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FINANCIAL MANAGEMENT EXAM ( 3HOURS!!!)
1. When managers have little or no ownership in the firm, they are less likely to work energetically for the company’s shareholders. We call this type of conflict a(n)
ownership problem
management problem
moral problem
2. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2007-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:
What years did Goggle generate positive cash flow from its operations?
| Goggle has generated positive cash flow from its operations during the years 2007 and 2008. | ||
| Goggle has generated positive cash flow from its operations during the years 2008 and 2009. | ||
| Goggle has generated positive cash flow from its operations during the years 2009 and 2010. | ||
| Goggle has generated positive cash flow from its operations during the years 2008, 2009, and 2010. | ||
3. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:
How much did Goggle invest in new capital expenditures over the period? (Round to the nearest integer.)
| The amount that Google invested in new capital expenditures over the period is $15,930 million. | ||
| The amount that Google invested in new capital expenditures over the period is $14,710 million. | ||
| The amount that Google invested in new capital expenditures over the period is $16,290 million. | ||
| The amount that Google invested in new capital expenditures over the period is $11,030 million. |
4. (Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below.
Based solely on the cash flow statements for 2008 through 2010, select the statement that best describes the major activities of Goggle’s management team over the period.
| Google’s management team has been investing heavily in working capital and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been spending heavily in paying cash dividends and financing them with the issuance of stocks and internally generated funds. | ||
| Google’s management team has been investing heavily in capital expenditures and financing them with the issuance of debt and internally generated funds. |
5. Analyzing the cash flow Statement) Goggle, Inc. is an Internet firm that has experienced a period of very rapid growth in revenues over the period 2008-2010. The cash flow statements for Goggle, Inc. spanning the period are below. Choose the best answer for the following question using the information found in these statements:
Describe Goggle’s main source of financing in the financial markets over the period.
| Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $985 million. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $10 million. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of common stock for the amount of $8,034. | ||
| Google’s main source of financing in the financial markets over the period was the issuance of debt for the amount of $985 million. |
6. (DuPont analysis) Dearborn Supplies has total sales of $150 million, assets of $109 million, a return on equity of 30 percent, and a net profit margin of 7.6 percent. What is the firm’s debt ratio?
7. (Common stock valuation) The common stock of NCP paid $1.21 in dividends last year. Dividends are expected to grow at an annual rate of 6.40 percent for an indefinite number of years.
a. If your required rate of return is 9.30 percent, what is the value of the stock for you?
b. Should you make the investment?
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8. Present value) Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $380,000 due in 30 years. In other words, they will need $380,000 in 30 years. Toni Flanders, the company’s CEO, is scrambling to discount the liability to the present to assist in valuing the firm’s stock. If the appropriate discount rate is 9 percent, what is the present value of the liability
9. (NPV, PI, and IRR calculations) Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,960,000, and the project would generate cash flows of $380,000 per year for six years. The appropriate discount rate is 4.0 percent.
a. Calculate the net present value.
b. Calculate the profitability index.
c. Calculate the internal rate of return.
d. Should this project be accepted? Why or why not?
10. Calculating rates of return) The common stock of Placo Enterprises had a market price of $8.34 on the day you purchased it just one year ago. During the past year, the stock had paid a dividend of $0.54 and closed at a price of $11.47. What rate of return did you earn on your investment in Placo’s stock? (Round to two decimal places.)
11. (Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.1 percent annual interest and matures in 15 years. Investors are willing to pay $948 for the bond and Temple faces a tax rate of 32 percent. What is Temple’s after-tax cost of debt on the bond?
12. (Cost of preferred stock) The preferred stock of Walter Industries Inc. currently sells for $35.67 a share and pays $3.49 in dividends annually. What is the firm’s cost of capital for the preferred stock?
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