Financial Management Exam Paper B

Financial Management Exam Paper B - What does this number...

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Financial Management Exam Paper B 1.Using Income Statements Given the following information for Soprano Pizza Co., calculate the depreciation expense: . 20 marksi sales =$29,000; costs =$13,000; addition to retained earnings = $4,500; dividends paid =$900; interest expense= $1,600; tax rate =35 percent. 2. Current Ratio What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive. i 20 marksi a. Inventory is purchased. b. A supplier is paid. c. A short-term bank loan is repaid. d. A long-term debt is paid off early. e. A customer pays off a credit account. f. Inventory is sold at cost. g. Inventory is sold for a profit. 3. Concerning NPV: i 20 marksi a. Describe how NPV is calculated and describe the information this measure provides about a sequence of cash flows. What is the NPV criterion decision rule? b. Why is NPV considered to be a superior method of evaluating the cash flows from a project? Suppose the NPV for a project’s cash flows is computed to be $2,500.
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Unformatted text preview: What does this number represent with respect to the firm’s shareholders? 4. Consider the following two mutually exclusive projects: Whichever project you choose, if any, you require a 15 percent return on your investment. i 20 marksi Year Cash Flow (A) Cash Flow (B) . $210,000 . $21,000 1 15,000 11,000 2 30,000 9,000 3 30,000 11,000 4 370,000 9,000 a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the discounted payback criterion, which investments will you choose? Why? c. If you apply the NPV criterion, which investment will you choose? Why? d. If you apply the profitability index criterion, which investment will you choose? Why? 5. Fama’s Llamas has a weighted average cost of capital of 11.5 percent. The company’s cost of equity is 16 percent and its cost of debt is 8.5 percent. The tax rate is 35 percent. What is Fama’s target debt-equity ratio? i 20 marksi...
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This note was uploaded on 05/26/2010 for the course BUSINESS A 139 taught by Professor Cheng during the Spring '09 term at 東京大学.

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Financial Management Exam Paper B - What does this number...

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