Questions for Finance Management Class, Questionnaire Example

Question 1. Johnson Inc. has just ended the calendar year making a sale in the amount of 10,000 of merchandise purchased during the year at a total cost of $7000. Although the firm paid in full for merchandise during the year, it has yet to collect at year end from customer. The net profit and cash flow from this sale for the year are:
a. $7000 and 3,0000 respectively
b. $3000 an$7000 respectively
c. $3000 and $7000 respectively
d. $3000 and $10,0000 respectively

Q2. NCO Corporation dad a net fixed assets of $2,000,000 at the end of 2006 and $1,8000,000 at end of 2005. In addition the firm had a depreciation expense of $200,000 during 2006 and $180,000 during 2005. Using this information, Nico’s net fixed asset investment for 2006 was
a. $400,000
b. $380,000
C. $0
d. $20,000

Q3. A corporation is considering expanding operations to meet growing demands. With the capital expansion, the current accounts are expected to change. Management expects cash to increase by $20,000, accounts receivable by $40,000 and inventories by $60,000. At the same time accounts payable will increase by $50,000,accruals by $10,000 and long term debt by $100,000. The change in networking capital is
a. a decrease of $40,000
b. a decrease of $ 120,000
c. An increase of $120,000
d. an increase of $60,000

Q4. A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset orginally cost $30,000 and was being depreciated under MACRAS using five year recovery period. the existing asset can be sold for $25,000 . The new asset will cost $75,000 and will also be depreciated under MACRAS using five year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is
a. $42,000
b. $54,240
c. $52,440
d. $50,000

Q5. A corporation is evaluating the relevant cash flow for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $15,000. The machine has an original purchase price of $80,000, installation cost of $20,000 and will be depreciated under the five year MACRS. Networking capital is expected to decline by $5000. The firm has a 40 percent tax rate on ordinary income and long term capital gain. The terminal cash flow is
a. $24,000
b. $14,000
c. $26,000
d. $16,000

Q.6 What is the NPV for the following project if its cost of capital is O percent and its initial after tax cost is $5,000,000 and it is expected to provide after tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4?
a. $371,764
b. 137,053
c.$1,700,000
d. None of the above

Q7. What is the IRR for the following project if its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in 2, $2,700,000 in year 3 and $2,300,000 in year 4?
a. 11.44%
b. 9.67%
c. 5.83%
d. None of the above

Q8. A corporation has $5,000,000 of 10 percent bonds and $3,000,000 of 12 percent preferred stock outstanding. The firm’s financial breakeven (assuming a 40 percent tax rate is
a. $860,000
b. $716,000
c. $1,4000,000
d. $1,100,000

Q9. At a quarterly meeting of Tangshan Mining Corporation, held on September 10th the directors declared a $1.00 per share dividend for the firm’s 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to
a. increase total assets by $100,000 and decrease stockholders equity by $100,000.
b.increase total assets by $100,000 and increase stockholders equity by $100,000
c. decrease total assets by $100,000 and decrease stockholders equity by $100,000.
d. decrease total assets by $100,000 and increase stockholders equity by $100,000

Q8. Tangshan Mining has common stock at par of $200,000 paid in capital in excess of par of $400,000 and retained earnings of $280,000. In states where the firms legal capital is defined as the par value of common stock the firm could pay out_____ in cash dividend without impairing its capital.
a. $200,000
b. $880,000
c. $600,000
d. $680,000

Q9. A firm has current after tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firms dividend payout ratio is ___ ?

Note to client: there is no correct answer here: the correct answer should be 40 percent. %400,000/ 1,000,000
a. 4.0 percent
b. 2.0 percent
c. 2.5 percent
d. 4.0 percent

Q10. Mr R owns 20,000 shares of ABC corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr R. owned 10 percent of the outstanding stock, which had a market vale of $200,000 or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is
a. $210,000
b. $200,000
c. $220,000
d. greater but cannot be determined.