BUSN 379 Final Exam
1. (TCO 4) Which of the following is true regarding the evaluation of projects?
2. (TCO 4) Which of the following investment ranking methods does not consider the time value of money?
3. (TCO 3 and 4) You can ensure that an investment is expected to create value for
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?
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?
6. (TCO 4) The postponement of a project until conditions are more favorable:
7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances.
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?
9. (TCO 4) Assume Company X plans to invest $60,000 in industrial equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS?
10. (TCO 1 and 4) Assume a corporation has earnings before depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company?
11. (TCO 8) Which of the following statements is true regarding systematic risk?
12. (TCO 8) Which statement is true regarding risk?
13. (TCO 8) The stock of Chocolate Galore is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?
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?
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?
1. (TCO 8) If the financial markets are strong form efficient, then:
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 percent of the firm’s capital structure. What is the weighted average cost of capital?
3. (TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to eight percent. If the required rate of return is 13 percent, what is its current price?
4. (TCO 5, 6 and 7) Which of the following is not true regarding the cost of debt?
5. (TCO 5) Which of the following is not true regarding the cost of retained earnings?
6. (TCO 4) A project has the following cash flows. What is the internal rate of return?
7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm’s weighted average cost of capital (WACC)?
8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm’s cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100?
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?
10. (TCO 5) Which of the following statements is false regarding the cost of capital?
11. (TCO 2) Select any actions that do not affect the cash account.
12. (TCO 2) Which of the following statements is true?
13. (TCO 2) Which one of the following industries is most apt to have the shortest cash cycle?
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.
15. (TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization?
16. (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 firm’s value?
17. (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.
18. (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.
19. (TCO 2) What are some important factors to consider when conducting a credit evaluation and scoring?
20. (TCO 6 and 7) Do you believe that it is appropriate for some industries to be more leveraged than others? Explain your rationale.