FIN 534-FINAL_EXAM_LATEST _2016 (PART 1)

·        
Question 1

2 out of 2 points









Which
of the following statements is CORRECT?







 

·        
Question 2

2 out of 2 points









Which
of the following statements is CORRECT?







 

·        
Question 3

2 out of 2 points









An
option that gives the holder the right to sell a stock at a specified price
at some future time is







·        
Question 4

2 out of 2 points









Cazden
Motors' stock is trading at $30 a share. Call options on the company's stock
are also available, some with a strike price of $25 and some with a strike
price of $35. Both options expire in three months. Which of the following
best describes the value of these options?







 

·        
Question 5

2 out of 2 points









The
current price of a stock is $50, the annual risk-free rate is 6%, and a
1-year call option with a strike price of $55 sells for $7.20. What is the
value of a put option, assuming the same strike price and expiration date as
for the call option?







 

·        
Question 6

2 out of 2 points









Suppose
you believe that Florio Company's stock price is going to decline from its
current level of $82.50 sometime during the next 5 months. For $5.10 you
could buy a 5-month put option giving you the right to sell 1 share at a
price of $85 per share. If you bought this option for $5.10 and Florio's
stock price actually dropped to $60, what would your pre-tax net profit be?







 

·        
Question 7

2 out of 2 points









To
help them estimate the company's cost of capital, Smithco has hired you as a
consultant. You have been provided with the following data: D1 = $1.45; P0 =
$22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost
of common from reinvested earnings?







·        
Question 8

2 out
of 2 points









With
its current financial policies, Flagstaff Inc. will have to issue new common
stock to fund its capital budget. Since new stock has a higher cost than
reinvested earnings, Flagstaff would like to avoid issuing new stock. Which
of the following actions would REDUCE its need to issue new common stock?
 

  • Question 9


2 out of 2 points








You have been hired as a
consultant by Feludi Inc.'s CFO, who wants you to help her estimate the
cost of capital. You have been provided with the following data: rRF =
4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is the
cost of common from reinvested earnings?






 
 

  • Question 10


2
out of 2 points








Which
of the following statements is CORRECT?






 

  • Question 11


2
out of 2 points








Which
of the following statements is CORRECT?






 
 







·        
Question 12

2 out of 2 points









Which
of the following statements is CORRECT?
 
 
 

  • Question 13


2
out of 2 points








Projects
S and L are both normal projects with an initial cost of $10,000, followed
by a series of positive cash inflows. Project S's undiscounted net cash
flows total $20,000, while L's total undiscounted flows are $30,000. At a
WACC of 10%, the two projects have identical NPVs. Which project's NPV is
more sensitive to changes in the WACC?






 







·        
Question 14

2out of 2 points









Which
of the following statements is CORRECT? Assume that the project being
considered has normal cash flows, with one outflow followed by a series of
inflows.







 

·        
Question 15

2 out of 2 points









Which
of the following statements is CORRECT?







 

 

2 out of 2 points









·        
Question 16

2 out of 2 points









Which
of the following statements is CORRECT?







 

·        
Question 17

2 out of 2 points









Suppose
a firm relies exclusively on the payback method when making capital budgeting
decisions, and it sets a 4-year payback regardless of economic conditions.
Other things held constant, which of the following statements is most likely
to be true?







·        
Question 18

2 out of 2 points









Which
of the following statements is NOT a disadvantage of the regular payback
method?







 

·        
Question 19

2 out of 2 points









Which
one of the following would NOT result in incremental cash flows and thus
should NOT be included in the capital budgeting analysis for a new product?







 

·        
Question 20

2 out of 2 points









Which
of the following statements is CORRECT?







 

·        
Question 21

2 out of 2 points









Collins
Inc. is investigating whether to develop a new product. In evaluating whether
to go ahead with the project, which of the following items should NOT be
explicitly considered when cash flows are estimated?







·        
Question 22

2 out of 2 points









Puckett
Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8%
for below-average risk projects, 10% for average-risk projects, and 12% for
above-average risk projects. Which of the following independent projects
should Puckett accept, assuming that the company uses the NPV method when
choosing projects?
 







 

·        
Question 23

2 out of 2 points









WWhich of the following rules is
CORRECT for capital budgeting analysis?







·        
Question 24

2 out of 2 points









While
developing a new product line, Cook Company spent $3 million two years ago to
build a plant for a new product. It then decided not to go forward with the
project, so the building is available for sale or for a new product. Cook
owns the building free and clear¾there is no mortgage on it. Which of
the following statements is CORRECT?







 

·        
Question 25

2 out of 2 points









Which
of the following statements is CORRECT?







·        
Question 26

2 out of 2 points









Last
year Baron Enterprises had $350 million of sales, and it had $270 million of
fixed assets that were used at 65% of capacity last year. In millions, by how
much could Baron's sales increase before it is required to increase its fixed
assets?
 







·        
Question 27

2 out of 2 points









Which
of the following is NOT one of the steps taken in the financial planning
process?







 

·        
Question 28

2 out of 2 points









A
company expects sales to increase during the coming year, and it is using the
AFN equation to forecast the additional capital that it must raise. Which of
the following conditions would cause the AFN to increase?







·        
Question 29

2 out of 2 points









The
term "additional funds needed (AFN)" is generally defined as
follows:
 







·        
Question 30

2 out of 2 points









Which
of the following assumptions is embodied in the AFN equation?
 
 








  • Question 1



2 out of 2
points









The current price of a stock is
$22, and at the end of one year its price will be either $27 or $17. The
annual risk-free rate is 6.0%, based on daily compounding. A 1-year call
option on the stock, with an exercise price of $22, is available. Based on
the binomial model, what is the option's value? (Hint: Use daily compounding.)







 

 


  • Question 2



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 3



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 4



2 out of 2
points









Which of the following statements
is CORRECT?







 

 

 

 


  • Question 5



2 out of 2
points









BLW Corporation is considering the
terms to be set on the options it plans to issue to its executives. Which of
the following actions would decrease the value of the options, other things
held constant?







 


  • Question 6



2 out of 2
points









An option that gives the holder
the right to sell a stock at a specified price at some future time is







 


  • Question 7



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 8



2 out of 2
points









Which of the following statements
is CORRECT?
 








  • Question 9



2 out of 2
points









Adams Inc. has the following data:
rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of common
from reinvested earnings based on the CAPM?







 


  • Question 10



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 11



2 out of 2
points









Which of the following statements
is CORRECT? Assume a company's target capital structure is 50% debt and 50%
common equity.







 


  • Question 12



2 out of 2
points









To help them estimate the
company's cost of capital, Smithco has hired you as a consultant. You have
been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50%
(constant). Based on the DCF approach, what is the cost of common from
reinvested earnings?







                                                                                                               


  • Question 13



2 out of 2
points









Which of the following statements
is CORRECT?
 








  • Question 14



2 out of 2
points









Which of the following statements
is CORRECT?







 

 


  • Question 15



2 out of 2
points









Which of the following statements
is CORRECT? Assume that the project being considered has normal cash flows,
with one outflow followed by a series of inflows.







 


  • Question 16



2 out of 2
points









Which of the following statements
is CORRECT? Assume that the project being considered has normal cash flows,
with one outflow followed by a series of inflows.







 


  • Question 17



2 out of 2
points









Suppose a firm relies exclusively
on the payback method when making capital budgeting decisions, and it sets a
4-year payback regardless of economic conditions. Other things held constant,
which of the following statements is most likely to be true?







 


  • Question 18



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 19



2 out of 2
points









Which one of the following would
NOT result in incremental cash flows and thus should NOT be included in the
capital budgeting analysis for a new product?







 


  • Question 20



2 out of 2
points









Which of the following procedures
best accounts for the relative risk of a proposed project?







 

 


  • Question 21



2 out of 2
points









While developing a new product
line, Cook Company spent $3 million two years ago to build a plant for a new
product. It then decided not to go forward with the project, so the building
is available for sale or for a there is no mortgage¾new product. Cook owns the building free and clear on it.
Which of the following statements is CORRECT?







 


  • Question 22



2 out of 2
points









To increase productive capacity, a
company is considering a proposed new plant. Which of the following statements
is CORRECT?








  • Question 23



2 out of 2
points









When evaluating a new project,
firms should include in the projected cash flows all of the following EXCEPT:







 


  • Question 24



2 out of 2
points









Collins Inc. is investigating
whether to develop a new product. In evaluating whether to go ahead with the
project, which of the following items should NOT be explicitly considered
when cash flows are estimated?







 

 


  • Question 25



2 out of 2
points









The Besnier Company had $250
million of sales last year, and it had $75 million of fixed assets that were
being operated at 80% of capacity. In millions, how large could sales have
been if the company had operated at full capacity?







 

 


  • Question 26



2 out of 2
points









The capital intensity ratio is
generally defined as follows:







 


  • Question 27



2 out of 2
points









Which of the following is NOT one
of the steps taken in the financial planning process?







 


  • Question 28



2 out of 2
points









Which of the following statements
is CORRECT?







 


  • Question 29



2 out of 2
points









North Construction had $850
million of sales last year, and it had $425 million of fixed assets that were
used at only 60% of capacity. What is the maximum sales growth rate North
could achieve before it had to increase its fixed assets?







 


  • Question 30



2 out of 2
points









The term "additional funds
needed (AFN)" is generally defined as follows:







 

                  

 

                                                                                           
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