Download Financial Concepts and Applications in Company A and Company B and more Exams Mathematics in PDF only on Docsity! higher financing costs • liquidity • Only Company B • Both Company A and Company B • Only Company A • Neither Company A nor Company B FIN 100 Sophia Final Milestone with Answers 2024 You passed this Milestone 17 questions were answered correctly. 8 questions were answered incorrectly. 1 Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 7%? CONCEPT The WACC 2 Preparing a cash flow forecast helps a company to avoid . • opportunity costs • • Company A Compan Market Value of Equity $700,000 $900,000 Market Value of Debt $300,000 $200,000 Cost of Equity 8% 10% Cost of Debt 1.5% 3% Tax Rate 30% 25% net losses CONCEPT Building a Cash Budget 3 What must be forecasted first in order to prepare the pro forma income statement? • Cost of goods sold • Sales • Expenses • Net income CONCEPT Forecasting the Income Statement 4 Select the statement that correctly explains the relationship between interest rates and present or future value. • Assuming other variables stay the same, if the interest rate decreases, the future value of an investment increases. • Assuming other variables stay the same, if the interest rate decreases, the present value of an investment decreases. • The interest rate and the future value of an investment are inversely related. • Assuming other variables stay the same, if the interest rate increases, the future value of an investment increases. CONCEPT Additional Detail on Present and Future Values Calculate a company's total leverage given the following information: • Net income = $80,000 • Revenue = $120,000 • Variable costs = $25,000 • 1.19 • • 72.20% • 26.80% • incalculable without equity data • incalculable without net income data 165 CONCEPT Cash Conversion Cycle 10 If operating income is $155,000 and total revenue is $577,000, then the operating margin is . CONCEPT Profitability Ratios 11 A company invests $600,000 in a project with the following net cash flows: • Year 1: $130,000 • Year 2: $113,000 • Year 3: $98,000 • Year 4: $92,000 • Year 5: $89,000 • Year 6: $95,000 In what year does payback occur? • Year 6 • After Year 6 • Year 4 • Year 5 • $28.33 • $30.32 • $22.74 • $29.47 • Preferred stock: may be purchased by converting common stock shares into preferred ones • Common stock: holders can mail in their votes if they can't attend a company's annual general meeting • Common stock: may come with an additional dividend provision attached to company financial goals • Preferred stock: is a less stable investment than common stock with fewer rights of ownership CONCEPT The Payback Method 12 Determine the value of a stock with the following variables using the constant growth model: • Current annual dividend: $0.85 per share • Required return rate: 7% • Constant growth rate: 4% CONCEPT Stock Valuation 13 Select the pairing that is correctly matched. • How much money do we have? • How many people do we need? • Where are we going? • Who are we competing with? • $12.66% • 15% • 24% • 15.33% • CONCEPT Rules and Rights of Common and Preferred Stock 14 Strategic planning answers the question " " CONCEPT Financial Forecasting 15 Using the following variables, calculate an organization's cost of preferred stock. • Dpref: $4 • Ppref: $30 • g: 2% CONCEPT Valuing Different Costs 16 Over the last six years, prices and investing activity in the bond market rose for two years and then fell consistently for the next four years. How is this market classified? • To make long-term capital investment decisions • To balance the cash conversion cycle against maximum revenue • To eliminate the risk of customers defaulting on credit • To minimize liquidity and maximize profitability • decrease the length of time for a payment to clear the bank • set aside cash for future payments • increase the length of the disbursement cycle CONCEPT Cash Management 22 Which of the following is a goal of working capital management? CONCEPT Working Capital Financing 23 Lee purchased stock with an initial share price of $32, and sold it when the share price was $50. While he owned the stock, he earned $2 in dividends. What was his total percentage return on the investment? • 56.25% • 62.50% • 36.00% • 40.00% • IRR • NPV • APY • APR • B • D • A • C CONCEPT Understanding Returns 24 In calculating the yield of an investment, what is EAR equivalent to? CONCEPT Yield 25 Consider what you have learned about valuing bonds. • A: Coupon rate = 3.5%, YTM = 4% • B: Coupon rate = 3.2%, YTM = 3.2% • C: Coupon rate = 2.8%, YTM = 3.5% • D: Coupon rate = 4%, YTM = 3.7% Which of the bonds is selling at a premium? CONCEPT FIN 100 Sophia Final Milestone with Answers 2024
