FIN 370 Final Exam # 54 Questions with ANSWERS # THE NEW EXAM!!! # 2nd Set # BUY THIS ONE #
FIN 370 Final Exam # 54 Questions with ANSWERS # THE NEW EXAM!!! # 2nd Set # BUY THIS ONE # fin571
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Date Created: 11/11/15
1 In terms of organizational costs which of the following sequences is correct moving from lowest to highest cost A Corporation limited partnership general partnership sole proprietorship B General partnership sole proprietorship limited partnership corporation C D Sole proprietorship general partnership limited partnership corporation Sole proprietorship general partnership corporation limited partnership 2 The true owners of the corporation are the PCP board of directors of the firm holders of debt issues of the firm common stockholders preferred stockholders 3 Which of the following categories of owners have limited liability PCP P0wgte General partners Sole proprietors Shareholders of a corporation Both a and b is a method of offering securities to a limited number of investors Public offering Initial public offering Syndicated underwriting Private placement 5 Which of the following does NOT involve underwriting by an investment banker A B C D Syndicated purchases Negotiated purchases Commission basis purchases Competitive bid purchases 6 When public corporations decide to raise cash in the capital markets what type of nancing vehicle is most favored A Common stock B Preferred stock C Corporate bonds D Retained earnings 7 Which of the following is NOT a principle of basic financial management A Efficient capital markets B Incremental cash ow counts C Profit is king D Riskreturn tradeoff 8 Difficulty in finding pro table projects is due to ethical dilemmas competitive markets opportunity costs social responsibility 00 9 According to the agency problem represent the principals of a corporation A employees B managers C suppliers D shareholders 10 Which of the following financial ratios is the best measure of the operating effectiveness of a firm s management A Quick ratio B Gross profit margin C Return on investment D Current ratio 11 Another name for the acid test ratio is the inventory turnover ratio average collection period current ratio quick ratio POP 12 Marshall Networks Inc has a total asset turnover of 25 and a net pro t margin of 35 The rm has a return on equity of 175 Calculate Marshall s debt ratio A 50 60 30 40 GOP 13 Edward Johnson decided to open up a Roth IRA He will invest 1800 per year for the next 35 years Deposits to the Roth IRA will be made via a 150 payroll deduction at the end of each month Assume that Edward will earn 875 over the life of the IRA How much will he have at the end of 35 years A 363000 B 414405 C 125250 D 250321 14 You have 10000 to invest You do not want to take any risk so you will put the funds in a savings account at the local bank Of the following choices which one will produce the largest sum at the end of 22 years An account that compounds interest quarterly An account that compounds interest monthly An account that compounds interest annually An account that compounds interest dailv POP 15 When George Washington was president of the United States in 1797 his salary was 25000 If you assume an annual rate of in ation of 25 how much would his salary have been in 1997 4085920 3489097 1025000 2525548 9547 19 WUOF 16 All of the following are found in the cash budget EXCEPT cash disbursements new financing needed a net change in cash for the period inventorv Pgt POP 17 Which of the following is NOT a basic function of a budget A Budgets compare historical costs of the rm with its current cost performance B Budgets allow for performance evaluation C Budgets indicate the need for future financing D Budgets provide the basis for corrective action when actual figures differ from the budgeted figures 18 Which of the following statements about the percentofsales method of financial forecasting is true A It involves estimating the level of an expense asset or liabilitv for a future period as a percent of the forecast for sales revenues B It projects all liabilities as a fixed percentage of sales C It is the least commonly used method of financial forecasting D It is a much more precise method of financial forecasting than a cash budget would be 19 Which of the following is a noncash expense Packaging costs Depreciation expenses Interest expense Administrative salaries 00 20 The breakeven model enables the manager of a firm to determine the quantitv of output that must be sold to cover all operating costs calculate the minimum price of common stock for certain situations set appropriate equilibrium thresholds determine the optimal amount of debt financing to use POP 21 A plant can remain operating when sales are depressed in an effort to cover at least some of the variable cost if the selling price per unit exceeds the variable cost per unit to help the local economy unless variable costs are zero when production is zero 00 22 Which of the following is the formula for compound value A FVn P1in B FVn P1in C FVn 1iP D FVn P1i n 23 The present value of a single future sum depends upon the number of discount periods increases as the number of discount periods increas is generally larger than the future sum increases as the discount rate increases POP 24 How long will it take 750 to double at 8 compounded annually A 9 years B 65 years C 48 months D 12 years 25 A toy manufacturer following the hedging principle will generally finance seasonal inventory buildup prior to the Christmas season with trade credit common stock selling equipment preferred stock POP 26 Which of the following is NOT considered a permanent source of financing A Preferred stock B Corporate bonds C Commercial paper D Common stock 27 Which of the following is considered to be a spontaneous source of financing Inventory Operating leases Accounts payable Accounts receivable PCP 28 Compute the payback period for a project with the following cash ows if the company s discount rate is 12 Initial outlay 450 Cash ows Year 1 325 Year 1 65 Year 3 100 288 years 343 years 26 vears 317 years PCP 29 For the NPV criteria a project is acceptable if the NPV is while for the pro tability index a project is acceptable if the pro tability index is greater than one greater than zero less than zero greater than the required return greater than zero less than one greater than zero greater than one POP 30 We compute the profitability index of a capitalbudgeting proposal by A dividing the present value of the annual aftertax cash ows by the cost of the project B multiplying the IRR by the cost of capital C multiplying the cash in ow by the IRR D dividing the present value of the annual after tax cash ows by the cost of capital 31 You have been asked to analyze a capital investment proposal The project s cost is 2775000 Cash in ows are projected to be 925000 in Year 1 1000000 in Year 2 1000000 in Year 3 1000000 in Year 4 and 1225000 in Year 5 Assume that your firm discounts capital projects at 155 What is the project s MIRR A 1673 B 1262 C 1999 D 1044 32 Most rms use the payback period as a secondary capitalbudgeting technique which in a sense allows them to control for risk A True B False 33 Many rms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk A True B False 34 The NPV assumes cash ows are reinvested at the A real rate of return B IRR C cost of capital D NPV 35 The rm should accept independent projects if the IRR is positive the pro tability index is greater than 10 the NPV is greater than the discounted payback the payback is less than the IRR 00 36 ABC Service can purchase a new assembler for 15052 that will provide an annual net cash ow of 6000 per year for ve years Calculate the NPV of the assembler if the required rate of return is 12 Round your answer to the nearest 1 A 7621 B 4568 C 6577 D 1056 37 Cost of capital is A the rate of return that must be earned on additional investment if firm value is to remain unchanged B a hurdle rate set by the board of directors C the average cost of the firm s assets D the coupon rate of debt 38 PepsiCo uses 30year Treasury bonds to measure the riskfree rate because A these bonds are essentially free of business risk B they capture the long term in ation expectations of investors associated with investments in long term assets C these bonds are essentially free of interest rate risk D none of the above 39 The average cost associated with each additional dollar of nancing for investment projects is risk free rate the marginal cost of capital beta the incremental return 00 40 The XYZ Company is planning a 50 million expansion The expansion is to be nanced by selling 20 million in new debt and 30 million in new common stock The beforetax required rate of return on debt is 9 and the required rate of return on equity is 14 If the company is in the 40 tax bracket what is the marginal cost of capital A 106 B 90 C 115 D 140 41 Shawhan Supply plans to maintain its optimal capital structure of 30 debt 20 preferred stock and 50 common stock far into the future The required return on each component is debt 10 preferred stock 11 and common stock 18 Assuming a 40 marginal tax rate what aftertax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged 100 130 142 1 80 now 42 The expected dividend is 250 for a share of stock priced at 25 What is the cost of retained earnings if the longterm growth in dividends is projected to be 8 A 25 B 8 C 18 D 10 43 Zybeck Corp projects operating income of 4 million next year The firm s income tax rate is 40 Zybeck presently has 750000 shares of common stock which have a market value of 10 per share no preferred stock and no debt The firm is considering two alternatives to nance a new product a the issuance of 6 million of 10 bonds or b the issuance of 60000 new shares of common stock If Zybeck issues common stock this year what will projected EPS be next year A 233 B 167 C 210 D 296 44 Lever Brothers has a debt ratio debt to assets of 40 Management is wondering if its current capital structure is too conservative Lever Brothers s present EBIT is 3 million and pro ts available to common shareholders are 1560000 with 342857 shares of common stock outstanding If the rm were to instead have a debt ratio of 60 additional interest expense would cause pro ts available to stockholders to decline to 1440000 but only 228571 common shares would be outstanding What is the difference in EPS at a debt ratio of 60 versus 40 A 325 B 450 C 175 D 200 45 Lever Brothers has a debt ratio debt to assets of 20 Management is wondering if its current capital structure is too conservative Lever Brothers s present EBIT is 3 million and profits available to common shareholders are 1680000 with 457143 shares of common stock outstanding If the rm were to instead have a debt ratio of 40 additional interest expense would cause pro ts available to stockholders to decline to 1560000 but only 342857 common shares would be outstanding What is the difference in EPS at a debt ratio of 40 versus 20 A 116 B 088 C 212 D 195 46 Capital markets in foreign countries A offer lower returns than those obtainable in the domestic capital markets B provide international diversi cation C in general are becoming less integrated due to the widespread availability of interest rate and currency swaps D all of the choices 47 Which of the following statements about exchange rates is true A Exchange rates were fixed prior to establishing a oating rate international currency system and all countries set a specific parity rate for their currency relative either to the Canadian or to the US dollar B Day to day uctuations in exchange rates currently are caused by changes in parity rates C A oatingrate international currency system has been operating since 1973 D All of the choices 48 A bond sold simultaneously in several different foreign capital markets but denominated in a currency different from the country in which the bond is issued is called an oating bond Eurobond world bond international capital bond 00 49 The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the A interest rate parity theory B arbitrage markets theory C purchasing power parity theory D balance of payments quantum theory 50 If the quote for a forward exchange contract is greater than the computed price the forward contract is A a good buy B at equilibrium C overvalued D undervalued 51 A spot transaction occurs when one currency is A exchanged for another currency at a specified price B traded for another at an agreed upon future price C deposited in a foreign bank D immediately exchanged for another currency 52 Buying and selling in more than one market to make a riskless profit is called A international trading B cannot be determined from the above information C profit maximization D arbitrage 53 One reason for international investment is to reduce advantages in a foreign country beta risk portfolio risk price earnings PE ratios PCP 54 An important additional consideration for a direct foreign investment is political risk maximizing the firm s profits attaining a high international PE ratio all of the above POP Good Luck HonestAbe
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