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1.(TCO 4) Which of the following is true regarding the evaluation of projects?(Points :
4)
Question 2.2.(TCO 4) Which of the following investment ranking methods does not
consider the time value of money?(Points : 4)
payback method
Question 3.3.(TCO 3 and 4) You can ensure that an investment is expected to create
value for(Points : 4)
Question 4.4.(TCO 3 and 4) What is the net present value of a project with the
following cash flows, if the discount rate is 10 percent?
Year
0
Cash
flow
$32,000
(Points : 4)
$1,085.25
$1,193.77
$3,498.28
$4,102.86
$4,513.15
1
$9,00
0
2
$10,00
0
3
$15,20
0
4
$7,80
0
Question 5.5.(TCO 4) Howard Company is considering a new project that will require
an initial cash investment of $575,000. The project will produce no cash flows for the
first three years. The projected cash flows for years 4 through 8 are $73,000,
$112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the
firm to recover its initial investment in this project?(Points : 4)
5.81 years
6.05 years
6.96 years
7.90 years
favorable:(Points
: 4)
is a valuable option.
could not cause a negative net present value project to become a positive net present value project.
will generally cause the internal rate of return for a project to decline.
Question 7.7.(TCO 4)___________, occurs when a firm cannot raise financing for a
project under any circumstances.(Points : 4)
contingency planning.
hard rationing.
soft rationing.
capital constraint.
scenario analysis.
Question 8.8.(TCO 4) ABC Cameras is considering an investment that will have a cost of
$10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in
year 3. Assume the cost of capital is 10%. Which of the following is true regarding this
investment? (Points : 4)
This project should be accepted because it has a negative net present value
$12,000
$8,574
$19,800
$82,000
$110,000
$42,000
none of these
is diversifiable
it is measured by beta
akey to assess risk is determining how much risk an investment adds to a portfolio
the higher the risk, the lower the return investors require for the investment
State of
Economy
Recession
Normal
Boom
(Points : 4)
7.33 percent
9.82 percent
11.26 percent
11.33 percent
11.50 percent
Probability of State of
Economy
.02
.88
.10
Rate of
Return
-.06
.11
.17
Question 14.14.(TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600
in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of
stock D?(Points : 4)
17.68 percent
17.91 percent
18.42 percent
19.07 percent
19.46 percent
Question 15.15.(TCO 8)You currently own a portfolio valued at $24,000 that has a
beta of 1.1. You have another $8,000 to invest, and would like to invest it in a manner
such that the risk of the new portfolio matches that of the overall market. What does
the beta of the new security have to be?(Points : 4)
.46
.55
.61
.70
.90
1.(TCO 8)If the financial markets are strong form efficient, then:(Points : 4)
only the most talented analysts can determine the true value of a security.
Question 2.2.(TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be
financed with debt at a cost of 9 percent(after-tax) and common equity at a cost of 16
percent. Assume debt and common equity each represent 50 percentof the firm's
capital structure. What is the weighted average cost of capital?(Points : 4)
$103.68
$36.92
$96.00
none of these
Question 4.4.(TCO 5, 6 and 7) Which of the following is not true regarding the cost of
debt? (Points : 4)
An appropriate method to compute the cost of debt is using the YTM of current bonds
outstanding.
Question 5.5.(TCO 5) Which of the following is not true regarding the cost of retained
earnings?(Points : 4)
has a cost, which is the opportunity cost associated with stockholder funds
Question 6.6.(TCO 4) A project has the following cash flows. What is the internal rate
of return?
Year
0
Cash
flow
$195,600
(Points : 4)
1
$99,80
0
less than 5%
2
$87,60
0
3
$75,30
0
the WACC can be used as the required return for all new projects.
the WACC of a leveraged firm will decrease when the tax rate decreases.
an increase in the market risk premium will tend to decrease a firm's WACC.
the WACC is a starting point for the subjective approach to setting discount rates.
areduction in the risk level of a firm will tend to increase the firm's WACC.
5.98%
7.06%
8.05%
9.68%
10.10%
Question 9.9.(TCO 2) Which one of the following occurs if a firm files for Chapter 7
bankruptcy, but does not generally occur if the firm files for Chapter 11
bankruptcy?(Points : 4)
pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the
firm
Question 10.10.(TCO 5) Which of the following statements is false regarding the cost of
capital? (Points : 4)
All other being equal, it is preferable to use market value weights than book value
weights.
The WACC is the most appropriate discount rate for all projects.
Question 11.11.(TCO 2) Select any actions that do not affect the cash account. (Points : 4)
The costs of the credit application process and the costs expended in the collection
Character, refers to the ability of a firm to meet its credit obligations out its
The optimal credit policy, is the policy that produces the largest amount of sales for a
firm.
Question 13.13.(TCO 2) Which one of the following industries is most apt to have the
shortest cash cycle?(Points : 4)
airplane manufacturer
fast-food restaurant
furniture store
clothing manufacturer
Question 14.14.(TCO 2) Delphinia's has the following estimated quarterly sales for
next year. The accounts receivable period is 30 days. What is the expected accounts
receivable balance at the end of the second quarter? Assume each month has 30
days.
Q1
Sale $1,80
s
0
(Points : 4)
$567
$600
$821
$1,134
$1,200
Q2
$1,70
0
Q3
$2,10
0
Q4
$1,90
0
Question 15.15.(TCO 1) Why is maximization of the current value per share a more
appropriate financial management goal than profit maximization?(Points : 4)
Because by maximizing the current stock value, you also maximize the companys
6.(TCO 1) Provide three examples of recent well-known unethical behavior cases. Explain
the situation in one or two paragraphs. How do you believe that this behavior affected the
firms value?(Points : 10)
7.(TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a
project. Should sunk costs be included as incremental cash flows? Why or why not? Explain
your rationale.(Points : 10)
8.(TCO 8) What is the difference between business risk and financial risk? If Company A has
a higher business risk than Company B, should its cost of capital be higher? Why or why
not? Explain your rationale.(Points : 10)
9.(TCO 2) What are some important factors to consider when conducting a credit evaluation
I and II
I, II and III
I, III and IV
: 4)
Book values reflect the value of the asset based on generally-accepted accounting
principles.
Book values do not reflect the amount someone is willing to pay today for an asset.
Question 3.3.(TCO 1)Use the following tax table to answer this question:
Taxable Income
$0$50,001$75,001$100,001
$335,001
-
$50,000
75,000
100,000
335,000
10,000,00
0
Tax
Rate
15%
25
34
39
34
John has taxable income of $389,745. What is Johns average tax rate?(Points
33%
: 4)
34%
36%
37%
38%
Question 5.5.(TCO 3) You deposited $11,000 in your bank account today. Which of the following will
decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a
positive value. Select all that apply:(Points : 4)
Question 6.6.(TCO 3) Amy needs to save $20,000 in cash to buy a new carfive years
from today. She expects to earn 6.5 percent, compounded annually, on her savings.
How much does she need to deposit today, if this is the only money she saves for this
purpose?(Points : 4)
$12,468.07
$12,502.14
$14,597.62
$17,044.32
$17,129.01
Question 7.7.(TCO 3) Paper Pro needed a new store. The company spent $65,000 to
refurbish an old shop and create the current facility. The firm borrowed 75 percent of
the refurbishment cost ateight percent interest for 11 years. What is the amount of
each monthly payment?(Points : 4)
$91.05
$284.13
$556.50
$682.87
$731.60
Question 8.8.(TCO 3)John borrowed $5,500 four years ago at an annual interest rate
of 10 percent. The loan term isseven years. Since he borrowed the money, Sonny has
been making annual payments of $550 to the bank. Which type of loan does John
have?(Points : 4)
interest-only
pure discount
compounded
amortized
complex
Question 9.9.(TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12
percentinterest. The bonds mature in 25 years. What is the current price of the bond,
if the YTM is 11 percent? Assume annual payments.(Points : 4)
$1080
$1085
$925
$1000
Question 10.10.(TCO 6) The market where one shareholder sells shares to another
shareholder is called the _____ market.(Points : 4)
primary
main
secondary
principal
dealer
Increasing financial leverage will always increase the earnings per share.
10.5%
10.6%
11.5%
12.1%
Moodys and Standard and Poors provide information regarding a bonds interest
rate risk.
Question 14.14.(TCO 8) Which one of the following bonds is the most sensitive to
interest rate movements?(Points : 4)
zero-coupon,five year
zero-coupon, 10 year
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