2024 – 1 Which of the following is considered a hybrid organizational form Corporation limited liability partnership sole proprietorship partnership

 

1.Which of the following is considered a hybrid organizational form?

 

 

 

Corporation

 

 limited liability partnership

 

 sole proprietorship

 

 partnership

 

 

 

3. Teakap, Inc., has current assets of $ 1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

 

$1,844,022

 

 $2,303,010

 

 $2,123,612

 

 $803,010

 

 

 

5. Efficiency ratio: Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm’s days’s sales in inventory?

 

61.7 days

 

57.9 days

 

65.2 days

 

64.3 days

 

 

 

6. Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

 

1.74

 

0

 

0.60

 

1.47

 

 

 

8. Present value: Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to nearest dollar.)

 

$22,680

 

$26,454

 

$16,670

 

$19,444

 

 

 

9. PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round to the nearest dollar.)

 

 

 

$2,735,200

 

$2,615,432

 

$2,431,224

 

$2,815,885

 

 

 

 

 

10. PV of multiple cash flows: Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

 

$480,906

 

$414,322

 

$477,235

 

$429,560

 

 

 

11. Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for retirement early. He will invest $5,000 at the end of each year for the next 45 years in a fund that will earn a return of 10 percent. How much will Jayadev have at the end of 45 years? (Round to the nearest dollar.)

 

$3,594,524

 

$5,233,442

 

$1,745,600

 

$2,667,904

 

 

 

12. Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.)

 

40%

 

12%

 

16%

 

32%

 

 

 

13. Bond price: Regatta, Inc., has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. What should the company’s bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.)

 

$1,066

 

$923

 

$972

 

$1,014

 

 

 

14. PV of dividends: Next year Jenkins Traders will pay a dividend of $3.00. It expects to increase its dividend by $0.25 in each of the following three years. If their required rate of return is 14 percent, what is the present value of their dividends over the next four years?

 

$13.50

 

$9.72

 

$11.63

 

$12.50

 

 

 

 

 

 

 

 

 

 

 

 

 

15. Capital rationing. TuleTime Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 percent for the cash flows, then what is the profitability index for the project?

 

0.11

 

0.90

 

1.11

 

1.90

 

 

 

17. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm’s cost of debt capital is 10 percent and the cost of equity capital is 20%. What proportion of the firm is financed with debt?

 

30%

 

33%

 

70%

 

50%

 

 

 

18. The cost of equity: Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from today. If the firm’s growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital for Gangland if the price of its common shares is currently $17.50?

 

15.00%

 

14.65%

 

15.36%

 

12.00%

 

 

 

21. M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock.

 

 

 

If Dynamo wishes to change its capital structure from 75 percent to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they issue?

 

$375

 

$225

 

$321

 

$600

 

 

 

22. Multiple Analysis: Turnbull Corp. had an EBIT of $247 million in the last fiscal year. Its depreciation and amortization expenses amounted to $84 million. The firm has 135 million shares outstanding and a share price of $12.80. A competing firm that is very similar to Turnbull has an enterprise value/EBITDA multiple of 5.40.

 

 

 

What is the enterprise value of Turnbull Corp.? Round to the nearest million dollars.

 

$453.6 million

 

$1,787 million

 

$1,315 million

 

$1,334 million

 

 

 

 

 

23. External financing needed: Jockey Company has total assets worth $4,417,665. At year-end it will have net income of $2,771,342 and pay out 60 percent as dividends. If the firm wants no external financing, what is the growth rate it can support?

 

25.1%

 

32.9%

 

30.3%

 

27.3%

 

 

 

27. Firms that achieve higher growth rates without seeking external financing

 

 

 

none of these.

 

 

 

have a low plowback ratio.

 

 

 

have less equity and/or are able to generate high net income leading to a high ROE.

 

 

 

are highly leveraged.

 

 

 

28. Payout and retention ratio: Drekker, Inc., has revenues of $312,766, costs of $220,222, interest payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm’s dividend payout ratio and retention ratio.

 

85%, 15%

 

15%, 85%

 

45%, 55%

 

55%, 45%

 

 

 

29. The cash conversion cycle

 

 

 

begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

 

 

 

shows how long the firm keeps its inventory before selling it.

 

 

 

begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures.

 

 

 

estimates how long it takes on average for the firm to collect its outstanding accounts receivable

 

balance.

 

 

 

You are provided the following working capital information for the Ridge Company:

 

 

 

 

 

Ridge Company

 

 

 

 

 

Account  Inventory

 

 

 

$12,890

 

 

 

 

 

Accounts receivable

 

 

 

12,800

 

 

 

 

 

Accounts payable

 

 

 

12,670

 

 

 

Net sales

 

 

 

$124,589

 

 

 

 

 

Cost of goods sold

 

 

 

99,630

 

 

 

 

 

Cash conversion cycle: What is the cash conversion cycle for Ridge Company?

 

129.9 days

 

 

 

46.4 days

 

 

 

83.5 days

 

 

 

38.3 days

 

 

 

 

 

 

 

Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.00 million for land and $10.00 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.00 million, $2.00 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)

 

 

 

NPV  $

 

 

 

 

 

 

 

 

 

 

 

Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain’s opportunity cost of capital is 10 percent, and the costs and values of investments made at different times in the future are as follows:

 

 

 

 

 

 

 

Year

 

 

 

Cost

 

 

 

Value of Future Savings

 

(at time of purchase)

 

 

 

0 $5,000 $7,000 

 

1 4,500 7,000 

 

2 4,000 7,000 

 

3 3,600 7,000 

 

4 3,300 7,000 

 

5 3,100 7,000 

 

 

 

 

 

Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)

 

 

 

The NPV of each choice is:

 

 

 

NPV0 = $ 2000

 

 

 

NPV1 = $

 

 

 

NPV2 = $

 

 

 

NPV3 = $

 

 

 

NPV4 = $

 

 

 

NPV5 = $

 

 

 

Suggest when should Bell Mountain buy the new accounting system?

 

 

 

Bell Mountain should purchase the system in

 

Year 1

 

year 2

 

year 3

 

year 4

 

year 5

 

 

 

 

 

Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Chip’s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm’s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)

 

 

 

 

 

At $20 per bottle the Chip’s FCF is $38000 and at the new price Chip’s FCF is $  .

 

 

 

 

 

 

 

 

 

Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred stock, and 40 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

 

 

 

 

 

After tax WACC =      %