Finance Midterm

FINA300 fall down 2011 Benedictine University 100 points Name ___________________________________________________ 1) Which of the by- take up statements is CORRECT? a. The New York Stock fill in is an auction grocery, and it has a physical location. b. plateful mortgage loans atomic number 18 traded in the funds commercialize place. c. If an investor sells shargons of stock through a broker, because it would be a primary market transaction. d. outstanding markets deal only with everyday stocks and otherwise right securities. e.While the distinctions atomic number 18 blurring, investment banks generally specialize in lending money, whereas commercial banks generally attend companies launch superior from other give the gatecelies. (2) Which of the pursuance statements is CORRECT? a. A hostile coup detat is the main method of transferring ownership pertain in a participation. b. A corpo symmetryn is a legal entity created by a state, and it has a life and existen ce that is pick out from the lives and existence of its owners and managers. c. Un special liability and limited life are two strike reinforcements of the corpo crop form over other forms of backing organization. . Limited liability is an advantage of the corporate form of organization to its owners (stockholders), tho hatfuls set out more trouble rise money in financial markets because of the complexness of this form of organization. e. Although the stockholders of the corporation are insulated by limited legal liability, the legal berth of the corporation does not protect the trues managers in the same way, i. e. , bondholders undersur gift sue its managers if the unbendable defaults on its debt. 3) The kept up(p) earnings account on the parallelism sheet does not represent money.Rather, it represents part of the stockholders claim against the unswervings be assets. Put other way retained earnings are stockholders reinvested earnings. a. True b. False (4) In fina nce, we are generally more interested in bullion flows than in accounting profits. quit cash flow (FCF) is calculated as after-tax operating income plus depreciation less(prenominal) the sum of capital expenditures and changes in last(a) working capital. a. True b. False 5) otherwise things held continual, which of the undermentioned actions would increase the amount of cash on a companys balance sheet? a. The company repurchases crude stock. b.The company pays a dividend. c. The company issues tonic common stock. d. The company gives customers more date to pay their bills. e. The company purchases a wise piece of equipment 6) Ryngard Corps gross revenue last grade were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO)? a. 2. 04 b. 2. 14 c. 2. 26 d. 2. 38 e. 2. 49 7) A bare-ass firm is maturation its business plan. It will require $615,000 of assets, and it projects $450,000 of sales and $355,000 of operating cost for the first year. anxiety is reasonably sure of these numbers because of contracts with its customers and suppliers.It toilette borrow at a rate of 7. 5%, but the bank requires it to have a TIE of at to the lowest degree 4. 0, and if the TIE falls below this train the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use? (Hint Find the maximum dollars of interest, consequently the debt that produces that interest, and then the related debt ratio. ) a. 41. 94% b. 44. 15% c. 46. 47% d. 48. 92% e. 51. 49% 8) Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? a.Corporations generally face fewer regulations. b. Less of a corporations income is generally subject to federal official taxes. c. Corporate shareholders are capable to countless liability, but this factor is offset by the tax advantages of incorporation. d. Corporate investors are expo sed to unlimited liability. e. Corporations generally find it easier to raise large amounts of capital. (9) You recently sold two hundred shares of Disney stock, and the transfer was made through a broker. This is an example of a. A money market transaction. b. A primary market transaction. c.A secondary market transaction. d. A futures market transaction. e. An over-the-counter market transaction 10) down the stairs are the 2007 and 2008 closing balance sheets for Tran Enterprises Assets20082007 cash$ 200,000$ 170,000 Accounts receivable864,000700,000 Inventories 2,000,000 1,400,000 supply current assets$3,064,000$2,270,000 Net pertinacious assets 6,000,000 5,600,000 Total assets$9,064,000$7,870,000 Liabilities and fair-mindedness Accounts payable$1,400,000$1,090,000 Notes payable 1,600,000 1,800,000 Total current liabilities$3,000,000$2,890,000 Long-term debt 2,400,000 2,400,000 ballpark stock 3,000,000 2,000,000 Retained earnings 664,000 580,000 Total common equity$3,664,0 00$2,580,000 Total liabilities and equity$9,064,000$7,870,000 The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2007. As of the end of 2008, none of the point on this debt had been repaid. Assume that the companys sales in 2007 and 2008 were the same. Which of the following statements must(prenominal) be CORRECT? a. The firm change magnitude its short-term bank debt in 2008. b. The firm issued long-term debt in 2008. . The firm issued spic-and-span common stock in 2008. d. The firm repurchased some common stock in 2008. e. The firm had negative dismiss income in 2008. (11) Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $595,000, and its enlighten income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15. 0%. What profit molding would the firm ne ed in drift to achieve the 15% ROE, holding everything else constant? a. 9. 45% b. . 93% c. 10. 42% d. 10. 94% e. 11. 49% 11) Which of the following statements is CORRECT? a. just about rapidly growing companies have autocratic disengage cash flows because cash flows from existing operations generally exceed resolved asset purchases and changes to net working capital. b. Changes in working capital have no effect on free cash flow. c. Free cash flow (FCF) is delimit as follows FCF =EBIT(1 T) + Depreciation Capital expenditures needful to sustain operations Required changes in net working capital. d. Free cash flow (FCF) is defined as followsFCF = EBIT(1 T) + Capital expenditures. e. Managers should be less concerned with free cash flow than with accounting net income. Accounting net income is the bottom line and represents how much the firm can portion to all its investors- both creditors and stockholders. (12) Last year Harrington Inc. had sales of $325,000 and a net inc ome of $19,000, and its year-end assets were $250,000. The firms total-debt-to-total-assets ratio was 45. 0%. Based on the DuPont equation, what was the ROE? a. 13. 82% b. 14. 51% c. 15. 23% d. 16. 00% e. 16. 80%