midterm1_2010S_key

midterm1_2010S_key - MGMT 310, Spring 2010 Midterm #1 NAME:...

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Unformatted text preview: MGMT 310, Spring 2010 Midterm #1 NAME: Section # Name (no nicknames, please): Circle your Section #2 002 003 004 (1:30—2:45) (3:00—4:15) (4:30—5:45) 1. You are only allowed to have with you a pen/pencil and a calculator (no books, notes, computers, phones, etc). Extra scratch paper will be provided if you need it. You must have your own calculator (no sharing). 2. Round your answers to the nearest three decimal places, and write your final answer in the provided square(s). You must show your work, where applicable, to receive credit! 3. You have from 8:00 — 9:30 pm to complete the exam. There are 6 pages and 15 questions (plus one optional bonus question). Maximum possible score is 52.5 out of 50. True/False and Multiple Choice (1.5 points each / Total = 9 points) 1. Earnings management is when managers use their discretion to make True @ accounting choices that depict the true financial condition of the firm. 2. If net income is positive, then cash flow to shareholders must be positive. True Es; 3. Addition to Retained Earnings is the portion of net income that is not paid Qua False out as dividends. 4. Market value of shareholders’ equity can sometimes be negative. True @se) 5. One assumption/constraint in deriving the Internal Growth Rate is that the True False firm cannot issue any debt or equity. 6. If the firm purchases inventory with cash, then the Current Ratio... A) increases B) decreases @e same D) not enough info. 1 out of6 MGMT 310, Spring 2010 Midterm #1 NAME: Section # 7. Investment X promises to pay you $100 per year forever. The first payment will be made in three years (at F3). What is the present value of all future cash flows from this investment if the relevant annual discount rate is 10%? (4 points) Final Answer: :9 z 1000 W q; Px/(cho) -——-—————-/-/L w €39“qu 8. Starting five years from today (at time t = 5), you will make annual $1,000 deposits into your savings account. If your bank offers you an effective annual rate of 3%, then how much money will you have in your account at time t= 20? (4 points) Final Answer: 0 O 'O 0 \OO ‘00 \OD ' ( " \0 F—4——4——+——+_4__+_+*——w——fl___4 Otzswsc7‘""‘Z/o 4‘ WIN; 5’ tut rs: IOOO‘AUb) 37o) ’1 $IZS'Q71. [OZ . __] Wffi/ a—ms ‘°>/.os :9 FVCt‘ZO‘) 1 >< [.03Ha % $20,195. as! Amman w/rr EN = HXX>*A(Z0,S%3 — HXX>*/\04,3?o) (i=0) azargvvg 13.7:71 ’valoos‘zc 20utof6 :>F\/L€,u)) = H) {Lag , KNOX 1.03“? a; $20) ($13,890 / MGMT 310, Spring 2010 Midterm #1 NAME: Section # 9. You currently have no money, but you will receive $1,000 one year from today. Your bank pays you 5% annually on your savings deposits, and will lend you money at a rate of 10% annually. What is the maximum amount you can spend today (you are ok with spending nothing next year)? Assume that all given rates here are effective annual rates. (4 points) Final Answer: /.I A“: $7010“ lgCIVOCLO‘H 10. Your bank offers you a 4% APR compounded quarterly. What is the effective annual rate? (4 points) L1 L1 Final Answer: .0 i \ EAL: + :7“ «‘ OOHOED ’V OL (’75 “ 0"} 06 Q or. (4.050170 11. If the total debt ratio is 0.3 then what is the equity multiplier, NE? (4 points) Final Answer: “D...- :2. : A—.% 7 D 32A )flzfi 3A:— A z A .[L N E AID A_-3A V rI 3 out of6 MGMT 310, Spring 2010 Midterm #1 NAME: Section # Balance Sheet for Years Ending 2008 and 2009 Assets L0“) #9. Liabilities + Shareholders’ Equity w 1 D o’ 2008 2009 V") V 2008 2009 (’h’ , Total Debt: Current Assets 4,000 5,000 (9 bob Current Liabilities 2,000 2,500 3 O O O Long-Term Debt 10,000 15,000 18' O O 0 Fixed Assets 20,000 25,000 30: ODD Total SHE: —, 4,290 "7791'5 Common Stock 6,000 _ Retained Earnings 6,000 8,210 [02 3 7o 5 D o : TOTAL $24,000 $30,000 3E“ 00 TOTAL $ 24,000 $ 30,000 55’ 00 2009 Income Statement 0 Sales 20,000 1” 0% D Cost of Goods Sold 5,000 <7 0 O D General / admin. expenses 3,000 3 (7 O Depreciation 2,000 Z ‘4 0 Earnings before interest and taxes 10,000 I L :0 0 Interest paid (10% of LTD) 1,500 42.9.2.— Taxable Income 8,500 1 0 6.0 0 Taxes paid (35%) 2,975 ,jizli... Net Income $ 5,525 (9 % Z g 12. (Total = 3 points) What was the dividend payout ratio in 2009? Final Answer; A2€=AKE=ZUD O (0 12,10 QDFK:|' ggzgt .9 or 13. (Total = 12 points) For your 2010 Pro Formas, assume now that the dividend payout ratio is 70%. Sales are projected to increase by 20%. Cost of goods sold, general/admin. expenses, depreciation, current assets, and fixed assets will increase at the same rate as sales. The annual interest rate on long—term debt is 10%. Suppose that the firm is not allowed to issue any new long-term debt, and wants to maintain a constant current ratio. The firm can issue equity as a last resort. Provide the following based on your 2010 Pro Forma statements: 2010 Pro Forma. .. (3 points each) Current 3, O O O Long—Term I s: w 0 Total SHE z a 00 0 Net new ,.._. equity issued . 5 95w: 0810700‘ “77-51 37A£€ : 6&15‘ ~‘1‘T77.S T Zoflls’ :9 ¢€= 8110 * Lows—40167.? : 77‘123- £1130 77 mfflw 61’" m ' sHsz S' 4out of6 MGMT 310, Spring 2010 Midterm #1 NAME: Section # Answer questions 14 and 15 using the 2008/2009 financial statements provided on the previous page. 14. What was the net capital spending (i.e., net capital expenditures) for 2009? (3 points) Final Answer: Met CAPE/X 2 (EPA ‘V 5% $7, 000» ; €000 t 1000 = $ ’7 (>00 15. The 2009 financial statements reflect that the firm made $20,000 in sales with $30,000 in fixed assets. Suppose the firm had been operating at only 60% of fixed asset capacity. What would sales be at 80% capacity? (3 points) Final Answer: 20,000: €07“ PCS zseec. gee. 5 out of6 MGMT 310, Spring 2010 Midterm #1 NAME: Section # **(Optional) Bonus Question (2.5 points) Real spending refers to your inflation adjusted spending. That is, if the annual rate of inflation is 5%, then $1.00 today buys the same amount of goods as $1.05 next year. You are retiring today, and you currently have $200,000. You anticipate that, starting today, you will need to pull out money every year for the next 10 years (i.e., you need to pull out money at times t = 0, 1, 2, 3, ..., 10).Your bank will lend you money at a rate of 10% annually, and will pay you interest of 5% annually on your deposits. You want to spend as much as possible, keeping your real spending (i.e., inflation-adjusted spending) the same across periods. The current annual inflation rate is 3%. You may assume that all given rates here are effective annual rates . A) How much will you spend at time t = 0, and B) how much will you spend at time t = 10? Final Answer (Part A): imawwtb WLJQAHV. : W StPE/Mfl‘r‘kg V 932 ('10, 000 Final Answer (Part B): $24,,SS’1H7b ":7 >< ’xflfifigovlo 3W “‘0 1’? X(I.03>'O%$Zc2$’/.‘i7(o é'srew’ 67*“0 6 out of6 ...
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midterm1_2010S_key - MGMT 310, Spring 2010 Midterm #1 NAME:...

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