FIN 370 Final Exam Guide

27 Jun 2016

 

1.Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?

  • statement of retained earnings
  • Income statement
  • Statement of cash flows
  • Balance sheet

 

2.We commonly measure the risk-return relationship using which of the following?

  • Expected returns
  • Coefficient of variation
  • Correlation coefficient
  • Standard deviation

 

3.What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

  • 6.1 percent
  • 10.2 percent
  • 6.0 percent
  • 5.9 percent

 

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4.Which financial statement reports a firm's assets, liabilities, and equity at a particular point in time?

  • Statement of cash flows
  • Balance sheet
  • Statement of retained earnings
  • Income statement

 

5.As new capital budgeting projects arise, we must estimate__________.

  • the cost of the loan for the specific project
  • the cost of the stock being sold for the specific project
  • when such projects will require cash flows
  • the float costs for financing the project

 

6.Will's Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of 2013. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?

  • $3.25 million
  • $5 million
  • $7.69 million
  • $0.65 million

 

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7.Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

  • Cash flow analysis
  • Incremental cash flows
  • Substitutionary analysis
  • Pro forma analysis

 

8.Which of these is the term for portfolios with the highest return possible for each risk level?

  • Total portfolios
  • Efficient portfolios
  • Modern portfolios
  • Optimal portfolios

 

9.Which financial statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time — generally one year?

  • Statement of cash flows
  • Statement of retained earnings
  • Balance sheet
  • Income statement

 

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10.What are the tools available for the manager in financial planning?

  • Delaying disbursement of cash, reducing collection period, cash management, and Increasing inventory turnover
  • Delaying disbursement of cash and cash management
  • Reducing collection period and delaying disbursement of cash
  • Increasing inventory turnover and reducing collection period

 

11.When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as__________.

  • they apply to each asset as they are purchased with their respective forms of debt or equity
  • a sum of the capital components costs
  • a simple average of the capital components costs
  • a weighted average of the capital components costs

 

12.You are trying to pick the least-expensive machine for your company. You have two choices: machine A, which will cost $50,000 to purchase and which will have OCF of -$3,500 annually throughout the machine's expected life of three years; and machine B, which will cost $75,000 to purchase and which will have OCF of -$4,900 annually throughout that machine's four-year life. Both machines will be worthless at the end of their life. If you intend to replace whichever type of machine you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 14 percent, which one should you choose? 

  • Neither machine A nor B
  • Both machines A and B
  • Machine B
  • Machine A

 

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13.Financial plans include which of the following?

  • All of the above
  • Pro forma Income Statement, Balance Sheet
  • Short Term and Long Term Plan
  • Schedule of Sales, Expenses, and Capital Expenditure

 

14.Which of these statements is true regarding divisional WACC?

  • Using a simple firmwideWACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.
  • Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.
  • Using a simple firmwideWACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.
  • Using a firmwideWACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

 

15.Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?

  • Investment banks
  • Secondary markets
  • Primary markets
  • Money markets

 

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16.What are reasons for the firm to go abroad?

  • Lower production cost
  • All of the above
  • Diversification
  • Access to raw materials

 

17.The top part of Mars, Inc.'s 2013 balance sheet is listed as follows (in millions of dollars). What are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2013?

  • 4.2, 1.0, 0.2
  • 2.3333, 0.5556, 0.1111
  • 10.5, 6.0, 1.0
  • 0.1111, 0.5556, 0.2

 

18.The Rule of 72 is a simple mathematical approximation for__________.

  • the future value required to double an investment
  • the present value required to double an investment
  • the payments required to double an investment
  • the number of years required to double an investment

 

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19.Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

  • Coverage
  • Financial
  • Liquidity
  • Profitability

 

20.The overall goal of the financial manager is to__________.

  • minimize total costs
  • maximize shareholder wealth
  • maximize net income
  • maximize earnings per share

 

21.Which of the following can create ethical dilemmas between corporate managers and stockholders?

  • Board of directors
  • Auditors
  • Venture Capitalist
  • Agency relationship

 

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22.Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

  • Reinvestment rate risk
  • Credit quality risk
  • Interest rate risk
  • Liquidity rate risk

 

23.Which of these is used as a measure of the total amount of available cash flow from a project?

  • Free cash flow
  • Investment in operating capital
  • Operating cash flow
  • Sunk cash flow

 

24.Suppose that Model Nails, Inc.'s capital structure features 60 percent equity, 40 percent debt, and that its before-tax cost of debt is 6 percent, while its cost of equity is 10 percent. If the appropriate weighted average tax rate is 28 percent, what will be Model Nails' WACC?

  • 7.73 percent
  • 16.00 percent
  • 8.40 percent
  • 8.00 percent

 

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25.Which of these does NOT perform vital functions to securities markets of all sorts by channeling funds from those with surplus funds to those with shortages of funds?

  • Commercial banks
  • Insurance companies
  • Mutual funds
  • Secondary markets

 

26.Which of the following is a true statement?

  • If interest rates fall, U.S. Treasury bonds will have decreasing values.
  • If interest rates fall, no bonds will enjoy rising values.
  • If interest rates fall, corporate bonds will have decreasing values.
  • If interest rates fall, all bonds will enjoy rising values.

 

27.Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (ending 20 years from now). James can make a 20-year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane? 

  • $7,346.64
  • $3,160.43
  • $5,089.91
  • $3,464.11

 

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28.We call the process of earning interest on both the original deposit and on the earlier interest payments:

  • compounding.
  • multiplying.
  • computing.
  • discounting.

 

29.We can estimate a stock's value by__________.

  • using the book value of the total assets divided by the number of shares outstanding
  • using the book value of the total stockholder equity section
  • compounding the past dividends and past stock price appreciation
  • discounting the future dividends and future stock price appreciation

 

30.A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Financial analysts believe the stock will be at their target price of $75.00 in two years. Compute the value of this stock with a required return of 10 percent.

  • $65.40
  • $65.57
  • $79.14
  • $66.67

 

 

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