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FIN 534 Final Exam Set 1 (4 Sets)

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FIN 534 Final Exam Part 1 Set 1

 

 

•           Question 1

           

            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 2

           

            Which of the following statements is CORRECT?

                                   

•           Question 3

           

            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 4

           

            Which of the following statements is CORRECT?

                                   

•           Question 5

           

            Which of the following statements is CORRECT?

                                   

•           Question 6

           

            Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?

                                   

•           Question 7

           

            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

           

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

                                   

•           Question 9

           

            A company's perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock?

                                   

•           Question 10

 

           

            Which of the following statements is CORRECT?

                                   

•           Question 11

           

            Which of the following statements is CORRECT?

                                   

•           Question 12

           

            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 13

           

            Which of the following statements is CORRECT?

 

•           Question 14

           

            Which of the following statements is CORRECT?

                                   

•           Question 15

           

            Projects C and D both have normal cash flows and are mutually exclusive. Project C has a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%. Which of the following statements is CORRECT?

                                   

•           Question 16

           

            Which of the following statements is CORRECT?

                                   

•           Question 17

           

            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 18

           

            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 19

           

            Which of the following statements is CORRECT?

                                   

•           Question 20

           

            Which of the following statements is CORRECT?

                                   

•           Question 21

           

            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

           

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

                                   

•           Question 23

           

            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 24

           

            Which of the following statements is CORRECT?

                                   

•           Question 25

           

            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 26

           

            Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?

                                   

•           Question 27

           

            F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

                                   

•           Question 28

           

            Which of the following statements is CORRECT?

                                   

•           Question 29

           

            Which of the following statements is CORRECT?

                                   

•           Question 30

           

            The capital intensity ratio is generally defined as follows:

 

 

FIN 534 Final Exam Part 1 Set 2

 

FIN 534 Final Exam Part 1

•          

            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

           

            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 3

           

            Which of the following statements is CORRECT?               

                                   

•  Question 4

           

            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 5

           

            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  

            Which of the following statements is CORRECT?                           

           

                                   

•  Question 7

           

            Which of the following statements is CORRECT?               

                                   

•  Question 8

           

            Which of the following statements is CORRECT?                           

           

                                   

•  Question 9

           

            Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?                        

           

                                   

•  Question 10

           

            Which of the following statements is CORRECT?   

                                   

•  Question 11

           

            Which of the following statements is CORRECT?               

                                   

•  Question 12

           

            Which of the following statements is CORRECT?                           

           

•  Question 13

           

            Which of the following statements is CORRECT?                           

           

                                   

•  Question 14

           

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

           

•  Question 15

           

            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

           

            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 17

           

            The WACC for two mutually exclusive projects that are being considered is 12%. Project K has an IRR of 20% while Project R's IRR is 15%. The projects have the same NPV at the 12% current WACC. Interest rates are currently high. However, you believe that money costs and thus your WACC will soon decline. You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?                                 

 

•  Question 18

           

            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 19

           

            Which of the following statements is CORRECT?               

                                   

•  Question 20

           

            Which of the following factors should be included in the cash flows used to estimate a project's NPV?                           

                                               

•  Question 21

           

            Which of the following statements is CORRECT?                           

                                   

•  Question 22

           

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

           

                                   

•  Question 23

           

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

           

                                   

•  Question 24

           

            Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project?                              

           

•  Question 25

           

            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 26

           

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

                                   

•  Question 27

           

            Which of the following statements is CORRECT?                           

                                   

•  Question 28

           

            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 29

           

            Which of the following statements is CORRECT?                           

                                   

•  Question 30

           

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

 

FIN 534 Final Exam Part 1 Set 3

 

•           Question 1 

 

            An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?                        

           

                                   

•           Question 2 

 

            Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?                             

           

                                   

•           Question 3

 

            Which of the following statements is CORRECT?                           

                                               

•           Question 4 

 

            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?                               

           

                                   

•    &a


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