**Week 8 : Final Week – Final Exam **

Time Remaining:

Page: 1 2

Final Exam Page 1

Question 1. 1. (TCO A) Which of the following statements is NOT correct? (Points : 5)

Question 2. 2. (TCO F) Which of the following statements is correct? (Points : 5)

Question 3. 3. (TCO D) The Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?

Question 4. 4. (TCO G) The Chadmark Corporation’s budgeted monthly sales are $3,000. In the first month, 40% of its customers pay and take the 2% discount.

The remaining 60% pay in the month following the sale and don’t receive a discount.

Chadmark’s bad debts are very small and are excluded from this analysis. Purchases for next month’s sales are constant each month at $1,500.

Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month’s cash budget with the information given.

What is the average cash gain or (loss) during a typical month for the Chadmark Corporation?

(Points : 20)

Question 5. 5. (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year’s sales = S0 $350 Last year’s accounts payable $40

Sales growth rate = g 30% Last year’s notes payable $50

Last year’s total assets = A0* $500 Last year’s accruals $30

Last year’s profit margin = PM 5% Target payout ratio 60%

a. $102.8

b. $108.2

c. $113.9

d. $119.9

e. $125.9 (Points : 30)

Question 1. 1. (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?

Average inventory =

Annual sales =

Annual cost of goods sold =

Average accounts receivable =

Average accounts payable = $75,000

$600,000

$360,000

$160,000

$25,000

a. 120.6 days

b. 126.9 days

c. 133.6 days

d. 140.6 days

e. 148.0 days (Points : 30)

Question 2. 2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)

a. 20.11%

b. 21.17%

c. 22.28%

d. 23.45%

e. 24.63%

(Points : 30)

Question 3. 3. (TCO E) Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

a. 7.16%

b. 7.54%

c. 7.93%

d. 8.35%

e. 8.79%

(Points : 30)

Question 4. 4. (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).

Year: 1 2

Free cash flow: -$50 $100

a. $1,456

b. $1,529

c. $1,606

d. $1,686

e. $1,770

(Points : 35)

Question 5. 5. (TCO G) Based on the corporate valuation model, Hunsader’s value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock’s price per share?

a. $13.72

b. $14.44

c. $15.20

d. $16.00

e. $16.80

(Points : 35)