FIN 370 Final Exam / New Version
1. Capital Structure Theory in general assumes that:
2. Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management?
3. The Securities Investor Protection Corporation protects individuals from
4. 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?
5. 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?
6. Which of the following is not part of the underwriting process?
7. When the impact of taxes is considered, as the firm takes on more debt
8. 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?
9. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is
10. Accounting break-even analysis solves for the level of sales that will result in:
11. Buying and selling in more than one market to make a riskless profit is called:
12. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?
13. 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?
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.
It could offer no discounts for early payment by its customers.
Its accounts receivable collection policy could increase the average collection period.
14. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?
15. 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
16. 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?
17. Which of the following is true regarding Investment Banks?
As a result of the financial crisis of 2008, all stand-alone Investment banks either failed, were as Investment banks.
18. If managers are making decisions to maximize shareholder wealth, then they are primarily
either increase or have no effect on the value of the firm’s common stock.
19. Which of the following is true about bonds?
, the investor receives the market price of the bond.
Their interest rate always varies with the Consumer Price Index
20. Which of the following is most likely to occur if a firm over-invests in net working capital?
21. Which of the following goals is in the best long-term interest of stockholders?
22. 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.
23. Which of the following statements best represents what finance is about?
24. 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?
25. Long-term financial plans typically encompass:
26. When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?
27. 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.
28. 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?
29. Aspects of demand risk controllable by the firm include:
30. 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: