TEST NUMBER: ____________

SNG CORPORATION FINANCE TEST

2010
NAME ____________________________________________________________
CANDIDATE NUMBER ____________________________________________
READ THE FOLLOWING DIRECTIONS VERY CAREFULLY. FAILURE TO
FOLLOW THESE DIRECTIONS WILL ALMOST CERTAINLY RESULT IN YOUR
TEST BEING MIS-GRADED WHICH WILL ADVERSELY AFFECT YOUR GRADE. IF
THERE IS ANYTHING ABOUT THE DIRECTIONS THAT YOU DO NOT
UNDERSTAND, ASK YOUR INSTRUCTOR IMMEDIATELY.
1. Fill in your name and candidate numer on t!e An"#er $!eet a" #ell a" on t!e line" ao%e.
2. In th !"# "n th An$%& Sht t't() *TEST NUMBER* &+"&) th n,-!& th.t
.//.&$ 'n th ,//& &'0ht h.n) +"&n& "1 th'$ $ht "n th ('n *TEST NUMBER*
2 $'n+ th& .& -,(t'/( 3&$'"n$ "1 th t$t, 1.'(,& t" )" $" -.4 &$,(t 'n 4",& t$t
!'n0 0&.)) %'th th %&"n0 .n$%& 54666
&. Read eac! 'ue"tion %ery care(ully. Con"ider all o( t!e an"#er item" and t!en "elect t!e
e"t correct an"#er ) t!ere i" only one e"t an"#er *er 'ue"tion. Circle t!e letter an"#er
on t!e te"t and record your an"#er" on t!e An"#er $!eet.
NOTE WELL: ONLY THE ANSWER KEY WILL BE GRADED666
+. ,ou may u"e a (inancial calculator. No note"- (ormula "!eet"- "cratc! *a*er .u"e ac/
*a0e" o( te"t i( nece""ary1- or "tored (ormulae allo#ed.
T!e te"t con"i"t" o( 22 'ue"tion" eac! #ort! +.0 *oint". C!oo"e t!e BEST ANSWER (or eac!
'ue"tion. ,our "core #ill e com*uted a"3
4100 ) .Numer mi""ed 5 +.016.
,ou #ill !a%e 120 minute" to com*lete t!e te"t. D" n"t (.3 .n4 .n$%&$ !(.n5 - .n
,n.n$%&) 7,$t'"n %'(( ! 0&.)) .$ . %&"n0 .n$%&. 7ood 8uc/9
DIRECTIONS3 Circle t!e letter corre"*ondin0 to t!e !$t .n$%& (or eac! multi*le c!oice 'ue"tion and
t!en tran"(er t!at letter an"#er to t!e attac!ed ANSWER SHEET. Be "ure to care(ully record
your an"#er" to t!e ANSWER SHEET. :nly t!e ANSWER SHEET #ill e 0raded.
F'n.n+'.( An.(4$'$ 8,$t'"n$
1. T!e 0oal o( a (inancial mana0er o( a *ulicly traded cor*oration "!ould e to3
a. Ma5imi;e <ro(it".
. Ma5imi;e Ca"! Flo# (rom :*eratin0 Acti%itie".
c. Ma5imi;e t!e #ealt! o( t!e "!are!older".
d. Minimi;e t!e ri"/ o( in%e"tin0 in t!e (irm.
e. Ma5imi;e t!e "alary o( t!e (irm=" mana0er".
USE THE FOLLOWING FINANCIAL STATEMENTS TO ANSWER 8UESTIONS 9 .n) :
B.(.n+ Sht
C"(,-!'. In),$t&'$ In+.
Y.&$ n)'n0 D+-!& :; <'n -'(('"n$=
A$$t$ 9>>; 9>>9
Ca"! > 2+-000 > +0-000
Account" recei%ale &0-000 ?-000
In%entory @2-000 A&-000
T"t.( C,&&nt A$$t$ >11@-000 >122-000
Net *lant and e'ui*ment >2B2-000 >2?2-000
Total a""et" ?@>;,>>> ?@;A,>>>
L'.!'('t'$ .n) $t"+5h"()&$B 7,'t4
Note" *ayale @-000 21-000
Account" *ayale to "u**lier" +?-000 &A-000
Accrual" 1@-000 2-000
T"t.( +,&&nt ('.!'('t'$ > A1-000 > @0-000
8on0)term det 120-000 12@-000
Common "toc/ .>2.00 *ar %alue1 22-000 &0-000
Ca*ital "ur*lu" ?0-000 ?1-000
Retained earnin0" @2-000 B0-000
T"t.( L'.!'('t'$ .n) E7,'t4 ?@>;,>>> ?@;A,>>>
In+"- St.t-nt
C"(,-!'. In),$t&'$ In+.
Y.& n)'n0 D+-!& :;, 9>>9
$ale" >@00-000
Co"t o( 0ood" "old &?0-000
7ro"" <ro(it >210-000
7eneral and admini"trati%e B0-000
De*reciation 20-000
:*eratin0 income 110-000
Intere"t e5*en"e &B-000
Earnin0" e(ore ta5e" A2-000
Ta5e" 2+-000
Nt 'n+"- ? @C,>>>
NOTE: You must use the financial statements on the prior page to answers questions 2 and 3 below
2. Net Ca"! Flo#" (rom O/&.t'n0 Acti%itie" (or Columia Indu"trie" Inc. i"3
a. >&2-000
. >22-000
c. >@A-000
d. >B+-000
e. None o( t!e ao%e i" #it!in >1-000 o( t!e correct an"#er.
&. Columia Indu"trie" Inc. e5*ect" "ale" to 0ro# y +0C in 200&. T!e com*any *lan" to *ay out
>11-000 in di%idend" in 2002- and e5*ect" t!at t!e Net <ro(it Mar0in in 200& #ill e @C. Com*ute t!e
:ut"ide Fund" Needed in 200& to "u**ort t!i" *roDected 0ro#t! in "ale".
a. >111-B00
. >1@A-1@0
c. >10A-A@0
d. >AB-&00
e. None o( t!e ao%e i" #it! >1-000 o( t!e correct an"#er.
+. A""ume you are 0i%en t!e (ollo#in0 (or $tac/eler0 indu"trie"3
Return on A""et" .R:A1 E BC
Det Ratio E @0C
T!e Return on E'uity .R:E1 (or $tac/eler0 indu"trie" i"3
a. 20C
. 22C
c. B0C
d. 100C
e. In"u((icient in(ormation
2. I( ca"! decrea"e" y >1-000 durin0 t!e year- total liailitie" decrea"e y >2-000- and "!are!older"=
e'uity increa"e" y >2-000- #!at i" t!e c!an0e in non)ca"! a""et" (or t!e yearF
a. A decrea"e o( >2-000
. An increa"e o( >1-000
c. A decrea"e o( >1-000
d. An increa"e o( >2-000
e. T!e correct an"#er cannot e determined (rom t!e in(ormation 0i%en.
T'- V.(, "1 M"n4 8,$t'"n$:
@. A""ume t!at all ot!er (actor" are !eld con"tant and t!at t!e intere"t rate i" 0reater t!an ;ero. Increa"in0
t!e numer o( *eriod" .i.e.- n1 #ill cau"e t!e *re"ent %alue o( a lum* "um to e recei%ed in t!e (uture to
_________ and t!e *re"ent %alue o( an annuity to _______.
a. Increa"eG Increa"e
. Increa"eG Decrea"e
c. Decrea"eG Decrea"e
d. Decrea"eG Increa"e
e. It de*end" on #!et!er t!e annuity i" an annuity due or an ordinary annuity
A. Con0ratulation"9 ,ou !a%e Du"t #on a "mall lottery. It #ill *ay you eit!er 2 annual *ayment" o(
>12-000 eac! .#it! t!e (ir"t *ayment to e recei%ed t#o year" (rom today1- or a "in0le lum* "um to e
recei%ed today. I( you can in%e"t at a @C annual rate o( intere"t- #!at i" t!e least you "!ould acce*t a"
t!e lum* "um *ayout amountF
a. >A2-000.00
. >@@-?A@.2B
c. >@&-1B2.+@
d. >2?-@0B.?2
e. >B?-@2?.AB
B. H!ic! o( t!e (ollo#in0 account" #ould *ay you t!e !i0!e"t e((ecti%e annual rateF
a. $tated annual rate o( @.02C- com*ounded annually
. $tated annual rate o( @.01C- com*ounded "emi)annually
c. $tated annual rate o( 2.?2C- com*ounded 'uarterly
d. $tated annual rate o( 2.?0C- com*ounded mont!ly
e. $tated annual rate o( 2.B2C- com*ounded daily .a""umin0 &@2 day" a year1
?. ,ou !a%e (inanced t!e *urc!a"e o( a u"ed Mercede" #it! a >&1-200 loan #it! a 2)year term- mont!ly
*ayment"- and an BC "tated annual rate. H!at i" t!e amount o( your mont!ly loan *aymentF
a. >@2A.+2
. >2B&.&&
c. >+AA.?2
d. >@&B.A1
e. >&20.00
10. ,ou !a%e Du"t in%e"ted >&-000 into an account t!at #ill earn a ?C annual intere"t rate. ,ou #ant to
!a%e exactly >B-000 in t!e account at t!e end o( 2 year". T!e account allo#" you to ma/e one de*o"it
at t!e end o( t!e &
rd
year. In order to !a%e e5actly >B-000 at t!e end o( year 2- !o# muc! mu"t you
de*o"it at t!e end o( t!e &
rd
yearF
a. >2-B+B.&2
. >2-@1&.1A
c. >2-&?A.+0
d. >&-&B+.1&
e. None o( t!e ao%e an"#er" i" #it!in >20 o( t!e correct amount
11. Terry Du"t celerated !er 20
t!
irt!day and "!e !a" decided to 'uit drin/in0 Diet Co/e. Terry currently
drin/" 2 can" o( Diet Co/e *er day at an a%era0e co"t o( >0.A2 *er can. To re#ard !er"el( (or 'uittin0-
Terry *lan" to in%e"t all t!at "!e #ill "a%e eac! day .i.e.- >1.201 into a "a%in0" account t!at currently
*ay" @C *.a. A""umin0 !er (ir"t de*o"it into t!e account i" made tomorro#- and a""umin0 t!at t!ere
are &@2 day" *er year- !o# muc! money #ill e in Terry=" "a%in0" account on !er @2
t!
irt!day .i.e.- +2
year" or 1@-+22 day" (rom today1F
a. >2A-@2?.1&
. >&A-@2?.+B
c. >+?-?0@.A@
d. >20-BB2.B&
e. None o( t!e ao%e i" #it!in >1-000 o( t!e correct an"#er.
St"+5 .n) B"n) V.(,.t'"n 8,$t'"n$
12. A "ecurity t!at *ay" a con"tant di%idend e%ery year (ore%er i" /no#n a"3
a. A ;ero)cou*on ond
. <re(erred "toc/
c. Cla"" A Common "toc/
d. A Re%er"e <er*etual Mort0a0e oli0ation "ecurity
e. A callale ond
1&. A 10)year annual cou*on ond #a" i""ued (our year" a0o at *ar. $ince t!en t!e ond=" yield to maturity
.,TM1 !a" decrea"ed (rom ?C to AC. H!ic! o( t!e (ollo#in0 "tatement" i" true aout t!e current
mar/et *rice o( t!e ondF
a. T!e ond i" "ellin0 at a di"count
. T!e ond i" "ellin0 at *ar
c. T!e ond i" "ellin0 at a *remium
d. T!e ond i" "ellin0 at oo/ %alue
e. In"u((icient in(ormation
1+. H!at "!ould e t!e *rice o( a >1-000 *ar %alue- 10C annual cou*on rate .cou*on intere"t *aid "emi)
annually1 ond #it! &0 year" remainin0 to maturity- a""umin0 a di"count rate o( ?CF
a. >1-101.BB
. >1-102.++
c. >1-10&.1?
d. >1-10+.+B
e. >1-102.A2

12. ,ou !a%e Du"t di"co%ered a >1-000 *ar %alue cor*orate ond #it! a maturity o( 10 year". T!e ond="
yield to maturity i" ?C and t!e ond i" currently "ellin0 (or >A+&.2?. H!at i" t!e ond=" annual cou*on
rate .t!e ond *ay" cou*on *ayment" annually1F
a. 2C
. @C
c. AC
d. BC
e. ?C
1@. H!at i" t!e yield to maturity o( a >1-000 *ar %alue ond #it! a cou*on rate o( 10C ."emi)annual
cou*on *ayment"1 t!at mature" in &0 year" a""umin0 t!e ond i" currently "ellin0 (or >B&B.1&F
a. @.0C
. @.2C
c. 10.0C
d. 12.0C
e. 12.+C
1A. I,J- Inc. Du"t *aid a di%idend o( >& *er "!are. T!e indu"try analy"t" *redict t!at I,J=" di%idend" #ill
0ro# at a con"tant rate o( +C (ore%er. I( t!e "toc/ i" currently tradin0 at >22 *er "!are- #!at i" t!e
re'uired rate o( return on t!i" "toc/F
a. B.+BC
. 12.00C
c. 12.+BC
d. 1@.00C
e. 1@.+BC
1B. Uniton0ue Tal/- Inc. Du"t *aid a >2.00 annual di%idend. In%e"tor" elie%e t!at t!e di%idend" #ill 0ro#
at a rate o( 20C *er year (or eac! o( t!e ne5t t#o year" and 2C *er year t!erea(ter. A""umin0 a
di"count rate o( 10C- #!at "!ould t!e current *rice o( t!e "toc/ eF
a. >@0.20
. >2A.@0
c. >2+.22
d. >+?.BA
e. >+&.2@
C./'t.( B,)0t'n0 8,$t'"n$
1?. Con"ider t!e (ollo#in0 -,t,.((4 #+(,$'3 *roDect" #it! e'ual li%e"3
P&"D+t P.4!.+5 P&'") IRR PI NPV
A &.2 year" 1BC 1.20 > 10-000
B 2.A year" 22C 1.A2 > &A-000
C +.1 year" 2&C 1.?0 > A0-000
D 2.@ year" 1@C 1.&2 >120-000
A""umin0 t!at t!e a**ro*riate di"count rate i" 12C- #!ic! *roDect."1 #ould you c!oo"eF
a. <roDect A
. <roDect B
c. <roDect C
d. <roDect D
e. All o( t!e"e *roDect" "!ould e acce*ted.
20. Con"ider a *roDect #it! an initial out(lo# at time 0 and *o"iti%e ca"! (lo#" in all "u"e'uent year". A"
t!e di"count rate i" increa"ed t!e _____________.
a. IRR remain" con"tant #!ile t!e N<K increa"e".
. IRR decrea"e" #!ile t!e N<K remain" con"tant.
c. IRR increa"e" #!ile t!e N<K remain" con"tant.
d. IRR remain" con"tant #!ile t!e N<K decrea"e".
e. IRR decrea"e" #!ile t!e N<K decrea"e".
21. H!ic! o( t!e (ollo#in0 "tatement" i" mo"t correctF
a. $ince de*reciation i" not a ca"! e5*en"e- it doe" not a((ect o*eratin0 ca"! (lo#"
. Cor*oration" "!ould include "un/ co"t" #!en ma/in0 in%e"tment deci"ion".
c. Cor*oration" "!ould include o**ortunity co"t" #!en ma/in0 in%e"tment deci"ion".
d. All o( t!e an"#er" ao%e are correct.
e. An"#er" .a1 and .c1 are correct.
22. Mil"on Com*any i" con"iderin0 t!e *urc!a"e o( MiLe Com*any at a *rice o( >1?0-000. I( Mil"on
ma/e" t!e ac'ui"ition- it" a(ter)ta5 net ca"! (lo#" #ill increa"e y >&0-000 *er year and remain at t!i"
ne# le%el (ore%er. I( t!e a**ro*riate co"t o( ca*ital i" 12 *ercent- "!ould Mil"on uy MiLeF
a. ,e"- ecau"e t!e N<K E >&0-000
. ,e"- ecau"e t!e N<K E >200-000
c. ,e"- ecau"e t!e N<K E >10-000
d. No- ecau"e N<K M 0.
e. T!ere i" not enou0! in(ormation 0i%en to an"#er t!i" 'ue"tion.
USE THE FOLLOWING INFORMATION TO ANSWER 8UESTIONS 9: THROUGH 9E
<!ilurn File" manu(acture" a %ariety o( "a#" and tool" (or t!e commercial uildin0 indu"try. T!e com*any
i" con"iderin0 t!e con"truction o( a ne# (acility to u*date it" manu(acturin0 *roce"". T!e com*anyN" CF:
!a" collected t!e (ollo#in0 in(ormation aout t!e *ro*o"ed ne# (acility *roDect. .Note3 ,ou may or may not
need to u"e all o( t!i" in(ormation- u"e only t!e in(ormation t!at i" rele%ant.1
T!e *roDect !a" an antici*ated economic li(e o( 10 year".
T!e ne# (acility #ill e con"tructed on a *iece o( land t!at <!ilurn currently o#n". T!e land !a" a
current mar/et %alue o( >2 million. I( <!ilurn doe" not u"e t!e land (or t!i" *roDect- t!e land #ill
in"tead e "old.
8a"t year <!ilurn "*end >200-000 to 0rade t!e land and to *ut in "e#er and #ater line". T!e
com*any !a" ca*itali;ed t!e"e co"t" and i" recordin0 t!em on t!eir income "tatement at >100-000
*er year o%er t!e ne5t 2 year".
Con"truction o( t!e ne# *roduction (acility #ill re'uire an immediate outlay .at tE01 o( >12
million.
T!e *roduction (acility #ill e de*reciated on a "trai0!t)line a"i" o%er 10 year" to a >2 million
"al%a0e %alue. <!ilurn *lan" to "ell t!e *roduction (acility to a com*etitor at t!e end o( t!e 10)
year *eriod (or >2 million.
I( t!e com*any acce*t" t!e *roDect- t!e land #ill e "old #it! t!e *roduction (acility in 10 year" (or
it" current oo/ %alue- #!ic! i" >2 million.
I( t!e com*any 0oe" a!ead #it! t!e *ro*o"ed *roDect- it #ill re'uire an immediate increa"e in
in%entory o( >1-B00-000- ut #ill al"o re"ult in an immediate increa"e o( >B00-000 in account"
*ayale. Eac! o( t!e"e *o"ition" #ill e re%er"ed at t!e com*letion o( t!e *roDect .t!at i"- any
c!an0e in net #or/in0 ca*ital t!at occur" at t!e e0innin0 o( t!e *roDect #ill e reco%ered at t!e
end o( t!e *roDect1.
T!e ne# (acility i" e5*ected to reduce annual o*eratin0 e5*en"e"- e5cludin0 mana0ement "alarie"-
y >B million *er year (or eac! o( t!e ne5t 10 year". No c!an0e in annual re%enue i" e5*ected.
T!e accountin0 de*artment *lan" to allocate t!e annual "alarie" o( 2 mana0er" to t!i" ne# (acility-
!o#e%er- only 2 ne# mana0er" #ill actually e !ired y t!e com*any. Eac! o( t!e"e mana0er" #ill
earn >200-000 *er year (or t!e ne5t 10 year".
T!e com*anyN" intere"t e5*en"e eac! year #ill e >&00-000.
T!e com*anyN" co"t o( ca*ital .i.e.- t!e re'uired rate o( return on t!i" *roDect1 i" 12 *ercent.
T!e com*anyN" ta5 rate i" +0 *ercent.
Record your final numerical answer to each of the following questions on the answer sheet. Show your
work on the back of the answer sheet for possible partial credit.
2&. H!at i" t!e 'n't'.( 'n3$t-nt (or t!e *roDectF
2+. H!at i" t!e (ourt! year e5*ected incremental "/&.t'n0 ca"! (lo#F
22. H!at i" t!e 10t! year incremental n"n-"/&.t'n0 ca"! (lo#F
C"&/"&.t'"n F'n.n+
An$%& K4 t" 9>;> T$t
1. C
2. B
&. A
+. A
2. B
@. D
A. D
B. B
?. D
10. A
11. E
12. B
1&. C
1+. C
12. A
1@. D
1A. E
1B. C
1?. D
20. D
21. C
22. C
2&. >21m
2+. >+.?@M
22. >BM
Detail" o( "olution (or O2&3
Con"truction o( ne# (acility .>12M1
8and :**ortunity co"t .> 2M1
C!an0e in net #or/in0 ca*ital .> 1M1
Initial In%e"tment .>21M1
Detail" o( "olution (or O2+3
NCF E .Incremental re%enue P Incremental Co"t P Incremental De*reciation1.1)T1 Q Incremental
De*reciation.
NCF E .0 ) )BM ) .+M P 1M1..@1 Q 1M
E +.?@M
Note"3
De*reciation E .12M P 2M1R10 E 1M
T!e incremental *art o( mana0ement "alarie" E .+M .2 mana0er" at 200-000Ryr1
Detail" o( "olution (or O223
$ell ne# (acility >2M
$ell 8and >2M
Reco%er net #or/in0 ca*ital >1M
10
t!
,ear non)o*eratin0 ca"! (lo# >BM