Finance Midterm

FINA300 Fall 2011 Benedictine University 100 points Name ___________________________________________________ 1) Which of the quest statements is CORRECT? a. The New York Stock Exchange is an auction trade, and it has a strong-arm location. b. Home mortgage loans argon traded in the money market. c. If an investor sells shares of stemma through with(predicate) a broker, then it would be a primary market transaction. d. dandy markets deal only with common stocks and other fair play securities. e.While the distinctions are blurring, investment banks primarily specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. (2) Which of the following statements is CORRECT? a. A hostile takeover is the main method of transferring ownership interest in a corporation. b. A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers. c. Unlimi ted financial obligation and limited life are two key advantages of the merged unionize over other forms of business organization. . Limited liability is an advantage of the corporate form of organization to its owners (stockholders), solely corporations have more trouble elevator money in financial markets because of the complexity of this form of organization. e. Although the stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the unwaverings managers in the same way, i. e. , bondholders can fulfil its managers if the theater defaults on its debt. 3) The retained earnings account on the quietus sheet does not represent interchange.Rather, it represents part of the stockholders claim against the firms existing assets. go down another way retained earnings are stockholders reinvested earnings. a. True b. mendacious (4) In finance, we are generally more interested in currency flows than in accounti ng profits. Free money flow (FCF) is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in discharge working capital. a. True b. False 5) Other things held constant, which of the following actions would emergence the amount of cash on a companys repose sheet? a. The company repurchases common stock. b.The company pays a dividend. c. The company issues naked as a jaybird common stock. d. The company gives customers more time to pay their bills. e. The company purchases a immature piece of equipment 6) Ryngard Corps gross revenue last year were $38,000, and its entirety 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 new firm is developing its business plan. It will require $615,000 of assets, and it projects $450,000 of gross revenue and $355,000 of operating costs for the first year. Management is reasonably sure of these poetry because of contract s with its customers and suppliers.It can borrow at a rate of 7. 5%, but the bank requires it to have a pull back of at least 4. 0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use? (Hint Find the maximum dollars of interest, then the debt that produces that interest, and then the connect debt ratio. ) a. 41. 94% b. 44. 15% c. 46. 47% d. 48. 92% e. 51. 49% 8) Which of the following could pardon why a business might choose to operate as a corporation rather than as a sole proprietary or a partnership? a.Corporations generally face fewer regulations. b. little of a corporations income is generally subject to federal taxes. c. bodied shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. d. Corporate investors are exposed to unlimited liability. e. Corporations generally find out it easier to raise large amounts of capital. (9) You recently sold 200 shares of Disney stock, and the transfer was do through a broker. This is an example of a. A money market transaction. b. A primary market transaction. c.A secondary market transaction. d. A futures market transaction. e. An over-the-counter market transaction 10) Below are the 2007 and 2008 year-end agreement sheets for Tran Enterprises Assets20082007 Cash$ 200,000$ 170,000 Accounts receivable864,000700,000 Inventories 2,000,000 1,400,000 Total current assets$3,064,000$2,270,000 Net fixed 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 2,400,000Common stock 3,000,000 2,000,000 Retained earnings 664,000 580,000 Total common equity$3,664,000$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 debt in 2007. As of the end of 2008, none of the principal on this debt had been repaid. usurp that the companys sales in 2007 and 2008 were the same. Which of the following statements must be CORRECT? a. The firm increased its short-term bank debt in 2008. b. The firm issued long-term debt in 2008. . The firm issued new common stock in 2008. d. The firm repurchased some common stock in 2008. e. The firm had prejudicious net 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 net 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 margin would the firm motif in order 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. approximately rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net working capital. b. Changes in working capital have no way out on free cash flow. c. Free cash flow (FCF) is delimitate as follows FCF =EBIT(1 T) + Depreciation Capital expenditures required to sustain operations requisite changes in net working capital. d. Free cash flow (FCF) is define 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 melodic phrase and represents how much the firm can distribute to all its investors- both creditors and stockholders. (12) finis year Harrington Inc. had sales of $325,000 and a net income 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%