Practice Exam - FIRST

xlsx

School

Western Governors University *

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Course

C214

Subject

Finance

Date

Jan 9, 2024

Type

xlsx

Pages

75

Uploaded by taneisa2

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Financial Management (C214) Practice Test: FIRST Insert the answer (a,b,c,d) in the green highlighted boxes The first 20 questions are calculations; the rest are concept questions. The purpose is to identify weak areas, not to achieve a high score Use Sidebar Formulas for the first 20 questions REVIEW QUESTIONS 1. A firm reported the following: Net Income 100,000 Depreciation 25,000 Change in A/R 15,000 What is the CFO (cash flow from operations)? a. 100,000 b. 110,000 c. 120,000 b. 110,000 2. What is the Cash Flow from Investing? Beginning Net PP&E 50,000 Ending Net PP&E 200,000 Depreciation Expense 40,000 a. (190,000) b. 150,000 c. 200,000 d. (150,000) 3. What is the Cash Flow from Financing? Accounts Payable 50,000 Stock Issuance 75,000 Increase in Bonds Payable 125,000 Dividends Paid 80,000 a. 150,000 b. 120,000 c. 100,000 d. 145,000 Take as "CLOSED BOOK" exam and return as Excel file for grading
a. 22,096 b. 17,752 c. 18,097 d. 18,462 a. 20% b. 15% c. 25% d. 14% a. 6.71% b. 5.50% c. 5.66% d. 6.33% a. 75 b. 79 c. 82 d. 85 a. 41.75 b. 42 c. 41 d. 39 4. A couple wants to accumlate 100,000 in five years for a down payment on a house. If the interest rate is 5%, how much should they save each year from their annual year-end bonus? 5. Hedgeco had net income of 12,000,000 and it has equity of 40,000,000. The board approved dividends of 4,000,000. What is the company’s Sustainable Growth Rate? 6. A company wishes to issue 10 year semi-annual pay bonds with a face value of $1,000 and a coupon rate of 5%. The bonds will sell at a price of 950. What is the YTM of the bonds when they are sold? 7. What does a stock have to sell for one year in the future, if it currently sells for $75, has a planned dividend of $2 a share and an expected return of 12%? 8. A company just paid a dividend of 2.00 to its shareholder. It estimates that future growth will be at 5%. What is the value of the stock if you are looking for an 10% return on your investment?
a. 1,000,000 b. 5,000,000 c. 500,000 d. 2,000,000 a. .17 b. .18 c. .21 d. .15 a. .1275 b. .125 c. .1225 d. .1095 12. What is the Initial Cash Flow (ICF) given the following information: a. (415,000) b. 615,000 c. (515,000) d. 510,000 a. 11,345 b. 12,196 c. 12,596 d. 13,208 9. To create a fund for annual college scholarships of $100,000 that will last forever, how much must be invested today if the interest rate is 5%? 10. The stock market yield is 15% and Treasury bonds are yielding 3%. If a stock has a beta of 1.5. What is that stock’s required return? 11. Common stock is valued at 500,000 and Long-term debt is valued at 300,000. What is the WACC if common stock costs 15% and long-term debt costs 7%? The tax rate is 40%. ·        Equipment Price 400,000 ·        Installation 10,000 ·        Shipping 5,000 ·        Working Capital 100,000 13. A couple wants to accumulate $500,000 in their stock investment account in 20 years when they retire. Assuming a 7% return on stocks, how much must be saved each year from their annual year-end bonus?
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a. 40 mill b. 50 mill c. 15 mill d. Insufficient data to determine a. 100,000 b. 50,000 c. 136,000 d. 85,000 a. 33% b. 40% c. 43% d. 5% a. $1.2 million b. $1.3 million c. $1.0 million d. $ 0.8 million a. $10 million b. $20 million c. $8 million d. Cannot be determined a. 20 million b. 8 million c. 18 million 14. At sales of $100 million, a firm estimates current assets will be 35% of sales. If it has $5 million of equity and $15 million of debt, what is its DFN? 15. A project is closing. Equipment is sold for 80,000 even though the book value was 100,000. The tax rate is 30%. The project started with 50,000 in working capital. What is the Terminal Cash Flow? 16. If a stock is purchased for $15, receives a $1 dividend, and is sold a year later for $20, what is the return to the investor? 17. A $1 million project was delayed for 3 years. If the inflation rate is 5%, how much should be budgeted to fund the project after the delay? 18. If a firm has a 10% net margin on $100 million sales and a 20% payout ratio, what is the addition to retained earnings? 19. If a firm has $50 million of sales, 30 million of operating expenses, 10 million of depreciation, and a 20% tax rate, what is its net income?
d. 10 million 20. If a 5-year zero coupon bond sells for 900, what is its yield to maturity? a. 0% b. 10% c. 2.13% d. 2.22% a. Calculate WACC b. Change CEOs on a regular basis e. Regulate the Money Supply d. File audited financial statements 22. What does the Sarbanes-Oxley Act require companies to do? a. Have a board of directors b. Audit internal controls c. Make estimated tax payments d. Report foreign sales a. Fluctuating exchange rates b. Imports of competing products c. Immigration policy d. Inflation in Europe 24. How does a "prudent investor" select investments? a. Maximum expected return b. Lowest risk available c. Avoid stock investments d. Take an appropriated amount of risk 25. If a firm's goal is to maximize stockholder wealth, which would the firm avoid? a. Investments with negative NPV b. Risky long-term investments c. Highly paid executives d. Transparency in financial statements 26. To evaluate a non-public company, what sources would you use? a. The financial statements filed with the SEC b. The latest stock price quoted in the Wall Street Journal c. The PE of a comparable public company d. The book value of equity in its balance sheet 21. The SEC Securities & Exchange Commission requires public companies to do the following: 23. If a company produces and sells a product only in the U.S., what international developments may affect its sales?
a. Cash Flow Operations b. Cash Flow Investing c. Cash Flow Financing. d. Cash Flow Securities 28. For calculating cash flows, why is depreciation added to Net Income? a. To offset taxes b. Depreciation is a non-cash deduction c. To determine pre-tax income d. None of the above 29. What explains the size of the yield spread of bonds over Treasury? a. Coupon rate b. Riskiness of the bond c. The firm's efficiency ratio d. The firm's Beta 30 What does Beta measure? a. The yield on the S&P 500 b. The relative riskiness of an individual stock c. Indicates the market value of the stock d. Stocks to avoid purchasing 31. If market interest rates rise, what impact does it have on a given bond? a. Its price decreases b. It will have a discount price c. No impact since the coupon rate is fixed d. Its price increases 32. An increased corporate tax rate would: a. Increase cost of stock b. Increase bond cost to firm c. Decrease bond cost to firm d. None of the above 33. Why does finance require decision-making under uncertainty? a. Required by the SEC b. Uncertainty of forecast assumptions c. Formula inputs are estimates d. Both b and c 34. If debt is less costly than equity, why don't firms maximize debt use? 27. Which section of the Statement of Cash Flows descibes the production and sales of the firm's product?
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a. Decreases financial leverage b. Restricted by Federal tax regulations c. Excessive debt increases risk of bankruptcy d. It increases operating leverage 35. If the yield of a bond is higher than the coupon rate, what is the price? a. Premium price b. Par price c. Discount price d. Secondary market price a. How to use if no dividends are paid b. Must project dividends "forever" into the future. c. Does not address the appropriate discount rate d. All of the above 37. What factor determines the "market risk premium" on stocks? a. Credit rating agencies b. Projects firm profitability c. Seasonality d. Perceived riskness of stocks 38. Why are financial decisions made under uncertainty? a. Requires projections of future cash flows b. Some inputs may be estimates c. Not defined by GAAP d. Both A and B 39. Which factor does NOT affect a firm's WACC? a. The market risk premium b. The tax rate c. Cash Flow Financing d. Corporate tax rate 40. Why should an investor diversify the portfolio? a. To achieve a better combination of risk and return b. To avoid putting "all eggs in one basket" c. Stock returns are a function of systematic risk d. All of the above 41. Firms using different valuation methods is an example of what? a. Timing issue b. Seasonal effect c. Accounting difference 36. What are the practical disadvantages of the Gordon model for equity valuation?
d. Efficiency difference 42. Dodd-Frank regulates which segment of the U.S. Economy? a. Fannie Mae and Freddie Mac (Housing finance) b. Banking Industry c. Multi-level Marketing Industry d. Automobile Industry a. Market values derived from expected cash flows b. Market values vary over time c. Trade in the secondary market d. Have voting rights 44. The value of a corporation is best measured by a. Market prices b. Assets minus Liabilities on the Balance Sheet c. Net worth d. Its book value 45. Which uses a subjective estimates a. Life of newly acquired machine b. Price of a newly acquired machine c. Accounts receivable d. None of the above 46. Corporate bond yields do not reflect a. Risk b. Coupon rate c. Maturity d. U.S. Treasury rates 47. Junk bonds are those whose rating is below a. AAA b. AA c. A d. BBB 48. Diversification protects against a. Recession b. Individual firm risk c. Systematic risk d. Inflation risk 43. Which is not true of both stocks and bonds? 49. If you are assessing a firm's ability to meet short term obligations, you would use which ratio?
a. Debt ratio b. Quick ratio c. Gross margin d. Financial leverage 50. To assess firm efficiency, which ratio would you use? a. Asset turnover b. Operating margin c. Debt ratio d. None of the above 51. Which is the most important profit ratio for assessing success? a. Gross Margin b. Net Margin c. Return on Equity d. Return on Assets 52. Why does excessive leverage cause the stock price to drop? a. Increased fear of bankruptcy b. Agency Cost c. Increased required returns d. Boht a and c 53 If Accounts Receivable increase, what is impact on CFO? a. Decreases CFO b. Increases CFO c. No change d. Insufficient information to determine 54. What is the impact of import tariffs? a. More U.S. jobs and higher consumer prices b. Fewer U.S. jobs and lower consumer prices c. More U.S. jobs and lower consumer prices d. Increases imports and lowers consumer prices 55. WACC is based on a. Book value of equity b. Proforma balance sheet c. Current market prices of debt & equity d. The firm's ROE 56. Financial decisions should reflect the interests of a. Senior managers b. Largest shareholder c. Shareholder interests
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d. Investment banker advice 57. Import-oriented firms should favor a. Weak dollar b. Strong dollar c. High tariffs d. Low interest rates 58. Portfolios on the Efficient Frontier are: a. Maximum risk-to-return ratio b. Maximum return-to-risk ratio c. Have a Beta = 1.0 d. Have zero systematic risk 59. If market rates of interest increase, what is impact on bond price? a. Decreases if currently selling at a premium price b. Decreases regardless of price c. Increases d. Depends on the credit rating 60. Why would a firm prefer bond issuance to stock issuance a. Debt has a lower required return b. Debt interest is tax deductible c. It reduces leverage. d. Both A and B 61. How are stock market prices determined? a. Investment bank expert opinion b. Trading in financial markets c. Audited financial statements d. Comparables method 62. Which is not a feature of efficient markets? a. Small bid-ask spreads b. Well-informed investors c. Customized securities d. Many buyers and sellers 63. What is the difference between common and preferred stock? a. Preferred stock has a maturity date b. Preferred stock dividends are fixed c. Common stock has priority of claims in bankruptcy d. Preferred stock cannot be bought back 64. Why are accurate sales forecasts important? a. To measure WACC
b. To acquire right amount of resources c. Time value of money d. None of the above 65. Which is a technique for increasing financial leverage? a. Stock issuance b. Bond issuance c, Bond buybacks d. Automate production 66. In capital budgeting, which cash flow is negative? a. Initial cash flow b. Differential cash flow c. Terminal cash flow d. All are positive 67. In evaluation of investments, how is the terminal cash flow treated? a. Added to last differential cash flow b. Added as an additional year of cash flow c. It is not used. d. It is subtracted from the last differential cash flow 68. If NPV is positive, an adopted project, a. Increases shareholder value b. Does not affect shareholder value c. Decreasess shareholder value d. Cannot be determined 69. If IRR is greater than WACC, a. NPV is negative b. NPV is zero c. NPV is positive d. No connection between the two 70. Agency Cost refers to what practice a. Using an agent to underwrite securities b. Managers acting in personal interest c. Using a dealer to issue securities d. None of the above 71. The Payout Ratio is defined as a. Dividend-to-equity b. Dividends-to-net income c. Dividends-to-EBIT d. Dividends-to-sales
72. If rating agencies downgrade a bond, a. Its price increases b. Firm is bankrupt c. Firm must redeem the bond d. Its price decreases 73. The Volker rule affects what activity a. Interstate bank branching b. Hedge fund investment c. Bonus compensation d. "Too big to fail" 74. To whom do you complain about stock broker sales practices? a. SEC b. FINRA c. FDIC d. Federal Reserve 75. The goal of a corporation is to: a. Serve societal needs b. Enhance shareholder value c. Enforce Federal laws d. Subsidize socially desirable projects 76. Corporate financial decision-making should be based on a. Audit financial statements b. Market values c. Firm's 5-year plan d. The Annual Report 77. If a firm believes that the market under-values its stock, it should a. Hold a press conference to express their view b. Buy back stock c. Issue more stock d. State that opinion in the Annual Report 78. What happens to APY as the number of interest periods increases? a. It increases b. It decreases c. No impact d. None of the above 79. What is meant by "risk-return trade-off"? a. As risk increases, required return increases b. As risk increases, required return decreases c. As risk increases, stock prices increase
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d. As risk increases, required return is unchanged 80. Which of the following is the "best" investment"? a. 90-day Treasury bills yielding 2% b. 5-year Treasury bonds yielding 3% c. Stocks with expected returns of 7% d. Depends on risk preferences of the investor 81. A measure of a secuity's risk is a. The range of possible returns b. Beta c. Duration d. All of the above 82. In which market transaction does a corporation receive cash? a. Auction b. Secondary c. Primary d. Dealer 83. What is the term for the present value of stock cash flows? a. Face value b. Intrinsic value c. Indenture d. Equity 84. When is revenue recognized in accrual accounting? a. When the customer pays b. When the product is shipped or delivered c. At the end of the year d. When the product is added to inventory 85. Which type of ratio analysis compares a firm to its competitors? a. Trend b. Cross section c. Geographic d. None of the above 86. Which ratio is used in working capital management? a. Current Ratio b. ROA c. ROE d. Leverage Ratio 87. What structure causes profitability to be volatile? a. Working Capital
b. Agency cost c. IPOs d. Leverage 88. The sum of dividends and addition to retained earnings equals a. Accumulated depreciation b. Net Income c. Equity d. EBIT 89. If interest rates increase, what is the impact on WACC? a. It decreases b. It increases c. It remains unchanged d. Insufficient information to determine impact 90. If a firm wished to decrease financial leverage, it would a. Issue bonds b. Buy back stock c. Buy back bonds d. Automate the production line 91. If a firm automates its production line, which ratio is impacted? a. Current Ratio b. Quick Ratio c. Fixed Asset Turnover d. None of above 92. Which is the best stock investment principle? a. Maximize profit b. Maximize the return-to-risk ratio c. Buy high dividend stocks. d. Buy stocks with a low PE 93. Which feature is not in the Indenture a. The maturity date b. The coupon rate c. Payment dates d. The price 94. Which type of bond has tax exempt interest payments? a. Municipal bond b. Mortgage bond c. EuroDollar bond d. Subordinated debentures
95. How does the IRS income statement differ from GAAP? a. Expense recognition occurs in different time periods b. Actual taxes are higher than GAAP taxes c. Net income is higher d. None of the above a. Beta b. Yield c. Duration d. Credit rating 97. What is a 10-K? a. Offering circular for new stock issuance b. A firm's quarterly report c. A firm's earnings announcement d. A firm's annual report to the SEC 98. The holder of which bonds are last in line in bankruptcy? a. Senior bond b. Secured bond c. Yankee bond d. Subordinated debenture 99. How does collateralization impact the yield of a bond? a. Higher yield due to complexity of tracking collateral b. Lower yield due to less default risk c. No impact d. Lower yield due to structure simplicity 100. Which best describes the goal of a corporation? a. Maximize profit b. Balance risk and profit to maximize the stock price c. Minimize risk to keep WACC low d. Avoid long-term risky projects 96. What makes the present value of bond cash inflows equal to the purchase price?
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e Math 0.0% Logic 0.0% Total 0.0% qnw section B 0 2 A 0 2 B 0 2 g.
C 0 5 A 0 9 C 0 6 C 0 7 B 0 7
D 0 5 C 0 8 D 0 11 C 0 10 B 0 5
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C 0 9 C 0 10 B 0 7 A 0 5 C 0 3
B 0 3 C 0 6 D 0 15 B 0 15 B 0 1 D 0 8 A 0 10 C 0 14
A 0 2 B 0 2 B 0 6 B 0 8 A 0 6 C 0 11 D 0 10
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C 0 12 C 0 6 D 0 7 D 0 7 D 0 12 C 0 11 D 0 8
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C 0 9 B 0 15 D 0 7 A 0 14 A 0 3 B 0 6 D 0 6 B 0 8
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B 0 4 A 0 4 C 0 4 D 0 12 A 0 2 A 0 1 C 0 11
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C 0 1 B 0 1 B 0 10 B 0 6 D 0 12 B 0 1 C 0 1 B 0 7
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B 0 9 B 0 12 A 0 10 A 0 10 A 0 10 C 0 10 B 0 1 B 0 3
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d 0 6 B 0 15 B 0 15 B 0 1 B 0 1 B 0 8 A 0 6
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A 0 1 D 0 8 D 0 1 C 0 1 B 0 7 B 0 3 B 0 4 A 0 13
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D 0 12 B 0 3 B 0 11 C 0 12 C 0 4 B 0 7 D 0 6 A 0 6
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A 0 12 B 0 10 D 0 15 D 0 6 B 0 6 B 0 1
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