FIN 575 Final

Exam
1. During the project initiation, a project charter is created. The project
charter should include which of the following?

Project managers expenses

Analysis of budget
Selection of the senior project manager
Projects high-level deliverables

2. Project's budget should be based on a companys

strategy and financial goals
profitability
financial goals and equity
debt load and equity
3. Earned value management is a technique used to integrate projects
Resources
scope, schedule, and resources
schedule, costs, and benefits
costs and profits
4. Bills Billiards has total assets of $8 million and a total asset turnover of 2.9
times. If the return on assets is 11%, what is Bill's profit margin?
11%
4.10%
2.50%
3.79%

5. What are the acceptance criteria for NPV?

If the NPV is less than $0, accept the project.

If the NPV is greater than $0, accept the project.
If the IRR is equal to 0%, reject the project.
If the NPV is equal to the discounted payback, accept the project.

6. The risk response plan answers what question?

What can be done if risk occurs? What is the backup plan?

What are project costs?
There is no need to plan for risk seldom occurs in a project.
How risk is to be managed

7. For the most recent year, Cals Cats had sales of $380,000, cost of goods sold
of $93,000, depreciation expense of $47,000, and additions to retained earnings
of $61,420. The firm had $52,000 in interest expense, and 34% tax rate. What
were the times interest earned ratio?
2.2
5.8
4.61
2.8
8. Bobs Garages has sales of $41 million, total assets of $32 million, and total
debt of $11 million. If the profit margin is 12% what is the return on equity
(ROE)?

14%
12%
51%
23.40%

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9. What are the components of project planning that need
monitoring?

Resource procurement and quality

Project cost and risk
Project cost, risk, resource procurement and quality
Quality and control

10. During project planning, the project team creates a work breakdown
structure that details work tasks that must be completed. The work
breakdown structure should include a
schedule of when every task will start and be completed
schedule of project staff meetings
set of management tasks
budget analysis
11. The R. M. Senchack Corporation earned an operating profit margin of 6%
based on sales of $11 million and total assets of $6 million last year. What was
Senchacks total asset turnover ratio?

1
0.54
5.4
1.8

12. Why is the communication plan a crucial factor in project success?

Ensures the timely generation, collection, storage, and disposition of project
information
Facilitates upper management communication with the workers
Reduces rumors in the organization
Communicates the economic value of the project to management

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13. A companys assets are financed with

debt
equity
equity or debt
equity and debt

14. Part of financial planning for projects involves the understanding of the
inflows and outflows of cash that will be created by the project. What tool can
be used to track these cash flows?

A NPV flow sheet

Profitability work sheet
Project cash flow worksheet
Cash flow table

15. Stokes, Inc. has net working capital of $7,900, current liabilities of $5,220,
and inventory of $2,000. What is the quick ratio?
1.89
1.13
1.21
2.1
16. What ratio measures a firms degree of indebtedness?

Debt ratio
Quick ratio
Fixed coverage ratio
Times interest earned ratio

17. Which one of these terms is a type of debt financing?

Stock repurchases plans

Collateral
Trade credit
Bearer bonds

18. The sum of the percentage of equity and debt multiplied by their
respective cost is called

weighted average cost of

capital asset pricing model
market value added
Economic value added.

19. Profitability ratios all have what same figure in the numerator?

Book value per

Net income
Price per share
Total assets

20. Terrys Trash removal has a total debt ratio of 0.45. What is the firms
debt-to-equity ratio?

1.27
0.41
0.82
1.82

21. An investment in a project should be undertaken only if the expected

return is greater than the

NPV
WACC
payback method
economic value added

22. Brenda Smith, Inc. had a gross profit margin (gross profits
sales) of 25% and sales of $9.75 million last year. Seventy-five
percent of the firms sales are on credit and the remainder are

cash sales. Smiths current assets equal $1,550,000, its current liabilities equal
$300,000, and it has $150,000 in cash plus marketable securities. If Smiths
accounts receivable are $562,500, what is its average collection period?

25 days
32 days
28 days
14 days

23. You are considering a project with an initial cash outlay of $160,000 and
expected free cash flows of $40,000 at the end of each year for 6 years. The
required rate of return for this project is 10%. What is the projects payback
period?

4 years
4.5 years
6 years
5 years

24. Project managers manage project cost by

Monitoring inventory costs

Monitoring opportunity costs
Ensuring the work is progressing as planned
Ensuring retail costs are controlled

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25. What is the primary weakness commonly associated with the use of the
payback method to evaluate a proposed investment?

 This approach fails to take into account the time factor in the time value of
money.
The payback method uses the discounted cash flow process.
The payback method is able to recognize cash flows that occur after the
payback period.
The payback method is not appropriate for evaluating small projects.
26. Fijisawa, Inc. is considering a major expansion of its product line and has
estimated the following free cash flows associated with such an expansion. The
initial outlay associated with the expansion would be $1,950,000, and the
project would generate free cash flows of $450,000 per year for 6 years. The
appropriate required rate of return is 9%. Calculate the net present value and
the internal rate of return.
NPV=$66,098, IRR=10.5
NPV=$72,097, IRR=9.5
NPV=$68,663, IRR=10.2
NPV=$69,368, IRR=10
27. Cost normally falls into the domain of managerial accounting and has 4
essential proposes. Select the answer that is an essential function of cost.
Used to calculate earned value cost
Used to calculate executive stock options
Used to calculate inventory costs
Used for planning future activities or budgets
28. Select the answer that is an example of a cost classification?
Credit cost
Fixed cost
Retail cost
Inventory cost

29. What are the four secondary processes in project control?

Schedule control, change control, risk control, and quality assurance control
Value control, Inventory control, schedule control and quality control
Organizational control, cost control, inventory control, and risk control
Stakeholder control, organization control, risk control, and change control

30. Stokes, Inc. has net working capital of $7,900, current liabilities of $5,220,
and inventory of $2,000. What is the current ratio?
2.1
0.77
1.89
1.51

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