practiceexam1

# practiceexam1 - IMPORTANT THESE QUESTIONS ARE INTENDED FOR...

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IMPORTANT: THESE QUESTIONS ARE INTENDED FOR PRACTICE PURPOSES ONLY. YOUR ACTUAL EXAM WILL HAVE “SIMILAR” QUESTIONS BUT CERTAINLY NOT IDENTICAL ONES. EXPERIENCE INDICATES THAT IT IS NOT A GOOD IDEA JUST TO WORK ANSWER THESE QUESTIONS MULTIPLE TIMES AND EXPECT TO DO ADQUATELY ON THE ACTUAL EXAM. BEST OF LUCK ON THESE QUESTIONS AND THE ACTUAL EXAM!! --TERRY FIN 301 Practice Questions for Mid-Term 1 Exam page 1

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FIN 301 Practice Questions for Midterm 1 Exam 1. You start a business selling shoes to the local farmers. The first month you buy 57 pairs of shoes from the manufacturer for \$13.76/pair and then sell them for \$29.50/pair to the farmers. If you make all sales on credit (60 day terms) and all purchases with cash, what are your net income and cash flow for the first month (assuming you sell all of the shoes)? Net Income Cash flow a) \$1,681.50 \$897.18 b) (\$897.18) (\$784.32) c) \$1,207.18 \$1,681.50 d) \$897.18 (\$784.32) e) (\$784.32) \$897.18 2. As the discount rate increases without limit, the present value of the future cash inflows a) Gets larger without limit. b) Stays unchanged. c) Approaches zero. d) Gets smaller without limit, i.e., approaches minus infinity. e) Goes to e kn . 3. The key variables in the owner wealth maximization process are a) earnings per share and risk. b) cash flows and risk. c) earnings per share and share price. d) profits and risk. e) None of the above. 4. Kramer Corporation recently announced that its net income (EAT) was lower than last year. However, analysts estimate that the company's cash flow (CF) increased. What factors could explain this discrepancy? a) The company's depreciation expense increased. b) The company's interest expense declined. c) The company had an increase in its noncash revenues. d) Answers (a) and (b) are correct. e) Answers (b) and (c) are correct. FIN 301 Practice Questions for Mid-Term 1 Exam page 2
5. ____________ evidence of the existence of a problem or outstanding management performance is provided by ratio analysis. a) Conclusive b) Inconclusive c) Complete d) Definitive e) Goofy 6. Which of the following statements is not correct?: a) Debt securities provide cash flows in the form of interest and/or principal payments. b) Unlike secured debt, junior or subordinated debt does not have priority over common stock. c) Bonds typically have a fixed maturity date. d) The cost of having a bond rated by Moody’s or Standard & Poors is usually paid by the issuing corporation. e) Bills typically have shorter maturities than bonds. 7. HHH Inc.'s operating income (EBIT) is \$500,000. The company's tax rate is 40 percent, and its operating cash flow (OCF) is \$450,000. The company's interest expense is \$100,000. What is the company's cash flow? (Assume that depreciation is the only non-cash item in the firm's financial statements.) a) \$390,000 b) \$550,000 c) \$600,000 d) \$950,000 e) \$1,050,000 8. Which of the following statements, if any, are false ? a) According to the guiding principles of finance and all else equal, the more shareholder wealth that is

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## This note was uploaded on 10/19/2011 for the course FINANCE 301 taught by Professor Nixon during the Fall '11 term at Miami University.

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practiceexam1 - IMPORTANT THESE QUESTIONS ARE INTENDED FOR...

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