projects than stockholders. a. 1. In general, debtholders prefer Riskier b. Less risky c. Similarly risky d. None of the above 2. are designed to protect bondholders and to reduce potential conflicts between stockholders and bondholders. a. Hostile takeovers b. Bond covenants c Stock options d. Triple bottom line 3. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the or the stock's "intrinsic value." a. Long-run b. Shortorun c. Medium Term d. None of the above 4. The period of time. provides a summary of a firm's revenues and expenses over a given 5. An increase in assets results in a to cash. 6. A decrease in liabilities and/or stockholder's equity results in a to cash 7. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? a. The company repurchases common stock. b. The company pays a dividend. c. The company issues new common stock. d. The company gives customers more time to pay their bills (increases accounts receivables) e. The company purchases a new piece of equipment. 8. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? a. The company increases its days sales outstanding. b. The company increases its inventory turnover rate. c. The company increases its expense. d. The company sees a decrease in accounts payable. 9. Last year Ann Arbor Corp had $195,000 of assets (which equals total invested capital), $305,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the ROE? 10. Rao Construction recently reported $18.00 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions? 11. Wu Systems has the following balance sheet. How much net operating working capital does the firm have? Cash Accounts receivable Inventory Current assets Net fixed assets $ 100 Accounts payable 650 Accruals 550 Notes payable $ 1,300 Current liabilities $1,000 Long-term debt Common equity Retained earnings $2,300 Total liab, & equity $ 200 135 565 $ 900 600 300 500 $ 2.300 Total assets 12. C. F. Lee Inc. has the following income statement. How much after-tax operating income does the firm have? Sales Costs Depreciation EBIT Interest expense EBT Taxes (35%) Net income $3,100.00 1,850.00 192.00 $1,058.00 285.00 $773.00 270.55 $502.45 13. Which of the following items is NOT normally considered to be a current asset? a. Accounts receivable b. Inventory c. Bonds d. Cash 14. Which of the following items cannot be found on a firm's balance sheet under current liabilities? a. Accounts payable. b. Short-term notes payable to the bank. c. Accrued wages. d. Cost of goods sold. e. Accrued payroll taxes. 15. If I shorten credit terms to customers, my competitors do not match the terms and sales decrease, what can I expect to happen to cash flow in the long-term? a. Increase b. Decrease c. Unchanged d. None of the above For questions 16 & 17, please use the following information: Samuel Industries had EBIT of $100,000 in 2015. The firm has $200,000 in outstanding bonds with an interest rate of 5%. The tax rate is 35%. The firm has 10,000 shares outstanding and paid $5,000 in dividends in '15. 16. Calculate Samuel Industries' EPS (Earnings per Share) for 2015. 17. Calculate Samuel Industries' DPS (Dividends per Share) for 2015, 18. Vasudevan Inc. recently reported operating income of $4.80 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and change in net operating working capital totaled $0.6 million. How much was its free cash flow, in millions? 19. Which of the following are true of ratio analysis? a. Ratios standardize numbers and facilitate comparison. b. Ratios are used to highlight strengths and weaknesses. c. Ratios comparisons should be made through time and with competitors. d. All of the above. e. None of the above. 20. Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant? a. The Times Interest Earned (TIE) declines. b. The Days Sales Outstanding (DSO) increases. c. The quick ratio increases. d. The current ratio declines. e. The total assets turnover decreases. 21. Which of the following would indicate an improvement in a company's financial position, holding other things constant? a. The inventory and total assets turnover ratios both decline b. The total debt to total capital ratio increases. c. The profit margin dedines. d. The times interest-earned ratio declines. e. Days sales outstanding decreases. For questions 22-25, utilize exhibit 4-1 below. Exhibit 4.1 The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets Cash and securities Accounts receivable Inventories Total current assets Net plant and equipment Total assets Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities 2016 $2,145 8,970 12,480 $23,595 $15,405 $39,000 $7,410 4,290 5,460 $17,160 Long-term bonds Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity $7,800 $24,960 $5,460 8,580 $14,040 $39.000 Income Statement (Millions of S) Net sales Operating costs except depreciation Depreciation Earnings before interest and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes Net income 2016 $58,500 54,698 1,024 $2,779 829 $1,950 683 $1,268 Other data: Shares outstanding (millions) Common dividends (millions of S) Intrate on notes payable & L-T bonds Federal plus state income tax rate Year-end stock price 500.00 $443.63 6.25% 35% $30.42 22. Refer to Exhibit 4.1. What is the firm's quick ratio? 23. Refer to Exhibit 4.1. What is the firm's days sales outstanding? Assume a 365-day year for this calculation. 24. Refer to Exhibit 4.1. What is the firm's operating margin? 25. Refer to Exhibit 4.1. What is the firm's P/E ratio? in the firm's 26. In general, an increase in inventory turnover implies a/an ability to manage its assets. a. Improvement b. Deterioration c. Inventory turnover has no bearing on a firm's asset management d. Unknown 27. The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of its profit margin will 28. Other things held constant, the more debt a firm uses, the be. a. Higher b. Lower c. Debt has no impact on profit margin 29. Please explain why an increase in accounts payable may be perceived positively by investors. 30. Embodying the concept of manager-stockholder conflicts, what might mangers do with research & development (R&D) to impact the value of their stock options? Is this in the best interests of the investor