FIN 534 TUTOR Learn by Doing

FIN 534 TUTOR Learn by Doing /
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FIN 534 TUTOR Learn by Doing

FIN 534 Entire Course (Str Course)
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FIN 534 Week 1 Chapter 1 Solution

FIN 534 Week 1 Chapter 1 Solution (Str Course)
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1. Which of the following statements is CORRECT?
a. One of the disadvantages of a sole proprietorship is that
the proprietor is exposed to unlimited liability.
b. It is generally easier to transfer ones ownership interest
in a partnership than in a corporation.
c. One of the advantages of the corporate form of
organization is that it avoids double taxation.

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a. Typically, a firms DPS should exceed its EPS.
b. Typically, a firms EBIT should exceed its EBITDA.
c. If a firm is more profitable than average (e.g., Google),
we would normally expect to see its stock price exceed its
book value per share.
d. If a firm is more profitable than most other firms, we
would normally expect to see its book value per share
exceed its stock price,

FIN 534 Week 1 DQ 1 (Str Course)
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Imagine a startup company of your own and briefly trace
its development from a sole proprietorship to a major
corporation with a focus on how that development would
be financed.

FIN 534 Week 1 DQ 2 (Str Course)
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Discuss ways that the basic concepts we have discussed
in this chapter directly impact your life. Provide specific
examples to support your response.

Fin 534 Week 1 Quiz 1 (Str Course)
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Question 1
You recently sold 100 shares of your new company, XYZ
Corporation, to your brother at a family reunion. At the
reunion your brother gave you a check for the stock and
you gave your brother the stock certificates. Which of the
following statements best describes this transaction?
1) This is an example of an exchange of physical assets.
2) This is an example of a primary market transaction.
3) This is an example of a direct transfer of capital.

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a. The ratio of long-term debt to total capital is more likely
to experience seasonal fluctuations than is either the DSO
or the inventory turnover ratio.
b. If two firms have the same ROA, the firm with the most
debt can be expected to have the lower ROE.
c. An increase in the DSO, other things held constant,
could be expected to increase the total assets turnover
ratio.

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1 1. A $50,000 loan is to be amortized over 7 years, with
annual end-of-year payments. Which of these statements
is CORRECT?
a. The annual payments would be larger if the interest rate
were lower.
b. If the loan were amortized over 10 years rather than 7
years, and if the interest rate were the same in either
case, the first payment would include more dollars of
interest under the 7-year amortization plan.

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1 . Three $1,000 face value bonds that mature in 10
years have the same level of risk, hence their YTMs are
equal. Bond A has an 8% annual coupon, Bond B has a
10% annual coupon, and Bond C has a 12% annual
coupon. Bond B sells at par. Assuming interest rates
remain constant for the next 10 years, which of the
following statements is CORRECT?

FIN 534 Week 3 Quiz 2 (Str Course)
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Question 1
Which of the following statements is CORRECT?
a. Since companies can deduct dividends paid but not
interest paid, our tax system favors the use of equity
financing over debt financing, and this causes companies
debt ratios to be lower than they would be if interest and
dividends were both deductible.
b. Interest paid to an individual is counted as income for
tax purposes and taxed at the

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a. If you add enough randomly selected stocks to a
portfolio, you can completely eliminate all of the market
risk from the portfolio.
b. If you were restricted to investing in publicly traded
common stocks, yet you wanted to minimize the riskiness
of your portfolio as measured by its beta, then according
to the CAPM theory you should invest an equal amount of
money in each stock in the market. That is, if

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a. The constant growth model takes into consideration the
capital gains investors expect to earn on a stock.
b. Two firms with the same expected dividend and growth
rates must also have the same stock price.
c. It is appropriate to use the constant growth model to
estimate a stock's value even if its growth rate is never
expected to become constant.

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1.
1)
A time line is not meaningful unless all cash flows
occur annually
2)
Time lines are useful for visualizing complex
problems prior to doing actual calculations
3)
Time lines cannot be constructed to deal with
situations where some of the cash flows occur annually
but others occur quarterly

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a. Put options give investors the right to buy a stock at a
certain strike price before a specified date.
b. Call options give investors the right to sell a stock at a
certain strike price before a specified date.
c. Options typically sell for less than their exercise value.

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a. The internal rate of return method (IRR) is generally
regarded by academics as being the best single method
for evaluating capital budgeting projects.
b. The payback method is generally regarded by
academics as being the best single method for evaluating
capital budgeting projects.

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Finance 534 week 5 quiz 4
Question 1
Assume that in recent years both expected inflation and
the market risk premium (rM
rRF) have declined. Assume also that all stocks have
positive betas. Which of the following would be most likely
to have occurred as a result of these changes?
Answer
Question 2

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a. The internal rate of return method (IRR) is generally
regarded by academics as being the best single method
for evaluating capital budgeting projects.
b. The payback method is generally regarded by
academics as being the best single method for evaluating
capital budgeting projects.

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a. An externality is a situation where a project would have
an adverse effect on some other part of the firms overall
operations. If the project would have a favorable effect on
other operations, then this is not an externality.
b. An example of an externality is a situation where a bank
opens a new office, and that new office causes deposits in
the banks other offices to decline.

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Finance 534 week 6 Quiz5
Question 1
Call options on XYZ Corporations common stock trade in
the market. Which of the following statements is most
correct, holding other things constant?
Question 2
Other things held constant, the value of an option depends
on the stock's price, the risk-free rate, and the
Question 3

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a. Perhaps the most important step when developing
forecasted financial statements is to determine the
breakdown of common equity between common stock and
retained earnings.
b. The first, and perhaps the most critical, step in
forecasting financial requirements is to forecast future
sales.

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1. Suppose Leonard, Nixon, & Shull Corporations
projected free cash flow for next year is $100,000, and
FCF is expected to grow at a constant rate of 6%. If the
companys weighted average cost of capital is 11%, what
is the value of its operations?
a. $1,714,750
b. $1,805,000
c. $1,900,000
d. $2,000,000

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This quiz consist of 30 multiple choice questions. The first
15 questions cover the material in Chapter 12. The
second 15 questions cover the material in Chapter 13. Be
sure you are in the correct Chapter when you take the
quiz.

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1. Which of the following statements about dividend
policies is CORRECT?
a. Modigliani and Miller argue that investors prefer
dividends to capital gains because dividends are more
certain than capital gains. They call this the bird-in-the
hand effect.
b. One reason that companies tend to avoid stock
repurchases is that dividend payments are taxed at a
lower rate than gains on stock repurchases.

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1. Which of the following statements best describes the
optimal capital structure?
a. The optimal capital structure is the mix of debt, equity,
and preferred stock that maximizes the companys
earnings per share (EPS).
b. The optimal capital structure is the mix of debt, equity,
and preferred stock that maximizes the companys stock
price.

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This quiz consist of 30 multiple choice questions. The first
15 questions cover the material in Chapter 12. The
second 15 questions cover the material in Chapter 13. Be
sure you are in the correct Chapter when you take the
quiz.
million of sales, and it had $75 million of fixed assets that
were being operated at 80% of capacity.

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1. Swim Suits Unlimited is in a highly seasonal business,
and the following summary balance sheet data show its
assets and liabilities at peak and off-peak seasons (in
thousands of dollars):
Peak Off-Peak
Cash $ 50 $ 30
Marketable securities 0 20
Accounts receivable 40 20
Inventories 100 50

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Question 1
Which of the following statements about dividend policies
is correct?
Question 2
If a firm adheres strictly to the residual dividend policy, the
issuance of new common stock would suggest that
Question 3
Which of the following statements is correct?
Answer

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1. In Japan, 90-day securities have a 4% annualized
return and 180-day securities have a 5% annualized
return. In the United States, 90-day securities have a 4%
annualized return and 180-day securities have an
annualized return of 4.5%. All securities are of equal risk,
and Japanese securities are denominated in terms of the
Japanese yen. Assuming that interest

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Question 1
Which of the following statements is NOT CORRECT?
Question 2
Question 3
Answer
Question 4

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Suppose DeGraw Corporation, a U.S. exporter, sold a
solar heating station to a Japanese customer at a price of
143.5 million yen, when the exchange rate was 140 yen
per dollar. In order to close the sale, DeGraw agreed to
make the bill payable in yen, thus agreeing to take some
exchange rate risk for the transaction. The terms were
net 6 months. If the yen fell against the dollar such that
one dollar would buy 154.4

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