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What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?

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?

3. 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 equity to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they use?

4. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in inventory?

5. If a company’s weighted average cost of capital is less than the required return on equity, then the firm:

6. 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?

7. Process costing is used when:

8. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time:

9. The process of evaluating financial data that change under alternative courses of action is called:

10. The most important information needed to determine if companies can pay their current obligations is the:

11. The group of users of accounting information charged with achieving the goals of the business is its:

12. 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)

13. Which of the following presents a summary of changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period?

14. Internal reports that review the actual impact of decisions are prepared by:

15. Which of the following financial statements is concerned with the company at a point in time?

16. The major element in budgetary control is:

17. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using:

18. An activity that has a direct cause-effect relationship with the resources consumed is a(n):

19. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

20. 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?

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

22. Jayadev Athreya has started his first job. 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?

23. Horizontal analysis is also known as:

24. A cost which remains constant per unit at various levels of activity is a:

25. The break-even point is where:

26. The convention of consistency refers to consistent use of accounting principles:

27. Your firm has an equity multiplier of 2.47. What is the debt-to-equity ratio?

28. 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.

29. 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.)

30. An unrealistic budget is more likely to result when it:

31. In a process cost system, product costs are summarized:

32. 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.)

33. Firms that achieve higher growth rates without seeking external financing:

34. 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.)

35. 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?

36. Variance reports are:

37. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called:

38. 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 if 14 percent, what is the present value of their dividends over the next four years?

39. The cash conversion cycle?

Solution Description

What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?

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?

3. 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 equity to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they use?

4. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in inventory?

5.

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