examen de time value - cash flows - financial statements
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Earnings available to common shareholders are defined as net profits
1)
_______ A)
after taxes minus common dividends.
B)
after taxes minus preferred dividends. C)
after taxes.
D)
before taxes.
2)
A firm had the following accounts and financial data for 2005:
The firm's earnings per share, rounded to the nearest cent, for 2005 was ________.
2)
_______ A)
$0.5125
B)
$0.3024
C)
$0.3204
D)
$0.5335
3)
________ analysis involves the comparison of different firms' financial ratios at the same point in time.
3)
_______ A)
Time-series
B)
Cross-sectional
C)
Quantitative
D)
Marginal
4)
The following groups of ratios primarily measure risk.
4)
_______ A)
liquidity, activity, and debt
B)
liquidity, activity, and profitability C)
liquidity, activity, and common stock
D)
activity, debt, and profitability
5)
________ ratios are a measure of the speed with which various accounts are converted into sales or cash.
5)
_______ A)
Debt
B)
Profitability
C)
Activity
D)
Liquidity
6)
The ________ ratio may indicate the firm is experiencing stockouts and lost sales.
6)
_______ A)
inventory turnover
B)
average collection period C)
average payment period
D)
quick
7)
If Nico Corporation has annual purchases of $300,000 and accounts payable of $30,000, then average purchases per day are ________ and the average payment period is ________.
7)
_______ A)
833.3; 36.0
B)
821.9; 36.5
C)
36.5; 821.9
D)
36.0; 833.3
Table 3.1
Information (2010 values)1. Sales totaled $110,0002. The gross profit margin was 25 percent.3. Inventory turnover was 3.0.4. There are 360 days in the year.5. The average collection period was 65 days.6. The current ratio was 2.40.7. The total asset turnover was 1.13.8. The debt ratio was 53.8 percent.
8)
Accounts receivable for CEE in 2010 was ________. (See Table 3.1)
8)
_______ A)
$18,333
B)
$14,895
C)
$14,056
D)
$19,861
9)
________ is a term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt.
9)
_______ A)
Operating leverage
B)
Fixed-payment coverage C)
Financial leverage
D)
The acid-test
10)
When assessing the fixed-payment coverage ratio,
10)
______ A)
preferred stock dividend payments can be disregarded. B)
the lower its value the more risky is the firm. C)
the higher its value, the higher is the firm's liquidity. D)
the lower its value, the lower is the firm's financial leverage.
11)
The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.
11)
______ A)
source and use statement
B)
common-size income statement C)
retained earnings statement
D)
profit and loss statement
12)
The ________ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.
12)
______ A)
gross profit margin B)
earnings available to common shareholders C)
operating profit margin D)
net profit margin
13)
A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of
13)
______ A)
3 percent.
B)
4 percent.
C)
20 percent.
D)
15 percent.
Table 3.2
Dana Dairy Products Key Ratios
Income StatementDana Dairy Products
For the Year Ended December 31, 2010
Balance SheetDana Dairy ProductsDecember 31, 2010
14)
The current ratio for Dana Dairy Products in 2005 was ________. (See Table 3.2)
14)
______ A)
0.63
B)
1.10
C)
0.91
D)
1.58
15)
The average collection period for Dana Dairy Products in 2010 was (See Table 3.2)
15)
______ A)
32.5 days.
B)
35.9 days.
C)
25.3 days.
D)
11.8 days.
16)
Using the modified DuPont formula allows the analyst to break Dana Dairy Products return on equity into 3 components: the net profit margin, the total asset turnover, and a measure of leverage (the financial leverage multiplier). Which of the following mathematical expressions represents the modified DuPont formula relative to Dana Dairy Products' 2010 performance? (See Table 3.2)
16)
______ A)
5.6(ROE) = 3.3(ROA) × 1.70(Financial leverage multiplier) B)
4.0(ROE) = 2.0(ROA) × 2.00(Financial leverage multiplier) C)
5.6(ROE) = 2.5(ROA) × 2.24(Financial leverage multiplier) D)
2.5(ROE) = 5.6(ROA) × 0.44(Financial leverage multiplier)
17)
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.
17)
______ A)
managerial
B)
cost accounting C)
financial reporting
D)
tax
18)
Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 11 is
18)
______ A)
$4,000.
B)
$0.
C)
$6,000.
D)
$3,000.
19)
Which of the following is a source of cash flows?
19)
______ A)
Cost of goods sold.
B)
Taxes. C)
Interest expense.
D)
Depreciation.
20)
The statement of cash flows provides a summary of the firm's
20)
______ A)
cash inflows from financing activities.
B)
cash flows from investment activities. C)
cash flows from operating activities.
D)
all of the above.
21)
During 2010, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO's free cash flow is
21)
______ A)
-$30,000.
B)
$650,000.
C)
-$630,000.
D)
-$50,000.
22)
The financial planning process begins with ________ financial plans that in turn guide the formation of ________ plans and budgets.
22)
______ A)
long-run; strategic
B)
short-run; long-run C)
long-run; short-run
D)
short-run; operating
23)
Pro forma statements are used for
23)
______ A)
credit analysis.
B)
profit planning. C)
cash budgeting.
D)
leverage analysis.
24)
In general, firms that are subject to a high degree of ________, relatively short production cycles, or both tend to use shorter planning horizons.
24)
______ A)
profitability
B)
financial planning C)
operating uncertainty
D)
financial certainty
25)
Key inputs to short-term financial planning are
25)
______ A)
operating budgets. B)
leverage analysis. C)
sales forecasts, and operating and financial data. D)
economic forecasts.
26)
A projected excess cash balance for the month may be
26)
______ A)
financed with long-term securities.
B)
invested in long-term securities. C)
financed with short-term securities.
D)
invested in marketable securities.
27)
In October, a firm had an ending cash balance of $35,000. In November, the firm had a net cash flow of $40,000. The minimum cash balance required by the firm is $25,000. At the end of November, the firm had
27)
______ A)
required total financing of $15,000.
B)
an excess cash balance of $75,000. C)
required total financing of $5,000.
D)
an excess cash balance of $50,000.
28)
A firm has prepared the coming year's pro forma balance sheet resulting in a plug figure in a preliminary statementcalled the external financing requiredof $230,000. The firm should prepare to
28)
______ A)
do nothing; the balance sheet balances. B)
arrange for a loan of $230,000. C)
repurchase common stock totaling $230,000. D)
invest in marketable securities totaling $230,000.
Table 4.4
Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2010, for Hennesaw Lumber, Inc.
Hennesaw Lumber, Inc. estimates that its sales in 2000 will be $4,500,000. Interest expense is to remain unchanged at $105,000 and the firm plans to pay cash dividends of $150,000 during 2010. Hennesaw Lumber, Inc.'s income statement for the year ended December 31, 2009 is shown below. From your preparation of the pro forma income statement, answer the following multiple choice questions.
29)
The pro forma net profits after taxes for 2010 are ________. (See Table 4.4)
29)
______ A)
$57,000
B)
$202,500
C)
$52,500
D)
$207,000
Table 4.5
A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2010. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions.(a) The firm estimates sales of $1,000,000.(b) The firm maintains a cash balance of $25,000.(c) Accounts receivable represents 15 percent of sales.(d) Inventory represents 35 percent of sales.(e) A new piece of mining equipment costing $150,000 will be purchased in 2010.
Total depreciation for 2010 will be $75,000.(f) Accounts payable represents 10 percent of sales.(g) There will be no change in notes payable, accruals, and common stock.(h) The firm plans to retire a long term note of $100,000.(i) Dividends of $45,000 will be paid in 2010.(j) The firm predicts a 4 percent net profit margin.
Balance SheetGeneral Talc MinesDecember 31, 2009
30)
The pro forma net fixed assets amount is ________. (See Table 4.5)
30)
______ A)
$500,000
B)
$575,000
C)
$650,000
D)
$600,000
31)
A weakness of the percent-of-sales method to preparing a pro forma income statement is
31)
______ A)
the assumption that the firm's past financial condition is an accurate predictor of its future. B)
the assumption that the firm faces linear total revenue and total operating cost functions. C)
ease of calculation and preparation. D)
the assumption that the values of certain accounts can be forced to take on desired levels.
32)
The weakness of the judgmental approach to preparing a pro forma balance sheet is
32)
______ A)
the assumption that the firm faces linear total revenue and total operating cost functions. B)
the assumption that the values of certain accounts can be forced to take on desired levels. C)
the assumption that the firm's past financial condition is an accurate predictor of its future. D)
ease of calculation and preparation.
33)
In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to
33)
______ A)
overstate costs and understate profits.
B)
overstate costs and overstate profits. C)
understate costs and understate profits.
D)
understate costs and overstate profits.
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 34)
Since individuals are always confronted with opportunities to earn positive rates of return on their funds, the timing of cash flows does not have any significant economic consequences.
34)
______
35)
Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.
35)
______
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 36)
When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called
36)
______ A)
future value.
B)
primary interest. C)
discount interest.
D)
compound interest.
37)
The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is
37)
______ A)
$699.
B)
$ 75.
C)
$236.
D)
$ 42.
38)
The annual rate of return is variously referred to as the
38)
______ A)
discount rate.
B)
cost of capital. C)
opportunity cost.
D)
all of the above.
39)
The present value of a $20,000 perpetuity at a 7 percent discount rate is
39)
______ A)
$325,000.
B)
$285,714.
C)
$186,915.
D)
$140,000.
40)
The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent, is
40)
______ A)
$11,464.
B)
$10,000.
C)
$ 8,530.
D)
$11,808.
41)
Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?
41)
______ A)
$120,000
B)
$ 38,640 C)
$ 67,800
D)
None of the above.
42)
$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is
42)
______ A)
$1,245.
B)
$1,536.
C)
$ 672.
D)
$ 727.
43)
Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 8 percent on its investments.
43)
______ A)
$45,000
B)
$56,690
C)
$53,396
D)
$47,940
44)
Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 9 percent.
44)
______ A)
$ 10,972
B)
$ 79,348
C)
$141,588
D)
$ 13,252
45)
The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.
45)
______ A)
continuous
B)
effective
C)
discounted
D)
nominal
46)
The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is
46)
______ A)
$450.
B)
$889.
C)
$126.
D)
$134.
47)
How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?
47)
______ A)
$4,444
B)
$4,521
C)
$4,451
D)
$4,317
48)
Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is
48)
______ A)
$1,482
B)
$2,641
C)
$ 942
D)
$1,125
49)
What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next 10 years?
49)
______ A)
13 percent
B)
18 percent
C)
3 percent
D)
8 percent
50)
Detta borrows $20,000 from the bank. For a five-year loan, the bank requires annual end-of-year payments of $4,878.05. The annual interest rate on the loan is
50)
______ A)
7 percent
B)
6 percent
C)
8 percent
D)
9 percent
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