Question 1. 1. (TCO H) Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
Annual sales =
Annual cost of goods sold =
Accounts receivable =
Accounts payable = $45,000
a. 28 days
b. 32 days
c. 35 days
d. 39 days
e. 43 days (Points : 30)
Question 2. 2. (TCO C) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)
(Points : 30)
Question 3. 3. (TCO E)
Next Period’s Expected Free Cash
Gas and Convenience Stores
The risk-free rate of interest is 3% and the market risk premium is 5%.
1) Which is the cost of capital for the oil exploration division closest to?
(Points : 30)
Question 4. 4. (TCO B)
You expect CCM Corporation to generate the following free cash flows over the next 5 years.
FCF ($ millions)
If CCM has $150 million of debt and 12 million shares of stock outstanding, then which is the share price for CCM closest to?
Question 1.1. (TCO A) Which of the following statements is false? (Points : 5)
In many other countries, the central conflict is between what are called controlling shareholders and minority shareholders.
Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders, such as employing family members rather than the most talented managers or establishing contracts favorable to other family-controlled firms.
As recent events and corporate scandals have shown, investor protections in the United States are generally seen as substandard when compared to the developed economies in the world.
Much of the focus in the United States is on the agency conflict between shareholders, who own the majority of a firm but are dispersed group, and managers, who own little of the firm and must be monitored.
Question 2.2. (TCO F) Which of the following statements is correct? (Points : 5)
If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.
If Project A’s IRR exceeds Project B’s, then A must have the higher NPV.
A project’s MIRR can never exceed its IRR.
If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
If the NPV is negative, the IRR must also be negative.