FIN 370 Final Exam

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FIN 370 Final Exam (Newest)

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

statement of retained earnings

Income statement

Statement of cash flows

Balance sheet

We commonly measure the risk-return relationship using which of

the following?

Expected returns

Coefficient of variation

Correlation coefficient

Standard deviation

What's the current yield of a 6 percent coupon corporate bond

quoted at a price of 101.70?

6.1 percent

10.2 percent

6.0 percent

5.9 percent

Which financial statement reports a firm's assets, liabilities, and

equity at a particular point in time?

Statement of cash flows

Balance sheet

Statement of retained earnings

Income statement

As new capital budgeting projects arise, we must estimate__________.

the cost of the loan for the specific project

the cost of the stock being sold for the specific project

when such projects will require cash flows

the float costs for financing the project

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?

$3.25 million

$5 million

$7.69 million

$0.65 million

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?

Cash flow analysis

Incremental cash flows

Substitutionary analysis

Pro forma analysis

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

Total portfolios

Efficient portfolios

Modern portfolios

Optimal portfolios

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?

Statement of cash flows

Statement of retained earnings

Balance sheet

Income statement

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

Delaying disbursement of cash, reducing collection

management, and Increasing inventory turnover

period,

Delaying disbursement of cash and cash management

Reducing collection period and delaying disbursement of cash

Increasing inventory turnover and reducing collection period

cash

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

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?

Neither machine A nor B

Both machines A and B

Machine B

Machine A

Financial plans include which of the following?

All of the above

Pro forma Income Statement, Balance Sheet

Short Term and Long Term Plan

Schedule of Sales, Expenses, and Capital Expenditure

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 less 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 more 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.

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

Secondary markets

Primary markets

Money markets

What are reasons for the firm to go abroad?

Lower production cost

All of the above

Diversification

Access to raw materials

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?

4.2, 1.0, 0.2

2.3333, 0.5556, 0.1111

10.5, 6.0, 1.0

0.1111, 0.5556, 0.2

The Rule of 72 is a simple mathematical approximation for__________.

the future value required to double an investment

the present value required to double an investment

the payments required to double an investment

the number of years required to double an investment

Which of these ratios show the combined effects of liquidity, asset

management, and debt management on the overall operation results
of the firm?

Coverage

Financial

Liquidity

Profitability

The overall goal of the financial manager is to__________.

minimize total costs

maximize shareholder wealth

maximize net income

maximize earnings per share

Which of the following can create ethical dilemmas between

corporate managers and stockholders?

Board of directors

Auditors

Venture Capitalist

Agency relationship

Which of the following terms means that during periods when

interest rates change substantially, bondholders experience distinct
gains and losses in their bond investments?

Reinvestment rate risk

Credit quality risk

Interest rate risk

Liquidity rate risk

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

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?

7.73 percent

16.00 percent

8.40 percent

8.00 percent

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?

Commercial banks

Insurance companies

Mutual funds

Secondary markets

Which of the following is a true statement?

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

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

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

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

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?

$7,346.64

$3,160.43

$5,089.91

$3,464.11

We call the process of earning interest on both the original deposit

and on the earlier interest payments:

compounding.

multiplying.

computing.

discounting.

We can estimate a stock's value by__________.

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

discounting the future dividends and future stock price appreciation

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.

$65.40

$65.57

$79.14

$66.67

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