FIN571 FINAL EXAM

1. There are two important tax considerations for a capital budgeting project. These include which (if any) of the following?

2. If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is

3. A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to

4. Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)?

5. Stony Products has a receivables turnover of ten times. What is Stony’s receivables collection period (RCP)?

6. Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)?

7. Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?

8. In efficient markets, as in the United States, you should think long and hard before you conclude that a market price is

9. Occurs when inaccurate information can falsely exist

10. Remaining maturity refers to:

11. Certain countries have restrictions. In practice, U.S. investors have NOT invested very much internationally. Possible factors include

12. There can be a variety of motives for stock repurchases including

13. Studies show systematic differences in capital structures across industries. These are due mostly to differences in

14. Generally accepted accounting principles (GAAP) refers to

15. One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as

16. Ideas for capital budgeting projects come from all levels within an organization. The bottom up process results in ideas percolating through the organization.

17. Studies show systematic differences in capital structures across industries. These are due mostly to differences in

18. Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by imitating the leader's behavior.

19. Says to carefully evaluate and monitor the financial plan’s impact on the firm and its stakeholders.

20. Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes

21. Says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms.

22. Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.

23. Says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions.

24. Says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.

25. You are thinking about abandoning your business. If you do, then you will receive $168,000 on an after-tax basis from the land associated with your business.

Abandoning your business would bring $15,000 on an after-tax basis from sale of equipment; also, you would not have to repair equipment at a cost of $10,800 per year on an after-tax basis. The before-tax cash flows from your business are $60,000 per year. Your tax rate is 25% and your required return is 12%. If you abandon your business, you will be able to spend your time earning wages that are equivalent to receiving an annuity of $16,000 per year on an after-tax basis until you retire in 12 years. At that time you could sell your land but would only realize what you could receive today. Should you abandon your business if you can make more money doing that?

26. The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional 4.5 million loaves in the next five years. What additional revenues minus expenses will be generated from expansion?

27. Pursuing valuable ideas is the best way

28. According to the CAPM, the expected return for a portfolio is determined by the portfolio's.

29. The wholesale price for Captain John’s is $1.70 per loaf, and the variable cost of production is $0.80 per loaf. What is the contribution margin?

30. According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for