31) The following market information was gathered for the Blender Corporation. The firm has 1,000 bonds outstanding,
each selling for $1,100.00 with a required rate of return of 8.00%. Blenders has 5,000 shares of preferred stock outstanding,
selling for $40.00 per share and 50,000 shares of common stock outstanding, selling for $18.00 per share. If the preferred
stock has a required rate of return of 11.00% and the common stock requires a 14.00% return, and the firm has a corporate
tax rate of 30%, then calculate the firm’s WACC adjusted for taxes. 31) ______
D) There is not enough information to answer this question because there is no information provided about the amount of
retained earnings held by the firm.
32) Ready Tees, an on line retailer of t-shirts, orders 100,000 t-shirts per year from its manufacturer. Ready plans on
ordering t-shirts 12 times over the next year. Ready receives the same number of t-shirts each time it orders. The carrying
cost is $0.10 per shirt per year. The order cost is $500 per order. What is the annual ordering cost of the t-shirt inventory
(rounded to the nearest dollar)? 32) ______
A) $12,000 B) $5,000 C) $10,000 D) $6,000
33) Oregon Saw Mills Inc. has credit terms of 2/10 net 60. Customers should take the discount and pay in 10 days if they
CANNOT earn more than ________ (APR) or ________ (EAR) on their investments. 33) ______
A) 15.89% APR or 14.90% EAR B) 13.08% APR or 12.42% EAR
C) 14.90% APR or 15.89% EAR D) 12.42% APR or 13.08% EAR
34) Orange Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.7, a debt to equity ratio of 0.60 and a
total asset to equity ratio of 1.60. What is the firm’s ROE? 34) ______
A) 41.76% B) 38.08% C) 22.85% D) 14.28%
35) Donat Corp. is a small company looking at two possible capital structures. Currently, the firm is an all-equity firm
with $600,000 in assets and 100,000 shares outstanding. The market value of each share is $6.00. The CEO of Donat is
thinking of leveraging the firm by selling $300,000 of debt financing and retiring 50,000 shares, leaving 50,000 shares
outstanding. The cost of debt is 5% annually, and the current corporate tax rate for Donat is 30%. The CEO believes that
Donat will earn $50,000 per year before interest and taxes. Which of the statements below is TRUE? 35) ______
A) Shareholders will be better off by $0.14 per share under a firm with $300,000 in debt financing versus a firm that is
B) 50/50 debt-to-equity EPS is $0.49.
C) All-equity EPS is $0.35.
D) Statements (A) through (C) are all true.
II. SHORT ANSWER and FREE RESPONSE QUESTIONS (5 questions, 6 points each ).
36) Consider the information below from a firm’s balance sheet for 2011 and 2012. All the work has to be shown!
Current Assets 2012 2011 Change
Cash and Equivalents $1,561 $1,800 -$ 239
Short-Term Investments $1,052 $3,010 -$ 1,958
Accounts Receivable $3,616 $3,129 $ 487
Inventories $1,816 $1,543 $ 273
Other Current Assets $ 707 $ 601 $ 106
Total Current Assets $8,752 $10,083 -$1,331
Accounts Payable $5,173 $5,111 $ 62
Short-Term Debt $ 288 $ 277 $ 11
Other Current Liabilities$1,401 $1,098 $ 303
Total Current Liabilities $6,862 $6,486 $ 376
What is the Net Working Capital for 2012?
What is it for 2011?
What is the Change in Net Working Capital (NWC)?
Assuming the Operating Cash Flows (OCF) are $7,155 and the Net Capital Spending (NCS) is $2,372, what is the Cash
Flow from Assets?
37) Report on another on-line site besides yahoo.finance.com and www.sec.gov/edgar.shtml (EDGAR’s) where one can
get financial information. In your answer give the website, how to access information, and what types of information are
available. See if you can find at least one aspect of this site that might make it superior to that found at yahoo.finance.com.
Write a paragraph to answer the question.
38) Describe the relationship between the yield to maturity and the coupon rate of a bond. Write a paragraph to answer
39) What is the JIT inventory management? What type of costs are minimized with JIT control? In order to use JIT, is it
better to have high ordering costs or low? Why? Do you think companies that use JIT inventory control tend to have high
or low carrying costs? Why? Find an example of the company (other than Ford) online and discuss how that company has
used JIT. Write a paragraph to answer these questions.
40) Market value ratios try to answer what question for potential investors? Do financial statements contain all of the
necessary information to answer this question? Explain in terms of the P/E (price earnings) ratio. Write a paragraph to
answer these questions.