90.2K

Verified Solution

Link Copied!

QUIZ 9 chptrs 17 & 18

Question 1

The capital structure of a company refers to ________.

whether the company purchases assets or liabilities with its equity

the proportion of debt and equity the company uses in financing is assets

the ability of the company to use its assets to generate equity for the owners

whether the company uses short-term assets or long-term assets to create its product

Question 2

Which of the following should be used when calculating the weights for a companys capital structure?

Book values

Current market values

Historic accounting values

Par and face values

Question 3

Sandage Auto Parts has debt outstanding with a market value of $2 million. The companys common stock has a book value of $3 million and a market value of $8 million. What weight is equity in Sandages capital structure?

11%

20%

60%

80%

Question 4

What does the book value of debt and equity refer to?

The par values of common stock and the maturity values of debt

What a willing buyer and a willing seller will exchange the asset for

The values at which they are traded in the financial markets

The values at which debt and equity are carried on a balance sheet

Question 5

What does the market value of debt and equity refer to?

The values at which debt and equity are traded in the financial markets

The values at which debt and equity are carried on a balance sheet

The par values of common stock and the maturity values of debt

The intrinsic values of debt and equity

Question 6

Applying the capital asset pricing model (CAPM) requires that one find appropriate inputs for the risk-free rate, the market rate of return (and market risk premium), and beta. Why is beta, in particular, difficult to pin down?

The major internet sources of financial data are notoriously unreliable.

People dont have ready access to financial data and wont have any source for this information in the near future.

Hackers have been known to manipulate financial data for their own purposes.

People must rely on historical information, and they have to assume that historical relationships continue into the future.

Question 7

An asset with a beta of 1.0 will do what?

Be less sensitive to changes in the market rate of return

Be more sensitive to changes in the market rate of return

Generate a rate of return that is equal to that of the market return

Yield a rate of return that is superior to that of the market return

Question at position 8

A share of Unicorn common stock is trading at $22.00 per share. It has a book value of $16.00 per share and generates earnings per share of $1.20. It has a beta of 1.2, the risk-free rate of return as determined by the 10-year US Treasury bond yield is 2% percent, and the market generates a rate of return of 10 percent. What is the expected rate of return on this asset? (Apply the capital asset pricing model)

9.6 percent

11.6 percent

10 percent

$1.20

What is financial risk?

The risk that investors must take on when they invest in stock

The risk that is brought on by increasing leverage or the use of debt

The risk that a firm will default on its debt

The inherent riskiness of a business due to competitive and environmental factors

Question 10

A optimal capital structure is defined as what?

The capital structure that brings the weighted average cost of capital down to its lowest level

The capital structure that reduces the chances of the company defaulting

The capital structure that employs the least debt possible

The capital structure that employs the most debt possible

Question 11

What key element of the income statement is used as a necessary first step in preparing a financial forecast.

Cost of goods sold forecast

Gross margin forecast

Sales forecast

Fixed costs forecast

Question 12

Jamal wants to forecast sales for the first quarter of next year. His first assumption is that sales will likely grow by 3% in the coming year. If Jamals monthly sales were $10,000, $9,000, and $11,000 in the first quarter of this year, what should his sales forecast be for the first quarter of next year?

$30,000

$30,900

$33,000

$33,500

Question 13

Phi Co. projects sales of $1,535,000 for the year, which will entirely be on account. If its accounts receivable turnover ratio is 10 times, how much would it project to have in accounts receivable at the end of the year?

$1,535,000

$153,500

$160,900

$180,300

Question at 14

Alpha Company is projecting its sales for the next three months and has generated the following inputs from its sales manager.

	April	May	June
Units sold	5,000	5,300	4,800
Unit sales price	$10.00	$9.50	$10.25

What are its projected sales for the month of May?

$53,200

$65,000

$48,200

$50,350

Question 15

Beta Company has the following sales and gross profit margin projections for the next three months.

	April	May	June
Sales projection	$55,000	$65,300	$44,800
Gross profit margin	42%	44%	43%

What is its projected cost of goods sold for the month of May?

$65,300

$28,732

$36,568

$25,090

Question 16

In determining cash from operations, why are depreciation and amortization expenses added back to net income?

They are net cash used in investing activities.

They are an indicator of whether fixed assets expenditures are being replenished.

They are typically insignificant.

They are noncash accounting charges.

Question 17

Beta Company has the following sales projections for the next three months. Historically it collects 75 percent of its sales in the month when the sale is made and 25 percent in the month after.

	April	May	June
Sales projection	$55,000	$65,300	$44,800

How much are its cash collections in the month of May?

$48,975

$62,725

$55,000

$60,175

Question 18

Dividends are cash outflows that are factored into which segment of a cash flow statement?

Cash from financing activities

Ending cash balances

Cash from operations

Cash for investing activities

Question 19

In the cash forecast, if cash inflows exceed cash outflows, what does this create?

A cash surplus

A cash deficit

A long-term liability

An undeclared dividend

Question 20

When completing a first pass at a forecasted income statement, which type of costs are assumed to be tied directly to sales?

Fixed costs

Period costs

Variable costs

Sunk costs

Answer & Explanation Solved by verified expert

See Answer