Question 1
Your uncle’s retirement portfolio consists of $100,000 in stocks yielding an average return of 7%, $300,000 in mutual funds at 6% average and $100,000 in bonds at 2% average. His portfolio return is 5%.
True
False

Question 2
Your uncle’s retirement portfolio consists of $100,000 in stocks yielding an average return of 7%, $300,000 in mutual funds at 6% average and $100,000 in bonds at 2% average.
If he makes an annual $4000 contribution to the account for the next 20 years at a guaranteed 6% return, he will have $1,750,710 in his account. T or F Note: BAII plus negative payment and PV
True
False

Question 3
Regarding your uncle's retirement portfolio from the previous questions, 20 years has gone by (my how time flies). He missed a few annual payments so his investments now total $1,650,000. How much can your uncle withdraw per year for the next 30 years and have a 0 balance at the end of year 30? The expected return will now be 5.5% Answer: $119,870. T or F
True
False

Question 4
Blue Dog Cafe has sales of $1,600,000 COGS 40% of sales, operating expenses $460,000, interest expense $20,000, depreciation expense $48,000. Tax rate 40%. Dividend payout ratio is 60%. They expect to grow at a rate of 15%. Keep interest and depreciation expense at the current amount as they will not increase. Their balance sheet has the below amounts:
Cash $40,000 AR 20,000 Inventory 16,000 Fixed assets $2,200,000
AP 18,000 Notes Payable 20,000 Accruals 23,000 Common stock (stays the same) 800,000 Retained earnings $204,000.
1. What is their expected retained earnings for this next year?
2. If they are at capacity and have a need for fixed assets, what will their external funds requirement (AFN) be?
3. List two ways how they might go about obtaining those funds needed
4. If they are at 80% capacity, do they have an external funds requirement now? Yes or no.

Question 5
Market value of the company now is $6 million and $1 million needs to be raised to finance an expansion. Current and optimal capital structure is 50% debt 50% equity. Their current loan is stated at 5%. Any new loans would be at a stated 5.5% rate. Their common stock is trading at $20 per share. The last dividend paid was $.40. Growth rate is 8%. Tax rate 40%.
How much of the expansion will be financed with a loan?
a. $500,000
b. $1,000,000
c. 0
d. $250,000

Question 6
Market value of the company now is $6 million and $1 million needs to be raised to finance an expansion. Current and optimal capital structure is 50% debt 50% equity. Their current loan is stated at 5%. Any new loans would be at a stated 5.5% rate. Their common stock is trading at $20 per share. The last dividend paid was $.40. Growth rate is 8%. Tax rate 40%.
What is their cost of debt?
a. 5%
b. 3%
c. 5.25%
d. 8%

Question 7
Market value of the company now is $6 million and $1 million needs to be raised to finance an expansion. Current and optimal capital structure is 50% debt 50% equity. Their current loan is stated at 5%. Any new loans would be at a stated 5.5% rate. Their common stock is trading at $20 per share. The last dividend paid was $.40. Growth rate is 8%. Tax rate 40%.
What is their present (current) WACC?
a. 6.58%
b. 7.58%
c. 10.33%
d. 10.08

Question 8
Market value of the company now is $6 million and $1 million needs to be raised to finance an expansion. Current and optimal capital structure is 50% debt 50% equity. Their current loan is stated at 5%. Any new loans would be at a stated 5.5% rate. Their common stock is trading at $20 per share. The last dividend paid was $.40. Growth rate is 8%. Tax rate 40%.
The new stock expects to sell for $19.40 plus there will be $.40 in flotation costs. What will be the new WACC?
a. 5.5%
b. 8.13%
c. 6.80%
d. 6.61%

Question 9
Cumulative problem 10 questions. RWB Co. has sales of $2,000,000. COGS is 60% of sales. Operating expenses are $350,000, interest expense $20,000, depreciation $30,000. Tax rate 40%. Construct their income statement and answer the following:
Net cash flow is?
a. 240,000
b. 264,000
c. 270,000
d. 390,000

Question 10
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. Construct their income statement and answer the below.
Operating profit margin is??
a. 60%
b. 20%
c. 22.5%
d. 14%

Question 11
Operating profit margin is best described as...
a. earnings before interest and tax (EBIT) in relation to sales
b. cost of goods sold in relation to sales
c. reflective of interest paid
d. not affected by changes in sales

Question 12
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. Construct their income statement and answer the below.
Net profit margin is?
a. 11.7%
b. 13.5%
c. 12%
d. 9.2%

Question 13
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. Construct their income statement and answer the below.
They have a 50-50 target capital structure of debt/equity. Their stated loan rate is 6% and rs = 12%. What is their WACC?
a. 18%
b. 9%
c. 9.6%
d. 7.8%

Question 14
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. Construct their income statement and answer the below.
They have a 50-50 target capital structure of debt/equity. Their stated loan rate is 6% and rs = 12%. They are analyzing if they should change to 70-30 debt/equity capital structure. What would their WACC be with the change?
a. 6.12%
b. 4.32%
c. 12%
d. 7.8%

Question 15
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%.
They have a 50-50 target capital structure of debt/equity. Their stated loan rate is 6% and rs = 12%. They had 100,000 shares of common stock outstanding. What is their EPS?
a. 1.40
b. .94
c. 2.00
d. 2.40

Question 16
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%.
They have a 50-50 target capital structure of debt/equity. Their stated loan rate is 6% and rs = 12%. What is the current dividend yield if their current stock price P0 is $50. Take to the tenth.
a. 1.9%
b. 4.8%
c. 2.5%
d. 3.9%

Question 17
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. 50-50 target capital structure. They expect sales to increase by 10% with interest and depreciation expense the only expenses staying the same. What is their anticipated dividend payout?

Question 18
RWB Co. has sales of $2,000,000 COGS 60% of sales, operating expenses $350,000, interest expense $20,000 depreciation $30,000. Tax 40%. 50-50 target capital structure. They expect sales to increase by 10% with interest and depreciation expense staying the same. If they needed $55,000 of additional funds for current assets (spontaneous assets) to support the 10% growth, had $20,000 in spontaneous current liabilities, using the AFN or external funds requirement formula and no need for an increase in fixed assets they will have enough funds in retained earning to support that growth.
True
False

Question 19
You are analyzing 2 projects. Details are as follows:
Brazil expansion ii $200,000 Probability Return
Best 0.2 0.17
Most likely 0.6 0.1
Worst 0.2 0.03

Costa Rica expansion ii $250,000 Probability Exp. Return
Best 0.2 0.16
Most likely 0.6 0.1
Worst 0.2 0.04
What is the expected return for each option?

Just using information given, which has the highest risk?
List 2 other factors other than expected return you might use in considering which is the best choice for the company?

Question 20
Green Co. announces a 3:1 stock split. Share price is $240, number of shares outstanding is 2,400,000, dividend is $4.20, EPS is $5.40. How many shares of stock will there be after the split? What will be the price per share?
a. 2,400,000/240
b. 7,200,000/80
c. 800,000/$80
d. 0/0

Question 21
Green Co. announces a 3:1 stock split. Share price is $240, number of shares outstanding is 2,400,000, dividend is $4.20, EPS is $5.40. What will be the new DPS? What is the new market value?
a. $1.40/$192,000,000
b. $1.40/$576,000,000
c. $2.10/$576,000,000
d. $1.80/$576,000,000

Question 23
What is the breakeven in units for a company with $6 million in sales, $2.4 million in fixed costs, a selling price of $1,300 per unit and variable costs of $700 per unit?
Does this mean their net income is zero?
a. 4000, no
b. 4000, yes
c. 10,000 no
d. 10,000 yes

Question 24
ABC Company has an inventory conversion period of 75 days, receivables collection period of 30 days, and payables deferral period of 30 days. What is the cash conversion cycle?
a. 135 days
b. 60 days
c. 75 days
d. 105 days

Question 25
ABC Co. has an inventory conversion period of 75 days, receivables collection period of 30 days, and payables deferral period of 30 days. Annual sales are $4,562,500. COGS is $2,920,000. How much is in their inventory account?
a. $382,560
b. $240,000
c. $937,500
d. $600,000

Question 26
ABC Co. has an inventory conversion period of 75 days, receivables collection period of 30 days, and payables deferral period of 30 days. Annual sales are $4,562,500. COGS $2,920,000. How many times per year is inventory turned over?
a. 4.87x
b. 34.25x
c. 75x
d. 12.17x

Question 27
ABC Co. has an inventory conversion period of 75 days, receivables collection period of 30 days, and payables deferral period of 30 days. Annual sales are $4,562,500. COGS is $2,920,000 What is their NOWC?
a. $465,000
b. $1,358,500
c. $735,000
d. $975,000

Question 28
ABC Co. has an inventory conversion period of 75 days, receivables collection period of 30 days, and payables deferral period of 30 days. Annual sales are $4,562,500. COGS is $2,920,000.
What is the best suggestion to help them turnover inventory faster.
a. Hire a tax consultant
b. Make sure invoices are sent in a timely manner
c. Instead of ordering materials once per month order twice per month.
d. Sell more

Question 29
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax.
What is the initial investment?
a. 190,000
b. 200,000
c. 220,000
d. 180,000

Question 30
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax.
What is the project net cash flow (OCF) for year 2?
a. 88,900
b. 90,000
c. 660
d. 89,560

Question 31
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax.
What is the terminal cash flow?
a. 20,000
b. 5,180
c. 17,928
d. 16,400

Question 32
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax.
If cost of capital is 8%, what is the NPV?
a. (1,316)
b. 2,102
c. 5,583
d. 60,000

Question 33
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax. 8% cost capital.
What is the IRR?
a. 10.51%
b. 6.42%
c. 9.39%
d. 8.57%

Question 34
XYZ Co. is evaluating the purchase of a new machine that is $200,000 installed with no NWC change. They plan to sell the machine at the end of 3 years for $20,000. MACRS 3 year. With the more efficient machine, labor savings per year are expected to be $70,000, $90,000, $80,000 respectively. 40% tax. 8% cost capital.
What is the discounted payback?
a. 2.97 years
b. .97 years
c. 2.54 years
d. 2.97 months

Question 35
Your assistant has just given you some data on a potential option of working cooperatively with another company rather than purchasing the $200,000 new equipment. The details of this option are: initial investment $120,000, operating cash flows years 1-3 of $47,000, 49,000, 52,000 respectively. NOTE these OCF numbers already take into account depreciation effect and terminal cash flow for this cooperative agreement so there is no need to calculate further. Cost of capital for this project is 7.5%.
What is the NPV for the new alternative?
a. 4,515
b. 7,980
c. 2,210
d. (3,630)

Question 36
Your assistant has just given you some data on a potential option of working cooperatively with another company rather than purchasing the $200,000 new equipment. The details of this option are: initial investment $120,000, operating cash flows years 1-3 of $47,000, 49,000, 52,000 respectively. NOTE these OCF numbers already take into account depreciation effect and terminal cash flow for this cooperative agreement so there is no need to calculate further. Cost of capital for this project is 7.5%.
Using just the financial analysis with a mutually exclusive outlook should they choose to purchase the new equipment or work cooperatively with another company?
a. work with other company
b. purchase new equipment
c. do neither
d. do both

Question 37
Your assistant has just given you some data on a potential option of working cooperatively with another company rather than purchasing the $200,000 new equipment. The details of this option are: initial investment $120,000, operating cash flows years 1-3 of $47,000, 49,000, 52,000 respectively. NOTE these OCF numbers already take into account depreciation effect and terminal cash flow for this cooperative agreement so there is no need to calculate further. Cost of capital for this project is 7.5%.
The manufacturer of the new equipment has just come forward with a financing option that lowers the cost of capital on the machine purchase to 7% (instead of the original 8%). What is the new NPV and IRR based on this change?

Question 39
You are given 2 choices and a budget of $50,000. WACC 8%. Determine which you would choose using the below.
Choice 1(expansion) ii $50,000 Choice 2(efficiency)ii       40,000
Net OCF so no need to calculate anything-these are net
yr 1          15,000       12,000
yr 2          30,000       24,000
yr 3          15,000       12,000

Choice 1 has a NPV and IRR of [ fill in ].
Choice 2 has a NPV and IRR of (fill in ).
I would choose option ____ because….fill in with 20 words or less.

Question 1 Your uncle’s retirement portfolio consists of $100,000...