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STR 581 Capstone Final

Examination Part 2
Q1. Internal reports that review the actual impact of decisions are
prepared by:
the controller
department heads
factory workers
management accountants

Q2. Horizontal analysis is also known as:


trend analysis
vertical analysis
linear analysis
common size analysis

Q3. Which of the following is an advantage of corporations relative


to partnerships and sole proprietorships?

most common form of organization


reduced legal liability for investors
lower taxes
harder to transfer ownership

Q4. Serox stock was selling for $20 two years ago. The
stock sold for $25 one year ago, and it is currently selling
for $28. Serox pays a $1.10 dividend per year. What was
the rate of return for owning Serox in the most recent year?
(Round to the nearest percent.)
32%
16%
12%
40%

Q5. External financing needed: Jockey Company has total assets


worth $4,417,665. At year-end it will have net income of $2,771,342
and pay out 60 percent as dividends. If the firm wants no external
financing, what is the growth rate it can support?
30.3%
27.3%

32.9%
25.1%

Q6. An unrealistic budget is more likely to result when it:


has been developed by all levels of management.
has been developed in a top down fashion.
has been developed in a bottom up fashion.
is developed with performance appraisal usages in mind.

Q7. Which of the following financial statements is


concerned with the company at a point in time?
balance sheet
retained earnings statement
statement of cash flows
income statement

Q8. Next year Jenkins Traders will pay a dividend of $3.00. It


expects to increase its dividend by $0.25 in each of the following
three years. If their required rate of return if 14 percent, what is the
present value of their dividends over the next four years?
$12.50
$11.63
$9.72
$13.50

Q9. An activity that has a direct cause-effect relationship with the


resources consumed is a(n):
product activity
cost driver
cost pool
overhead rate

Q10. The major element in budgetary control is:


the approval of the budget by the stockholders
the valuation of inventories

the preparation of long-term plans


the comparison of actual results with planned objectives.

Q11. Tule Time 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?
0.11
1.11
0.90
1.90

Q12. How firms estimate their cost of capital: The WACC for a firm
is 13.00 percent. You know that the firms cost of debt capital is 10
percent and the cost of equity capital is 20% What proportion of the
firm is financed with debt?
70%
50%
33%
30%

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STR 581 Capstone Final Examination Part

2
Q13. The most important information needed to determine
if companies can pay their current obligations is the:
relationship between current assets and current liabilities
relationship between short-term and long-term liabilities
projected net income for next year
net income for this year

Q14. Process costing is used when:


dissimilar products are involved
production is aimed at fulfilling a specific customer order.
the production process is continuous.
costs are to be assigned to specific jobs.

Q15. A cost which remains constant per unit at various levels of


activity is a:
fixed cost
mixed cost

manufacturing cost
variable cost
Q16.The group of users of accounting information charged with
achieving the goals of the business is its:
investors
auditors
creditors
managers
Q17. 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
$2,303,010
$1,844,022
$2,123,612
Q18. The cash conversion cycle?
begins when the firm invests cash to purchase the raw materials
that would be used to produce the goods that the firm
manufactures.

estimates how long it takes on average for the firm to collect its
outstanding accounts receivables balance.
begins when the firm uses its cash to purchase raw materials and
ends when the firm collects cash payments on its credit
sales.
shows how long the firm keeps its inventory before selling it.

Q19. Ajax Corp. is expecting the following cash flows - $79,000,


$112,000, $164,000, $84,000, and $242,000 over the next five years.
If the companys opportunity cost is 15 percent, what is the present
value of these cash flows? (Round to the nearest dollar.)
$480,906
$429,560
$414,322
$477,235
Q20. Jack Robbins is saving for a new car. He needs to
have $21,000 for the car in three years. How much will he
have to invest today in an account paying 8 percent
annually to achieve his target? (Round to nearest
dollar)
$26,454
$19,444
$22,680

$16,670
Q21. Which of the following presents a summary of changes in a
firms balance sheet from the beginning of an accounting period to
the end of that accounting period?
the statement of net worth
the statement of cash flows
the statement of working capital
the statement of retained earnings
Q22. 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
$600
$375
$321
Q23. Horizontal analysis is a technique for evaluating a
series of financial statement data over a period of time:

that has been arranged from the highest number to the lowest
number.
to determine the amount and/or percentage increase or decrease
that has taken place.
to determine which items are in error.
that has been arranged from the lowest number to the highest
number.
Q24. Jayadev Athreya has started his first job. He will invest $5,000
at the end of each year for the next 45 years in a fund that will earn
a return of 10 percent. How much will Jayadev have at the end of
45 years?
$2,667,904
$5,233,442
$1,745,600
$3,594,524
Q25. Turnbull Corp. had an EBIT of $247 million in the last fiscal
year. Its depreciation and amortization expenses amounted to $84
million. The firm has 135 million shares outstanding and a share
price of $12.80. A competing firm that is very similar to Turnbull
has an enterprise value/EBITDA multiple of 5.40.
What is the enterprise value of Turnbull Corp.? Round to the
nearest million dollars.
$1,344 million

$453.6 million
$1,315 million
$1,787 million
Q26. Firms that achieve higher growth rates without
seeking external financing:
Have a low plowback ratio
are highly leveraged
have less equity and/or are able to generate high net income
leading to a high ROE.
None of these

Q27. In a process cost system, product costs are summarized:


on job cost sheets.
when the products are sold.
after each unit is produced.
on production cost reports.

Q28. The convention of consistency refers to consistent use of


accounting principles:
within industries

among accounting periods


throughout the accounting period
among firms

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STR 581 Capstone Final Examination Part

2
Q29. If a companys weighted average cost of capital is less
than the required return on equity, then the firm:
is financed with more than 50% debt
is perceived to be safe
partnership
has debt in its capital structure

Q30. Your firm has an equity multiplier of 2.47. What is the debtto-equity ratio?
0
1.74
0.60

1.47

Q31. The accumulation of accounting data on the basis of the


individual manager who has the authority to make day-to-day
decisions about activities in an area is called:
master budgeting
static reporting
responsibility accounting
flexible accounting

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STR 581 Capstone Final Examination Part

2
Q32. Regatta, Inc., has six-year bonds outstanding that pay
a 8.25 percent coupon rate. Investors buying the bond today
can expect to earn a yield to maturity of 6.875 percent.
What should the companys bonds be priced at today?
Assume annual coupon payments. (Round to the nearest dollar.)
$1014
$972
$923
$1,066

Q33. Variance reports are:


internal reports for management
SEC financial reports
external financial reports
all of these

Q34. The break-even point is where:


contribution margin equals total fixed costs.
total sales equal total variable costs.
total sales equal total fixed costs.
total variable costs equal total fixed costs.

STR 581 Capstone Final


Examination Part 2
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Q35. When a company assigns the costs of direct materials, direct


labor, and both variable and fixed manufacturing overhead to
products, that company is using:
operations costing
product costing
absorption costing
variable costing

Q36. Which of the following is considered a hybrid organizational


form?
sole proprietorship
partnership
limited liability partnership
corporation

Q37. Gateway, Corp. has an inventory turnover of 5.6. What is the


firms dayss sales in inventory?
57.9
61.7
65.2

64.3

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STR 581 Capstone Final Examination Part

2
Q38. The process of evaluating financial data that change
under alternative courses of action is called:
incremental analysis
contribution margin analysis
cost-benefit analysis
double entry analysis

Q39. What decision criteria should managers use in selecting


projects when there is not enough capital to invest in all available
positive NPV projects?
the modified internal rate of return
the profitability index
the discounted payback
the internal rate of return

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