2011 Fall Term
September 26, 2011
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FIN 310 Mid-term Quiz
Please select the correct answer.
1) At its most basic level, the function of financial intermediaries is to _.
A) track and report interest rates
B) move money from lenders to borrowers and back again
C) report all financial transac
CHAPTER 11 Notes
Cost of Debt- (Rd) the rate firms have to pay when they borrow from lenders
Cost of Equity- (Re) rate of return that investors are demanding or expecting to make on money invested
-SML or Dividend Growth Model
Cost of Capital- cost of eac
Solutions for CH. 13: WORKING CAPITAL MANAGEMENT
(1) Using the below information provided for Emphasis Inc., what is the length of the production cycle for
Emphasis Inc.: Selected Balance
Solutions for CH. 15: RAISING CAPITAL
(1) List and define the five active phases of a business life cycle.
SOLUTION: The five active phases are: (i) infancy or the start-up phase of the
business; (ii) youth or the growth phase of the business; (iii) matur
14.1 Financial Statements (return to top)
The balance sheet is the listing of all assets and all claims against the assets of a
company. The term balance sheet is used because the following accounting identity must
always hold: assets: liabilities + owner
13.1 The Cash Conversion Cycle (return to top)
Working capital management involves maintaining efficient levels of both current assets
and current liabilities so that a company has greater cash inflow than cash outflow.
It is not only the amount of cash
17.1 Cash Dividends (return to top)
Cash dividends are payments of cash to the owners of a company. As such, they are taxable as
At one time, nearly 85% of all firms listed on the NYSE paid cash dividends on a regular basis. With
the downturn in t
15.1 The Business Life Cycle (return to top)
Every firm has a business life cycle. There are a number of classifications of the business life cycle.
We use the five active phases of start-up, growth, maturity, decline, and closing.
Each phase brings wit
Solutions for CH. 14: FINANCIAL RATIOS AND
(1) The revenue is $10,000, the cost of goods sold is $2,000, the selling,
general and administrative expenses are $3,000, and depreciation is
$1,000. What is the EBIT?
SOLUTION: EBIT = Revenue (
11.1 The Cost of Capital: A Starting Point (return to top)
The cost of capital is the cost of each financing component used by the firm to fund its projects
multiplied by that components percent of the total funding amount.
Sources of funds include the fo
10.1 The Importance of Cash Flow (return to top)
Profits are an accounting measure of performance during a specific period of time. Cash flow is the
actual inflow or outflow of money.
In accounting, we include interest expense as part of the income state
Solutions for CH. 9:
(1) Name and describe the three observations we can make about the
capital budgeting decision.
SOLUTION: There are three observations we can make about the capital
budgeting decision. (i) A capital bu
Solutions for CH. 10: INCREMENTAL CASH
(1) The EBIT is $10,000, depreciation is $5,000, and taxes are $2,000. What is the
operating cash flow (OCF)?
SOLUTION: OCF = EBIT + Depreciation Taxes = $10,000 + $5,000 $2,000 = $13,0
(2) The revenue is $22,500
8.1 Returns (return to the top)
All investors want to maximize return (get the most out of their investment) while at
the same time minimize risk (eliminate their potential for loss).
Dollar Profits and Percentage Returns
The profit (or loss) on an inves
7.1 Characteristics of Common Stock (return to top)
Common stock, a financial asset, signifies ownership in a company.
Besides selling bonds to raise funds for operations, expansion, or other
business needs, selling stock is a major financing source for
Solutions for CH.
(1) What is a bond?
SOLUTION: A bond is a long-term debt instrument by which a borrower
of funds agrees to pay back the funds (the principal) with interest on
specific dates in the future. This interest is bas
Chapter 10 Quiz
1. When computing the total cash outflow needed to start a project we include any change in _ .
2. A firm can spend its reported profits such as found on its income statement.
9.1 Short-Term and Long-Term Decisions (return to top)
In general, we can separate short-term and long-term decisions into three dimensions:
1. Length of effect
3. Degree of information gathering prior to the decision
Long-term decisions are calle
Solutions for CH.
(1) Briefly explain the difference between a USE of cash and a SOURCE of cash. Give
examples of each. Briefly explain why managers want to know the uses and sources of
SOLUTION: A s
Business Finance- Final Study Guide
When a depreciable asset is sold, a tax gain or tax loss on disposal is calculated, based on the
_ of the asset at the time of disposal.
o Book value
When a depreciable asset is sold, a tax gain or tax loss
Chapters 10-18 Formulas with Questions
Day Company will purchase two machines for a project. Machine A costs $3
million and Machine B costs $2 million. Transportation and installation costs
are an additional 12% of the total cost for the machin
1) A major metric of a company's health and its prospects for a long life is how much _ it can
A) cash flow
C) tax deferral
D) net income
2) Most businesses fail because their _ dries up.
A) net working capital
B) cash flow
2 / 2 points
In the Agency Model, the owners of corporations are the principals and the managers are the agents.
Which of the below statements is FALSE?
The purpose of studying financial statements is to underst
Business Finance: BU381-VA (Web Assisted Course Using Desire2Learn)
Course Syllabus: Spring 2014
Professor Rob Hull, Clarence W. King Endowed Chair in Finance
Course Mail: The instructor will expect students to use
3 / 3 points
Managers typically look at the initial outlay for the project as the capital expenditure for the project and
determine _ from this capital expenditure.
The Excel program is set up for the below problems for those students who desire to use Excel. You just fill in the cells with the light blue background. The programs
must be adapted depending on what is given in the problems. In particular, the dividend
balance sheet ->financial statement that reflects a firm's accounting value on a particular date
shareholders equity ->the residual value of a corporation after all debts have been paid. consists of paid
in surplus, common stock, and retained earnings
Chapter 1: Financial Management
THERE ARE NO KEY EQUATIONS AND RELATIONSHIPS FOR THIS CHAPTER
(move to next page)
Chapter 2: Financial Statements
KEY EQUATIONS AND RELATIONSHIPS
Assets (accounting identity) = liabilities + owners equity
Net working capita