Managerial Finance Final Exam

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Which of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5)|        Abnormally high executive compensation
       Targeted share repurchases
       Shareholder rights provisions
       Restricted voting rights
       Poison pills

2. (TCO F) Which of the following statements is correct? (Points : 5)|        The MIRR and NPV decision criteria can never conflict.        The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.        One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.        The higher the WACC, the shorter the discounted payback period.        The MIRR method assumes that cash flows are reinvested at the crossover rate.|

A; $37.05

YR1 Dividend =1.57325(1.55*1.015)

YR2 Dividend =1.5968(1.57325*1.015)

After Year 2 stock price will be = 43.11 (1.5968*1.08/(.12-.08)

1.57325/1.12+1.5968/1.12 2 +43.11/1.12 2 =37.05
4. (TCO G) The ABC Corporation's budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don't receive a discount. ABC's bad debts are very small and are excluded from this analysis.                         Purchases for next month's sales are constant each month at $2,000. Other payments for wages, rent, and taxes are constant at $500 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for the ABC Corporation? (Points : 20) Current month sales collected: 4000 x 40% x (100%-(3%) = $1552

+ Prior month sales collected: 4000 x 60% = $2400

- Purchases $2000

- Other expenses $500

= $1452 average cash gain during a typical month.
5. (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions. Last year's sales = S0| $350|     | Last year's accounts payable| $40| Sales growth rate = g| 30%|  | Last year's notes payable| $50| Last year's total assets = A0*| $500|  | Last year's accruals| $30| Last year's profit margin = PM| 5%|  | Target payout ratio| 60%|

D; $119.9

= $150 – $21 – $9.1 = $119.9

Last year's sales = S0$350
Sales growth rate = g30%
Forecasted sales = S0 (1 + g) = $455
S = change in sales = S1 – S0 = S0 g = $105
Last year's total assets = A0 = A* since full capacity = $500 Forecasted total assets = A1 = A0 (1 + g) = $650
Last year's accounts payable = $40
Last year's notes payable. Not spontaneous, so does not enter AFN calculation= $50 Last year's accruals = $30
L* = payables + accruals = $70
Profit margin = M = 5.0%
Target payout ratio = 60.0%
Retention ratio = (1 – Payout) =40.0%
AFN = (A*/S0) S – (L*/S0) S – Margin x S1 (1 – Payout)

1. (TCO H) Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?  | Original| Revised|

Annual sales: unchanged 
Cost of goods sold: unchanged 
Average inventory: lowered by $4,000 
Average receivables: lowered by $2,000 
Average payables: increased by $2,000 
Days in year| $110,000
$80,000 ...
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