Complete Final Exam Question 1 Which Of The

complete Final Examquestion 1which Of The

Complete final exam. Question 1 Which of the following is considered a hybrid organizational form? sole proprietorship partnership corporation limited liability partnership Question 2 Which of the following is a principal within the agency relationship? a company engineer the CEO of the firm a shareholder the board of directors Question 3 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? $803,010 $2,303,010 $2,123,612 $1,844,022 Question 4 Which of the following presents a summary of the changes in a firm’s balance sheet from the beginning of an accounting period to the end of that accounting period? The statement of cash flows. The statement of net worth. The statement of retained earnings. The statement of working capital. Question 5 Efficiency ratio : Gateway Corp. has an inventory turnover ratio of 5.6. What is the firm's days's sales in inventory? 61.7 days 57.9 days 65.2 days 64.3 days Question 6 Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio? ...74 Question 7 Which of the following is not a method of “benchmarkingâ€? Utilize the DuPont system to analyze a firm’s performance. Conduct an industry group analysis. Evaluating a single firm’s performance over time. Identify a group of firms that compete with the company being analyzed. Question 8 Present value: 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.) $26,454 $19,444 $22,680 $16,670 Question 9 PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8 percent and will repay the loan with interest over the next five years. Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000, $750,000, $875,000, and $1,000,000. What is the present value of these payments? (Round to the nearest dollar.) $2,815,885 $2,615,432 $2,735,200 $2,431,224 Question 10 PV of multiple cash flows: 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.) $429,560 $414,322 $480,906 $477,235 Question 11 Future value of an annuity: Jayadev Athreya has started on his first job. He plans to start saving for retirement early. 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? (Round to the nearest dollar.) $2,667,904 $3,594,524 $1,745,600 $5,233,442 Question 12 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.) 40% 16% 32% 12% Question 13 Bond price: 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.) $1,066 $923 $972 $1,014 Question 14 PV of dividends: 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 is 14 percent, what is the present value of their dividends over the next four years? $9.72 $12.50 $11.63 $13.50 Question 15 Capital rationing. 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? 0....11 Question 16 What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects? The profitability index. The discounted payback. The internal rate of return. The modified internal rate of return. Question 17 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? 70% 30% 33% 50% Question 18 The cost of equity : Gangland Water Guns, Inc., is expected to pay a dividend of $2.10 one year from today. If the firm's growth in dividends is expected to remain at a flat 3 percent forever, then what is the cost of equity capital for Gangland if the price of its common shares is currently $17.50? 15.00% 12.00% 15.36% 14.65% Question 19 If a company's weighted average cost of capital is less than the required return on equity, then the firm: Has debt in its capital structure Is financed with more than 50% debt Must have preferred stock in its capital structure Is perceived to be safe Question 20 A firm's capital structure is the mix of financial securities used to finance its activities and can include all of the following except stock. bonds. equity options. preferred stock. Question 21 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 to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they issue? $321 $600 $375 $225 Question 22 Multiple Analysis: 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. $453.6 million $1,315 million $1,334 million $1,787 million Question 23 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? 27.3% 30.3% 25.1% 32.9% Question 24 Which of the following cannot be engaged in managing the business? a general partner a limited partner none of these a sole proprietor Question 25 Which of the following does maximizing shareholder wealth not usually account for? Risk. Government regulation. The timing of cash flows. Amount of Cash flows. Question 26 The strategic plan does NOT identify major areas of investment in real assets. the lines of business a firm will compete in. working capital strategies. future mergers, alliances, and divestitures. Question 27 Firms that achieve higher growth rates without seeking external financing have a low plowback ratio. have less equity and/or are able to generate high net income leading to a high ROE. are highly leveraged. none of these. Question 28 Payout and retention ratio: Drekker, Inc., has revenues of $312,766, costs of $220,222, interest payment of $31,477, and a tax rate of 34 percent. It paid dividends of $34,125 to shareholders. Find the firm's dividend payout ratio and retention ratio. 15%, 85% 45%, 55% 85%, 15% 55%, 45% Question 29 The cash conversion cycle estimates how long it takes on average for the firm to collect its outstanding accounts receivable balance. shows how long the firm keeps its inventory before selling it. begins when the firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures. begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales. Question 30 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 Cash conversion cycle : What is the cash conversion cycle for Ridge Company? 38.3 days 83.5 days 129.9 days 46.4 days

Paper For Above instruction

Financial management is a critical discipline within any business entity, encompassing a range of strategic decisions to optimize financial performance and ensure long-term sustainability. This comprehensive examination evaluates various aspects of financial concepts, from organizational forms and agency relationships to valuation methods, ratio analyses, and capital structure decisions. The questions cover foundational theories and practical applications, emphasizing the importance of understanding how financial tools and principles guide managerial decisions to maximize shareholder wealth and maintain operational efficiency.

Organizational Structures and Agency Relationships

The initial questions explore organizational forms, highlighting the hybrid model, which combines features of different entities to balance liability, taxation, and management control. The hybrid form, such as the limited liability partnership (LLP), combines the advantages of limited liability and flexibility in management, cultivating a structure suitable for professional partnerships. Additionally, understanding agency relationships is crucial in corporate governance. The principal—such as shareholders—is represented by agents like the CEO or managers who make day-to-day decisions on their behalf (Jensen & Meckling, 1976). This relationship underscores the importance of aligning incentives and monitoring to mitigate agency conflicts.

Financial Ratios and Performance Metrics

Financial ratios serve as benchmarks to analyze company performance, liquidity, efficiency, and leverage. For instance, the current assets, liabilities, and equity data for Teakap, Inc., facilitate calculating the firm's long-term debt by subtracting current liabilities and equity from total assets. The efficiency ratio, such as days' sales in inventory, measures inventory management effectiveness; Gateway Corp.'s ratio of 5.6 yields a days' sales figure indicative of inventory turnover frequency. Leverage ratios like the equity multiplier reveal the firm's financial leverage, with a higher multiplier indicating higher debt levels relative to equity. Knowledge of these ratios enables managers to make informed operational and financial decisions.

Valuation Techniques and Investment Analysis

Valuation methods such as present value (PV) calculations are essential in investment decision-making. For example, Jack Robbins' car savings goal requires determining the present investment needed to reach $21,000 in three years at 8% interest, employing the PV formula. Similarly, PV of multiple cash flows, like Ferris Inc.'s loan repayments and Ajax Corp.'s expected cash flows, assess project worthiness under time value considerations. These calculations often utilize discount rates that reflect opportunity costs or risk premiums, ensuring accurate valuation and comparison of investment opportunities (Brealey, Myers, & Allen, 2020).

Time Value of Money and Annuities

The concept of future value of an annuity is exemplified through Jayadev Athreya's retirement savings plan, where consistent annual contributions grow over time at a specified return rate. The FV formula determines the accumulated funds after 45 years, highlighting the power of early, disciplined investing. Equity valuation, involving dividends and growth rates, underpins stock investment decisions; for example, calculating the cost of equity when dividends grow at a constant rate enables investors and firms to estimate fair stock prices (Damodaran, 2012).

Bond and Dividend Valuation

Bond pricing, such as Regatta Inc.'s bonds, involves discounting future coupon payments and face value at the yield to maturity. The price reflects the present value of these cash flows, influenced by prevailing interest rates and credit risk. Dividend valuation models, like the Gordon Growth Model, estimate the present value of future dividends based on growth assumptions and required return, aiding in stock price determination and investment analysis.

Capital Budgeting and Project Evaluation

Capital rationing decisions hinge on measures like the profitability index (PI), which assesses project value relative to initial investment. When capital is constrained, projects with the highest PI are prioritized. The internal rate of return (IRR) and modified IRR (MIRR) also evaluate project viability, considering inflows, outflows, and reinvestment assumptions (Ross, Westerfield, & Jaffe, 2019). These tools assist managers in selecting projects that maximize value under budget limitations.

Cost of Capital and Capital Structure

Estimating a firm's weighted average cost of capital (WACC) integrates the costs of equity and debt, weighted by their proportion in the capital structure. For example, given the WACC of 13%, and known costs of debt (10%) and equity (20%), the proportion of debt financing can be deduced. The capital structure mix influences risk and return, affecting valuations and strategic decisions. The Modigliani-Miller theorem further elucidates how leverage impacts firm value under certain assumptions.

Leverage and Risk Management

Leverage ratios, such as debt-to-equity, quantify the degree of financial leverage used by a firm. A higher ratio implies greater risk but also potential for higher returns. For example, an equity multiplier of 2.47 indicates the firm’s assets are financed in part by debt. The relationship between WACC and required return on equity guides financial structuring to balance risk and return efficiently.

Corporate Strategy and Mergers

Strategic planning involves evaluating investment opportunities, including mergers, alliances, and divestitures. The firm's growth rate supported solely through internal financing reflects its retention ratio and plowback ratio, highlighting sustainable expansion levels. Understanding the components of capital structure and the implications of capital markets theories like M&M help in framing corporate strategies that enhance shareholder wealth.

Operational Metrics and Working Capital Management

The cash conversion cycle (CCC) measures how efficiently a firm manages its receivables, inventory, and payables. The cycle's length affects liquidity and profitability; a shorter CCC indicates quicker cash inflows and outflows. Analyzing working capital components, such as inventory turnover and receivables collection periods, provides insights into operational effectiveness and liquidity risk management.

Conclusion

Effective financial management incorporates diverse analytical tools and theoretical frameworks to guide strategic decisions. From evaluating organizational designs and agency conflicts to performing valuation analyses and managing capital structure, each element plays a vital role in enhancing firm value. An integrated understanding of these concepts enables managers to optimize operations, mitigate risks, and capitalize on growth opportunities, ultimately aligning corporate objectives with shareholder wealth maximization, consistent with sound financial principles supported by scholarly research.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.