QUESTION 6

1. A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?

   	a.	The company increases its dividend payout ratio.
   	b.	The company begins to pay employees monthly rather than weekly.
   	c.	The company decides to stop taking discounts on purchased materials.
   	d.	The companys profit margin increases.

1 points

QUESTION 7

1. Helena Furnishings wants to reduce its cash conversion cycle sharply. Which action should it take?

   	a.	The company should increase its average inventory without increasing its sales.
   	b.	The company should reduce its DSO.
   	c.	The company should start paying its bills sooner, which reduces its average accounts payable without reducing its sales.
   	d.	The company should increase its DSO.

1 points

QUESTION 8

1. Which statement best describes cash budgets?

   	a.	The cash budget and the capital budget are planned separately and although they are both important to the firm, they are independent of each other.
   	b.	Since depreciation is a noncash charge, it does not appear on nor have an effect on the cash budget.
   	c.	Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control.
   	d.	The typical actual cash budget will reflect interest on loans and income from investment of surplus cash. These numbers are expected values and actual results might vary from budgeted results.

1 points

QUESTION 9

1. What is the purpose of the cash conversion cycle (CCC)?

   	a.	It shows how long a firm must finance its long-term capital.
   	b.	It shows how long is must finance its inventories.
   	c.	It shows how long a firm must finance its operating working capital.
   	d.	It shows how long a firm must finance its mortgage capital.

1 points

QUESTION 10

1. Which statement best describes short-term versus long-term financing?

   	a.	A short-term loan can usually be obtained more quickly than a long-term loan, but the penalty for early repayment of a short-term loan is normally significantly higher than that for a long-term loan.
   	b.	Short-term debt is often less costly than long-term debt, and the major reason for this is that short-term debt exposes the borrowing firm to much less risk than long-term debt.
   	c.	The flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that is actually used.
   	d.	Flexibility is an advantage of short-term credit, but this is somewhat offset by the high flotation costs associated with the need to repeatedly renew short-term credit.

1 points

QUESTION 11

1. Pettijohn Inc.

   The balance sheet and income statement shown below are for Pettijohn 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	2007
   Cash and securities	$1,554.0
   Accounts receivable	9,660.0
   Inventories	13,440.0
   Total current assets	$24,654.0
   Net plant and equipment	17,346.0
   Total assets	$42,000.0
   Liabilities and Equity
   Accounts payable	$7,980.0
   Notes payable	5,880.0
   Accruals	4,620.0
   Total current liabilities	$18,480.0
   Long-term bonds	10,920.0
   Total debt	$29,400.0
   Common stock	3,360.0
   Retained earnings	9,240.0
   Total common equity	$12,600.0
   Total liabilities and equity	$42,000.0

   Income Statement (Millions of $)	2007
   Net sales	$58,800.00
   Operating costs except deprn	$54,978.0
   Depreciation	$1,029.0
   Earnings before interest and taxes (EBIT)	$2,793.0
   Less interest	1,050.0
   Earnings before taxes (EBT)	$1,743.0
   Taxes	$610.1
   Net income	$1,133.0
   Other data:
   Shares outstanding (millions)	175.00
   Common dividends	$509.83
   Interest rate on notes payable & L-T bonds	6.25%
   Federal plus state income tax rate	35%
   Year-end stock price	$77.69

   Refer to Scenario: Pettijohn Inc. What is the firms cash flow per share?

   	a.	$11.74
   	b.	$10.59
   	c.	$11.15
   	d.	$12.35

2 points

QUESTION 12

1. Canada Corps market price is currently $35 per share. If the firm reported net earnings of $5,000,000 on total outstanding common shares of 1.8 million, what is the firms P/E ratio?

   	a.	32.44
   	b.	12.60
   	c.	33.33
   	d.	22.50

2 points

QUESTION 13

1. ABC Co. is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firms additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

   Last years sales = S0	$350		Last years accounts payable	$40
   Sales growth rate = g	30%		Last years notes payable (to bank)	$50
   Last years total assets = A0	$500		Last years accruals	$30
   Last years profit margin = M	5%		Target payout ratio	60%

   	a.	$113.9
   	b.	$108.2
   	c.	$102.8
   	d.	$119.9

2 points

QUESTION 14

1. Siren Inc. has annual sales of $85,000,000, COGS of $75,000,000, its average inventory is $20,000,000, and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 33 days, and it pays on time. The firm is searching for ways to shorten the cash conversion cycle. If sales can be maintained at existing levels while lowering inventory by $4,000,000 and accounts receivable by $2,000,000, by how many days would the cash conversion cycle be changed? Use a 365-day year.

   	a.	28.0
   	b.	29.5
   	c.	27.4
   	d.	30.2

2 points

QUESTION 15

1. On average, Bragg Inc. has COGS of $2,000,000 per month. It keeps inventory equal to 50% of its monthly sales on hand at all times. Based on using a 365-day year, what is the inventory conversion period?

   	a.	15.2
   	b.	14.4
   	c.	13.0
   	d.	11.7