FIN571 WEEKLY PRACTICE QUIZZES

Contents
Description / Instructions: Complete Practice quiz. Week 1...........................................................1
Description / Instructions: Complete practice quiz. Week 2............................................................4
Description / Instructions: Complete practice quiz. Week 3............................................................6
Description / Instructions: Complete practice quiz. Week 4............................................................9
Description / Instructions: Complete practice quiz. Week 5..........................................................13
Description / Instructions: Complete practice quiz. Week 6..........................................................16

Description / Instructions: Complete Practice quiz. Week 1

Multiple Choice Question 42

Which of the following business organizational forms subjects the owner(s) to
unlimited liability?

a) sole proprietorship
b) partnership
c) corporation
d) a and b

Multiple Choice Question 44

Which of the following business organizational forms is easiest to raise capital?

a) sole proprietorship
b) partnership
c) corporation
d) a and b

Multiple Choice Question 50

Which organizational form best enables the owners of the firm to monitor the actions
of other owners of the same firm?

sole proprietorship
partnership
private corporation
public corporation

Multiple Choice Question 81

Which of the following factors or activities can be controlled by the management of
the firm?

The level of economic activity.

The level of interest rates.
Stock market conditions.

Capital budgeting.

Multiple Choice Question 82

The legal system and market forces impose substantial costs on individuals and
institutions that engage in unethical behavior. Which of the following would not be an
example of the above?

Agency conflicts.
Jail time.
Financial losses.
Legal fines.

Multiple Choice Question 48

The most common reason that corporate firms use the futures and options markets is

to take risk.
to hedge risk.
to make deposits.
none of these.

Multiple Choice Question 55

Galan Associates prepared its financial statement for 2008 based on the information
given here. The company had cash worth $1,234, inventory worth $13,480, and
accounts receivables of $7,789. The company's net fixed assets are $42,331, and other
assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756,
common stock of $22,000, and retained earnings of $14,008. How much long-term
debt does the firm have?

$54,342
$76,342
$12,314
$18,334

Multiple Choice Question 59

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the
company had accounts receivables of $47,199, inventory of $63,781, and cash of
$21,461. It also had accounts payables of $51,369, short-term notes payables of
$11,417, and accrued taxes of $6,145. The net working capital of the firm is

$69,655
none of these
$68,931
$63,510

Multiple Choice Question 81

Which of the following best represents cash flows to investors?

Cash flow from operating activity, minus cash flow invested in net working capital,
minus cash flow invested in long-term assets.
Net income, minus dividends paid to preferred stockholders.
Cash flow from operating activity, plus cash flow generated from net working
capital.
Earnings before interest and taxes times 1 minus the firms tax rate.

Description / Instructions: Complete practice quiz. Week 2

Multiple Choice Question 53

Which one of the following statements about trend analysis is NOT correct?

It allows management to examine each ratio over time and determine whether the
trend is good or bad for the firm.
The Standard Industrial Classification (SIC) System is used to identify benchmark
firms.
All of these are true statements.
This benchmark is based on a firm's historical performance.

Multiple Choice Question 68

Coverage ratios: Sectors, Inc., has an EBIT of $7,221,643 and interest expense of
$611,800. Its depreciation for the year is $1,434,500. What is its cash coverage
ratio?

18.34 times
14.15 times
None of these
15.42 times

Multiple Choice Question 68

Multiples analysis: Turner Corp. has debt of $230 million and generated a net
income of $121 million in the last fiscal year. In attempting to determine the total
value of the firm, an investor identified a similar firm in Jacobs, Inc., an all-equity
firm. This firm had 150 million shares outstanding, a share price of $14.25, and net
income of $182 million. What is the total value of Turner Corp.? Round to the
nearest million dollars.

$1,421 million
$1,651 million
$1,191 million
$1,715 million

Multiple Choice Question 46

Coverage ratios, like times interest earned and cash coverage ratio, allow

a firm's creditors to assess how well the firm will meet its interest obligations.
a firm's creditors to assess how well the firm will meet its short-term liabilities
other than interest expense.
a firm's management to assess how well they meet short-term liabilities.
a firm's shareholders to assess how well the firm will meet its short-term
liabilities.

Multiple Choice Question 54

Peer group analysis can be performed by

a) management choosing a set of firms that are similar in size or sales, or who
compete in the same market.
b) using the average ratios of this peer group, which would then be used as the
benchmark.
c) identifying firms in the same industry that are grouped by size, sales, and
product lines, in order to establish benchmark ratios.
d) Only a and b relate to peer group analysis.

Multiple Choice Question 61

Efficiency ratio: If Viera, Inc., has an accounts receivable turnover of 3.9 times and
net sales of $3,436,812, what is its level of receivables?

$881,234
$81,234
$13,403,567
$1,340,357

Description / Instructions: Complete practice quiz. Week 3

Multiple Choice Question 32

The operating cycle

begins when the firm receives the raw materials it purchased that would be used to
produce the goods that the firm manufactures.
begins when the firm uses its cash to purchase raw materials and ends when the firm
collects cash payments on its credit sales.
ends not with the finished goods being sold to customers and the cash collected on
the sales; but when you take into account the time taken by the firm to pay for its
purchases.
To measure operating cycle we need another measure called the days' payables
outstanding.

Multiple Choice Question 57

You are provided the following working capital information for the Ridge Company:
Ridge Company
Account
$
Inventory
Accounts receivable
Accounts payable

$12,890
12,800
12,670

Net sales
$124,589
Cost of goods sold
99,630
Operating cycle: What is the operating cycle for Ridge Company?

36 days
51 days
47 days
85 days

Multiple Choice Question 80

Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an
order is $65 and it costs $85 per year to carry the alarm clock in inventory, use the
EOQ formula to calculate the optimal order size.

26,154 clocks
161 clocks

15,294 clocks
124 clocks

Multiple Choice Question 49

The asset substitution problem occurs when

managers substitute less risky assets for riskier ones to the detriment of bondholders.
managers substitute riskier assets for less risky ones to the detriment of equity
holders.
managers substitute less risky assets for riskier ones to the detriment of equity
holders.
managers substitute riskier assets for less risky ones to the detriment of bondholders.

Multiple Choice Question 53

M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is
expected to exist forever. The company is currently financed with 75 percent equity
and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10
percent for the cash flows, and 7 percent for the debt. You currently own 10 percent
of the stock.
How much are your cash flows today?

$4.50

$150
$12.38
$15

Multiple Choice Question 62

M&M Proposition 2: Melba's Toast has a capital structure with 30% debt and 70%
equity. Its pretax cost of debt is 6%, and its cost of equity is 10%. The firm's marginal
corporate income tax rate is 35%. What is the appropriate WACC?

7.44%
6.35%
8.80%
8.17%

Multiple Choice Question 39

According to the text, the financial plan covers a period of

one year.
ten years.
three to five years.
none of these.

Multiple Choice Question 45

The financing plan of a firm will indicate

the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the desired capital structure for the firm, and the firm's dividend
policy.
the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the firm's dividend policy, and the firm's working capital policy.
the firm's dividend policy, the desired capital structure for the firm, and the firm's
working capital policy.
the dollar amount of funds that has to be raised externally and the sources of funds
available to the firm, the desired capital structure for the firm, and the firm's working
capital policy.

Multiple Choice Question 74

Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs of
$6,080,412, interest payment of $511,233, and a tax rate of 34 percent. It paid dividends
of $1,384,125 to shareholders. Find the firm's dividend payout ratio and retention
ratio.

25%, 75%
69%, 31%
34%, 66%
66%, 34%

Description / Instructions: Complete practice quiz. Week 4

Multiple Choice Question 66

Present value: Tommie Harris is considering an investment that pays 6.5 percent
annually. How much must he invest today such that he will have $25,000 in seven
years? (Round to the nearest dollar.)
Present Value (PV) is a formula used in Finance that calculates the present day value of an
amount that is received at a future date. The premise of the equation is that there is "time
value of money".
http://www.financeformulas.net/Present_Value.html
$16,088
$26,625
$23,474
$38,850

Multiple Choice Question 61

PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest
rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the
next four years as complete repayment of the loan with interest. How much did he
loan out to his brother? (Round to the nearest dollar.)

$2,545
$2,404
$2,713
$2,250

Multiple Choice Question 63

PV of multiple cash flows: Hassan Ali has made an investment that will pay him
$11,455, $16,376, and $19,812 at the end of the next three years. His investment was to
fetch him a return of 14 percent. What is the present value of these cash flows?
(Round to the nearest dollar.)

$39,208
$33,124
$36,022
$41,675

Multiple Choice Question 65

PV of multiple cash flows: Pam Gregg is expecting cash flows of $50,000, $75,000,
$125,000, and $250,000 from an inheritance over the next four years. If she can earn
11 percent on any investment that she makes, what is the present value of her
inheritance? (Round to the nearest dollar.)

$309,432
$412,372
$434,599
$361,998

Multiple Choice Question 66

Present value of an annuity: Transit Insurance Company has made an investment in
another company that will guarantee it a cash flow of $37,250 each year for the next
five years. If the company uses a discount rate of 15 percent on its investments, what
is the present value of this investment? (Round to the nearest dollar.)

$124,868
$251,154
$101,766
$186,250

Multiple Choice Question 71

Future value of an annuity: Carlos Menendez is planning to invest $3,500 every year
for the next six years in an investment paying 12 percent annually. What will be the
amount he will have at the end of the six years? (Round to the nearest dollar.)

$28,403
$24,670
$26,124
$21,000

Multiple Choice Question 61

Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The
interest rate for similar bonds is currently 9 percent. Assuming annual payments,
what is the present value of the bond? (Round to the nearest dollar.)

$990
$945
$1,066
$872

Multiple Choice Question 56

PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year.
After that it expects its dividend to grow at 7 percent for the next four years. What is
the present value of dividends over the next five-year period if the required rate of
return is 10 percent?

$11.88
$11.50
$9.80
$10.76

Multiple Choice Question 59

PV of dividends: Givens, Inc., is a fast growing technology company that paid a $1.25
dividend last week. The company's expected growth rates over the next four years are
as follows: 25 percent, 30 percent, 35 percent, and 30 percent. The company then
expects to settle down to a constant-growth rate of 8 percent annually. If the required
rate of return is 12 percent, what is the present value of the dividends over the fast
growth phase?

$8.37
$7.24
$1.25
$6.46

Description / Instructions: Complete practice quiz. Week 5

Multiple Choice Question 55

Genaro needs to capture a return of 40 percent for his one-year investment in a
property. He believes that he can sell the property at the end of the year for $150,000
and that the property will provide him with rental income of $25,000. What is the
maximum amount that Genaro should be willing to pay for the property?

$150,000
$137,500
$112,500
$125,000

Multiple Choice Question 54

The process of identifying the bundle of projects that creates the greatest total value
and allocating the available capital to the projects is known as

capital rationing.
risk analysis.
budgeting.
rationing.

Multiple Choice Question 78

Capital rationing. You are considering a project that has an initial cost of $1,200,000.
If you take the project, it will produce net cash flows of $300,000 per year for the next
six years. If the appropriate discount rate for the project is 10 percent, what is the
profitability index of the project?

2.09
2.18
0.09
1.09

Multiple Choice Question 89

What might cause a firm to face capital rationing?

If a firm has more than one project with a positive NPV.

If a firm has several projects that are expected to generate negative IRRs.
If a firm rejects some capital investments that are expected to generate positive
NPVs.
If investors require returns for their capital that are too high.

Multiple Choice Question 59

How firms estimate their cost of capital: The WACC for a firm is 19.75 percent. You
know that the firm is financed with $75 million of equity and $25 million of debt. The
cost of debt capital is 7 percent. What is the cost of equity for the firm?

19.75%
24.00%
32.50%
58.00%

Multiple Choice Question 61

The cost of debt: Bellamee, Inc., has semiannual bonds outstanding with five years to
maturity and are priced at $920.87. If the bonds have a coupon rate of 7 percent, then
what is the YTM for the bonds?

4.5%
7.0%
9.0%
9.2%

Multiple Choice Question 63

The cost of debt: Beckham Corporation has semiannual bonds outstanding with 13
years to maturity and are currently priced at $746.16. If the bonds have a coupon rate
of 8.5 percent, then what is the after-tax cost of debt for Beckham if its marginal tax
rate is 35%? Assume that your calculation is made as on Wall Street.

12.500%
12.890%
6.250%
8.125%

Multiple Choice Question 67

The cost of equity: RadicalVenOil, Inc., has a cost of equity capital equal to 22.8
percent. If the risk-free rate of return is 10 percent and the expected return on the
market is 18 percent, then what is the firm's beta if the firm's marginal tax rate is 35
percent?

4.10
1.28
1.60
1.0

Multiple Choice Question 83

Which type of project do financial managers typically use the highest cost of capital
when evaluating?

Efficiency projects
Extension projects
New product projects
Market expansion projects

Description / Instructions: Complete practice quiz. Week 6

Multiple Choice Question 55

Planning models that are more sophisticated than the percent of sales method have

all variable costs change directly with sales.

working capital accounts like inventory, accounts receivables, and accounts payables
vary directly with sales.
fixed assets that do not always vary directly with sales.
all of these are true.

Multiple Choice Question 66

Firms that achieve higher growth rates without seeking external financing

have a high plowback ratio.

all of these are true.
are not highly leveraged.
have less equity and/or are able to generate high net income leading to a high ROE.

Multiple Choice Question 85

External financing needed: Triumph Company has total assets worth $6,413,228.
Next year it expects a net income of $3,145,778 and will pay out 70 percent as
dividends. If the firm wants to limit its external financing to $1 million, what is the
growth rate it can support?

26.5%
6.4%
32.9%
30.3%