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Unformatted text preview: 1 FNCE 3010 (Durham). Fall 2007. Exam 1. Form A. Multiple choice (3 pts each) 1. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn. (a) mean (b) residual (c) total (d) average (e) Solution: marginal 2. Liquidity is: (a) equal to net working capital. (b) another term for current assets. (c) equal to the market value of a firms total assets minus its current liabilities. (d) Solution: valuable to a firm even though holding liquid assets is not very profitable. (e) generally associated with intangible assets. 3. Which of the following accounts are included in shareholders equity? I. retained earnings II. patents and copyrights III. paid-in surplus IV. notes payable (a) I and II only (b) II and IV only (c) I and IV only (d) II and III only (e) Solution: I and III only 4. Net capital spending: (a) is equal to ending fixed assets minus beginning fixed assets. (b) Solution: is equal to zero if the decrease in the fixed assets account is equal to the depreciation expense. (c) reflects the net changes in total assets over a stated period of time. (d) is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. (e) is equal to the change in the inventory balance for the period. 5. Cash flow to stockholders must be positive when: (a) Solution: dividends paid exceed the net new equity raised. (b) the net sale of common stock exceeds the amount of dividends paid. (c) no income is distributed but new shares of stock are sold. (d) both the cash flow from assets and the cash flow to creditors are negative. (e) both the cash flow from assets and the cash flow to creditors are positive. 1 6. The internal growth rate of a firm is best described as the: (a) minimum growth rate achievable if the firm does not pay out any cash dividends. (b) minimum growth rate achievable if the firm maintains a constant equity multiplier. (c) Solution: maximum growth rate achievable without external financing of any kind. (d) maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ratio. (e) maximum growth rate achievable without any limits on the level of debt financing. 7. Alpha and Beta are two firms that are equal in every way except for their dividend payout ratios. Alpha has a 30 percent payout ratio while Beta has a 40 percent payout ratio. Given this difference,: (a) Alphas profit margin next year will exceed the Betas profit margin. (b) Alpha and Beta will continue to grow at the same rate over the next five years assuming neither firm utilizes any external financing. (c) Alphas plowback ratio is less than Betas plowback ratio....
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