3310

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Western University *

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3310

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Industrial Engineering

Date

Apr 3, 2024

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pdf

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12

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Name_______________________________ SAMPLE Midterm Test MOS 3310 Corporate Finance ANSWER KEY Score (28) + (47) = (75) Multiple-choice Problems Total Instructions You will have 1 hour 30 minutes for the exam. Part A has 14 multiple-choice questions, each worth two points (28 points total). Part B has five problems (47 points total). There are also two bonus questions at the back of the exam. This is a closed-book examination. You only need a calculator and some writing utensil; all the formulas are provided in the back of the exam in a separate formula sheet. No scratch paper or personal formula sheets are allowed in the exam. You may detach the formula sheet, but do NOT detach any other parts of the exam booklet. Write your answers (IN CAPITAL LETTERS) for the multiple choice questions on the answer sheet provided at the back of the exam Show ALL work and provide explanations . If you use a financial calculator, show the keystrokes . Correct answers without sufficient work will receive ZERO points. Do not forget to write your names at the top of this page. Exams without names will not be graded. GOOD LUCK!!!!!!!!
PART A. MULTIPLE CHOICE QUESTIONS Identify the letter of the choice that best completes the statement or answers the question. 1. Alex wants to buy Mary’s house, and goes to Tom, who is a real estate agent. Tom and Mary negotiate a reasonable price, and Tom gets his 15% commission on the price of the house. In this transaction: a. There are no agency conflicts. b. There is an agency conflict between Alex and Tom, and Tom has an incentive to spend less effort on the negotiations about the price of the house since he gets paid a commission based on the price of the house. c. There is an agency conflict between Tom and Mary but it is solved during negotiations. d. There is an agency conflict between Alex and Tom, but since Alex pays Tom fairly, there is no incentive for Tom to act in a way that would be damaging to Alex. 2. Which of the following form of organization accounts for the greatest number of firms? a. Sole Proprietorship b. Publicly Traded Corporation c. Limited Partnership d. Limited Liability Partnership 3. A limited liability partnership, LLP, is essentially a. a limited partnership without limited partners. b. a limited partnership without a general partner. c. just another name for a limited partnership. d. just another name for a corporation. 4. Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities? a. Add increases in accounts payable. b. Add back depreciation. c. Add increases in accounts receivable. d. Deduct increases in inventory. 5. If the firm has negative net income, then __________________. a. The firm can pay no dividends. b. The firm is bankrupt. c. Operating cash flow of the firm may still be positive. d. Cash flow to stockholders must be negative.
6. ______________ refers to the firm's interest payments less any net new borrowing. a. Operating cash flow b. Cash flow from assets c. Cash flow to stockholders d. Cash flow to creditors 7. Return on equity will increase if the _________________. a. Return on assets decreases (and everything else stays the same) b. Debt-equity ratio decreases (and everything else stays the same) c. Total asset turnover decreases (and everything else stays the same) d. Profit margin increases (and everything else stays the same) 8. Peterson Co. is thinking about issuing new common stock. The proceeds from the stock issue will be used to reduce the company’s outstanding debt and interest expense. The stock issue will have no effect on the company’s total assets, EBIT, or tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The company’s net income will decrease. b. The company’s times interest earned ratio will increase. c. The company’s ROA will decrease. d. All of the above statements are correct. 9. A company is forecasting an increase in sales and is using the percent of sales (EFN/AFN model) to forecast the additional capital that it must raise. Which of the following conditions would most likely increase the EFN/AFN? a. The company increases its dividend payout ratio. b. The company’s profit margin increases. c. The company begins to pay employees monthly rather than weekly. d. The company discovers that it has excess capacity in its fixed assets 10. Which one of the following statements concerning interest rates is correct? a. The periodic rate (PR) is the nominal rate that is typically stated (quoted) in contracts. b. The APR rate can never be the same as effective periodic rate (EPR). c. The periodic rate (PR) can never be APR. d. The effective annual rate is always higher or equal to the annual percentage rate.
11. Donald has $200,000 to invest. Which one of the following investment options will produce the largest future value for him? a. 3.5% simple interest for 7 years b. 3.5%, compounded annually for 7 years c. 3.5%, compounded monthly for 8 years d. 3.5%, compounded continuously for 8 years 12. What type of security, if exercised, does not result in dilution of shareholders’ income? a. Convertibel bond b. Warrant c. Callable bond d. Executive option 13. For a premium bond, the required return is less than the: I. Par value. II. Yield to maturity. III. Coupon rate. a. I only b. I and II only c. II and III only d. III only 14. All else the same, if interest rates fall, then _________________. I. Bond prices will rise. II. Current yields on existing bonds will rise. III. The percentage price change for long-term bonds will be greater than for short-term bonds. IV. The percentage price change for low coupon bonds will be greater than for high coupon bonds. a. I, II, III, and IV b. I, III, and IV only c. I and IV only d. I and II only
PART B. NUMERICAL PROBLEMS PROBLEM I: (9 points) Based on information below, complete the balance sheet. Show all the steps and calculations. Quick Ratio = 0.9 Current ratio = 1.2 Tax Rate = 30% Total Assets Turnover = 4 Times interest earned = 6 Days Sales Outstanding 20 Equity Multiplier = 2 Balance Sheet Cash (3) $ 330 Accounts Payable $ 1,200 Accounts Receivable $ 750 Long Term Debt (8) $ 511 Inventory (4) $ 360 Common Stock $ 1,000 Fixed Assets (5) $ 1,982 Retained Earnings (7) $ 711 Total Assets (2) $ 3,422 Tot Liab & Equity (6) $ 3,422 (1) Sales = Accounts Receivable * 365 / DSO= (2) Total Assets = Sales / Total Assets Turnover = (3) Cash = Quick Ratio*A/P – A/R = (4) Inventory = Current Ratio * A/P – Cash – A/R = (5) Fixed Assets = Total Assets – Current Assets = (6) Tot Liab & Equity = Total Assets (7) Retained Earnings = Common Equity – Common Stock =[Total Assets / Equity Multiplier] – Common Stock = (8) Long Term Debt = Tot Liab & Equity – Common Equity – A/P =
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