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FIN 370 Week 3 Risk and Return Analysis

30 Jun 2016

 

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Risk and Return Analysis

Instructions:

Create a 1,050-word report, and include the following:

• Explain the relationship between risk and return

• Identify an example of risk and return.

• Explain which is more risky bonds or common stocks.

• Explain how understanding risk and return will help you in future business ventures.

 

Format your assignment consistent with APA guidelines.

Click the Assignment Files tab to submit your assignment.

Supporting Material: Risk and Return Grading Guide

Submit

 

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This article covers the topic for the University of Phoenix FIN 370 Week 3 Risk and Return Analysis. The author is working in the field of education from last 5 years. This article covers the questions & answers of Fin 370 Complete Course from University of Phoenix. Other topics in the class are as follows:

 

FIN 370 Final Exam (Newest)

 

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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

 

 

About Author:

This article covers the topic for the University Of Phoenix FIN 370 Final Exam (Newest). The author is working in the field of education from last 5 years. This article covers the basic of FIN 370 Final Exam (Newest) from UOP. Other topics in the class are as follows:

 

FIN 370 Week 5 Final Exam (Latest - A Graded)

 

FIN 370 Final Exam (Newest)

 

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UOP FIN 370 Final Exam Free Answers

15 Sep 2015

 

1. The Securities Investor Protection Corporation protects individuals from

  • brokerage firm failures

  • making poor investment decisions

  • fraud by corporations

  • other investors who fail to make delivery

 

2. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?

  • $38,720

  • $39,720

  • $31,060

  • $25,000

 

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3. When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?

  • Debt

  • Preferred stock

  • Retained earnings

  • Common stock

 

4. Buying and selling in more than one market to make a riskless profit is called:

  • profit maximization.

  • globalization

  • arbitrage.

  • international trading.

 

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5. Which of the following is true about bonds?

  • They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year.

  • At maturity of the bond, the investor receives the market price of the bond.

  • They are obligations from the investor to the corporation.

  • Their interest rate always varies with the Consumer Price Index

 

6. Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.

Initial outlay = $450

Cash flows:         Year 1 = $325

                          Year 2 = $65

                          Year 3 = $100

  • 3.17 years

  • 2.6 years

  • 2.88 years

  • 3.43 years

 

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7. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

  • Cash flows have a greater present value than accounting profits.

  • Cash flows improve the tax position of a firm more than accounting profits.

  • Cash flows are more stable than accounting profits.

  • Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

 

8. Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero. The machine's purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent. The machine's initial cash outflow is:

  • $23,000.

  • $20,000.

  • $27,000.

  • $21,000.

 

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9. Which of the following is most likely to occur if a firm over-invests in net working capital?

  • The return on investment will be lower than it should be.

  • The times interest earned ratio will be lower than it should be.

  • The current ratio will be lower than it should be.

  • The quick ratio will be lower than it should be.

 

10. Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Corp.'s weighted average cost of capital?

  • 8.32%

  • 6.56%

  • 10.84%

  • 12.78%

 

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11. Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

  • Return on investment

  • Gross profit margin

  • Current ratio

  • Quick ratio

 

12. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80

  • dividing the present value of the annual after-tax cash flows by the cost of capital.

  • multiplying the cash inflow by the IRR. 

  • multiplying the IRR by the cost of capital.

  • dividing the present value of the annual after-tax cash flows by the cost of the project. 

 

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13. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?

  • $15,000

  • $35,000

  • $25,000

  • $45,000

 

14. Which of the following could offset the higher risk exposure a company would face if it’s current ratio and net working capital were relatively low?

  • Its accounts receivable collection policy could increase the average collection period.

  • It could offer no discounts for early payment by its customers.

  • It could buy back some of its shares in the open market in order to reduce its equity.

  • Its current assets would need to be highly liquid.

 

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15. The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental, event insurance and professional musicians. The theater will also take 10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket to raise $1,000 for their organization?

  • 1,314 tickets

  • 1,112 tickets

  • 1,223 tickets

  • 1000 tickets

 

16. Aspects of demand risk controllable by the firm include:

  • product quality.

  • interest rates.

  • entry of external competitors.

  • status of the regional and national economy.

 

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17. Which of the following is true regarding Investment Banks?

  • As of 2010, stand alone Investment banks are numerous.

  • Under the Glass-Steagal act, commercial banks were allowed to operate as Investment banks.

  • As a result of the financial crisis of 2008, all stand-alone Investment banks either failed, were merged into commercial banks, or became commercial banks.

  • When Glass-Steagal was repealed in 1999, commercial banks and Investment banks had to be separate entities.

 

18. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

  • 60 days.

  • 75 days

  • 90 days.

  • 45 days.

 

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19. When the impact of taxes is considered, as the firm takes on more debt

  • there will be no change in total cash flows.

  • cash flows will increase because taxes will decrease.

  • the weighted average cost of capital will increase.

  • both taxes and total cash flow to stockholders and bondholders will decrease.

 

20. If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?

  • $5,008.76

  • $3,525.62

  • $3,408.88

  • $2,465.78

 

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21. Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014; sales were $3,450,000 in fiscal 2013. Assume the following figures for the fiscal year ending 2013: cash $70,000; accounts receivable $250,000; inventory $400,000; net fixed assets $520,000; accounts payable $235,000; and accruals $155,000. Use the percent-of-sales method to forecast cash for the fiscal year ending 2014.

  • $75,003

  • $216,418

  • $120,725

  • $319,604

 

22. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:

  • maximize sales revenues

  • either increase or have no effect on the value of the firm's common stock.

  • increase the market value of the firm's common stock.

  • positively affect profits.

 

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23. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines. What is your evaluation of these two projects?

  • Only project Delta should be accepted. Alpha's NPV is too low for the investment.

  • Neither project should be accepted because they might compete with one another

  • The company should look at other investment criteria, not just NPV.

  • Both projects should be accepted because they have positive NPV's

 

24. Capital Structure Theory in general assumes that:

  • A firm's value is determined by discounting the firm's expected cash flows by the WACC.

  • A firm's cost of capital rises as a firm uses more financial leverage.

  • A firm's value is determined by capitalizing (discounting) the firm's expected net income by the firm's cost of equity.

  • A firm's cash flows will grow indefinitely at a constant rate.

 

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25. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

  • Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

  • Cash flows have a greater present value than accounting profits.

  • Cash flows improve the tax position of a firm more than accounting profits.

  • Cash flows are more stable than accounting profits.

 

26. Which of the following is not part of the underwriting process?

  • the syndicate

  • the prospectus

  • the Federal Reserve

  • the Securities and Exchange Commission

 

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27. Long-term financial plans typically encompass:

  • 6 to 12 months.

  • 5 to 10 years.

  • about 5 years.

  • the entire lifecycle of the corporation.

 

28. Accounting break-even analysis solves for the level of sales that will result in:

  • IRR = Cost of Capital.

  • net income = $0.00.

  • Free cash flow = $0.00.

  • NPV = $0.00.

 

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29. Which of the following statements best represents what finance is about?

  • How political, social, and economic forces affect corporations

  • Reducing risk 

  • Creation and maintenance of economic wealth

  • Maximizing profits

 

30. Which of the following goals is in the best long-term interest of stockholders?

  • Risk minimization

  • Maximizing of the market value of the existing shareholders' common stock

  • Maximizing sales revenues

  • Profit maximization

 

About Author

This article covers the topic for the University Of Phoenix FIN 571 Final Exam . The author is working in the field of education from last 5 years. This article covers the basic of FIN 571 Final Exam Assignment from UOP. Other topics in the class are as follows:

 

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