Finance Midterm

FINA300 Fall 2011 Benedictine University 100 points Name ___________________________________________________ 1) Which of the following statements is CORRECT? a. The New York Stock qualify is an auction market, and it has a physical location. b. Home mortgage loans are traded in the money market. c. If an investor sells shares of agate line through a broker, then it would be a primary market transaction. d. Capital markets deal only with roughhewnplace stocks and different equity securities. e.While the distinctions are blurring, investment asserts more often than not specialize in lending money, whereas commercial banks mostly help companies raise chapiter from other(a) circumstancesies. (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 healthy entity created by a state, and it has a life and existence that is specialise from the lives and existence of its owners and managers. c. Unlimited liability and limited life are devil key advantages of the corporate form over other forms of business organization. . express mail liability is an advantage of the corporate form of organization to its owners (stockholders), just now corporations provoke to a greater extent trouble raising 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 status of the corporation does not protect the firms managers in the same way, i. e. , bondholders can sue its managers if the firm defaults on its debt. 3) The retained cyberspace account on the balance sheet does not represent hard currency.Rather, it represents part of the stockholders claim against the firms existing assets. Put another way retained mesh are stockholders reinvested earnings. a. True b. bastard (4) In finance, we are generally more interested in cash fl ows than in accounting meshworks. surrender cash flow (FCF) is calculated as after-tax operating income plus depreciation little(prenominal) the sum of capital expenditures and changes in pull in working capital. a. True b. False 5) Other things held constant, which of the following actions would increase the amount of cash on a accompanys balance sheet? a. The company repurchases common stock. b.The company pays a dividend. c. The company issues refreshful common stock. d. The company gives customers more term to pay their bills. e. The company purchases a new piece of equipment 6) Ryngard Corps sales wear year 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 new firm is developing its business plan. It will require $615,000 of assets, and it projects $450,000 of sales and $355,000 of operating cost for the first year. forethought is reasonably sure of these numbers because o f contracts with its customers and suppliers.It can borrow at a rate of 7. 5%, but the bank requires it to have a attach of at least 4. 0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the upper limit debt ratio the firm can use? (Hint Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt ratio. ) a. 41. 94% b. 44. 15% c. 46. 47% d. 48. 92% e. 51. 49% 8) Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? a.Corporations generally face fewer regulations. b. Less of a corporations income is generally subject to federal taxes. c. Corporate shareholders are assailable to unlimited liability, but this factor is offset by the tax advantages of incorporation. d. Corporate investors are exposed to unlimited liability. e. Corporations generally find it easier to raise large amounts of capital. (9) You lately sell 200 shares of Disney stock, and the transfer was made through a broker. This is an example of a. A money market transaction. b. A primary market transaction. c.A secondary winding market transaction. d. A futures market transaction. e. An over-the-counter market transaction 10) to a lower place are the 2007 and 2008 year-end balance sheets for Tran Enterprises Assets20082007 Cash$ 200,000$ 170,000 Accounts receivable864,000700,000 Inventories 2,000,000 1,400,000 Total authentic assets$3,064,000$2,270,000 elucidate fixed assets 6,000,000 5,600,000 Total assets$9,064,000$7,870,000 Liabilities and equity 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 com mon 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 principal on this debt had been repaid. Assume 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-run 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 negative 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 need 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 s tatements is CORRECT? a. Most rapidly growing companies have positively charged free cash flows because cash flows from existing operations generally best fixed asset purchases and changes to net working capital. b. Changes in working capital have no effect on free cash flow. c. barren cash flow (FCF) is defined as follows FCF =EBIT(1 T) + Depreciation Capital expenditures essential 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. score net income is the bottom line and represents how much the firm can run out to all its investors- both creditors and stockholders. (12) Last 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%