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exam01_2011 - 1 FNCE 3010(Durham Fall 2011 Exam 1 Form A...

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1 FNCE 3010 (Durham). Fall 2011. Exam 1. Form A. Multiple choice (3 pts each) 1. All else equal, the internal growth rate increases when the: (a) retention ratio decreases. (b) dividend payout ratio increases. (c) net income decreases. (d) Solution: total assets decrease. (e) profit margin decreases. 2. Last year Aldrin Co. had negative operating cash flow, yet the amount of cash on its balance sheet increased. What could explain this? 3. Which of the following would not cause an increase in net working capital? 4. Harmeling Enterprises experienced a decline in operating cash flow. Which of the following definitely cannot help explain this decline? 5. Which of the following best describes free cash flow? (a) Solution: Free cash flow is the amount of cash flow available for distribution to all investors after all necessary investments in operating capital have been made. (b) Free cash flow is the amount of cash flow available for distribution to shareholders after all necessary investments in operating capital have been made. (c) Free cash flow is the net change in the cash account on the balance sheet. (d) Free cash flow is equal to net income plus depreciation. (e) Free cash flow is equal to the cash flow from non-taxable transactions.
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6. Stennett Corp.’s CFO has proposed that the company issue new debt and use the proceeds to buy back common stock. Which of the following are likely to occur if this proposal is adopted? (Assume that the proposal would have no effect on the company’s operating earnings.) (a) Return on assets (ROA) will decline. (b) The equity multiplier will decrease. (c) Taxes paid will decline. (d) None of the statements above is correct. (e) Solution: Statements a and c are correct.
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