Question 1 Calculate the projected fixed assets needed given the following information: current sales = $1,000; current sales capacity = 90%; current fixed assets = $1,800; projected future sales = $1,250.

A) $225 B) 450 C) $4050 D) $2025 E) $675

Question 2 Saved Your company wants a sustainable growth rate of 3.45% while maintaining a 30 percent dividend payout ratio and a 7% profit margin. The company has a capital intensity ratio of 1.5. What is the equity multiplier that is required to achieve the company's desired rate of growth?

A) .98 B) .45 C) .55 D) 1.02 E) .78

Question 3 Which of the following is NOT a determinant of the sustainable growth rate?

Dividend payout ratio B) Profit margin C) Inventory turnover D) Total asset turnover E) Debt-equity ratio

Question 4 Delta Mfg. is currently operating at full capacity. The firm has sales of $89,600, current assets of $32,000, current liabilities of $23,600, net fixed assets of $41,500, and a 5% profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 5% next year. If all assets, current liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?

A) $4,704 B) $189 C) -$2,209 D) $2,495 E) $2,620

Question 5 When constructing a pro forma statement, net working capital generally varies:

With the level of capacity utilization. B) Directly with sales. C) As necessary to get the balance sheet to balance. D) Based upon the financial leverage employed. E) Directly with the growth rate of fixed assets.

Question 6 The operating cash flow of a firm is equal to net income plus depreciation provided that:

Taxes are ignored. B) The project is a cost cutting project. C) The costs are expressed as equivalent annual costs. D) Net income is positive. E) The financing costs are ignored.

Question 7 The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials costs total $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate. Assume that management believes that auto restorers will pay $3,000 retail per engine block. What is the NPV of this project?

A) $521,309 B) $644,678 C) $624,674 D) $260,769 E) $401,187

Question 8 The machinery required for a three year project costs $20,000, belongs in a 15% CCA class, and will require a net working capital investment of $5,000 up-front. The project generates after-tax operating income of $11,501. The fixed assets will be sold for $2,000 at the end of the project. If the firm has a tax rate of 34% and a required return of 10%, what is the project NPV?

A) $11,033 B) $15,942 C) $12,446 D) $10,724 E) $13,426

Question 9 A machine costs $60 and requires $35 in maintenance for each year of its three year life. After three years, this machine will be replaced. If the machine belongs in a 30% CCA class and has no salvage value, what is the EAC? Assume a tax rate of 34% and a discount rate of 14%.

A) -$39.48 B) -$43.32 C) -$59.13 D) -$97.84 E) -$48.33

Question 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,001. Accounts payable will decrease by $5,001. The project requires the purchase of equipment at an initial cost of $90,001. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%?

A) $48,772.08 B) $42,908.17 C) $44,141.41 D) $56,209.19 E) $54,681.35

Question 11 If you want to determine the entire range of project outcomes that are reasonably likely to occur you should use ________ analysis. Question 11 options: A) Cash break-even. B) Scenario. C) Financial break-even.

D) Sensitivity. E) Accounting break-even.

Question 12 The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario What is the amount of the fixed cost per unit under the best case scenario?

$4.43 B) $3.85 C) $3.47 D) $4.21 E) $3.66

Question 13 The contribution margin is defined as the difference between the:

A) Unit sales price and the total cost per unit. B) Unit sales price and the pre-tax cost per unit. C) Pre-tax and after-tax costs per unit. D) Unit sales price and the variable cost per unit. E) Variable and fixed costs per unit.

Question 14 Margerit is reviewing a project with projected sales of 1,500 units a year, a cash flow of $40 a unit and a three-year project life. The initial cost of the project is $95,000. The relevant discount rate is 15 percent. Margerit has the option to abandon the project after one year at which time she feels she could sell the project for $60,000. At what level of sales should she be willing to abandon the project?

A) 923 units B) 967 units C) 1,206 units D) 1,199 units E) 899 units

Question 15 Douglass Engineering is considering a project that has an initial cost today of $22,000. The project has a two-year life with cash inflows of $13,500 a year. Should the firm decide to wait one year to commence this project, the initial cost will increase by 4 percent and the cash inflows will increase to $14,200 a year. What is the value of the option to wait if the applicable discount rate is 12 percent?

A) $183.17 B) $0 C) $123.33 D) $141.41 E) $81.05

Question 16 Which one of the following statements is correct concerning the issuance of long-term debt?

A) Direct placement debt tends to have more restrictive covenants than publicly issued debt. B) Distribution costs are lower for public debt than for private debt. C) A direct long-term loan has to be registered with the OSC. D) Wealthy individuals tend to dominate the private debt market. E) It is easier to renegotiate public debt than private debt.

Question 17 The market value of DC Wholesalers common stock is $17 a share. The company has decided to raise funds through a rights offering. Shareholders will receive one right for each share of stock they own. The new shares are priced at $15 plus four rights. What is the value of one right?

$.37 B) $.44 C) $.40 D) $.50 E) $.53

Question 18 You have an outstanding order with your stockbroker to purchase 500 shares of every IPO. The current two IPOs have an offer price of $15 a share. You received an allocation of 100 shares of IPO A and 400 shares of IPO B. Today is the first day of trading for these two issues. IPO A closed at $22 a share and IPO B closed at $13 a share. What is your total profit or loss on these two IPOs after just one day of trading? Question A) $50 B) -$250 C) -$400 D) $150 E) -$100

Question 19 With Dutch auction underwriting:

A) All successful bidders pay the same price. B) The selling firm receives the maximum possible price for each item sold. C) All bidders receive at least a portion of the quantity on which they bid. D) Each winning bidder pays the price they bid. E) The bidder for the largest quantity receives the first allocation of the item.

Question 20 The best definition of a seasoned equity offering (SEO) is: Question 20 options: A) A new equity issue of securities by a company that has previously issued securities to the public. B) Financing for new, often high-risk ventures. C) Creation and sale of securities on public markets. D) A new equity issue of securities by a company that has never issued securities to the public. E) A new equity issue of securities by a company that has issued securities privately.