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HRM 598 Final Exa

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1. (TCO A) The new CEO of your company, who just came from a competitor, has just asked you to discuss the organization’s compensation system. As the compensation manager, you tell him about the organization’s nearly 500 employees in about 70 different job titles who are located in three locations in L.A. He asks you to describe the strategy used to guide compensation system decisions. You explain that ordinarily, pay models are guided by several strategic policies. Describe what goals a compensation system should have and how four strategic pay policies apply to the organization. (Points : 30)

2. (TCO B) The VP for HR met with you, the compensation manager, to go over the new strategies for attracting new employees for the offshore oil recovery division. The division works with oil production companies to help prevent oil spills and recover oil where leakages have occurred. The division employs many engineers and scientists with expertise in hydraulics, oil production, chemistry, etc. Employee assignments are often for three to six months in different countries around the world. The VP for HR indicates that you should use a job-based point method.

In creatinga job-based point evaluation plan for the organization, identify and discuss four compensable factors that you would incorporate in the job-based point evaluation plan. Please describe a job-based point evaluation plan. In addition, define each factor, justify why you selected it, and provide the weights or scales that you would assign to it. (Points : 30)

3. (TCO B) You are the Compensation Director for Forever-Green Plywood, Inc. The company buys timber, manufactures plywood sheets, and sells on the international market. The organization’s three major units are timber purchasing (with five employees), manufacturing plant (with 120 employees), and sales and management (with 12 employees).

You need to develop a job evaluation plan for the organization. Describe the difference between person-based plans and job-based plans. Explain which one you would use. What factors would you consider? What is one advantage and disadvantage of each? (Points : 30)

4. (TCO C) A high-tech start-up company has retained your services to assist them in determining a competitive market pay policy for the company to use as they staff up. In order to help them, what information would you need about the company? Describe four competitive market pay policies, and give an example of when an organization might want to use each policy. (Points : 30)

5. (TCO D) You are a consultant who specializes in compensation. You are working with Midwest Highway, Ltd., a road construction company housing five plants that produce materials for road building. The CEO of the company wants to know what type of performance measurement tool should be used in its production facilities in the future. The main production job in the five plants (about 85 out of the total of 125) involves operation of machines that mix and form the surfacing materials. The production lines are well established and product lines are consistent. The job appears to you to be a low-level one with prescribed routines.

The CEO asks you the following question: Should we consider a straight ranking approach, a rating system like a behavioral anchored rating scale (BARS), a management by objectives (MBO) format, or a 360-degree multi-rater approach? Describe the four types of performance assessment approaches. Recommend one and justify why you have chosen it.(Points : 30)

HR598 Final Exam Page 2

1. (TCO D) As the Compensation Manager of a large accounting firm, you have reviewed the results of the last performance appraisal cycle. It appears that supervisors and managers may be having difficulty in doing the appraisals. You are concerned about validity and reliability of the process.

In preparation for a training program for supervisors and managers, identify at least three common errors in the performance appraisal process and describe them. In addition, describe steps to minimize these errors. (Points : 30)

2. (TCO F) You are a Compensation Consultant working with a Top 100 bank on the East Coast of the U.S. The Board of Directors of the bank is in the process of hiring a new CEO. They indicate that they are concerned about public perception. You are invited to a Compensation Committee meeting to recommend an executive compensation strategy.

Describe the components of an executive compensation plan and explain how these components can help support the organizational strategy. (Points : 30)

3. (TCO G). The management team of the Fossety Iron Works has raised questions about compensation policies and procedures. They do not seem to understand the basic laws and regulations that affect compensation. The chairperson of the team has asked you, as Compensation Manager, to explain the most important laws to them. You selected Fair Labor Standards Act (FLSA) to start with because it is probably the most comprehensive and far-reaching legislation that affects compensation.

Describe the four key requirements and why they are important in compensation. (Points : 30)

4. (TCO E). As a Compensation Consultant, you have been asked by a client organization to brief their management group on incentive plans like gain-sharing and profit-sharing plans.

Briefly describe what gain-sharing and profit-sharing plans involve. What conditions should exist prior to implementation to make it easier to implement? What are the advantages and disadvantages of group incentives like gain-sharing and profit-sharing plans? (Points : 30)

 
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HRM 594 Final Exam Set

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1. (TCO B) Discuss the 13 strategic staffing decisions one must make when developing an organizational staffing strategy. Do you believe that some of them are more important to an organization than others? Which ones? Fully explain your reasoning, providing clear examples to illustrate your position. (Points: 25)

2. (TCO E) You are the staffing manager for your organization. Fully discuss the administrative issues that you would address in the planning stage of external recruiting. Explain the importance of each issue. (Points: 30)

3. (TCO G) You are a staffing manager. Recommend the steps your organization should take to develop and implement a policy regarding employment-at-will. Explain the importance of having an employment-at-will policy, and the consequences of not having one. (Points: 30)

Page 2

1. (TCO C) As an HR leader, how would you try to get individual managers to be more aware of the legal requirements of staffing systems and to take steps to ensure that they themselves engage in legal staffing actions? (Points: 30)

2. (TCO F) You are a staffing professional. Describe how you might go about determining scores for applicants’ responses to: a. interview questions, b. letters of recommendation, and c. questions about previous work experience. (Points: 25)

3. (TCO H) You are an HR Manager for ABC Corporation. Your strategic staffing plan indicates that in the next five years, your 500 Customer Service Representatives will need specific computer skills to utilze a new technology that is planned. None of the reps currently have this skill. Other than terminating all of the employees and hiring new employees with the required skills, discuss two possible alternatives the company might consider. (Points: 30)

Page 3

1. (TCO A) Imagine an organization that has a staffing process in which vacancies are filed (a) on a lottery basis from among job applicants, or (b) on a first-come, first-hired basis among job applicants. Predict the potential problems associated with these scenarios. (Points: 30)

2. (TCO D) You are the HR Manager of your organization. Your task is to perform job analysis on all of the jobs within your organization. What are the advantages and disadvantages to using multiple methods of job analysis for a particular job? Multiple sources? (Points: 30)

3. (TCO I) Which of the costs and benefits of voluntary turnover are most likely to vary according to the type of job? Give specific examples. (Points: 20)

 
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HRM 590 Final Exam Set

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1. (TCO A) Discuss two major trends that are currently affecting the practice of human resource management. Provide examples of how a company’s HRM practices might be affected by each trend. (Points: 30)

2. (TCO B) To be a strategic business contributor, human resources must enhance organizational performance, expand human capital, and be cost effective. Discuss how HRM professionals must balance the competing demands made on them. (Points: 30)

3. (TCO C) Explain the most significant impact of a union on human resource management. (Points: 30)

4. (TCO D) In developing human resource strategies, businesses face several important challenges. Identify and describe four of these challenges. Link these challenges back to the HRM department’s strategy plan. (Points: 30)

5. (TCO E) While layoffs may seem prevalent in our work environment today, many companies still face the challenge of retaining top performers and the skills needed to complete the job. Explain how you would create a proactive retention program for a company. Describe the steps you would take and substantiate each step. (Points: 30)

6. (TCO F) Substantiate the value of employee performance evaluations to the business and the employee. Describe the factors/components you would include in a performance management program and validate those items. (Points: 30)

7. (TCO G) Pay for performance plans vary in design. Some are designed to reward individuals as well as team results. Describe both types of pay plans. Evaluate the value of both plans as it relates to the organization/business. (Points: 30)

8. (TCO H) Explain how human resource technology can improve efficiency and effectiveness of HRM functions. How, specifically, can technology support the business? Provide an example. (Points: 40)

 
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GM 588 Final Exa

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1. (TCO E) Suggested reasons why many customer satisfaction efforts fail include all of the following EXCEPT:

2. (TCO D) The Six-Sigma problem solving approach contains the phases of:

3. (TCO C) Terms such as “kanban”, “single minute exchange of dies”, and “visual controls” are most closely associated with:

4. (TCO C) Poka-yoke focuses on two aspects:

5. (TCO B) _____ measures are generally tracked by senior leadership to gauge overall organizational performance.

6. (TCO I) The cost of purchasing copies of a textbook on quality for employees as part of their training program in process improvement methods is considered:

7. (TCO A) Which of the following is NOT a characteristic of a Six Sigma project?

8. (TCO B) A set of financial, market, operational, and employee performance measures for management review and use is an example of:

9. (TCO D) The Baldrige Award criteria, as a tool for self-assessment:

10. (TCO H) Focusing on how to maintain improvements occurs in which DMAIC phase?

1. (TCO B) Explain why it is difficult to obtain a single, universal definition of quality. Be specific in your response.

2. (TCO I) What criterion is used to classify a failure cost as “internal” versus “external”? Give three examples of an internal failure cost and three examples of an external failure cost.

3. (TCO G) Discuss the three major reasons why companies adopt total quality. Also, discuss the initial key steps are involved in the adoption process.

4. (TCO F) Explain in detail why change is necessary in organizations. Describe the effects that change can have on quality management with respect to employee commitment and quality levels.

5. (TCO H) Describe the six basic steps required to build the House of Quality. Describe, in general, where in the House are customer and technical requirements located. Also explain why it is important that each area of the House is “linked” with the others

6. (TCO C) Some have argued the Six Sigma programs are merely repackaged versions of older quality improvement programs that originally accompanied TQM initiatives in the 1980s. Present arguments that both support and refute this view. Make sure you link your discussion with examples of the older quality improvement programs (i.e. Deming, Juran, etc)

 

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FIN 515 Final Exam (Set 3

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1. (TCO A) Which of the following does NOT always increase a company’s market value?

2. (TCO F) Which of the following statements is correct?

3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

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?

5. (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm’s investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.

1. (TCO H) The Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?

2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)

3. (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC?

4. (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).

5. (TCO G) Based on the corporate valuation model, the value of a company’s operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of the stock’s price per share?

6. Sapp Trucking’s balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%.  This debt currently has a market value of $50 million.  The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million.  The current stock price is $22.50 per share; stockholders’ required return, rs, is 14.00%; and the firm’s tax rate is 40%.  The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate.  What is the difference between these two WACCs?

7. based on the corporate valuation model, bernile Inc’s value of operation is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long term debt, $40 million of common stock (par plus pain -in – capital), and $160 million of retained earnings. What is the best estimate for the firm’s value of equity, in millions

 
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HRM 595 Final Exa

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1. Joe McDonald is the HR manager of ACME chemicals. His boss, Bill Jacobs, is concerned that the interactions between the various departments of the company are inconsistent and that there is too much competition between departments rather than cooperation. Bill has asked you about ways to improve the negotiations between business units. In your explanation to Bill, you need to explain the following: What are the three primary reasons that negotiations occur? What is the difference between bargaining and negotiation? Why must successful negotiations involve both tangible and intangible components? Do you think that ACME needs to pursue an integrative or a distributive approach to their future interdepartmental negotiations? (Points : 20)

2. Define the term “conflict” and describe how it impacts the negotiation process. Your explanation should include the 4 levels of conflict and the dysfunctions that conflict can create. In your response, you need to also provide your opinion as to whether conflict is always a negative component in negotiations. If not, why? (Points : 15)

3. Jack Johnson owns a 1998 Ford Mustang that he is looking to sell. He advertises in the Auto Trader. Mary Smith responds to his ad and expresses interest in purchasing the vehicle. Jack is asking $3500 for the car. Mary is looking to pay no more than $2500 for the vehicle. Would you describe this negotiation as a distributive or an integrative negotiation? Why? Jack has set $3500 as the price of his car but is willing to take $3000 for the vehicle. Anything under $3000 will not be accepted. Mary wants to pay $2500 for the car, but is willing to go up to $3000. Anything over $3000 will cause the deal to fail. Define and contrast the Walkaway Points, Target Points and Asking Price/Initial Offer of the parties. What are some of the strategies that could be used by each party to achieve the outcome they desire? (Points : 30)

4. What makes an integrative negotiation different from a distributive negotiation? Define the key steps in the integrative negotiation process. How does establishment of a BATNA aid the parties in realizing their integrative outcome? (Define the term BATNA in your response). If a win-win outcome is beneficial to both parties, then why is it so difficult to achieve? (Points : 30)

5. Often there are other parties to a negotiation that can add great complexity to the process. Define the following terms: Negotiating Dyad; Agent; Constituency; Bystander; Audience. What are some of the reasons that an individual might engage the services of an agent to represent him/her in a negotiation? (Discuss at least three) What are the three distinct relationships that an Agent has to maintain in the negotiation process? (Points : 30)

6. Marie Smith is the head of Marketing for Jones Construction. Harry Brown is the on-site project manager for all major construction projects. Marie is interested in expanding the budget for general marketing activities. Harry wants these resources reserved for existing projects. Marie comes to you for advice on the key steps she should use in preparing for her negotiation with Harry. Discuss the 7 steps to an ideal negotiation process. (Points : 15)

7. As Marie and Harry enter into their negotiations, their perceptions of each other will be an important component to the negotiation process. Define perception and the role it plays in the negotiation process. What are the four major perceptual errors that tend to occur? What does the term “framing” mean and how does it relate to the issue of perceptions? How can we counter these perceptual errors? (Points : 30)

8. We have discussed the importance of communication in the negotiation process. We reviewed the concept of communication as a sender encoding a message to a receiver who decodes the message and then responds back to the sender – thus creating the feedback process important to every negotiation. What are the major sources of distortion that can interfere with communication? (Name and define at least 3) What are the three key questions we need to ask regarding communication in negotiations? What role does listening play in the communications process (Describe the 3 types of listening). What are some of the ways that a negotiator can improve his/her communication skills? (Points : 30)

9. When we look at the complexities of the negotiation process, there are many situations where a negotiator might consider the use of questionable tactics to accomplish his/her goals. This brings up the important question of ethics in negotiation. Define the 4 types of ethical reasoning. Why do people use deceptive/ambiguous tactics in negotiation? What are some of the factors that shape a predisposition to the use of unethical tactics? How can we effectively respond to the use of unethical practices? (Points : 20)

10. Barney and Marilyn have been married for six months. They engage in negotiations consistently as a way to improve their understanding of each other and to build a loving relationship. How does this “relationship” negotiation differ from the negotiation practices that we have discussed involving business relationships? Research has uncovered 4 fundamental types of relationship forms. Define and contrast them. Which of the four types represent the relationship between Barney and Marilyn? What are the three key elements necessary for managing negotiations within relationships? Which do you think is the most important? Why? (Points : 30)

 
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HRM 594 Final Exam Set

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(TCO B) Review the 13 strategic staffing decisions that organizations must make when developing a staffing strategy. Provide an example of an organizational business strategy, and explain how each decision might be impacted by the given business goals. (Points: 25)

(TCO E) You are the staffing manager for your organization. Fully discuss the administrative issues that you would address in the planning stage of external recruiting. Explain the importance of each issue. (Points: 30)

(TCO G) If you were the HR staffing manager for an organization, what guidelines might you recommend regarding oral and written communication with the job applicants by members of the organization? (Points: 30)

(TCO C) As an HR leader, how would you try to get individual managers to be more aware of the legal requirements of staffing systems and to take steps to ensure that they themselves engage in legal staffing actions? (Points: 30)

(TCO F) Assume you gave a general ability test, measuring both verbal and computational skills, to a group of applicants for a specific job. Also assume that because of severe hiring pressures, you hired all of the applicants, regardless of their test scores. How would you investigate the criterion-related validity of the test? (Points: 25)

(TCO H) There are numerous negative organizational consequences to firing employees, including the discomfort of the supervisor who delivers the termination information, conflict or sabotage from the departing employee, and the potential for a lawsuit. In response, many supervisors provide problem employees unpleasant work tasks, reduced working hours, or otherwise negatively modify their jobs in hopes that the problem employees will simply quit. What are the ethical issues raised by this strategy? (Points: 30)

(TCO A) Imagine an organization that has a staffing process in which vacancies are filed (a) on a lottery basis from among job applicants, or (b) on a first-come, first-hired basis among job applicants. Predict the potential problems associated with these scenarios. (Points: 30)

(TCO D) It has been suggested that “ethical conduct” be formally incorporated as a general competency requirement for any job within the organization. Debate the pros and cons of this suggestion. (Points: 30)

(TCO I) Consider a circumstance where your organization is doing exit interviews and has promised confidentiality to all who respond. Your supervisor has asked you to give the name of each respondent so she can assess the information in conjunction with the person’s supervisor. What obligation do corporate HR employees have to keep information confidential in such circumstances? (Points: 20)

 
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HRM 590 Final Exam Set

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1. (TCO A) Many people still believe that companies care little about human resource management compared to other revenue-generating departments. Explain why companies have this perception. Describe how you would convince the company’s leadership of the value of HRM. (Points: 30)

2. (TCO B) If an employer asked you to review an employment decision to determine whether discrimination had occurred, identify the factors you would consider in that decision and describe how you would evaluate them. (Points: 30)

3. (TCO C) Many believe that good pay and good management result in union avoidance. Describe the policies and practices companies should develop to avoid unionizing. Explain how these practices might be less costly than unionized labor. (Points: 30)

4. (TCO D) In developing human resource strategies, businesses face several important challenges. Identify and describe four of these challenges. Link these challenges back to the HRM department’s strategy plan. (Points: 30)

5. (TCO E) Describe the advantages and disadvantages of layoffs. Explain the pros and cons to using seniority as a layoff criteria. (Points: 30)

6. (TCO F) Substantiate the value of employee performance evaluations to the business and the employee. Describe the factors/components you would include in a performance management program and validate those items. (Points: 30)

1. (TCO G) From a general human resource standpoint, describe what you would include in a benefits strategy. Describe the value of a benefits strategy for employees and the business. (Points : 30)

2. (TCO H) Explain how human resource technology can improve efficiency and effectiveness of HRM functions. How, specifically, can technology support the business? Provide an example. (Points: 40)

 
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FIN 515 Final Exam (Set 4) – most recent final exam for FIN51

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1.Which of the following is not a step in the WACC valuation method?

2. Which of the following statements is correct?

3. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero. The company’s last dividend, D0, was $ 1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. Which is the current price of the common stock?

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?

5. (TCO G)

Consider the information for the following four firms.

Firm

Cash

Debt

Equity

rD

rE

τc

Eenie

0

150

150

5%

10%

40%

Meenie

0

250

750

6%

12%

35%

Minie

25

175

325

6%

11%

35%

Moe

50

350

150

7.50%

15%

30%

Which is the weighted average cost of capital for Meenie closest to?

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?

2. (TCO C) A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it actually pays after 58 days. What is the effective annual percentage cost of its nonfree trade credit? (Use a 365-day year.)

3. (TCO E) Your firm is planning to invest in a new power generation system. Galt Industries is an all-equity firm that specializes in this business. Suppose Galt’s equity beta is 0.75, the risk-free rate is 3%, and the market risk premium is 6%. If your firm’s project is all equity financed, then which is your estimate of your cost of capital closest to?

4. (TCO B)

You expect CCM Corporation to generate the following free cash flows over the next 5 years.

Year

1

2

3

4

5

FCF ($ millions)

25

28

32

37

40

Following Year 5, you estimate that CCM’s free cash flows will grow at 5% per year and that CCM’s weighted average cost of capital is 13%.

Which is the enterprise value of CCM Corporation closest to?

4. (TCO B)

You expect CCM Corporation to generate the following free cash flows over the next 5 years.

 

Year                           1            2             3                4                 5

FCF ($ millions)            25          28            32               37               40

 

If CCM has $200 million of debt and 8 million shares of stock outstanding, then which is the share price for CCM closest to?

5. (TCO D)

Which is the standard deviation of the returns on Stock A from 2000 to 2009 closest to?

Year End

Stock A Realized Return

(R – R)

(R – R)2

2000

46.3%

29.85%

0.0891023

2001

26.7%

10.25%

0.0105063

2002

86.9%

70.45%

0.4963203

2003

23.1%

6.65%

0.0044223

2004

0.2%

-16.25%

0.0264063

2005

-3.2%

-19.65%

0.0386123

2006

-27.0%

-43.45%

0.1887903

2007

27.9%

11.45%

0.0131103

2008

-5.1%

-21.55%

0.0464403

2009

-11.3%

-27.75%

 
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FIN 515 Final Exam (Set 2

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1. (TCO A) Which of the following does NOT always increase a company’s market value?

2. (TCO F) Which of the following statements is correct?

3. (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?

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?

5. (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm’s investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions

1. (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?

2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)

3. (TCO E) Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

4. (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?

5. (TCO G) Based on the corporate valuation model, the value of a company’s operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, , $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stocks price per share?

 
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