FINANCE

1.

Selling and administrative expenses are billed and paid the month after they occur. Selling and administrative expenses have both a fixed and a variable component. The fixed component is a constant $4,700 a month. The variable component equals 5 percent of revenues. Given revenues of $300,000 for January, $350,000 for February, and $400,000 for March, what would be the budgeted selling and administrative expenses that would be paid in March?

a.
$4,700
b.
$13,200
c.
$19,700
d.
$22,200

1 points   

Question 6

1.

The projections of direct materials purchases that follow are for the Sombo Corporation.

Purchases on Account Cash Purchases
December $40,000 $30,000
January   60,000   20,000
February   50,000   35,000
March   70,000   25,000

The company pays for 60 percent of purchases on account in the month of purchase and 40 percent in the month following the purchase. What is the expected cash payment for direct materials for the month of February?

a.
$52,000
b.
$72,000
c.
$89,000
d.
$95,000

1 points   

Question 7

1.

Smile Industries capital structure consists of $1,000,000 of debt at 6 percent interest and 1,500,000 of stockholders equity at 2 percent.

The average cost of capital of Smile Industries is

a.
.6%
b.
1.2%
c.
2.4%
d.
3.6%

1 points   

Question 8

1.

Discounting calculates the __________ value of an amount to be received.

a.
present
b.
future
c.
compounded
d.
book

1 points   

Question 9

1.

The net present value method of evaluating proposed investments

a.
measures a project’s time-adjusted rate of return.
b.
discounts cash flows at the minimum desired rate of return.
c.
ignores cash flows beyond the payback period.
d.
applies only to mutually exclusive investment proposals.

1 points   

Question 10

1.

A company is considering a project with annual after-tax cash flows of $5,700.00 per year for six years. The company’s cost of capital is 14 percent. Present and future value factors for a 14 percent interest rate for six years are as follows:

Future value of $1 2.195
Present value of $1 0.456
Future value of a series of equal payments 8.536
Present value of a series of equal payments 3.889

Using the net present value method, what is the maximum amount that the company should invest?

a.
$22,167.30
b.
$48,655.20
c.
$12,511.50
d.
$2,599.20

1 points   

Question 11

1.

When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be

a.
viewed as a cash flow.
b.
an addition to the price paid for the new building.
c.
a subtraction from the price paid for the new building.
d.
irrelevant to the decision.

1 points   

Question 12

1.

Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company’s minimum rate of return is 10 percent. The present value of $1 for eight years at 10 percent is 0.467, and the present value of an annuity of $1 at 10 percent and eight years is 5.335.

 

The net present value of the project is

a.
$74,520.
b.
$120,100.
c.
$93,400.
d.
$22,740.

1 points   

Question 13

1.

Seattle, Inc., is contemplating a project that costs $190,000. Expectations are that annual cash revenues will be $70,000 and annual expenses (including depreciation) will total $30,000. The project has a six-year useful life and a residual value of $40,000. Assume Seattle Inc. uses straight line method of depreciation.

The project’s payback period is

a.
2.14 years.
b.
2.31 years.
c.
2.77 years.
d.
2.92 years.

1 points   

Question 14

1.

The primary purpose of the statement of cash flows is to provide information

a.
about a company’s cash receipts and cash payments during an accounting period.
b.
about a company’s investing and financing activities during an accounting period.
c.
regarding a company’s financial position at the end of an accounting period.
d.
regarding the results of operations for a period of time.

1 points   

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