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Question 1
The operating cycle
ends not with the finished goods
being sold to customers and the cash collected on the sales; but
when you take into account the time taken by the firm to pay for
its purchases.
begins when the firm uses its cash
to purchase raw materials and ends when the firm collects cash
payments on its credit sales.
begins when the firm receives the
raw materials it purchased that would be used to produce the goods
that the firm manufactures.
To measure operating cycle we need
another measure called the days' payables outstanding.
Question 2
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
Operating cycle: What is the operating cycle for Ridge
Company?
51 days
47 days
85 days
36 days
Question 3
Ticktock Clocks sells 10,000 alarm clocks each year. If the
total cost of placing an order is $65 and it costs $85 per year to
carry the alarm clock in inventory, use the EOQ formula to
calculate the optimal order size.
161 clocks
124 clocks
26,154 clocks
15,294 clocks
Question 4
The asset substitution problem occurs when
managers substitute less risky
assets for riskier ones to the detriment of bondholders.
managers substitute riskier assets
for less risky ones to the detriment of bondholders.
managers substitute riskier assets
for less risky ones to the detriment of equity holders.
managers substitute less risky
assets for riskier ones to the detriment of equity holders.
Question 5
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.
How much are your cash flows today?
$12.38
$15
$4.50
$150
Question 6
M&M Proposition 2: Melba's Toast has a capital structure
with 30% debt and 70% equity. Its pretax cost of debt is 6%, and
its cost of equity is 10%. The firm's marginal corporate income tax
rate is 35%. What is the appropriate WACC?
8.80%
8.17%
6.35%
7.44%
Question 7
According to the text, the financial plan covers a period of
one year.
three to five years.
ten years.
none of these.
Question 8
The financing plan of a firm will indicate
the firm's dividend policy, the
desired capital structure for the firm, and the firm's working
capital policy.
the dollar amount of funds that has
to be raised externally and the sources of funds available to the
firm, the desired capital structure for the firm, and the firm's
working capital policy.
the dollar amount of funds that has
to be raised externally and the sources of funds available to the
firm, the firm's dividend policy, and the firm's working capital
policy.
the dollar amount of funds that has
to be raised externally and the sources of funds available to the
firm, the desired capital structure for the firm, and the firm's
dividend policy.
Question 9
Payout and retention ratio: Tradewinds Corp. has revenues of
$9,651,220, costs of $6,080,412, interest payment of $511,233, and
a tax rate of 34 percent. It paid dividends of $1,384,125 to
shareholders. Find the firm's dividend payout ratio and retention
ratio.
25%, 75%
34%, 66%
66%, 34%
69%, 31%
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