1

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? 

·         Correct Answer

[removed]

Income statement

·         Correct Answer

[removed]

Balance sheet

·         Correct Answer

[removed]

Statement of retained earnings

·         Correct Answer

[removed]

Statement of cash flows

2

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

·         Correct Answer

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Modern portfolios

·         Correct Answer

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Optimal portfolios

·         Correct Answer

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Total portfolios

·         Correct Answer

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Efficient portfolios

3

The Rule of 72 is a simple mathematical approximation for__________.

·         Correct Answer

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the present value required to double an investment

·         Correct Answer

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the future value required to double an investment

·         Correct Answer

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the number of years required to double an investment

·         Correct Answer

[removed]

the payments required to double an investment

4

Which of these statements is true regarding divisional WACC? 

·         Correct Answer

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

·         Correct Answer

[removed]

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.

·         Correct Answer

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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.

·         Correct Answer

[removed]

Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions.

 

5

Which of these is used as a measure of the total amount of available cash flow from a project?

·         Correct Answer

[removed]

Operating cash flow

·         Correct Answer

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Sunk cash flow

·         Correct Answer

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Free cash flow

·         Correct Answer

[removed]

Investment in operating capital

6

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

·         Correct Answer

[removed]

Income statement

·         Correct Answer

[removed]

Statement of cash flows

·         Correct Answer

[removed]

statement of retained earnings

·         Correct Answer

[removed]

Balance sheet

7

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

·         Correct Answer

[removed]

Expected returns

·         Correct Answer

[removed]

Standard deviation

·         Correct Answer

[removed]

Coefficient of variation

·         Correct Answer

[removed]

Correlation coefficient

8

Financial plans include which of the following?

·         Correct Answer

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Pro forma Income Statement, Balance Sheet

·         Correct Answer

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All of the above

·         Correct Answer

[removed]

Schedule of Sales, Expenses, and Capital Expenditure

·         Correct Answer

[removed]

Short Term and Long Term Plan

9

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds? 

·         Correct Answer

[removed]

Investment banks

·         Correct Answer

[removed]

Secondary markets

·         Correct Answer

[removed]

Primary markets

·         Correct Answer

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Money markets

10

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?

·         Correct Answer

[removed]

7.73 percent

·         Correct Answer

[removed]

8.40 percent

·         Correct Answer

[removed]

16.00 percent

·         Correct Answer

[removed]

8.00 percent

question11

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

·         Correct Answer

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6.1 percent

·         Correct Answer

[removed]

10.2 percent

·         Correct Answer

[removed]

6.0 percent

·         Correct Answer

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5.9 percent

12

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

·         Correct Answer

[removed]

computing.

·         Correct Answer

[removed]

discounting.

·         Correct Answer

[removed]

multiplying.

·         Correct Answer

[removed]

compounding.

13

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

·         Correct Answer

[removed]

Liquidity

·         Correct Answer

[removed]

Coverage

·         Correct Answer

[removed]

Profitability

·         Correct Answer

[removed]

Financial

14

Which of the following is a true statement? 

·         Correct Answer

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

·         Correct Answer

[removed]

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

·         Correct Answer

[removed]

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

·         Correct Answer

[removed]

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

15

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?  

·         Correct Answer

[removed]

$5,089.91

·         Correct Answer

[removed]

$3,160.43

·         Correct Answer

[removed]

$7,346.64

·         Correct Answer

[removed]

$3,464.11

16

The overall goal of the financial manager is to__________.

·         Correct Answer

[removed]

maximize net income

·         Correct Answer

[removed]

maximize earnings per share

·         Correct Answer

[removed]

minimize total costs

·         Correct Answer

[removed]

maximize shareholder wealth

17

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

·         Correct Answer

[removed]

Auditors

·         Correct Answer

[removed]

Venture Capitalist

·         Correct Answer

[removed]

Agency relationship

·         Correct Answer

[removed]

Board of directors

18

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as__________. 

·         Correct Answer

[removed]

they apply to each asset as they are purchased with their respective forms of debt or equity

·         Correct Answer

[removed]

a sum of the capital components costs

·         Correct Answer

[removed]

a weighted average of the capital components costs

·         Correct Answer

[removed]

a simple average of the capital components costs

19

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?  

·         Correct Answer

[removed]

Neither machine A nor B

·         Correct Answer

[removed]

Both machines A and B

·         Correct Answer

[removed]

Machine A

·         Correct Answer

[removed]

Machine B

20

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

What are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2013? 

·         Correct Answer

[removed]

10.5, 6.0, 1.0

·         Correct Answer

[removed]

2.3333, 0.5556, 0.1111

·         Correct Answer

[removed]

0.1111, 0.5556, 0.2

·         Correct Answer

[removed]

4.2, 1.0, 0.2

21

We can estimate a stock's value by__________. 

·         Correct Answer

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using the book value of the total assets divided by the number of shares outstanding

·         Correct Answer

[removed]

discounting the future dividends and future stock price appreciation

·         Correct Answer

[removed]

using the book value of the total stockholder equity section

·         Correct Answer

[removed]

compounding the past dividends and past stock price appreciation

22

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? 

·         Correct Answer

[removed]

Commercial banks

·         Correct Answer

[removed]

Insurance companies

·         Correct Answer

[removed]

Secondary markets

·         Correct Answer

[removed]

Mutual funds

23

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.

·         Correct Answer

[removed]

$65.40

·         Correct Answer

[removed]

$79.14

·         Correct Answer

[removed]

$65.57

·         Correct Answer

[removed]

$66.67

24

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?

·         Correct Answer

[removed]

$7.69 million

·         Correct Answer

[removed]

$5 million

·         Correct Answer

[removed]

$3.25 million

·         Correct Answer

[removed]

$0.65 million

25

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?

·         Correct Answer

[removed]

Substitutionary analysis

·         Correct Answer

[removed]

Cash flow analysis

·         Correct Answer

[removed]

Incremental cash flows

·         Correct Answer

[removed]

Pro forma analysis

26

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

·         Correct Answer

[removed]

Balance sheet

·         Correct Answer

[removed]

Income statement

·         Correct Answer

[removed]

Statement of retained earnings

·         Correct Answer

[removed]

Statement of cash flows

27

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

·         Correct Answer

[removed]

Liquidity rate risk

·         Correct Answer

[removed]

Reinvestment rate risk

·         Correct Answer

[removed]

Credit quality risk

·         Correct Answer

[removed]

Interest rate risk

28

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

·         Correct Answer

[removed]

Increasing inventory turnover and reducing collection period

·         Correct Answer

[removed]

Reducing collection period and delaying disbursement of cash

·         Correct Answer

[removed]

Delaying disbursement of cash and cash management

·         Correct Answer

[removed]

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

29

As new capital budgeting projects arise, we must estimate__________.

·         Correct Answer

[removed]

the cost of the stock being sold for the specific project

·         Correct Answer

[removed]

the cost of the loan for the specific project

·         Correct Answer

[removed]

when such projects will require cash flows

·         Correct Answer

[removed]

the float costs for financing the project

30

What are reasons for the firm to go abroad? 

·         Correct Answer

[removed]

Diversification

·         Correct Answer

[removed]

Access to raw materials

·         Correct Answer

[removed]

Lower production cost

·         Correct Answer

[removed]

All of the above

 

 

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