Practice Exam I-Finance 301



Practice Exam I-Finance 301

1. Financial management decisions have three important questions that need to be answered. Please provide the question that concerns with the following item:

a. Capital budgeting

b. Capital structure

c. Working capital management

2. Provide one advantage and one disadvantage concerning the different forms of business:

a. Sole Proprietorship

b. Partnership

c. Corporation

3. What is the main goal of financial management?

4. If you want to hire somebody to complete your tax return next year. Who would be the principal and the agent in this situation?

5. If you take your company public which market would you be utilizing, primary or secondary?

6. The New York Stock Exchange is an example of what type of market, dealer or auction?

8. Compute the average and marginal tax rate using the following table on taxable income of 240,000:

|Taxable Income |Tax Rate |

|$0-50,000 |15% |

|50,001-75,000 |25% |

|75,001-100,000 |34% |

|100,001-335,000 |39% |

9. For the following items, recognize whether it’s a use or source of cash

a. Increase to Accounts Receivable - use

b. Decrease in Notes Payable - use

c. Decrease in Long-Term Debt note - use

d. Decrease in Accounts Receivable – source

e. Increase in Notes Payable – source

f. Decrease in PP&E – source

10. Define the following two terms

a. Planning horizon

b. Aggregation

11. From the following income statement information, calculate the net income and operating cash flow.

|Net Sales | 16,500 |

|Cost of goods sold |$10350 |

|Operating exp |3118 |

|Depreciation |1120 |

|Interest Expense |900 |

|Tax rate |34% |

|Dividend payout ration |50% |

Now suppose in the previous problem, there are 650 shares outstanding, what is the EPS? What is the DPS?

12. Net fixed assets (NFA) of ABC corp. as of Dec. 2002 is 6.5 million and NFA showed an asset balance of 3 million last year. ABC corp’s income statement for the year 2002 showed depreciation expense of $650,000. What was the Net Capital Spending of 2002

13. Company M has a current ratio of 2, quick ratio of 1.8, net income of $180,000, profit margin of 10% and account receivable balance of $150,000. What is the firm’s Average Collection period?

14. External Financing and Growth:

The most recent financial statements for Last in Line, Inc., are shown here:

|Income Statement | |Balance Sheet |

|Sales $3,400 |Current Assets $4,400 |Current Liabilities $880 |

|Costs 2,800 |Fixed Assets 5,700 |Long-term debt 3,580 |

|Taxable income $600 | |Equity 5,640 |

|Taxes (34%) 204 |Total $10,100 |Total $10,100 |

| Net Income $396 | | |

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent. What is the external financing needed?

15. If ABC Corp. has Profit margin of 12% debt equity ratio of 2.1, debt ratio of .60 and total asset $35,000 and sales of $22,000. The dividend payout has remained constant as 40% What is the SGR?

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