FIN 534 Week 11 Final Exam Part 1

· Question 1

2 out of 2 points

Cazden Motors' stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?

· Question 2

2 out of 2 points

Which of the following statements is CORRECT?

· Question 3

2 out of 2 points

An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

· Question 4

2 out of 2 points

Which of the following statements is CORRECT?

· Question 5

2 out of 2 points

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)

· Question 6

2 out of 2 points

Which of the following statements is CORRECT?

· Question 7

2 out of 2 points

For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates at its target capital structure.

· Question 8

0 out of 2 points

Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

· Question 9

2 out of 2 points

Which of the following statements is CORRECT?

· Question 10

2 out of 2 points

Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?

· Question 11

2 out of 2 points

Which of the following statements is CORRECT?

· Question 12

2 out of 2 points

To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?

· Question 13

2 out of 2 points

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

· Question 14

2 out of 2 points

The WACC for two mutually exclusive projects that are being considered is 12%. Project K has an IRR of 20% while Project R's IRR is 15%. The projects have the same NPV at the 12% current WACC. Interest rates are currently high. However, you believe that money costs and thus your WACC will soon decline. You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?

· Question 15

2 out of 2 points

Which of the following statements is CORRECT?

· Question 16

2 out of 2 points

Which of the following statements is CORRECT?

· Question 17

2 out of 2 points

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

· Question 18

2 out of 2 points

Which of the following statements is CORRECT?

· Question 19

2 out of 2 points

Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects?

· Question 20

2 out of 2 points

Collins Inc. is investigating whether to develop a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated?

· Question 21

2 out of 2 points

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

· Question 22

2 out of 2 points

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

· Question 23

2 out of 2 points

Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?

· Question 24

2 out of 2 points

Which of the following statements is CORRECT?

· Question 25

2 out of 2 points

Which of the following is NOT one of the steps taken in the financial planning process?

· Question 26

2 out of 2 points

Which of the following assumptions is embodied in the AFN equation?

· Question 27

2 out of 2 points

The term "additional funds needed (AFN)" is generally defined as follows:

· Question 28

2 out of 2 points

F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

· Question 29

2 out of 2 points

Which of the following statements is CORRECT?

· Question 30

2 out of 2 points

The Besnier Company had $250 million of sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?

10 years ago

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