# 12. What is the Internal Rate of Return for the project? a percent d percent b percent e percent c. 20.

Save this PDF as:

Size: px
Start display at page:

Download "12. What is the Internal Rate of Return for the project? a. 18.52 percent d. 21.79 percent b. 16.95 percent e. 15.55 percent c. 20."

## Transcription

1 Business Finance Name Examination Four Spring 2005 version 4 Select the best answer for each of the following questions. Mark your selection on the examination and on your scantron. You may also record your selection on the answer sheet. Show all work on the problems. Turn in your examination and scantron when you are finished; keep the answer sheet. Answer keys will be posted ten minutes after the exam is completed. Your score will be based on your answers on the scantron and not on the answer sheet. 4 points per question 1. The Net Present Value approach to capital budgeting assumes that a proposed investment s intermediate cash flows are reinvested at the ; where the Internal Rate of Return method assumes reinvestment at the. a. cost of equity capital; internal rate of return b. weighted average cost of capital; cost of equity capital c. weighted average cost of capital; internal rate of return d. internal rate of return; cost of equity capital e. cost of equity capital; weighted average cost of capital 2. Which of the following would increase the NPV of the project being considered (all other things held constant)? a. An increase in the initial cost of the project. b. An increase in the required rate of return on the project. c. A reduction in the incremental revenues generated by the project. d. The use of straight-line depreciation rather than an accelerated method of depreciating the asset. e. A reduction in the operating costs associated with the project. 3. The internal rate of return (IRR) for a project is the discount rate at which: a. the project's expected net cash flows generate positive net present values. b. the present value of the project's expected net cash inflows are equal the project s initial cost. c. the net present value of the project is equal to the required rate of return. d. the required rate of return is equal to the internal rate of return. e. the project's net present value is positive. 4. Which of the following should NOT be considered in the initial period (time=0) of a proposed replacement decision? a. The market value of the machine to be replaced. b. Tax implications on the sale of the old machine. c. An investment tax credit. d. The book value of the machine to be replaced. e. Increases in operating costs associated with the project. 5. Which of the following remains unchanged as a firm increases its financial leverage for a given level of sales? a. Variability in EPS. b. Business Risk. c The level of debt. d. Total risk of the firm. e. Financial Risk.

2 6. The operating risk (or business risk) of a firm can BEST be measured in variability of, where the total risk of a firm is BEST measured in variability of. a. Sales; EPS b. Sales; Net Income c. EBIT; Sales d. ROA; EBIT e. ROA; ROE 7. The use of debt in a firm s capital structure yields: a. higher financial risk and lower expected return on equity. b. higher expected return on equity and higher total risk. c. higher variation in return on equity and lower fixed costs of production. d. higher expected return on assets and higher variation in return on equity. e. higher variation in return on assets and lower expected earnings per share. 8. Which of the following statements BEST describes the traditional view of capital structure theory? a. Firms should only use debt if the firm s owners have no additional funds available for equity investment. b. The moderate use of debt by a firm increases the firm's total value. c. The use of debt by a firm allows the equity holders to maintain effective control of the firm s activities. d. The use of debt by a firm increases the firm's level of business risk. e. The use of debt has no effect on the value of the firm. 9. As the typical manufacturing firm increases its operating leverage (all other things held constant),: a. its total fixed costs decrease and variable cost per unit decreases. b. its total fixed costs increase and variable cost per unit decreases. c. its total fixed costs increase and total costs of production decreases. d. its total fixed costs decrease and variable cost per unit increases. 10. If the net present value of a proposed project is positive, then: a. the internal rate of return for the project is greater than the required rate of return. b. the internal rate of return for the project is equal to the required rate of return c. the internal rate of return for the project is zero. d. the internal rate of return for the project is less than zero e. the internal rate of return for the project is less than the required rate of return.

3 The following information applies to questions 11, 12 and 13. Projects C has the following net cash flows: Year Project 0 -\$5,000, ,800, ,800, ,200, ,400, If the required rate of return is 10 percent, what is the net present value for the project? a. \$ 1,416,092 d. \$ 870,637 b. \$ 1,052,455 e. \$ 1,574,835 c. \$ 1,234, What is the Internal Rate of Return for the project? a percent d percent b percent e percent c percent 13. If the required rate of return is 10 percent, what is the modified internal rate of return? a percent d percent b percent e percent c percent 14. What is the net present value of this investment? INITIAL COST \$250,000 PROJECT LIFE 7 years SALVAGE VALUE \$15,000 ANNUAL NET CASH FLOWS \$60,000 DISCOUNT RATE 15% a. \$ 5,264 d. \$ 2,105 b. \$ -375 e. \$ 3,803 c. \$ 55,264

4 This is an 8-point point. Mark answers 15 and 16 with the correct answer on your scantron. 15. & 16. Union Brick, Inc., has an electric kiln which is 5 years old and is expected to last another 10 years. It has a book value of \$35,000, and it is being depreciated by the straight line method to a \$5,000 salvage value. As Director of Capital Budgeting, you are evaluating a new gas kiln that should save UBI \$20,000 a year in fuel costs. The new kiln would cost \$125,000. It would be depreciated over 10 years by the straight line method to a \$5,000 salvage value. The market value of the old kiln is \$25,000. UBI's marginal tax rate is 40%, and the firm's cost of capital is 10%. What is the NPV of the replacement project? a. \$ -6,145 b. \$ 1,783 c. \$ -145 d. \$ -29,139 e. \$ -3, Assume that a firm currently has EBIT of \$6,000,000, DTL of 12.0, and DFL of 3.0. If sales decline by 10 percent next year, then what will be the firm s expected EBIT in one year? a. \$ 3,600,000 d. \$ 3,000,000 b. \$ 2,400,000 e. \$ 1,000,000 c. \$ 4,000,000

5 The Nelson Equipment Company purchased a machine 5 years ago at a cost of \$70,000. The machine had an expected life of 10 years at the time of the purchase and an expected salvage value of \$5,000 at the end of the 10 years. It is being depreciated by the straight-line method toward a salvage value of \$5,000, or by \$6,500 per year. A new machine can be purchased for \$125,000 and require an additional \$25,000 in installation costs. The new machine will require \$10,000 in additional spare parts. During its 5- year life, it will reduce cash operating expenses by \$50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worth \$8,000. ACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life. The old machine can be sold today for \$15,000. The firm's tax rate is 40 percent and the appropriate discount rate is 12 percent. (The recovery allowance percentages for 3-year property are 33%, 45%, 15%, and 7%.) 18. What is the NET COST of the machine? (That is, what is the initial cash outflow?) a. \$ -126,000 b. \$ -144,000 c. \$ -154,000 d. \$ -136,000 e. \$ -145, What are the net operating cash flows for Year 1 and 2? Year 1 Year 2 a \$ 45,800 \$ 56,600 b. \$ 47,200 \$ 54,400 c. \$ 49,800 \$ 57,000 d. \$ 49,700 \$ 60,500 e. \$ 45,480 \$ 51, What is the total value of the additional considerations at the end of the five years? a. \$ 14,800 b. \$ 11,000 c. \$ 13,000 d. \$ -200 e. \$ 9, What is the Net Present Value of the replacement decision? a. \$ 15,371 b. \$ 18,251 c. \$ 17,012 d. \$ 16,610 e. \$ 20,250

6 22. Calculate the current price per share (P 0 ) for Olson Corporation, given the following information. The data all pertain to the year just ended. Sales = 1,000,000 units Sales price per unit = \$60.00 Variable cost per unit = \$40.00 Fixed cost = \$500,000 Debt outstanding = \$750,000 Interest rate on debt = 10 percent Tax Rate = 40 percent Common stock shares outstanding = 1,000,000 shares Beta = 1.3 k RF = 3 percent k M = 12 percent Pay-out ratio = 40 percent Growth rate in earnings and dividends = 5 percent a. \$50.46 d. \$48.06 b. \$43.98 e. \$52.57 c. \$46.18

7 A group of retired college professors has decided to form a small manufacturing corporation. The company will produce a full line of traditional office furniture. Two financing plans have been proposed by investors. Plan A is an all-equity alternative. Under this agreement, one million shares will be sold to net the firm \$10 per share. Plan B involves the use of financial leverage. A debt issue with a 20-year maturity will be privately placed. The debt issue will carry an interest rate of 18 percent, and the principal borrowed will amount to \$6.0 million. Assume a corporate tax rate of 40 percent. 23. Find the EBIT indifference level associated with the two financing alternatives. a. \$1,100,000 d. \$1,500,000 b. \$1,800,000 e. \$1,200,000 c. \$2,000, What is the EPS at this indifference level of EBIT? a. \$0.60 d. \$1.08 b. \$0.72 e. \$1.24 c. \$ The average annual EBIT has been estimated at \$1,200,000; what is the expected EPS of each plan at this level of EBIT? Plan A Plan B a. \$0.96 \$1.40 b. \$0.72 \$0.18 c. \$0.84 \$1.02 d. \$0.62 \$0.45 e. \$0.36 \$0.90

8 FORMULA ANSWER AND ANSWER SHEET NPV = -C 0 + Σ NCF t EAA = NPV (1+k) t PVIFA -C 0 = NCF t Σ PI = C 0 + NPV (1+IRR) t C 0 Kre = Rf + B(Rm - Rf) = (D0 (1 + g)/p0) + g Kne = (D0 (1 + g)/(p0(1 - F)) + g Ka = wdkd(1-tr) + wpkp + weke EPS = (EBIT-I)(1-TR) shares NOPAT = EBIT(1-TR) Operating Cash Flow = NOPAT + Depreciation Free Cash Flow = NOPAT Net Investment in Operating Capital Kre = Rf + B(Rm - Rf) = (D0 (1 + g)/p0) + g Kne = (D0 (1 + g)/(p0(1 - F)) + g Ka = wdkd(1-tr) + wpkp + weke DTL = DOL x DFL DPS = EPS x payout ratio EPS = (EBIT-I)(1-TR) shares DOL = DFL = EBIT EBIT - I Q(P - VC) Q(P VC) - FC

### Chapter 17: Financial Statement Analysis

FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose

### CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA

CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Basic 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After two years, the

### FSA Note: Summary of Financial Ratio Calculations

FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and

### CHAPTER 14 COST OF CAPITAL

CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this,

### Corporate Finance: Final Exam

Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. 1. DayTop Inns is a publicly traded company, with 10 million shares

### Chapters 11&12 -- Capital Budgeting

Chapters 11&12 -- Capital Budgeting Capital budgeting Project classifications Capital budgeting techniques Cash flow estimation Risk analysis in capital budgeting Optimal capital budget Capital budgeting

### ] (3.3) ] (1 + r)t (3.4)

Present value = future value after t periods (3.1) (1 + r) t PV of perpetuity = C = cash payment (3.2) r interest rate Present value of t-year annuity = C [ 1 1 ] (3.3) r r(1 + r) t Future value of annuity

### Corporate Finance: Final Exam

Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. For partial credit, when discounting, please show the discount rate

### FIN 3403 Quiz #1 - Version 1 12 points [Show all work for credit] Time Value

FIN 3403 Quiz #1 - Version 1 [Show all work for credit] Time Value Frohlich Fall 1998 Do either problem one or two: (12 pts.) [show all work] 1. A)The Tried and True Company had earnings of \$.30 per share

### Current Ratio: Current Assets / Current Liabilities. Measure of whether company has enough cash to cover immediate expenses

1 Beta: a measure of a stock s volatility relative to the overall market (typically the S&P500 index is used as a proxy for the overall market ). The higher the beta, the more volatile the stock price.

### BF 6701 : Financial Management Comprehensive Examination Guideline

BF 6701 : Financial Management Comprehensive Examination Guideline 1) There will be 5 essay questions and 5 calculation questions to be completed in 1-hour exam. 2) The topics included in those essay and

### Income Measurement and Profitability Analysis

PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance

### MBA 8230 Corporation Finance (Part II) Practice Final Exam #2

MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a call option? a. the volatility of the company's

### CHAPTER 8 STOCK VALUATION

CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 5. The common stock probably has a higher price because the dividend can grow, whereas it is fixed on the preferred.

### EXAM 1 REVIEW QUESTIONS

EXAM 1 REVIEW QUESTIONS 1) Free cash flow. Consider the following financial statements for United Technologies Corp. What is UT's free cash flow (total cash flow from assets) for 2001? UNITED TECHNOLOGIES:

### SAMPLE FACT EXAM (You must score 70% to successfully clear FACT)

SAMPLE FACT EXAM (You must score 70% to successfully clear FACT) 1. What is the present value (PV) of \$100,000 received five years from now, assuming the interest rate is 8% per year? a. \$600,000.00 b.

### CHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING

CHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money.

### 6 Investment Decisions

6 Investment Decisions BASIC CONCEPTS AND FORMULAE 1. Capital Budgeting Capital budgeting is the process of evaluating and selecting long-term investments that are in line with the goal of investor s wealth

### Net Present Value (NPV)

Investment Criteria 208 Net Present Value (NPV) What: NPV is a measure of how much value is created or added today by undertaking an investment (the difference between the investment s market value and

### How will the firm's total after-tax cash flows change if the new project is accepted?

NPV and Capital Budgeting: A Short Note on Estimation of Project Cash Flows (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) KC Chow The most important value-driving decisions

### Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

### Corporate Finance. Slide 1 咨询热线 : 学习平台 : lms.finance365.com

Corporate Finance Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working capital management Corporate Governance of Listed Companies Slide 1 Capital Budgeting Slide

### (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics)

Capital Budgeting: Net Present Value vs Internal Rate of Return (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) Y O Lam Capital budgeting assists decision makers in a

### AFM 372 Fall 2007 Midterm Examination Friday, October 26. This exam has 11 pages including this page. A separate formula sheet will be provided.

Student name: Student number: Instructor: Alan Huang Duration: 2 hours AFM 372 Fall 2007 Midterm Examination Friday, October 26 This exam has 11 pages including this page. A separate formula sheet will

### RATIO ANALYSIS FORMULAS + THEORIES

A) Cash Position Ratio : - 1) Absolute Cash Ratio = Cash Reservoir Current Liabilities 2) Cash Position to Total asset Ratio = Cash Reservoir * 100 (Measure liquid layer of assets) Total Assets 3) Interval

### TOPIC LEARNING OBJECTIVE

Topic Mapping 1 Transaction Analysis Understand the effect of various types of transactions on the accounting equation, accounting journal and accounting ledger. Concepts and Skills Accounting Equation

### MBA 8130 FOUNDATIONS OF CORPORATION FINANCE FINAL EXAM VERSION A

MBA 8130 FOUNDATIONS OF CORPORATION FINANCE FINAL EXAM VERSION A Fall Semester 2004 Name: Class: Day/Time/Instructor:. Read the following directions very carefully. Failure to follow these directions will

### MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the

MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the following 33 questions designed to test your knowledge of the

### CHAPTER 8 INTEREST RATES AND BOND VALUATION

CHAPTER 8 INTEREST RATES AND BOND VALUATION Solutions to Questions and Problems 1. The price of a pure discount (zero coupon) bond is the present value of the par value. Remember, even though there are

### KEY EQUATIONS APPENDIX CHAPTER 2 CHAPTER 3

KEY EQUATIONS B CHAPTER 2 1. The balance sheet identity or equation: Assets Liabilities Shareholders equity [2.1] 2. The income statement equation: Revenues Expenses Income [2.2] 3.The cash flow identity:

### Total shares at the end of ten years is 100*(1+5%) 10 =162.9.

FCS5510 Sample Homework Problems Unit04 CHAPTER 8 STOCK PROBLEMS 1. An investor buys 100 shares if a \$40 stock that pays a annual cash dividend of \$2 a share (a 5% dividend yield) and signs up for the

### Finance 3130 Corporate Finiance Sample Final Exam Spring 2012

Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction

### CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS

CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will

### FORMULA SHEET [3.2] 63

FORMULA SHEET Assets = Liabilities + Shareholders equity [2.1] 26 Revenues - Expenses = Income [2.2] 30 Cash flow from assets = Cash flow to bondholders + Cash flow to shareholders [2.3] 32 Current ratio

Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. You are not responsible for any topics that are not covered in the lecture note

### Financial Statement and Cash Flow Analysis

Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards

### SampleFinal Finance 320 Finance Department

SampleFinal Finance 320 Finance Department Name Chapters: 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, and 13 1) A C corporation earns \$4.50 per share before taxes. The corporate tax rate is 35%, the personal tax

### 1. Operating, Investment and Financial Cash Flows

1. Operating, Investment and Financial Cash Flows Solutions Problem 1 During 2005, Myears Oil Co. had gross sales of \$1 000,000, cost of goods sold of \$400,000, and general and selling expenses of \$300,000.

### Economic Feasibility Studies

Economic Feasibility Studies ١ Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. The difficulty with making these decisions

### CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA

CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project

### CAPITAL STRUCTURE AND DIVIDEND POLICY

CAPITAL STRUCTURE AND DIVIDEND POLICY Capital Structure In the section of the notes titled Cost of Capital, we examined how the cost of capital is determined. From those notes, you should have discovered

### Project Valuation for Managers

Project Valuation for Managers An Essential Skill Corporate Finance By Cameron Hall Key Messages The job of managers is to create value. Value in a firm comes from two sources: current operations and new

### MULTIMEDIA COLLEGE JALAN GURNEY KIRI KUALA LUMPUR

STUDENT IDENTIFICATION NO MULTIMEDIA COLLEGE JALAN GURNEY KIRI 54100 KUALA LUMPUR SECOND SEMESTER FINAL EXAMINATION, 2013/2014 SESSION FIN2193 FINANCIAL MANAGEMENT DMGW-E-F-1/13, DIAW-E-F-1/13 17 FEBRUARY2014

### Solutions to Chapter 3. Accounting and Finance

Solutions to Chapter 3 Accounting and Finance 1. Sophie s Sofas Liabilities & Assets Shareholders Equity Cash \$ 10,000 Accounts payable \$ 17,000 Accounts receivable 22,000 Long-term debt 170,000 Inventory

### TIP If you do not understand something,

Valuing common stocks Application of the DCF approach TIP If you do not understand something, ask me! The plan of the lecture Review what we have accomplished in the last lecture Some terms about stocks

### MGT201 Financial Management Formulas Lecture 1 to 22

MGT201 Financial Management Formulas Lecture 1 to 22 http://vustudents.ning.com 1. Fundamental Accounting Equation and Double Entry Principle. Assets +Expense = Liabilities + Shareholders Equity + Revenue

### Overview of Lecture 9

Overview of Lecture 9 Taxes The Tax Code Calculating after-tax cash flows What Discount Rate to Use? Materials covered: Reader, Lecture 7 BM Chapter 6, pp. 121-134. M. Spiegel and R. Stanton, 2000 1 Review:

### Chapter 9. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 \$20.60 \$12.36 \$1.00 \$2.06 \$5.18 \$3.11

Chapter 9 9-1 We assume that revenues and selling & administrative expenses will increase at the rate of inflation. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 \$20.60

### If you ignore taxes in this problem and there is no debt outstanding: EPS = EBIT/shares outstanding = \$14,000/2,500 = \$5.60

Problems Relating to Capital Structure and Leverage 1. EBIT and Leverage Money Inc., has no debt outstanding and a total market value of \$150,000. Earnings before interest and taxes [EBIT] are projected

### An Investment Analysis Case Study: The Home Depot

An Investment Analysis Case Study: The Home Depot This case is a group project that is due on March 31 before class at 10.30 am. Format: Each group will turn in one report (sounds obvious, but is amazing

### Return on Equity has three ratio components. The three ratios that make up Return on Equity are:

Evaluating Financial Performance Chapter 1 Return on Equity Why Use Ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to

### 2013 FINANCIAL MANAGEMENT I

Name : Roll No. :.... Invigilator s Signature :.. CS/BBA (H)/BIRM/BSCM/SEM-4/BBA-403/2013 2013 FINANCIAL MANAGEMENT I Time Allotted : 3 Hours Full Marks : 70 The figures in the margin indicate full marks.

### Often stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable.

Reading: Chapter 8 Chapter 8. Stock: Introduction 1. Rights of stockholders 2. Cash dividends 3. Stock dividends 4. The stock split 5. Stock repurchases and liquidations 6. Preferred stock 7. Analysis

### MGT201 Solved MCQs(500) By

MGT201 Solved MCQs(500) By http://www.vustudents.net Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because

### Financial Accounting & Statement Analysis Workshop II Philippe Giraudon

Financial Accounting & Statement Analysis Workshop II Philippe Giraudon Below are the 2012 forecasts of companies A and B which operate in the same sector: P&L Statement ( m) Alpha Beta Revenues 1 230

### Chapter 10 Risk and Capital Budgeting

Chapter 10 Risk and Capital Budgeting MULTIPLE CHOICE 1. Operating leverage describes the relationship between... a. EBIT and sales b. taxes and sales c. debt and equity d. fixed costs and variable costs

Answers to Warm-Up Exercises E13-1. Breakeven analysis Answer: The operating breakeven point is the level of sales at which all fixed and variable operating costs are covered and EBIT is equal to \$0. E13-2.

### FN2 Ron Muller 2007-08 MODULE 4: CAPITAL STRUCTURE QUESTION 1

MODULE 4: CAPITAL STRUCTURE QUESTION 1 Gadget Corp. manufactures gadgets. The average selling price of this finished product is \$200 per unit. The variable cost for these units is \$125. Gadget Corp. incurs

### ACCOUNTING COMPETENCY EXAM SAMPLE EXAM. 2. The financial statement or statements that pertain to a stated period of time is (are) the:

ACCOUNTING COMPETENCY EXAM SAMPLE EXAM 1. The accounting process does not include: a. interpreting d. observing b. reporting e. classifying c. purchasing 2. The financial statement or statements that pertain

### Investment Analysis (FIN 383) Fall Homework 9

Investment Analysis (FIN 383) Fall 2009 Homework 9 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue

### Finance 2 for IBA (30J201) F.Feriozzi Resit exam June 14 th, 2011. Part One: Multiple-Choice Questions (45 points)

Question 1 Finance 2 for IBA (30J201) F.Feriozzi Resit exam June 14 th, 2011 Part One: Multiple-Choice Questions (45 points) Assume that financial markets are perfect and that the market value of a levered

### Learning Objective: Compare the financial implications of the different forms of business organizations. Learning Objective: Compare the

1. award: MC Qu. 6 Todd and Cathy created a firm that is... Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50 50 basis. Which type of entity did

### Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability

A) Liquidity Ratio : - Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability

### Ratio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets

Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75

### Chapter 1 Financial Statement and Cash Flow Analysis

Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

### IFRS Financial Ratios.

100 IFRS Financial Ratios Author s preface Dear readers, in order to make solid investments, investors compare companies within their peer group. For this purpose, key ratios such as EBIT, working capital

### Key Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 1-1. Chapter 3

Key Concepts and Skills Chapter 3 Working With Financial Statements Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know

### Homework #3 BUSI 408 Summer II 2013

Homework #3 BUSI 408 Summer II 2013 This assignment is due 12 July 2013 at the beginning of class. Answer each question with numbers rounded to two decimal places. For relevant questions, identify the

### CHAPTER 14 FINANCIAL AND OPERATING LEVERAGE

CHAPTER 14 FINANCIAL AND OPERATING LEVERAGE Q.1 Explain the concept of financial leverage. Show the impact of financial leverage on the earnings per share. A.1 The use of fixed-charges sources of funds,

### FINANCIAL MANAGEMENT For M.Com /B.Com Part A Question & Answers INTRODUCTION TO FINANCIAL MANAGEMENT 1. What is financial management?

FINANCIAL MANAGEMENT For M.Com /B.Com Part A Question & Answers INTRODUCTION TO FINANCIAL MANAGEMENT 1. What is financial management? It is the application of planning and control functions of the finance

### Degree of Leverage DEGREE OF OPERATING LEVERAGE (DOL) WEB EXTENSION15A. This Extension explains how operating and financial leverage interact.

WEB EXTESIO15A Degree of Leverage This Extension explains how operating and financial leverage interact. DEGREE OF OPERATIG LEVERAGE (DOL) The degree of operating leverage (DOL) is defined as the percentage

### Course 1: Evaluating Financial Performance

Excellence in Financial Management Course 1: Evaluating Financial Performance Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a basic understanding of how to use ratio analysis for evaluating

### What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

### Valuation. The Big Picture: Part II - Valuation

Valuation The Big Picture: Part II - Valuation A. Valuation: Free Cash Flow and Risk Apr 1 Apr 3 Lecture: Valuation of Free Cash Flows Case: Ameritrade B. Valuation: WACC and APV Apr 8 Apr 10 Apr 15 Lecture:

### NWC = current assets - current liabilities = 2,100

Questions and Problems Chapters 2,3 pp45-47 1. Building a balance sheet. Penguin Pucks, Inc., has current assets of \$3,000, net fixed assets \$6,000, current liabilities of \$900, and long-term debt of \$5,000.

### The following information is available on Toy Inc. There are 100 shares outstanding, each selling for \$25

The following information is available on Toy Inc. There are 100 shares outstanding, each selling for \$25 Corporate tax 34.00% Interest rate 4.25% Retention ratio 65.00% Case A. Toy Inc. Zero growth in

### Cash Flow Estimation. Topics to be covered

Cash Flow Estimation Topics to be covered Discount Cash Flow, Not Profit Discount Incremental Cash Flow - Include all direct effects. - Forget Sunk Costs - Include Opportunity Costs - Recognize the Investment

Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation

### NIKE Case Study. Professor Corwin. An overview of the individual questions and their relation to the lecture topics is provided below.

NIKE Case Study Professor Corwin This case study includes several problems related to the valuation of Nike. We will work through these problems throughout the course to demonstrate some of the most important

### CHAPTER 8: ESTIMATING CASH FLOWS

CHAPTER 8: ESTIMATING CASH FLOWS 8-1 a. Straight line depreciation = (\$15 - \$3)/10 = \$1.20 Annual Tax Savings from Depreciation = \$ 1.2 (0.4) = \$0.48 Present Value of Tax Savings from Depreciation = \$

### CHAPTER 11 Questions and Problems

1 CHAPTER 11 Questions and Problems (In the problems below, you can use a risk premium of 5.5% and a tax rate of 40% if either is not specified) 1. Stock buybacks really do not return cash to stockholders,

Business 2019 Finance I Lakehead University Midterm Exam Philippe Grégoire Fall 2002 Time allowed: 2 hours. Instructions: Calculators are permitted. One 8.5 11 inches crib sheet is allowed. Verify that

### Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio =

1 Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = Cash / CL 98 / 540 =.18 times 2 Computing Leverage

### CBE Selected-Response Questions Sample items aligned to Economics and Accounting courses. Copyright 2015 Council for Aid to Education

CBE Selected-Response Questions Sample items aligned to Economics and Accounting courses Copyright 2015 Council for Aid to Education Economics Objective Evaluate supply and demand information and apply

### 6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

### Solution. Term: Fall Year: Time Period Start time: 9:00 am End time: 11:30 am

Solution Term: Fall Year: 2011 Student Name Student ID Number Date of Exam Thursday, December 15, 2011 Time Period Start time: 9:00 am End time: 11:30 am Duration of Exam 2.5 hours Number of Exam Pages

### Fundamentals of Corporate Finance

Fundamentals of Corporate Finance Sixth Canadian Edition by Ross, Westerfield, Jordan, and Roberts Formula Sheet page # Assets = Liabilities + Shareholders equity [2.1] 28 Revenues Expenses = Income [2.2]

### Chapter 8 Financial Statement Analysis

Chapter 8 Financial Statement Analysis rue/false Questions F 1. Balance sheet items are carried at original cost or market value at the discretion of the individual firm. F 2. A primary use of the sources

### Valuation Mobile networks

ITU EXPERT-LEVEL TRAINING ON NETWORK COST MODELING FOR ASIA AND PACIFIC COUNTRIES LEVEL II Valuation Mobile networks Bangkok, Thailand, 15-19 November 2010 Note: The views expressed in this paper are those

### Chapters 3-4 Financial Statements, Cash Flow, and Analysis of Financial Statements. Balance Sheet. Total Liabilities and Shareholder s Equity

Chapters 3-4 Financial Statements, Cash Flow, and Analysis of Financial Statements Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Liabilities and Shareholder s Equity

### 13A DEGREE OF LEVERAGE DEGREE OF OPERATING LEVERAGE (DOL)

App13A_SW_Brigham_778312_R2 1/6/03 9:20 PM Page 13A-1 13A DEGREE OF LEVERAGE In our discussion of operating leverage in Chapter 13, we made no mention of financial leverage, and when we discussed financial

### Midterm exam financiering/finance. <Front page>

Midterm exam financiering/finance Question 1 An agency problem can be alleviated by: A) requiring all organizations to be sole proprietorships. B) compensating managers in such a way that

### 1. What are the three types of business organizations? Define them

Written Exam Ticket 1 1. What is Finance? What do financial managers try to maximize, and what is their second objective? 2. How do you compare cash flows at different points in time? 3. Write the formulas

### Finance 2 for IBA (30J201) F.Feriozzi Regular exam December 15 th, 2010. Part One: Multiple-Choice Questions (45 points)

Finance 2 for IBA (30J201) F.Feriozzi Regular exam December 15 th, 2010 Question 1 Part One: Multiple-hoice Questions (45 points) Which of the following statements regarding the capital structure decision

### TYPES OF FINANCIAL RATIOS

TYPES OF FINANCIAL RATIOS In the previous articles we discussed how to invest in the stock market and unit trusts. When investing in the stock market an investor should have a clear understanding about

### CHAPTER 7 MAKING CAPITAL INVESTMENT DECISIONS

CHAPTER 7 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will

### Pro Forma Income Statements Sales \$50,000 Var. costs 30,000 Fixed costs 5,000 Depreciation 7,000 EBIT \$8,000 Taxes (34%) 2,720 Net income \$5,280

Project Analysis: Suppose we want to prepare a set of pro forma financial statements for a project for Norma Desmond Enterprises. In order to do so, we must have some background information. In this case,