STR_581_WEEK_4_CAPSTON
E_EXAM part 1
1. 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
2. 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?
1.11
3. 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 equity to 60 percent equity and use the debt
proceeds to pay a special dividend to shareholders, how much debt should they use?
$225
4. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in
inventory?
65.2
5. 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
6. 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
7. Process costing is used when:
the production process is continuous.
8. Horizontal analysis is a technique for evaluating a series of financial statement data over a
period of time:
to determine the amount and/or percentage increase or decrease that has taken place
9. The process of evaluating financial data that change under alternative courses of action is
called:
incremental analysis
, 10. The most important information needed to determine if companies can pay their current
obligations is the:
E_EXAM part 1
1. 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
2. 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?
1.11
3. 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 equity to 60 percent equity and use the debt
proceeds to pay a special dividend to shareholders, how much debt should they use?
$225
4. Gateway, Corp. has an inventory turnover of 5.6. What is the firm’s days’s sales in
inventory?
65.2
5. 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
6. 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
7. Process costing is used when:
the production process is continuous.
8. Horizontal analysis is a technique for evaluating a series of financial statement data over a
period of time:
to determine the amount and/or percentage increase or decrease that has taken place
9. The process of evaluating financial data that change under alternative courses of action is
called:
incremental analysis
, 10. The most important information needed to determine if companies can pay their current
obligations is the:
