FIN 512 Week 4 Midterm New

FIN 512 Week 4 Midterm New

Author: Harvey Maxwell

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1. (TCO B) Which of the following best defines a partnership?
2. (TCO D) The planning of cash needs of a business is conducted using a life cycle approach. Which of the following tasks is/are performed in the development stage of the life cycle?
1. (TCO C) What is meant by the terms depreciation and accumulated depreciation? In which financial statement does each of these items appear? What is accrual accounting and how does it influence financial statement presentation?
2. (TCO B) Six months ago, you invested $350,000 to become a partner in a medical practice in which you have a 50% ownership interest. Today, your partner defaulted on the payments for a $2 million Open MRI system that is used by the partnership. What is the dollar amount of your personal liability exposure if you are a) the general partner, and b) if you are a limited partner? Discuss the characteristics of general and limited partners, and how these influence the liability amounts
3. (TCO C) EcoCars manufactures a new ultra-sporty electric vehicles targeted to MBAs and other higher-earning professionals. EcoCars’ management has asked you to help the firm identify its EBDAT breakeven level. The company has only one product, the eBolt. The firm’s cars sell for $52,000 each (all production is outsourced to an external manufacturer). Each car costs $44,200 in materials and manufacturing costs. The firm’s office lease in Silicon Valley is $1.2 million annually. Its marketing and advertising expense is $2.5 million per year, and salaries and insurance run $2.3 million annually.
Complete the following, and show all your calculations for each.
Part 1: Calculate the firm’s 1) EBDAT revenue, and 2) contribution profit margin at EBDAT breakeven. 

Part 2: If the firm sells 575 vehicles, what will be its 3) gross profit percentage, 4) operating income, and 5) operating income percentage?
4. (TCO A, D) H2Oh! has patented a brilliant technology that transforms dry air into drinkable water. In 2012, the company has $8 million in revenue, and $1.2 million in net income. H2Oh! began the year with $5 million in book equity on January 1. Complete the following, and show all your calculations for each:

a) Forecast the firm’s 2017 sales, assuming a 40% sales growth rate per year starting in 2013. 

b) Assuming the company pays out no dividends in 2012, what is the firm’s maximum sustainable growth rate? 

c) Compare H2Oh!’s sales growth rate with the firm’s maximum sustainable growth rate (which you just calculated in (b). Will the firm be able to support its growth through internally generated funds? If so, discuss the financial reasons why this is so using the textbook’s concept of maximum sustainable growth rate. If you believe the firm will not be able to support its growth, explain why and discuss what action management must take.

d) Part 1: If the firm pays out $400,000 in dividends, what is the firm’s retention rate? Part 2: Assuming the firm pays out $400,000 in 2012 dividends, what is H2Oh!’s sustainable growth rate? 

e) After $400,000 in 2012 dividends have been paid on December 31, what will be H2Oh!’s new book equity balance? 

f) Use your final answer for (e) to answer the following: assume that the H2Oh!’s balance sheet shows that the firm has assets with a book value of $7 million. How much debt does the firm have?
5. (TCO A) What does it mean to screen a venture opportunity? Discuss the components that are utilized in the VOS Indicator screening tool and the metrics used for at least one specific factor within each of the broad factor categories that are used to assesses the attractiveness of a venture opportunity (i.e., industry considerations, pricing considerations, harvesting considerations, etc.).

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