BUSN 379 FULL CLASS ( ALL WEEKS CASE STUDY , HOMEWORK, MIDTERM AND FINAL EXAM )

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BUSN 379 Full Class ( all weeks case study , Homework, midterm and Final exam )

BUSN 379 Week 1 Case Study Consumer Behavior -Updated 2016

Case Study Honda’s
CS1-2 How could Honda overcome resistance to the idea of a home robot?
CS1-3 what concerns might consumers have regarding FRT?
BUSN 379 Week 1 Homework-Updated 2016

8. Calculating OCF. Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

14. Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense = $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2014, and redeemed $4,000 in outstanding long-term debt.
a. Calculating Cash Flows. What is the 2014 operating cash flow?

b. What is the 2014 cash flow to creditors?

d. If net fixed assets increased by $23,140 during the year, what was the addition to NWC?’

19. Net Income and OCF. During the year, Belyk Paving Co. had sales of $2,600,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,535,000, $465,000, and $520,000, respectively. In addition, the company had an interest expense of $245,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)
a. What is Belyk’s net income?

b. What is its operating cash flow?

c. Explain your results in (a) and (b).
BUSN 379 Week 2 Case Study Updated 2016

CHAPTER CASE

CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS, INC.

Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company’s financial records are not well maintained.

The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers.

Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Paula Wolfe to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Paula has assembled the following information:

	2013	2014
Cost of goods sold	$169,969	214,607
Cash	24,524	26,056
Depreciation	47,980	54,230
Interest expense	10,442	11,954
Selling & administrative expenses	33,425	43,626
Accounts payable	43,344	48,090
Net fixed assets	211,680	264,021
Sales	333,426	406,427
Accounts receivable	17,378	22,542
Notes payable	19,757	21,571
Long-term debt	106,848	119,976
Inventory	36,570	50,185
New equity	0	20,160

Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 20 percent tax rate. You are Paula’s assistant, and she has asked you to prepare the following:

1.     An income statement for 2013 and 2014.

2.     A balance sheet for 2013 and 2014.

3.     Operating cash flow for each year.

4.     Cash flow from assets for 2014.

5.     Cash flow to creditors for 2014.

6.     Cash flow to stockholders for 2014.

QUESTIONS

1.How would you describe Sunset Boards’ cash flows for 2014? Write a brief discussion.

2.In light of your discussion in the previous question, what do you think about Tad’s expansion plans?
BUSN 379 Week 2 Homework Chapter 11; 4, 7, 17, and 29.doc -Updated 2016

4. Portfolio Expected Return. You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X? In Stock Y?

7. Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks.

17. Using CAPM. A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent.
a. What is the expected return on a portfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.
29. SML – Suppose you observe the following situation:

a. Calculate the expected return on each stock.
b. Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium?
BUSN 379 Week 2 Homework Chapter 4 Questions: 8, 17 & 18 Updated 2016

Chapter 4

Questions: 8, 17 & 18

8.     Coupon Rates.Volbeat Corporation has bonds on the market with 10.5 years to maturity, a YTM of 8.4 percent, and a current price of $945. The bonds make semiannual payments. What must the coupon rate be on the bonds?

18.  Bond Yields. PK Software has 7.5 percent coupon bonds on the market with 22 years to maturity. The bonds make semiannual payments and currently sell for 97 percent of par. What is the current yield on PK’s bonds? The YTM? The effective annual yield?

17.  Interest Rate Risk. Bond J has a coupon rate of 4 percent. Bond S has a coupon rate of 14 percent. Both bonds have 10 years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Chapter 5 (Questions 1, 4, and 12)
Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?

4. Calculating Annuity Present Values. An investment offers $6,700 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?

12. Calculate EAR. Find the EAR in each of the following cases.

Chapter 5 (1,4,12)

• Present Value and Multiple Cash Flows. Rooster Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?
BUSN 379 Week 3 Homework

6. Bond Prices. App Store Co. issued 20-year bonds one year ago at a coupon rate of 6.1 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current bond price?

11. Valuing Preferred Stock. E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 8 percent on this stock, how much should you pay today?

12. Stock Valuation. Alexander Corp. will pay a dividend of $2.72 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever. If you want a return of 12 percent, how much will you pay for the stock? What if you want a return of 8 percent? What does this tell you about the relationship between the required return and the stock price?
BUSN 379 Week 4 Case Study II Ch. 5

Mark Sexton and Todd Story, the owners of S&S Air, Inc.,
(4 Paragraphs Included)

1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional mortgage?

2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward the principal?

3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save?

4. Assume S&S Air takes out a bullet loan under the terms dsecribed. What are the payments on the loan?
What are the payments for the interest-only loan?

5. Which mortgage is the best for the company?
Are there any potential risks in this action?
BUSN 379 Week 4 Homework

Week 4. Chapter 8: 3, 4, 5, and 6.
3. Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?

4. Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)

5. Calculating IRR: A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?

6. Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?
BUSN 379 Week 5 Case Study

Case Study FURNISHING AN EXPERIENCE
CS2-1 Evaluate the shopping experience at Jordan’s. Why is it so successful?
CS2-2 If Jordan’s were building a new location near colleges, what might they include in their stores to draw young customers?
CS2-3 How has Jordan’s used the brand community around the Boston Red Sox to its’ advantage? \
BUSN 379 Week 5 Homework

Chapter 11 Problems 4, 7 ,17 and 29
BUSN 379 Week 6 Case Study III CHP 8

1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine.
2. Based on your analysis should the company open the mine?
BUSN 379 Week 6 Homework

3. Calculating Cost of Equity. Stock in CDB Industries has a beta of .90. The market risk premium is 7 percent, and T-bills are currently yielding 3.5 percent. CDB’s most recent dividend was $1.80 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $47 per share, what is your best estimate of CDB’s cost of equity?

5. Calculating Cost of Preferred Stock. Sixth Fourth Bank has an issue of preferred stock with a $6.25 stated dividend that just sold for $108 per share. What is the bank’s cost of preferred stock?

6. Calculating Cost of Debt. ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.1 percent annually. What is ICU’s pretax cost of debt? If the tax rate is 38 percent, what is the after-tax cost of debt?

15. Finding the WACC. Given the following information for Janicek Power Co., find the WACC. Assume the company’s tax rate is 35 percent.
BUSN 379 Week 7 Case Study

Case Study Never Stay Here!
CS12-1 What steps do you recommend a hotel take when dealing with a negative online review?

CS12-2 Do you use online reviews when choosing a hotel or restaurant? How much do these comments influence your choices?
BUSN 379 Week 7 Homework

Chapter 17 Problems 6,7 and 14
Week 7 Summary Problem 14
BUSN 379 Midterm Exam

1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3)

decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production
2. (TCO 1) Working capital management includes which of the following? (Points : 3)

establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
3. (TCO 1) Market value reflects which of the following: (Points : 3)

The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
4. (TCO 1) Which of the following is true regarding income statements? (Points : 3)

It shows the revenue and expenses, based upon selected accounting methods.
It reveals the net cash flows of a firm over a stated period of time.
It reflects the financial position of a firm as of a particular date.
It records revenue only when cash is received for the product or service provided.
It records expenses based on the recognition principle
5. (TCO 1) Tato’s Pizza has sales of $625,000. They paid $43,000 in interest during the year and depreciation was $79,000. Administrative costs were $100,000 and other costs were $160,000. Assuming a tax rate of 35 percent, what is Tato’s Pizza net income?
(Points : 3)

$157,950
$322,000
$243,000
$200,000
6. (TCO 1) Home Best Hardware had $315,000 in taxable income last year. Using the tax rates provided in Table 2.3, what is the marginal tax rate?(Points : 3)

35%
39%
34%
32%
7. (TCO 1) Pizza A had earnings after taxes of $390,000 in the year 2008 and 300,000 shares outstanding. In year 2009, earnings after taxes increased by 20 percent to $468,000 and 25,000 new shares were issued for a total of 325,000 shares. What is the EPS figure for 2008? (Points : 3)

$1.30
$1.44
$0.77
$0.69
8. (TCO 1) The income statement reflects: (Points : 3)

income and expenses at the time when those items affect the cash flows of a firm.
income and expenses in accordance with GAAP.
the cash flows in accordance with GAAP.
the flow of cash into and out of a firm during a stated period of time.
the flow of cash into and out of a firm as of a particular date
9. (TCO 1) Print Imaging has EBIT of $150,000, interest of $30,000, taxes of $50,000, and depreciation of $50,000. What is the company’s operating cash flow? (Points : 3)

$120,000
$180,000
$170,000
$150,000
$120,000
10. (TCO 3) Mark deposited $1,000 today, in an account that pays eight percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment? (Points : 3)

Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the investment.
Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.
Mark would have earned more interest if he had invested in an account paying annual interest.
Mark will earn less and less interest each year over the life of the investment
11. (TCO 3) Mr. Smith will receive $7,500 a year for the next 14 years from his trust. If the interest rate on this investment is eight percent, what is the approximate current value of these future payments? (Points : 3)

$61,800
$53,500
$113,400
$97,200
12. (TCO 3) Your neighbor just received a credit offer in an e-mail. The company is offering him $6,000 at 12.8 percent interest. The monthly payment is only $110. If he accepts this offer, how long will it take him to pay off the loan? (Points : 3)

81.00 months
81.50 months
83 months
82.17 months
90.70 months
13. (TCO 3) Fine Oak Woodworks is considering a project that has cash flows of $5,000, $3,000, and $8,000 for the next three years. If the appropriate discount rate of this project is 10 percent, which of the following statements is true? (Points : 3)

The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and $16,000
The project should be rejected because its present value is negative
14. (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows:
Year Software Company Engineering Company

If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)

$33,200
$34,500
$42,000
$43,500
15. (TCO 3) North Bank offers you an APR of 9.76 percent compounded semiannually, and South Bank offers you an effective rate of 9 percent on a business loan. Which bank should you choose and why? (Points : 3)
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower
1. (TCO 3) Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Tim? (Points : 3)

7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
2. (TCO 3) Which one of the following is an example of an annuity, but not a perpetuity? (Points : 3)

unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month
3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points : 3)

$1315
$1300
$756
$1000
4. (TCO 6 and 8) Which one of the following statements is correct? (Points : 3)

Bond issuers maintain a listing of bondholders when bonds are issued in bearer form.
An indenture, is a contract between a corporation and its shareholders.
Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the bond indenture
5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,180. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds? (Points : 3)

10.50%
11.50%
11.75%
12%
6. (TCO 3) Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the current price of the stock? Hint: Yield is the same as required rate of return. (Points : 3)

$100
$133
$102
$86.40
None of the above
7. (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of seven percent. What is the current price of the stock? (Points : 3)

$23
$32
$27
$29
8. (TCO 3) Royal Electric paid a $4 dividend last year. The dividend is expected to grow at a constant rate of six percent over the next four years. Common stockholders require a 13 percent return. What are the values of the dividends for years 1, 2 and 3, respectively? (Points : 3)

$4, $4.5 and $4.8
$4.24, $4.76 and $5.05
$4.24, $4.49, $4.76
$4, $4.50, $5.05
9. (TCO 6) Which of the following is true regarding the primary market? (Points : 3)

it is the market where the largest number of shares are traded on a daily basis.
it is the market in which the largest number of issues are listed.
it is the market with the largest number of participants.
it is the market where new securities are offered.
it is the market where shareholders trade most frequently with each other
10. (TCO 6) A member of the NYSE who trades on the floor of the exchange for his or her personal account is called a(n): (Points : 3)

specialist.
independent broker.
floor trader.
stand-alone agent.
dealer
11. (TCO 6) The annual interest on a bond divided by the bond’s market price is called the: (Points : 3)

yield to maturity.
yield to call.
total yield.
required yield.
current yield
12. (TCO 6) Star Industries has one outstanding bond issue. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 3)

deferred call
market
liquidity
debenture
sinking fund
13. (TCO 8) Which of the following is true regarding bonds? (Points : 3)

Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.
None of the above is true
14. (TCO 6) Which of the following is not a floating-rate bond? (Points : 3)

A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill.
An EE Savings Bond issued by the U.S. government.
A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.
TIPS
15. (TCO 6) Which of the following is true regarding put bonds? Select all that apply: (Points : 3)

Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
1. (TCO 1) In a general partnership, each partner is personally liable for: (Points : 3)

the partnership debts that he or she personally obtained for the firm.
his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.
the total debts of the partnership, even if he or she was unaware of those debts.
the debts of the partnership, up to the amount he or she invested in the firm.
all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts
2. (TCO 1) Trademarks are classified as: (Points : 3)
short-term assets.
current liabilities.
long-term debt.
tangible fixed assets.
intangible fixed assets
1. (TCO 1) Can you provide some examples of recent, well-known unethical behavior cases? Explain the situation in one or two sentences.
2. What are some real-life scenarios where you can apply the time value of money? Present two or three scenarios. Briefly explain your rationale.
3. Explain some of the key risks associated with bonds.
4. What are some of the features of zero-coupon bonds that make them attractive to certain investors? Which type of investors will be most interested in these bonds?

BUSN 379 Finance Final Exam Answers

1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points: 4)
2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? (Points: 4)
3. (TCO 3 and 4) The net present value is: (Points: 4)

4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 10 percent?

5. (TCO 4) Leward Manufacturing is spending $115,000 to update its equipment. This is necessary if the firm wishes to be competitive in the marketplace and provide a wide array of product models. The company estimates that these updates will improve its cash inflows by $27,500 a year, for eight years. What is the payback period? (Points: 4)
6. (TCO 4) Ignoring the option to expand: (Points: 4)
overestimates the internal rate of return on a project.

7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points: 4)
8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points: 4)

9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points: 4)
10. (TCO 1 and 4) Assume a project has earnings before depreciation and taxes of $120,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points: 4)

11. (TCO 8) Which of the following factors will affect the expected rate of return on a security? (Points: 4)

12. (TCO 8) Which statement is not true regarding risk? (Points: 4)
the expected return is usually not the same as the actual return

13. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?
(Points: 4)
7.33 percent
9.82 percent
11.26 percent
11.33 percent
11.50 percent

14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock B? (Points: 4)

15. (TCO 8) You currently own a portfolio valued at $24,000 that has a beta of 1.1. You have another $8,000 to invest, and would like to invest it in a manner such that the risk of the new portfolio matches that of the overall market. What does the beta of the new security have to be? (Points: 4)
. 1. (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points: 4)

2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at an after-tax cost of 8 percent and common equity at a cost of 20 percent. Assume debt and common equity each represent 50 percent of the firm’s capital structure. What is the weighted average cost of capital? (Points: 4)

3. (TCO 5, 6 and 7) An issue of common stock’s most recent dividend is $3.75. Its growth rate is eight percent. What is its price if the market’s rate of return is 16 percent? (Points: 4)

4. (TCO 5, 6 and 7) Which of the following is not true regarding the cost of debt? (Points: 4)

5. (TCO 5) Retained earnings has a cost associated with it because: (Points: 4)
new funds must be raised.

6. (TCO 4) A project has the following cash flows. What is the internal rate of return?

7. (TCO 5, 6 and 7) Which one of the following is a correct statement? (Points: 4)
Current tax laws favor debt financing.

8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm’s cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points: 4)

9. (TCO 2) Which one of the following occurs if a firm files for Chapter 7 bankruptcy, but does not generally occur if the firm files for Chapter 11 bankruptcy? (Points: 4)

10. (TCO 5) Which of the following statements is false regarding the cost of capital? (Points: 4)

11. (TCO 2) Select any actions that do not affect the cash account. (Points: 4)

12. (TCO 2) Which of the following statements is true? (Points: 4)
The optimal credit policy minimizes the total cost of granting credit.

13. (TCO 2) Which one of the following industries is most apt to have the shortest cash cycle? (Points: 4)

14. (TCO 2) Delphinia’s has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

15. (TCO 1) Which of the following statements is true regarding the goal of financial management? (Points: 4)

2. (TCO 1) Book values are different from market values because: (Points: 4)

3. (TCO 1) Use the following tax table to answer this question:

McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company’s approximate average tax rate? (Points: 4)

4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 20.10 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points: 4)

5. (TCO 3) You deposited $11,000 in your bank account today. Which of the following will decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points: 4)

6. (TCO 3) Thirteen years from now, you will be inheriting $30,000. What is this inheritance worth to you today, if you can earn four percent interest compounded annually? (Points: 4)

7. (TCO 3) The new home that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? (Points: 4)

8. (TCO 3) Amy borrowed $5,000 from her bank three years ago. The loan term is five years. Each year, Amy must repay the bank $1,000 plus the annual interest. Which type of loan does Amy have? (Points: 4)

9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 13 percent? Assume annual payments. (Points: 4)

10. (TCO 6) The market where new securities are offered is called the _____ market. (Points: 4)
primary

11. (TCO 7) A taxpaying, levered firm’s optimal capital structure: (Points: 4)
is 100 percent equity financing.

12. (TCO 3) What is the approximate yield to maturity for a seven-year bond that pays 11 percent interest on a $1000 face value annually if the bond sells for $952? (Points: 4)

13. (TCO 8) Which of the following is true regarding bonds? (Points: 4)

14. (TCO 8) Two years ago, MorningStar Company issued seven percent, 25-year bonds and Track, Inc. issued seven percent, 10-year bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of each firm’s bond prices in the market,

15. (TCO 6) Star Industries has one bond issue outstanding. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points: 4)

1. (TCO 6) Which of the following is true regarding put bonds? (Points: 4)

2. (TCO 6 and 7) Financial leverage deals with: (Points: 4)

3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s yield to maturity? (Points: 4)

4. (TCO 2) Which one of the following practices will reduce a firm’s collection float? (Points: 4)
utilizing zero-balance accounts
depositing checks weekly, rather than daily
requiring all customers pay by check, rather than with cash
installing a lockbox system

paying all bills five days sooner

5. (TCO 2) ___________, is a system that minimizes inventory. (Points: 4)
material requirements planning
ABC approach
just in time
reorder points

6. (TCO 1) Provide three examples of recent well-known unethical behavior cases. Explain the situation in one or two paragraphs. How do you believe that this behavior affected the firm’s value? (Points: 10)
7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points: 10)
.

8. (TCO 8) What is the difference between systematic and unsystematic risk? Provide one example of each. Can both systematic and unsystematic risks be diversified? Why or why not? (Points: 10)

9. (TCO 2) What are some important elements of the collection policy? (Points: 10)

10. (TCO 6 and 7) How can you calculate the cost of debt? What methods can you use? Provide at least two examples. (Points: 10)