Fin 370 Final exam 30 questions

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1, 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

2. 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

3. 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?

Balance sheet

Statement of cash flows

Statement of retained earnings

Income statement

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

statement of retained earnings

Statement of cash flows

Balance sheet

Income statement

5. 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?

Substitutionary analysis

Incremental cash flows

Pro forma analysis

Cash flow analysis

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

Liquidity rate risk

Credit quality risk

Reinvestment rate risk

Interest rate risk

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

the number of years required to double an investment

the payments required to double an investment

the present value required to double an investment

the number of years required to double an investment

the future value required to double an investment

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

Financial

Liquidity

Profitability

Coverage

9. Financial plans include which of the following?

Schedule of Sales, Expenses, and Capital Expenditure

Pro forma Income Statement, Balance Sheet

Short Term and Long Term Plan

All of the above

10. 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?

Insurance companies

Commercial banks

Secondary markets

Mutual funds

11. Which of the following is a true statement?

If interest rates fall, all bonds will enjoy rising values.

If interest rates fall, corporate bonds will have decreasing values.

If interest rates fall, U.S. Treasury bonds will have decreasing values.

If interest rates fall, no bonds will enjoy rising values.

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

Correlation coefficient

Coefficient of variation

Standard deviation

Expected returns

13. 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

Money markets

Secondary markets

Primary markets

14. 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?

8.00 percent

7.73 percent

8.40 percent

16.00 percent

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?

$3,160.43

$5,089.91

$7,346.64

$3,464.11

The overall goal of the financial manager is to__________.

maximize shareholder wealth

maximize earnings per share

minimize total costs

maximize net income

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

Income statement

Statement of cash flows

Statement of retained earnings

Balance sheet

What are reasons for the firm to go abroad?

Access to raw materials

Lower production cost

Diversification

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

computing.

compounding.

discounting.

multiplying.

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

Board of directors

Venture Capitalist

Auditors

Agency relationship

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

Delaying disbursement of cash and cash management

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

Increasing inventory turnover and reducing collection period

Reducing collection period and delaying disbursement of cash

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?

Machine B

Neither machine A nor B

Both machines A and B

Machine A

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?

$0.65 million

$7.69 million

$5 million

$3.25 million

Which of these statements is true regarding divisional WACC?

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more 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 firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta.

Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta.

We can estimate a stock's value by__________.

discounting the future dividends and future stock price appreciation

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

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

6.0 percent

5.9 percent

6.1 percent

10.2 percent

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.

$66.67

$65.40

$79.14

$65.57

The top part of Mars, Inc.'s 2013 balance sheet is listed as follows (in millions of dollars).

$C:\Users\jortiz\Desktop\GetSecureCogneroMedia.png$

4.2, 1.0, 0.2

0.1111, 0.5556, 0.2

2.3333, 0.5556, 0.1111

10.5, 6.0, 1.0

As new capital budgeting projects arise, we must estimate__________.

the float costs for financing the project

the cost of the stock being sold for the specific project

the cost of the loan for the specific project

when such projects will require cash flows

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

Total portfolios

Efficient portfolios

Optimal portfolios

Modern portfolios