2024 – FIN 610 Midterm Exam Instructions Write your name on your exam STUDENT NAME The

FIN 610 Midterm Exam 

 

Instructions: Write your name on your exam.                       

STUDENT NAME:______________________

The exam is individual work. It is to be your work and your work alone, with no assistance from classmates, family, friends or others.  Your completed exam is due by 11:59 PM, (upload to your Assignments folder).  Exams submitted late will be penalized 5 points for each day up to three days late.  Exams received more than three days after the due date will automatically receive an F.  Furthermore, by proceeding with the exam you are agreeing not to share the exam content or your answers with anyone, including students who may take FIN 610 in the future.

If the question involves a spreadsheet, you can attach the Excel spreadsheet.

 

Please read the questions carefully; there may be a little more to it than might be obvious at first reading. If you find a question challenging, don’t panic. Try to take the question in parts, working from what you know to what you are trying to solve.

 

Each question is worth 5 points. Please submit the answer sheet provided at the end of this exam only.

 

1. Frank’s Dogs has beginning net fixed assets of $480 and ending net fixed assets of $530. Assets valued at $300 were sold during the year. Depreciation was $40. What is the amount of capital spending? 
   A. $10
   B. $50
   C. $90
   D. $260
   E. $390

 

 

Please use the following Income Statement and Balance sheet for Questions 2 to 6

 

 

 

	Income Statement for Fair Company		2016
	Revenue		$     9,610
less	COGS		$     6,310
less	Depreciation		$     1,370
	Gross Income		$     1,930
less	S,G&A		$            –
	EBIT		$     1,930
less	Interest Expense		$        630
	taxable income		$     1,300
	Taxes		$        455
	Net Income		$        845
Balance Sheet for Fair Company
Assets						Liabilities and Shareholder Equity
		2015		2016							2015				2016
Cash		310		405		Accounts Payable					2720				2570
Accounts receivable		2640		3055		Notes Payable					100				0
Inventory		3275		3850		total current					2820				2570
Pre-paid expenses		0		0		Long-term debt					7875				8100
total current		$     6,225		$   7,310		Common Stock					5000				5250
Next fixed assets (PPE)		$   10,960		10670		Retained Earnings					1490				2060
	Total Assets		$   17,185		$ 17,980					$      17,185			$      17,980

1. What is the operating cash flow for 2006? 
   A. $845
   B. $1,930
   C. $2,215
   D. $2,845
   E. $3,060
2. The 2015 equity multiplier ratio is : 
   A. 11.53
   B. 3.44
   C. 2.65
   D. 1.00
   E. cannot compute with numbers given
3. What are the accounts receivable turnover?

A. 10.3
B. 3.44
C. 3.15
D. 3.37
E. cannot compute with numbers given

1. What is the debt ratio for 2016?

A. 80.7%
B. 55.0%
C. 59.3%
D. 60.7%
E. cannot compute with numbers given

1. What is the ROE (Return on Equity) for 2016?

A.     22.72%
 B. 13.02%
C. 59.80%
D. 18.75%
E. cannot compute with numbers given

 

1. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. What is the value of this investment in 5 years? 
   A. $82,964.59
   B. $97,847.30
   C. $83,428.87
   D. $83,687.23
   E. $84,998.01

 

8. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your interest rate is 8.5%. What is the value of this stream of payments?
A. $778,699
B. $900,217.67
C. $1,000,567.88
D. $786,677.92
E. cannot answer with given information

9. Consider a bond which pays 7% annually and has 8 years to maturity. The market requires an interest rate of 8% on bonds of this risk. What is this bond’s price? 
A. $ 942.53
B. $ 911.52
C. $ 941.74
D. $1,064.81
E. None of the above.

10. A General Co. bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity? 
A. 7.79%
B. 7.82%
C. 8.00%
D. 8.04%
E. 8.12%

11. All else equal, the payback period for a project will decrease whenever the: 
A. duration of a project is lengthened.
B. cash inflows are moved earlier in time.
C. assigned discount rate decreases.
D. required return for a project increases.
E. initial cost increases.

 

 

12. Graphing the NPVs of mutually exclusive projects over different discount rates helps demonstrate: 
A. how decisions concerning mutually exclusive projects are derived.
B. how the incremental IRR varies with changes in the discount rate.
C. how the payback period and the initial cash outflow of a project are related.
D. how the duration of a project affects the decision as to which project to accept.
E. how the profitability index and the net present value are related.

 

 

13. Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives.
  
Matt has been asked for his best recommendation given this information. His recommendation should be to accept: 
A. project B because it has the shortest payback period.
B. project A and reject project B based on their net present values.
C. both projects as they both have positive net present values.
D. project B and reject project A based on their average accounting returns.
E. project B and reject project A based on both the payback period and the average accounting return.

 

 

14. What is the net present value of a project with the following cash flows and a required return of 12%?
   
A. -$287.22
B. -$177.62
C. $177.62
D. $204.36
E. $287.22

15. What is the net present value of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 12.5%.
   
A. $-218.68
B. $-124.46
C. $-76.10
D. $549.65
E. $671.02

 

16. You are considering the following two mutually exclusive projects that will not be repeated. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept and why?

 

A. project A; because its NPV is about $335 more than the NPV of project B
B. project A; because it has the higher required rate of return
C. project B; because it has the largest total cash inflow
D. project B; because it returns all its cash flows within two years
E. project B; because it is the largest sized project

 

 

17.   It will cost $2,600 to acquire a small ice cream cart. Cart sales are expected to be $1,400 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart? 
A. .86 years
B. 1.46 years
C. 1.86 years
D. 2.46 years
E. 2.86 years

18. Jamestown Ltd. currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $250,000. Today, the land is valued at $425,000. The grading and excavation work necessary to build on the land will cost $15,000. The company currently has some unused equipment which it currently owns valued at $60,000. This equipment could be used for producing awnings if $5,000 is spent for equipment modifications. Other equipment costing $780,000 will also be required. What is the amount of the initial cash flow for this expansion project? 

A. $800,000
B. $1,050,000
C. $1,110,000
D. $1,225,000
E. $1,285,000

 

19. A project will increase sales by $140,000 and cash expenses by $95,000. The project will cost $200,000 and be depreciated using the straight-line method to a zero book value over the 5-year life of the project. The company has a marginal tax rate of 34%. What is the yearly value of the depreciation tax shield? 

A. $8,500
B. $13,600
C. $22,500
D. $25,000
E. $37,750

20. Leslie’s Unique Clothing Stores offers a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn 12% return on your equity investments? 
A. $10.00
B. $13.33
C. $16.67
D. $18.88
E. $20.00