FIN 370 Week 5 Final Examination

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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

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds? 

Money markets

Investment banks

Primary markets

Secondary markets

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

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm? 

Financial

Profitability

Coverage

Liquidity

As new capital budgeting projects arise, we must estimate__________.

the cost of the stock being sold for the specific project when such projects will require cash flows

the cost of the loan for the specific project the float costs for financing the project

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

We call the process of earning interest on both the original deposit and on the earlier interest payments: 

computing.

multiplying.

compounding.

discounting.

Which financial statement reports a firm’s assets, liabilities, and equity at a particular point in time? 

Balance sheet

Income statement

Statement of retained earnings

Statement of cash flows

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?  

Machine A

Machine B

Neither machine A nor B

Both machines A and B

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm’s cash flows as__________. 

a simple average of the capital components costs

a weighted average of the capital components costs

a sum of the capital components costs

they apply to each asset as they are purchased with their respective forms of debt or equity

Which of these is used as a measure of the total amount of available cash flow from a project?

Operating cash flow

Investment in operating capital

Free cash flow

Sunk cash flow

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? 

Secondary markets

Mutual funds

Insurance companies

Commercial banks

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?

$7.69 million

$5 million

$0.65 million $3.25 million

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

Total portfolios

Modern portfolios

Optimal portfolios

Efficient portfolios

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

Delaying disbursement of cash, reducing collection period, cash management, and Increasing inventory turnover

Reducing collection period and delaying disbursement of cash

Increasing inventory turnover and reducing collection period

Delaying disbursement of cash and cash management

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

8.40 percent

8.00 percent

16.00 percent

We commonly measure the risk-return relationship using which of the following? 

Coefficient of variation

Standard deviation

Expected returns

Correlation coefficient

Financial plans include which of the following?

Schedule of Sales, Expenses, and Capital Expenditure

Short Term and Long Term Plan

Pro forma Income Statement, Balance Sheet

All of the above

Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

Interest rate risk

Credit quality risk

Reinvestment rate risk

Liquidity rate risk

What are reasons for the firm to go abroad? 

Access to raw materials

Diversification

Lower production cost

All of the above

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 more 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 firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm’s average beta.

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.

The Rule of 72 is a simple mathematical approximation for__________. the number of years required to double an investment

the payments required to double an investment

the present value required to double an investment

the number of years required to double an investment

the future value required to double an investment

We can estimate a stock’s value by__________. 

using the book value of the total stockholder equity section

using the book value of the total assets divided by the number of shares outstanding discounting the future dividends and future stock price appreciation

compounding the past dividends and past stock price appreciation

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?

Substitutionary analysis

Incremental cash flows

Cash flow analysis

Pro forma analysis

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

$5,089.91

$3,160.43

$3,464.11

The overall goal of the financial manager is to__________.

maximize net income

maximize earnings per share

maximize shareholder wealth

minimize total costs

Which of the following can create ethical dilemmas between corporate managers and stockholders?

Auditors

Board of directors

Agency relationship

Venture Capitalist

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.

$79.14

$65.40

$65.57

$66.67

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

Which of the following is a true statement? 

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

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

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

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