Structure of Finance Learning Module 1
These 6 questions always appear on Exam 1 and include, in my opinion,
the easiest exam questions that are certain to appear. Each includes
numbers viewable as self-test item #1.\=\prof
FA14 Find change in stock price from last year given ror etc VideoSolution
Shareholders had a good year, earning a 13% annual rate of return. The P/E ratio
today is 41.2 and the company just announced earnings per share of $3.10 . The
company has a 80% payout ratio. How much did the stock price change over the past
year?
a. $12.50 b. $15.12 c. $16.64 d. $13.75 e. $18.30
2.
FA1 Find change in net working capital and whether a source or use VideoSolution
The Company had quite a few changes during the past year. The changes for their
different balance sheet items from last year to this year were (the changes in
parentheses are declines; otherwise the changes are increases): ($5,100) for
Receivables; $5,000 for Payables; ($7,000) for Cash; ($6,900) for Short-term Notes
Payable; $5,300 for Plant, Property, & Equipment; and ($4,200) for Long-Term Debt.
Which statement is most accurate?
a. The change in net working capital is ($10,200) and represents a source of financing
b. The change in net working capital is ($10,200) and represents a use of financing
c. The change in net working capital is ($11,700) and represents a source of financing
d. The change in net working capital is ($8,900) and represents a use of financing
e. The change in net working capital is ($11,700) and represents a use of financing
3.
FA3j Find the new market cap for the conglomerate VideoSolution
The balance sheet for the Raider Company shows Total assets of $12,000 financed by
$3,000 of Debt and $9,000 of Stockholders’ equity. The Raider Company has 660
common shares outstanding, their equity price-to-book ratio is 4.00, and their price-toearnings ratio is 40.7. For the Target Company Total assets of $9,200 are financed by
$3,900 of Debt and $5,300 of Stockholders’ equity. The Target Company has 600
common shares outstanding, their equity price-to-book ratio is 1.50, and their price-toearnings ratio is 15.1.
The Raider Company plans to takeover the Target Company. The Raider Company
offers 4 share(s) of Raider stock to Target shareholders that tender 13 Target shares
(the exchange ratio is 0.307692; assume fractional shares can be exchanged).
Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated
sales, costs, and profits remain the same. After the Raider takes control of all Target
shares, what is the market capitalization for the new conglomerated Company?
a. $43,950 b. $58,497 c. $39,955 d. $53,180 e. $48,345
4.
BA6 DuPont analysis and inference between company and industry VideoSolution
The DuPont formula relates return on equity (= Net incomet / Stockholders equityt) to
the company's net profit margin (= Net income / Sales), asset turnover (= Salest / Total
assetst), and equity multiplier (= Total assets / Stockholders equity). This Company is in
an industry where the average net profit margin is 5.85%, the debt-to-asset ratio (= Debt
/ Total assets) is 47.5%, and return on equity is 37.09%. The Company’s financial
statements for year 2525 show that year-end Total assets of $6,700 include Plant,
property, & equipment (PP&E) of $4,200 . The assets are financed by Debt of $2,300
and Stockholders’ equity of $4,400 . The annual Sales for 2525 equal $22,110 , total
costs equal $20,830 , and Net income equals $1,280 . For the company relative to the
industry, select the one statement most consistent with the DuPont analysis.
a. the company’s asset turnover indicates sales are unusually small relative to its
assets
b. the company’s asset turnover indicates sales are unusually large relative to its
assets
c. the company’s equity multiplier indicates the firm has an unusually small debt burden
d. the company’s equity multiplier indicates the firm has an unusually large debt burden
e. the company’s profit margin indicates its revenues are unusually small relative to its
costs
5.
BE3 Find %decline in sales to reach operating breakeven VideoSolution
The most recent annual report lists company Sales revenue at $65,200 . Cost analysis
suggests that annual Total fixed costs equal $34,000 and Total variable costs equal
$25,250 . The company believes that the ratio of Sales revenue to Total variable costs
is constant. Find the percentage decline in annual Sales revenue that would cause the
company to fall to its operating breakeven point.
a. -14.9% b. -13.5% c. -12.3% d. -10.2% e. -11.2%
6.
CF1c Find next year’s SE given 1 balance sheet, some flows, and cash flow from
assets VideoSolution
Find below the Company’s balance sheet at year-end 2525.
Total Assets: $4,315
Cash $315
PP&E $4,000
Total Liabilities & Equity $4,315
Debt $1,915
Stockholders equity $2,400
__________________
For the year 2526, the following items are forecast: Depreciation is $480 ; Capital
Expenditures equal $400 ; Interest expense is $130 ; Net Income is $690 ; Dividends
equal $166 ; Cash Flow from Assets is $157 ; Net Debt Issues is ($77) (that is, debt
decreases). There is no preferred stock or extraordinary items, and there are no other
non-cash expenses. The balance sheet for year-end 2526 contains only the same line
items as appear above. For year-end 2526, how much is Stockholders Equity?
a. $2,595 b. $3,140 c. $2,359 d. $3,454 e. $2,855