SlideShare una empresa de Scribd logo
1 de 14
Descargar para leer sin conexión
BUSN379 FINAL EXAM

                     PLEASE DOWNLOAD HERE


1. (TCO 4) Which of the following is true regarding the evaluation of projects?
(Points : 4)

sunk costs should be included
 erosion effects should not be considered
 financing costs need to be included
 opportunity costs are relevant

2. (TCO 4) Which of the following investment ranking methods does not consider
the time value of money? (Points : 4)

net present value method
payback method
internal rate of return method
all of these are time-adjusted methods

3. (TCO 3 and 4) A net present value of zero implies that an investment: (Points :
4)

has no initial cost.
has an expected return that is less than the required return.
should be rejected even if the discount rate is lowered.
never pays back its initial cost.
is earning a return that exactly matches the requirement.

4. (TCO 3 and 4) What is the net present value of a project with the following
cash flows, if the discount rate is 15 percent?

Year

0

1

2

3

4

Cash flow
-$45,000

$11,520

$13,630

$16,470

$18,990

(Points : 4)

-$2,989.48
 -$2,599.55
 $1,153.37
 $2,880.08
 $3,312.09

5. (TCO 4) Leward Manufacturing is spending $115,000 to update its equipment.
This is necessary if the firm wishes to be competitive in the marketplace and
provide a wide array of product models. The company estimates that these
updates will improve its cash inflows by $27,500 a year, for eight years. What is
the payback period? (Points : 4)

4.18 years
5.82 years
6.62 years
7.79 years
This project never pays back

6. (TCO 4) The postponement of a project until conditions are more favorable:
(Points : 4)

is a valuable option.
 is referred to as the option to extend.
 could not cause a negative net present value project to become a positive net
present value project.
 will generally cause the internal rate of return for a project to decline.

7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project
under any circumstances. (Points : 4)

contingency planning.
 hard rationing.
 soft rationing.
 capital constraint.
 scenario analysis.
8. (TCO 4) ABC Cameras is considering an investment that will have a cost of
$10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and
$3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true
regarding this investment? (Points : 4)

The net present value of the project is approximately $10,000
 This project should be accepted because it has a positive net present value
 This project’s payback period is 10 years or more
 None of the above is true

9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using
Tables 9.6 and 9.7 of your textbook (Page 277), which is the second year
depreciation amount under MACRS? (Points : 4)

$12,000
$19,200
$19,800
None of the above

10. (TCO 1 and 4) Assume a corporation has earnings before depreciation, and
taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax
bracket. What are the after-tax cash flows for the company? (Points : 4)

$82,000
$110,000
$42,000
none of these

11. (TCO 8) Which of the following statements is true regarding systematic risk?
(Points : 4)

is diversifiable
  is the total risk associated with surprise events
  it is measured by beta
  it is measured by standard deviation

12. (TCO 8) Which statement is true regarding risk? (Points : 4)

the expected return is usually the same as the actual return
 a key to assess risk is determining how much risk an investment adds to a
portfolio
 risks can always be decreased or mitigated by the financial manager
 the higher the risk, the lower the return investors require for the investment

13. (TCO 8) The stock of Hobby Town has an expected return of 8.8 percent.
Given the information below, what is the expected return on this stock if the
economy is normal?
State of Economy

Probability of State of Economy

Rate of Return

Recession

.10

-.09

Normal

.70

?

Boom

.20

.26

(Points : 4)

3.86 percent
4.42 percent

6.43 percent
7.28 percent
8.21 percent

14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in
stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of
stock B? (Points : 4)

14.79 percent
15.91 percent
18.42 percent
19.07 percent
19.46 percent

15. (TCO 8) You would like to create a portfolio that is equally invested in a risk-
free asset and two stocks. The one stock has a beta of .80. What does the beta of
the second stock have to be if you want the portfolio risk to equal that of the
overall market? (Points : 4)
1.4
1.6
1.8
2.0
2.2

1. (TCO 8) Weak form market efficiency states that the value of a security is
based on: (Points : 4)

all public and private information.
 historical information only.
 all publicly available information.
 all publicly available information, plus any data that can be gathered from insider
trading.
 random information with no clear distinction as to the source of that information.

2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be
financed with debt at a cost of 6 percent (after-tax) and common equity at a cost
of 18 percent. Assume debt and common equity each represent 50 percent of the
firm's capital structure. What is the weighted average cost of capital? (Points : 4)

between 3 and 9%
exactly 12%
more than 14%
exactly 11%
none of the above

3. (TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend of
$4.80 at the end of the year. Its growth rate is equal to eight percent. If the
required rate of return is 13 percent, what is its current price? (Points : 4)

$103.68
$36.92
$96.00
none of these

4. (TCO 5, 6 and 7) Which of the following is true regarding the cost of debt?
(Points : 4)

It is the return that the firm’s creditors demand on new borrowing.
  It is always equal to the weighted cost of capital.
  An appropriate method to compute the cost of debt is using the coupon rate of
current bonds outstanding.
  All of the above are true.

5. (TCO 5) Which of the following is not true regarding the cost of retained
earnings? (Points : 4)
it is relevant to the WACC
 does not require new funds to be raised
 has associated flotation costs
 has a cost, which is the opportunity cost associated with stockholder funds

6. (TCO 4) A project has the following cash flows. What is the internal rate of
return?


Year

0

1

2

3

Cash flow

-$195,600

$99,800

$87,600

$75,300

(Points : 4)

less than 5%
 between 5 and 15%
 between 15 and 18%
 more than 21%

7. (TCO 5, 6 and 7) All else constant, the weighted average cost of capital for a
firm will decrease if: (Points : 4)

a firm's bonds start selling at a premium, rather than at a discount.
the market risk premium increases.
the firm replaces some of its debt with preferred stock.
corporate taxes are eliminated.
the dividend yield on the common stock increases.

8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is
selling for $62 a share. What is the firm's cost of preferred stock, if the tax rate is
34 percent and the par value per share is $100? (Points : 4)
5.98%
7.06%
8.05%
9.68%
10.10%

9. (TCO 2) Which one of the following occurs if a firm files for Chapter 7
bankruptcy, but does not generally occur if the firm files for Chapter 11
bankruptcy? (Points : 4)

a petition is filed in federal court
 administrative fees are incurred
 a list of creditors is compiled
 pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the
firm
 a trustee-in-bankruptcy is elected by the creditors

10. (TCO 5) Which of the following statements is false regarding the cost of
capital? (Points : 4)

The cost of capital should consider the flotation costs.
 All other being equal, it is preferable to use market value weights than book
value weights.
 The WACC is the most appropriate discount rate for all projects.
 Should include the cost of retained earnings.

11. (TCO 2) Which of the following increases the cash account? (Points : 4)

Goods are sold on credit
 An interest payment on a notes payable is made
 A payment due is received from a client
 Raw materials are purchased and paid for with credit

12. (TCO 2) Which of the following statements is true? (Points : 4)

The optimal credit policy minimizes the total cost of granting credit.
 Firms should avoid offering credit at all cost.
 An increase in a firm's average collection period generally indicates that an
increased number of customers are taking advantage of the cash discount.
 Character, refers to the ability of a firm to meet its credit obligations out its
operating cash flows.
 The optimal credit policy, is the policy that produces the largest amount of sales
for a firm.

13. (TCO 2) All else constant, a decrease in the accounts receivable period will:
(Points : 4)
lengthen the accounts payable period.
 shorten the inventory period.
 lengthen the operating cycle.
 shorten the cash cycle.
 shorten the accounts payable period.

14. (TCO 2) Delphinia's has the following estimated quarterly sales for next year.
The accounts receivable period is 30 days. What is the expected accounts
receivable balance at the end of the second quarter? Assume each month has 30
days.


Q1

Q2

Q3

Q4

Sales

$1,800

$1,700

$2,100

$1,900

(Points : 4)

$567
$600
$821
$1,134
$1,200

15. (TCO 1) Why is maximization of the current value per share a more
appropriate financial management goal than profit maximization? (Points : 4)

Because by maximizing the current stock value, you also maximize the
company’s profit for the year.
 Because this criterion is non-ambiguous.
 Because financial managers always act in the best interest of shareholders.
 Because it creates short-term gains in the financial statements.
1. (TCO 1) Which one of the following activities best exemplify working capital
management? (Points : 4)

Sale long-term bonds to raise funds for a new machine.
 Determine the return of a potential project.
 Calculate the cash flows for a project.
 Manage payments to suppliers.

2. (TCO 1) Book values are different from market values because: (Points : 4)

Book values reflect the value of the asset based on generally-accepted
accounting principles.
Book values are used in the company’s balance sheet.
Book values do not reflect the amount someone is willing to pay today for an
asset.
All of the above
None of the above

3. (TCO 1) Use the following tax table to answer this question:


Taxable Income

Tax Rate

$0-

$50,000

15%

$50,001-

75,000

25

$75,001-

100,000

34

$100,001-

335,000

39
$335,001-

10,000,000

34



Riddell, Inc. earned $144,320 in taxable income for the year. How much tax does
the company owe on this income? (Points : 4)

$39,535
$49,069
$51,285
$56,285
$78,535

4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded
semiannually, and Local Bank offers you an EAR of 19.50 percent for a new
automobile loan. You should choose ______________ because its _______ is
lower. (Points : 4)

Regional Bank, APR
Local Bank, EAR
Regional Bank, EAR
Local Bank, APR

5. (TCO 3) You deposited $8,000 in your bank account today. Which of the
following will increase the future value of your deposit, assuming that all interest
is reinvested? Assume the interest rate is a positive value. Select all that apply:
(Points : 4)

a decrease in the interest rate
increasing the initial amount of your deposit
decreasing the frequency of the interest payments
extending the length of the investment period

6. (TCO 3) You want to have $15,000 for a down payment on a house five years
from now. If you can earn 13 percent, compounded annually, on your savings,
how much do you need to deposit today to reach your goal? (Points : 4)

$7,858.11
$8,141.40
$9,803.58
$12,464.28
$14,213.25
7. (TCO 3) The new home that you want to buy costs $249,500. You plan to
make a cash down payment of 20 percent and finance the balance over 10 years
at 6.75 percent. What will be the amount of your monthly mortgage payment?
(Points : 4)

$2,291.89
$2,809.10
$3,287.46
$3,412.67
$4,145.68

8. (TCO 3) Which type of loan is comparable to the present value of a future lump
sum? (Points : 4)

effective annual rate
amortized
interest-only
annual percentage
pure discount

9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at
12 percent interest. The bonds mature in 25 years. What is the current price of
the bond if the YTM is 16 percent? Assume annual payments. (Points : 4)

$1315
$1300
$756
$1000

10. (TCO 6) The market where new securities are offered is called the _____
market. (Points : 4)

primary
main
secondary
principal
dealer

11. (TCO 7) Which one of the following statements concerning financial leverage
is correct? (Points : 4)

Financial leverage increases profits and decreases losses.
Financial leverage has no effect on a firm's return on equity.
Financial leverage, refers to the use of common stock.
Financial leverage magnifies both profits and losses.
Increasing financial leverage will always increase the earnings per share.
12. (TCO 3) SmithKline Company's bonds are currently selling for $1,157.75 per
$1000 par-value bond. The bonds have a 10 percent coupon rate and will mature
in 10 years. What is the approximate yield to maturity? (Points : 4)

6.96%
7.69%
11.0%
12.1%

13. (TCO 8) Which of the following is true regarding bonds? (Points : 4)

Bonds do not carry default risk.
 Bonds are sensitive to changes in the interest rates.
 Moody’s and Standard and Poor’s provide information regarding a bond’s
interest rate risk.
 Municipal bonds are free of default risk.
 None of the above is true

14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate
movements? (Points : 4)

zero-coupon, five year
 seven percent annual coupon, five year
 zero-coupon, 10 year
 five percent semi-annual coupon, 10 year
 five percent annual coupon, 10 year

15. (TCO 6) A sinking fund is an account managed by a bond trustee for the sole
purpose of: (Points : 4)

paying interest payments on a semi-annual basis.
redeeming bonds early.
repaying the face value at maturity.
paying the expenses required to reissue outstanding bonds.
paying the "balloon payment" at maturity.

1. (TCO 6) Which of the following is true regarding put bonds? (Points : 4)

Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back

2. (TCO 6 and 7) Financial leverage deals with: (Points : 4)

the relationship of fixed and variable costs.
 the percentage of debt in the capital structure.
the entire income statement.
the entire balance sheet.

3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment,
a market price of $820, and a maturity date in five years. Assume the par value to
be $1,000. What is the bond's current yield? (Points : 4)

9%
14%
11%
Cannot be determined
None of the above

4. (TCO 2) Which of the following does not reduce collection float? (Points : 4)

installing a lockbox system.
 deposit collections weekly, instead of daily.
 requiring all customers pay by cash, rather than with check.
 utilize the benefits of the Check Clearing Act for the 21stCentury.

5. (TCO 2) ___________, is a system that minimizes inventory. (Points : 4)

material requirements planning
ABC approach
just in time
reorder points

6. (TCO 1) Provide three examples of situations in which business ethics play a
role in the financial management process. Explain your rationale, and how these
situations may affect the value of the firm. (Points : 10)




7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk
costs for a project. Should sunk costs be included as incremental cash flows?
Why or why not? Explain your rationale. (Points : 10)




8. (TCO 8) What is the difference between systematic and unsystematic risk?
Provide one example of each. Can both systematic and unsystematic risks be
diversified? Why or why not? (Points : 10)
9. (TCO 2) What are the costs associated with extending (or not extending) a
credit policy to customers? (Points : 10)




10. (TCO 6 and 7) Consider the following statement: “In order to maximize value,
all firms should maintain a 30/70 debt to equity ratio”. Do you believe this
statement is correct? Explain your rationale. (Points : 10)

Más contenido relacionado

Destacado

Content Methodology: A Best Practices Report (Webinar)
Content Methodology: A Best Practices Report (Webinar)Content Methodology: A Best Practices Report (Webinar)
Content Methodology: A Best Practices Report (Webinar)contently
 
How to Prepare For a Successful Job Search for 2024
How to Prepare For a Successful Job Search for 2024How to Prepare For a Successful Job Search for 2024
How to Prepare For a Successful Job Search for 2024Albert Qian
 
Social Media Marketing Trends 2024 // The Global Indie Insights
Social Media Marketing Trends 2024 // The Global Indie InsightsSocial Media Marketing Trends 2024 // The Global Indie Insights
Social Media Marketing Trends 2024 // The Global Indie InsightsKurio // The Social Media Age(ncy)
 
Trends In Paid Search: Navigating The Digital Landscape In 2024
Trends In Paid Search: Navigating The Digital Landscape In 2024Trends In Paid Search: Navigating The Digital Landscape In 2024
Trends In Paid Search: Navigating The Digital Landscape In 2024Search Engine Journal
 
5 Public speaking tips from TED - Visualized summary
5 Public speaking tips from TED - Visualized summary5 Public speaking tips from TED - Visualized summary
5 Public speaking tips from TED - Visualized summarySpeakerHub
 
ChatGPT and the Future of Work - Clark Boyd
ChatGPT and the Future of Work - Clark Boyd ChatGPT and the Future of Work - Clark Boyd
ChatGPT and the Future of Work - Clark Boyd Clark Boyd
 
Getting into the tech field. what next
Getting into the tech field. what next Getting into the tech field. what next
Getting into the tech field. what next Tessa Mero
 
Google's Just Not That Into You: Understanding Core Updates & Search Intent
Google's Just Not That Into You: Understanding Core Updates & Search IntentGoogle's Just Not That Into You: Understanding Core Updates & Search Intent
Google's Just Not That Into You: Understanding Core Updates & Search IntentLily Ray
 
Time Management & Productivity - Best Practices
Time Management & Productivity -  Best PracticesTime Management & Productivity -  Best Practices
Time Management & Productivity - Best PracticesVit Horky
 
The six step guide to practical project management
The six step guide to practical project managementThe six step guide to practical project management
The six step guide to practical project managementMindGenius
 
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...RachelPearson36
 
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...Applitools
 
12 Ways to Increase Your Influence at Work
12 Ways to Increase Your Influence at Work12 Ways to Increase Your Influence at Work
12 Ways to Increase Your Influence at WorkGetSmarter
 
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...DevGAMM Conference
 
Barbie - Brand Strategy Presentation
Barbie - Brand Strategy PresentationBarbie - Brand Strategy Presentation
Barbie - Brand Strategy PresentationErica Santiago
 
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them wellGood Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them wellSaba Software
 

Destacado (20)

Content Methodology: A Best Practices Report (Webinar)
Content Methodology: A Best Practices Report (Webinar)Content Methodology: A Best Practices Report (Webinar)
Content Methodology: A Best Practices Report (Webinar)
 
How to Prepare For a Successful Job Search for 2024
How to Prepare For a Successful Job Search for 2024How to Prepare For a Successful Job Search for 2024
How to Prepare For a Successful Job Search for 2024
 
Social Media Marketing Trends 2024 // The Global Indie Insights
Social Media Marketing Trends 2024 // The Global Indie InsightsSocial Media Marketing Trends 2024 // The Global Indie Insights
Social Media Marketing Trends 2024 // The Global Indie Insights
 
Trends In Paid Search: Navigating The Digital Landscape In 2024
Trends In Paid Search: Navigating The Digital Landscape In 2024Trends In Paid Search: Navigating The Digital Landscape In 2024
Trends In Paid Search: Navigating The Digital Landscape In 2024
 
5 Public speaking tips from TED - Visualized summary
5 Public speaking tips from TED - Visualized summary5 Public speaking tips from TED - Visualized summary
5 Public speaking tips from TED - Visualized summary
 
ChatGPT and the Future of Work - Clark Boyd
ChatGPT and the Future of Work - Clark Boyd ChatGPT and the Future of Work - Clark Boyd
ChatGPT and the Future of Work - Clark Boyd
 
Getting into the tech field. what next
Getting into the tech field. what next Getting into the tech field. what next
Getting into the tech field. what next
 
Google's Just Not That Into You: Understanding Core Updates & Search Intent
Google's Just Not That Into You: Understanding Core Updates & Search IntentGoogle's Just Not That Into You: Understanding Core Updates & Search Intent
Google's Just Not That Into You: Understanding Core Updates & Search Intent
 
How to have difficult conversations
How to have difficult conversations How to have difficult conversations
How to have difficult conversations
 
Introduction to Data Science
Introduction to Data ScienceIntroduction to Data Science
Introduction to Data Science
 
Time Management & Productivity - Best Practices
Time Management & Productivity -  Best PracticesTime Management & Productivity -  Best Practices
Time Management & Productivity - Best Practices
 
The six step guide to practical project management
The six step guide to practical project managementThe six step guide to practical project management
The six step guide to practical project management
 
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
 
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...
Unlocking the Power of ChatGPT and AI in Testing - A Real-World Look, present...
 
12 Ways to Increase Your Influence at Work
12 Ways to Increase Your Influence at Work12 Ways to Increase Your Influence at Work
12 Ways to Increase Your Influence at Work
 
ChatGPT webinar slides
ChatGPT webinar slidesChatGPT webinar slides
ChatGPT webinar slides
 
More than Just Lines on a Map: Best Practices for U.S Bike Routes
More than Just Lines on a Map: Best Practices for U.S Bike RoutesMore than Just Lines on a Map: Best Practices for U.S Bike Routes
More than Just Lines on a Map: Best Practices for U.S Bike Routes
 
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
Ride the Storm: Navigating Through Unstable Periods / Katerina Rudko (Belka G...
 
Barbie - Brand Strategy Presentation
Barbie - Brand Strategy PresentationBarbie - Brand Strategy Presentation
Barbie - Brand Strategy Presentation
 
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them wellGood Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
Good Stuff Happens in 1:1 Meetings: Why you need them and how to do them well
 

Busn379 final exam

  • 1. BUSN379 FINAL EXAM PLEASE DOWNLOAD HERE 1. (TCO 4) Which of the following is true regarding the evaluation of projects? (Points : 4) sunk costs should be included erosion effects should not be considered financing costs need to be included opportunity costs are relevant 2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money? (Points : 4) net present value method payback method internal rate of return method all of these are time-adjusted methods 3. (TCO 3 and 4) A net present value of zero implies that an investment: (Points : 4) has no initial cost. has an expected return that is less than the required return. should be rejected even if the discount rate is lowered. never pays back its initial cost. is earning a return that exactly matches the requirement. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 15 percent? Year 0 1 2 3 4 Cash flow
  • 2. -$45,000 $11,520 $13,630 $16,470 $18,990 (Points : 4) -$2,989.48 -$2,599.55 $1,153.37 $2,880.08 $3,312.09 5. (TCO 4) Leward Manufacturing is spending $115,000 to update its equipment. This is necessary if the firm wishes to be competitive in the marketplace and provide a wide array of product models. The company estimates that these updates will improve its cash inflows by $27,500 a year, for eight years. What is the payback period? (Points : 4) 4.18 years 5.82 years 6.62 years 7.79 years This project never pays back 6. (TCO 4) The postponement of a project until conditions are more favorable: (Points : 4) is a valuable option. is referred to as the option to extend. could not cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline. 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points : 4) contingency planning. hard rationing. soft rationing. capital constraint. scenario analysis.
  • 3. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points : 4) The net present value of the project is approximately $10,000 This project should be accepted because it has a positive net present value This project’s payback period is 10 years or more None of the above is true 9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the second year depreciation amount under MACRS? (Points : 4) $12,000 $19,200 $19,800 None of the above 10. (TCO 1 and 4) Assume a corporation has earnings before depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company? (Points : 4) $82,000 $110,000 $42,000 none of these 11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points : 4) is diversifiable is the total risk associated with surprise events it is measured by beta it is measured by standard deviation 12. (TCO 8) Which statement is true regarding risk? (Points : 4) the expected return is usually the same as the actual return a key to assess risk is determining how much risk an investment adds to a portfolio risks can always be decreased or mitigated by the financial manager the higher the risk, the lower the return investors require for the investment 13. (TCO 8) The stock of Hobby Town has an expected return of 8.8 percent. Given the information below, what is the expected return on this stock if the economy is normal?
  • 4. State of Economy Probability of State of Economy Rate of Return Recession .10 -.09 Normal .70 ? Boom .20 .26 (Points : 4) 3.86 percent 4.42 percent 6.43 percent 7.28 percent 8.21 percent 14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock B? (Points : 4) 14.79 percent 15.91 percent 18.42 percent 19.07 percent 19.46 percent 15. (TCO 8) You would like to create a portfolio that is equally invested in a risk- free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market? (Points : 4)
  • 5. 1.4 1.6 1.8 2.0 2.2 1. (TCO 8) Weak form market efficiency states that the value of a security is based on: (Points : 4) all public and private information. historical information only. all publicly available information. all publicly available information, plus any data that can be gathered from insider trading. random information with no clear distinction as to the source of that information. 2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 6 percent (after-tax) and common equity at a cost of 18 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points : 4) between 3 and 9% exactly 12% more than 14% exactly 11% none of the above 3. (TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to eight percent. If the required rate of return is 13 percent, what is its current price? (Points : 4) $103.68 $36.92 $96.00 none of these 4. (TCO 5, 6 and 7) Which of the following is true regarding the cost of debt? (Points : 4) It is the return that the firm’s creditors demand on new borrowing. It is always equal to the weighted cost of capital. An appropriate method to compute the cost of debt is using the coupon rate of current bonds outstanding. All of the above are true. 5. (TCO 5) Which of the following is not true regarding the cost of retained earnings? (Points : 4)
  • 6. it is relevant to the WACC does not require new funds to be raised has associated flotation costs has a cost, which is the opportunity cost associated with stockholder funds 6. (TCO 4) A project has the following cash flows. What is the internal rate of return? Year 0 1 2 3 Cash flow -$195,600 $99,800 $87,600 $75,300 (Points : 4) less than 5% between 5 and 15% between 15 and 18% more than 21% 7. (TCO 5, 6 and 7) All else constant, the weighted average cost of capital for a firm will decrease if: (Points : 4) a firm's bonds start selling at a premium, rather than at a discount. the market risk premium increases. the firm replaces some of its debt with preferred stock. corporate taxes are eliminated. the dividend yield on the common stock increases. 8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm's cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points : 4)
  • 7. 5.98% 7.06% 8.05% 9.68% 10.10% 9. (TCO 2) Which one of the following occurs if a firm files for Chapter 7 bankruptcy, but does not generally occur if the firm files for Chapter 11 bankruptcy? (Points : 4) a petition is filed in federal court administrative fees are incurred a list of creditors is compiled pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the firm a trustee-in-bankruptcy is elected by the creditors 10. (TCO 5) Which of the following statements is false regarding the cost of capital? (Points : 4) The cost of capital should consider the flotation costs. All other being equal, it is preferable to use market value weights than book value weights. The WACC is the most appropriate discount rate for all projects. Should include the cost of retained earnings. 11. (TCO 2) Which of the following increases the cash account? (Points : 4) Goods are sold on credit An interest payment on a notes payable is made A payment due is received from a client Raw materials are purchased and paid for with credit 12. (TCO 2) Which of the following statements is true? (Points : 4) The optimal credit policy minimizes the total cost of granting credit. Firms should avoid offering credit at all cost. An increase in a firm's average collection period generally indicates that an increased number of customers are taking advantage of the cash discount. Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows. The optimal credit policy, is the policy that produces the largest amount of sales for a firm. 13. (TCO 2) All else constant, a decrease in the accounts receivable period will: (Points : 4)
  • 8. lengthen the accounts payable period. shorten the inventory period. lengthen the operating cycle. shorten the cash cycle. shorten the accounts payable period. 14. (TCO 2) Delphinia's has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days. Q1 Q2 Q3 Q4 Sales $1,800 $1,700 $2,100 $1,900 (Points : 4) $567 $600 $821 $1,134 $1,200 15. (TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization? (Points : 4) Because by maximizing the current stock value, you also maximize the company’s profit for the year. Because this criterion is non-ambiguous. Because financial managers always act in the best interest of shareholders. Because it creates short-term gains in the financial statements.
  • 9. 1. (TCO 1) Which one of the following activities best exemplify working capital management? (Points : 4) Sale long-term bonds to raise funds for a new machine. Determine the return of a potential project. Calculate the cash flows for a project. Manage payments to suppliers. 2. (TCO 1) Book values are different from market values because: (Points : 4) Book values reflect the value of the asset based on generally-accepted accounting principles. Book values are used in the company’s balance sheet. Book values do not reflect the amount someone is willing to pay today for an asset. All of the above None of the above 3. (TCO 1) Use the following tax table to answer this question: Taxable Income Tax Rate $0- $50,000 15% $50,001- 75,000 25 $75,001- 100,000 34 $100,001- 335,000 39
  • 10. $335,001- 10,000,000 34 Riddell, Inc. earned $144,320 in taxable income for the year. How much tax does the company owe on this income? (Points : 4) $39,535 $49,069 $51,285 $56,285 $78,535 4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 19.50 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4) Regional Bank, APR Local Bank, EAR Regional Bank, EAR Local Bank, APR 5. (TCO 3) You deposited $8,000 in your bank account today. Which of the following will increase the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points : 4) a decrease in the interest rate increasing the initial amount of your deposit decreasing the frequency of the interest payments extending the length of the investment period 6. (TCO 3) You want to have $15,000 for a down payment on a house five years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal? (Points : 4) $7,858.11 $8,141.40 $9,803.58 $12,464.28 $14,213.25
  • 11. 7. (TCO 3) The new home that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? (Points : 4) $2,291.89 $2,809.10 $3,287.46 $3,412.67 $4,145.68 8. (TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points : 4) effective annual rate amortized interest-only annual percentage pure discount 9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points : 4) $1315 $1300 $756 $1000 10. (TCO 6) The market where new securities are offered is called the _____ market. (Points : 4) primary main secondary principal dealer 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4) Financial leverage increases profits and decreases losses. Financial leverage has no effect on a firm's return on equity. Financial leverage, refers to the use of common stock. Financial leverage magnifies both profits and losses. Increasing financial leverage will always increase the earnings per share.
  • 12. 12. (TCO 3) SmithKline Company's bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity? (Points : 4) 6.96% 7.69% 11.0% 12.1% 13. (TCO 8) Which of the following is true regarding bonds? (Points : 4) Bonds do not carry default risk. Bonds are sensitive to changes in the interest rates. Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk. Municipal bonds are free of default risk. None of the above is true 14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate movements? (Points : 4) zero-coupon, five year seven percent annual coupon, five year zero-coupon, 10 year five percent semi-annual coupon, 10 year five percent annual coupon, 10 year 15. (TCO 6) A sinking fund is an account managed by a bond trustee for the sole purpose of: (Points : 4) paying interest payments on a semi-annual basis. redeeming bonds early. repaying the face value at maturity. paying the expenses required to reissue outstanding bonds. paying the "balloon payment" at maturity. 1. (TCO 6) Which of the following is true regarding put bonds? (Points : 4) Have coupons that depend on the company’s income Can be exchanged for a fixed number of shares before maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back 2. (TCO 6 and 7) Financial leverage deals with: (Points : 4) the relationship of fixed and variable costs. the percentage of debt in the capital structure.
  • 13. the entire income statement. the entire balance sheet. 3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond's current yield? (Points : 4) 9% 14% 11% Cannot be determined None of the above 4. (TCO 2) Which of the following does not reduce collection float? (Points : 4) installing a lockbox system. deposit collections weekly, instead of daily. requiring all customers pay by cash, rather than with check. utilize the benefits of the Check Clearing Act for the 21stCentury. 5. (TCO 2) ___________, is a system that minimizes inventory. (Points : 4) material requirements planning ABC approach just in time reorder points 6. (TCO 1) Provide three examples of situations in which business ethics play a role in the financial management process. Explain your rationale, and how these situations may affect the value of the firm. (Points : 10) 7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points : 10) 8. (TCO 8) What is the difference between systematic and unsystematic risk? Provide one example of each. Can both systematic and unsystematic risks be diversified? Why or why not? (Points : 10)
  • 14. 9. (TCO 2) What are the costs associated with extending (or not extending) a credit policy to customers? (Points : 10) 10. (TCO 6 and 7) Consider the following statement: “In order to maximize value, all firms should maintain a 30/70 debt to equity ratio”. Do you believe this statement is correct? Explain your rationale. (Points : 10)