FIN331Fall 2009 Exam #1Dr. Rhee1. Identify which financial statements are appropriate to use for each event listed belowEvent 1: Can the firm meet all its short-term obligations?Event 2: How much of the firm’s earnings are put back into the company for reinvestment, and how much is paid out as dividend?a) Balance Sheet, Income Statement b) Balance Sheet, Statement of Cash Flowc) Balance Sheet, Statement of Stockholders’ Equity d) Income Statement, Statement of Cash Flowse) Income Statement, Statement of Stockholder’s Equityc) Event 1: can be checked using B/S, Event 2: can be checked using Statement of Stockholders’ Equity (or Statement of Retained Earnings)(Aplia, Ch3, #1)2. Which of the following liability accounts are considered as “spontaneous liabilities?”a) Long-term debt b) Accruals c) Notes payable d) Accounts payable e) both a) and d)e) Note payable is not part of spontaneous liabilities (Aplia, Ch3, #2)3. I checked the Microsoft stock price at 9:12am this morning. It was $24.88. The last 12 month trailing (ttm) net earnings is $14.58 billion with 9billion shares. What is the 12 month trailing EPS and P/E ratio?a) $1.62, 15.36 b) $2.26, 13.31 c) $1.26, 17.88 d) $2.32, 12.21 e) 1.18, 20.33a) EPS = NI/Shares Outstanding = $14.58/9 = $1.62, P/E = Price per share/Earnings per share = $24.88/$1/62 = 15.36(Aplia, Ch2, #4)4. ABC, Inc., had same amount of ending retained earnings balance as it had at the end of last year. Which of the following statement is true?a) If the firm paid a dividend last year, then the dividend must have equaled net incomeb) The firm paid no dividends this yearc) The firm had zero net income this yeard) The firm has a cash flow probleme) The firm had negative net income this yeara) Statement of Retained Earnings (Stockholders’ Equity): Beginning Balance + Addition to Retained Earnings = Beginning Balance + Net Income – Dividend = Ending Balance. To have Beginning Balance = Ending Balance, Net Income should be equal to Dividends, meaning that all the net income is paid out in dividends(Aplia, Ch3, #3)5. The following information for Towsontown, Inc. is provided:Net Sales: $88,000Operating Costs: $72,000 (doesn’t include depreciation)Depreciation Expense: $ 7,200 (no amortization charges occurred)Debt: $40,000Interest Rates: 10% AnnualTax Rate: 34%How much net cash flow did Woodley generate over the past year?a) $3,168 b) $3,268 c) $10,168 d) $10,368 e) $11,368d) NCF = NI + Dep, From I/S, NI = $3,168 (=Sales – Op. Costs – Dep – INT – Tax), Thus, $3,168 + $7,200 = $10,368(Aplia, Ch3, #4 + net cash flow concept)6. Given EBIT = $800, Tax Rate = 40%, Change in (Net) Fixed Assets = $250, Change in Net Working Capital = $150, how much free cash flow did Johnny Unitas Corporation have?a) $90 b) $50 c) $60 d) $70 e) $80e) FCF = EBIT*(1-T) + Dep – {Dep + ∆Net Fixed Assets + ∆Net Working Capital} = EBIT*(1-T) - ∆Net Fixed Assets - ∆Net Working Capital(Aplia, Ch3, #5)7. What is the sequential approach? a) Profit maximization b) Agency conflict c) Efficient management d) Satisfying stakeholders to maximize shareholder wealth maximization e) None f the above d) (Old exam ch.1: Spring 2009 1, #1)8. Hawkins Corp. has a taxable income of $329,000, and the firm faces the corporate tax rates described in the table below:Taxable Income Marginal Tax Rate$0 - $300,000 25%$300,000 - $10,000,000 34%Over $10,000,000 35%What is Hawkins Corp’s marginal and approximate average tax rates?a) 25%, 25% b) 34%, 26% c)25%, 35% d) 34%, 35% e) 35%, 26%b) Marginal tax rate: see the table where Hawkins Corp’s taxable income belongs to. Average tax rate = Tax liability/taxable income = $84,860/$329,000 = 25.79% => 26%. Since the average tax rate should be an average of all the marginal tax rates (average of 25% and 34%), youcan get the correct answer even without computing the average tax rate. (Aplia, Ch3, #6)9. Which of the following is the reason that the management may fail to try to achieve the objective of the firm? a) Maximize sales b) Maximize profits c) Avoid financial distress d) Agency conflict e) Maximize the current stock priced) (Old exam ch.1: Fall 2008 1, #5)10. Cook, Inc. has a current ratio of 1.8x on current liabilities of $200,000. The firm has $36,000 of inventories. The firm will issu notes payable and use those funds to buy new inventories to meet the inventory requirement for the expansion. Cook’s debt holders specifies that it must maintain a quick ratio at least 1.20x, or else it is in default. How much new inventory can Cook raise before it violates its bond contracts?a) $70,000 b) $80,000 c) $90,000 d) 72,000 e) $30,000a) After you determine CA, use [(CA + x) – (INV + x)]/(CL + x) = (CA – INV ) /(CL + x) =1.20 , solve for x(Aplia, Ch4, #1)11. While preparing a pro forma B/S, you have realized that A > L+E, you want to balance the B/S with increased short-term debt. What is (are) the problem(s) you may run into?a) increased debt b) increased liquidity c) decreased profitability d) liquidity problem e) both increased debt and liquidity probleme) Increasing short-term debt will worsen current ratio (CA/CL), which might cause liquidity problem. Also, increase in short-term debt means increase in total debt (short-term debt is a part of total debt). (Old exam ch.3: Fall 2008 2, #10)12. The current sales and CGS are $10m and $7m respectively. What are the Gross (Profit) Margin for this year and for the next year if the sales amount is expected to increase 20% and a percentage of sales method is used to estimate the next year’s CGS?a) 20%, 20%, b) 20%, 30%, c) 30%, 20%, d) 30%, 30%, e) 30%, 40%d) Sales – CGS = GM. GPM = GM / SalesThis year: GPM = (10-7) / 10 = 30%Next year: Sales = 10 * 1.2 = 12, CGS = 12 * (7 / 10) =8.4, GPM = (12 – 8.4) / 12 = 30%. If Sales and CGS increase the same percentage amount(and the Gross Margin as well), the ratio (Gross Margin Ratio) is not going to change. (Old Exams Ch.3: Fall 2008 2, #11)13. Queens of Leon, Inc.’s currently has $1,600,000 in accounts receivables and its days sales outstanding (DSO) is 20 days. If accounts receivable comprise 50% of the company’s current assets and Queens of Leon has $4,800,000 in net fixed assets, what is Queens of Leon’s total asset turnover ratio?a) 2.651x
View Full Document
Unlocking...