COMPRE 2 Flashcards
The following data concern two products sold by Redding Corporation.
Product X Sales in dollars $50,000
Product Y $100,000
Contribution margin ratio 70%
If fixed expenses for the company as a whole are $120,000, the break-even point would be:
a.
$340,000
b.
$240,000
c.
$218,182
d.
$120,000
e.
$200,000
f.
$266,667
g.
$300,000
b.
$240,000
Rogers & Sons, a manufacturing firm, reported the following sales revenues for the last four years. 20X1 20X2 20X3 20X4
$123,000 $132,500 $142,200 $146,350
All of the following information would be useful in evaluating the sales trend and stability of Rogers & Sons except:
a.
Supplier growth analysis
b.
Sales volume by salesperson
c.
Elasticity of demand
d.
Percentage of repeat customers
e.
percentage at which customers stop subscribing to its products or service
a.
Supplier growth analysis
Suppose Buyson Corporation’s projected free cash flow for next year is FCF1 = P150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5%, what is the firm’s total corporate value?
a.
P3,150,000
b.
P2,707,500
c.
P2,850,000
d.
P3,000,000
e.
P2,572,125
d.
P3,000,000
As a company becomes more conservative in its working capital policy, it would tend to have a(n)
a.
None of the statements mentioned here are correct.
b.
Decrease in the ratio of current assets to units of output.
c.
Increase in its acid test ratio.
d.
Increase in funds invested in common stock and a decrease in funds invested in marketable securities.
e.
Increase in the ratio of current liabilities to noncurrent liabilities.
f.
Decrease its Times-Interest-earned ratio.
g.
Two of the statements mentioned here are correct.
h.
Increase its debt-to-equity ratio.
c.
Increase in its acid test ratio.
A change in credit policy has caused an increase in sales, no discounts taken, an increase in the investment in accounts receivable, and an increase in the number of doubtful accounts. Based upon this information, we know that
a.
Days sales outstanding has increased.
b.
Net profit has decreased.
c.
Net profit has increased.
d.
The average collection period has decreased.
e.
The size of the discount offered has decreased.
f.
Gross profit has declined.
a.
Days sales outstanding has increased.
Pau Inc. issues a $38.6 million IPO priced at $12.50 per share, and the offering price to the public is $19.30 per share. The firm’s legal fees, SEC registration fees, and other administrative costs are $270,000. The firm’s stock price increases 18% on the first day. What is the underwriting cost?
a.
$13.6 million
b.
$270,000
c.
$20.55 million
d.
$20.82 million
a.
$13.6 million
Tamcon Industries has purchased equipment from a Brazilian firm for a total cost of 1,272,500 Brazilian reals (BR). The firm has to pay in 30 days. Citicorp has given the firm a 30-day forward quote of $0.6123/BR to purchase Brazilian reals forward, and a quote of $0.6421 to sell Brazilian reals forward. Tamcon decided to wait and purchase the Brazilian reals on the spot market on settlement date. On the day the payment is due, Tamcon purchases the Brazilian reals at the spot rate of $0.6317/BR. How much would Tamcon have saved or lost by hedging with a forward contract? (Round your final answer to the nearest dollar.)
a.
$24,686 loss
b.
$13,234 loss
c.
$13,234 savings
d.
$24,686 savings
d.
$24,686 savings
Blonde, Inc., is considering dropping a certain product line if it does not have a margin of safety higher than 14.0%. The breakeven sales are P153,500, and the margin of safety is P26,500. Based on this information, the controller has recommended that Blonde keep this product line. Did the controller make the appropriate decision?
a.
Yes, since the margin of safety ratio of 17.3% is better than 14.0%.
b.
No, since the margin of safety ratio of 14.7% is not better than 14.0%.
c.
No, since the margin of safety ratio of 17.3% is not better than 14.0%.
d.
Yes, since the margin of safety ratio of 14.7% is better than 14.0%.
d.
Yes, since the margin of safety ratio of 14.7% is better than 14.0%.
Which of the following costs is relevant in deciding whether to sell joint products at split-off or process them further?
a.
The cost of materials used to make the joint products.
b.
The variable cost of operating the joint process.
c.
The unavoidable costs of further processing.
d.
The avoidable costs of further processing.
d.
The avoidable costs of further processing.
A highly cash convertible instrument with a maturity of 30 days would be traded in which market?
a.
Commodities market
b.
Money market
c.
Bond market
d.
Stock market
e.
Physical asset market
b.
Money market
Hurst Co. manufacturers and sells a single product. Price and cost data regarding this product are as follows:
Selling price $40 per unit
Variable manufacturing costs $20 per unit Variable selling and admin. Expenses $ 6 per unit Fixed manuf. Overhead $208,000 per year Fixed selling and admin. Expenses $324,000 per year
In the current year, the company sold 43,000 units. Due to competition, management will be forced
to lower the selling price by 15% next year. How many units must be sold next year to earn the same income as was earned in the current year?
a.
60,200 units
b.
58,250 units
c.
50,000 units
d.
53,200 units
e.
75,250 units
f.
58,800 units
e.
75,250 units
Which of the following is a type of business divestiture?
a.
Consolidation
b.
Net asset acquisition
c.
Merger
d.
Stock acquisition
e.
Spinoff
f.
Leveraged recapitalization
e.
Spinoff
For an all-equity financed firm, a project whose expected rate of return plots should be rejected.
a.
below the security market line
b.
above the security market line
c.
above the characteristic line
d.
below the characteristic line
a.
below the security market line
Banks whose forte is helping firms sell new debt and equity securities in the primary markets are called:
a.
Credit unions
b.
investment banks.
c.
Urban banks
d.
Commercial banks
e.
Rural banks
f.
Thrift banks
b.
investment banks.
GMH Company manufactures 100,000 units of Part X annually for use in one of its main products. The total manufacturing cost for 100,000 units of Part X is as follows:
Direct materials $120,000 Direct labor 80,000
Variable overhead Fixed overhead
Total cost
40,000 160,000
$400,000
Sutton Company has offered to sell GMH 100,000 units of Part X per year.
If GMH accepts this offer, the facilities used to produce Part X can be used in the production of other components. This change would save GMH $10,000 in rent for the leased production facility used at present to support the production of other components. Furthermore, 60% of the fixed overhead will stop should GMH decide to proceed with the offer.
What is the maximum price that GMH should be willing to pay Sutton for part X?
a.
$3.36
b.
$2.00
c.
$2.40
d.
$2.50
e.
$3.04
f.
$3.46
g.
$3.14
h.
$1.20
f.
$3.46
A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $50,000 of these fixed expenses could not be eliminated if the department is discontinued, while the rest are avoidable. These data indicate that if the department is discontinued, the company’s overall net operating income would:
f.
decrease by $10,000 per year decrease by $25,000 per year
b.
increase by $35,000 per year
c.
increase by $25,000 per year
d.
decrease by $35,000 per year
e.
increase by $10,000 per year
f.
decrease by $10,000 per year
g.
no change in profit
d.
decrease by $35,000 per year
An acquisition takes places when a firm:
a.
buys another firm using debt to finance a significant portion of the transaction.
b.
buys any percentage of ownership in another firm.
c.
combines with another firm to create a new firm.
d.
buys a controlling interest in another firm.
d.
buys a controlling interest in another firm.
The weak form of efficient market hypothesis contradicts:
a.
technical analysis, but supports technical analysis as valid
b.
both fundamental analysis and technical analysis
c.
fundamental analysis, but supports technical analysis as valid
d.
technical analysis, but does not say anything on the possibility of successful fundamental analysis
e.
fundamental analysis, but does not say anything on the possibility of successful technical analysis
d.
technical analysis, but does not say anything on the possibility of successful fundamental analysis
The additional return we should expect to receive for being exposed to risk?
a.
Risk discount
b.
Risk free rate of return
c.
Par risk
d.
Risk premium
d.
Risk premium
Goodheart Corp’s stock has a required rate of return of 11.50% on its equity, and it sells for P25.00 per share. Goode’s dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?
a.
P1.27
b.
P0.95
c.
P1.13
d.
P1.05
e.
P1.16
d.
P1.05
The holder of a put option:
a.
will not gain from exercising if the strike price is greater than the stock price.
b.
has an obligation to exercise if the stock price is less than the strike price.
c.
pays the writer an amount equal to the strike price on the exercise date.
d.
may sell the option to another party prior to expiration.
d.
may sell the option to another party prior to expiration.
Statement 1. “Gross profit” and “contribution margin” refer to different thing. Statement 2. A company that has no variable costs can never break even.
a.
Statement 1 is true.
b.
Both statements are true.
c.
Both statements are false.
d.
Statement 2 is true.
c.
Both statements are false.
You have the following data on three stocks:
Stock A
B C
Standard Deviation Beta 10% 0.67 20% 0.51 14% 1.29
If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.
a.
C; A.
b.
B; A.
c.
C; B.
d.
A; A.
e.
A; B
e.
A; B
When two firms are combined that are from different industries, it is referred to as what type of merger?
a.
Net asset acquisition
b.
Stock acquisition
c.
Conglomerate merger
d.
Vertical merger
e.
Horizontal merger
c.
Conglomerate merger