjusted book value of a business which is the cost of duplicating the assets of the business in their present form as of the valuation date.
	of the stock value of similar companies whose shares are not publicly traded.
	of the presence of a marketability discount that can be sizable.

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Question 45 (0.2 points)

The three specific cash flows associated that are included in the free cash flow to equity (FCFE) approach are:

Question 45 options:

	the interest expense on existing debt, the repayment of debt principal, and the payment of dividends.
	the interest expense on existing debt, the repayment of debt principal, and the proceeds from new debt issues.
	the interest expense on existing term debt, the repayment of debt principal, and the proceeds from new equity issues.
	the interest expense on existing debt, the repayment of debt principal, and the payment of dividends.

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Question 46 (0.2 points)

Financial planning deals with establishing sales forecasts for a time horizon set by a firm's management.

Question 46 options:

	True
	False

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Question 47 (0.2 points)

When a firm maintains a constant dividend policy, the firm's growth rate has no bearing on the external financing needed.

Question 47 options:

	True
	False

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Question 48 (0.2 points)

Limited partnerships are more costly to form than sole proprietorships because the partners must hire an attorney to draw up and maintain the partnership agreement.

Question 48 options:

	True
	False

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Question 49 (0.2 points)

Symbyrec Phonic, an electronics manufacturer, is expected to grow rapidly in the next five years and then have a stable growth rate for the foreseeable future. The firm expects free cash flows of $262.5 million next year. These cash flows are expected to grow at a 30 percent rate over the following four years, and thereafter its cash flows will grow at a steady rate of 6 percent per annum. The company has nonoperating assets (NOA) of $31 million in the form of cash. If the appropriate WACC is 9 percent, what is the enterprise value of this business? (Do not round intermediate computations. Round final answer to the nearest million.)

Question 49 options:

	$22,222 million
	$19,014 million
	$22,191 million
	$26,490 million

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Question 50 (0.2 points)

Which of the following statements is NOT true?

Question 50 options:

	The internal growth rate (IGR) is defined as the maximum growth rate that a firm can achieve without external financing.
	The higher the retained earnings generated by a firm, the higher the growth possible without using external funding.
	Given the same level of retained earnings, a firm that has the higher amount of total assets has a higher growth possibility without using external funding.
	All of these

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