# FIN 370 Final Exam 2016 New - 96080

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1. 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 2. 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 3. 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 4. 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 5. 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 6. 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 6%?101.7%=0.058997=5.9% 7. We call the process of earning interest on both the original deposit and on the earlier interest payments: computing. multiplying. compounding. discounting. 8. 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 9. 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 10. 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 11. 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 12. 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 13. 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 14. 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 15. 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 16. 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 0.60 x 10% + 0 x 0% + .40 x 6% x (1 - .28) = 7.728% 17. We commonly measure the risk-return relationship using which of the following? Coefficient of variation Standard deviation Expected returns Correlation coefficient 18. Financial plans include which of the following? Schedule of Sales, Expenses, and Capital Expenditure All of the above Short Term and Long Term Plan Pro forma Income Statement, Balance Sheet 19. 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 20. What are reasons for the firm to go abroad? Access to raw materials Diversification Lower production cost All of the above 21. 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. 22. 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 23. 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 24. 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 25. 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 Jane :PV = 5000,N=25, 1 = 8, PMT=0, CPT FV=3424.38 Jane :FV = 3424.38, N=(25-5), = 20, 1 = 10, PMT=0, CPT PV=5081.91 26. The overall goal of the financial manager is to__________. maximize net income maximize earnings per share maximize shareholder wealth minimize total costs 27. Which of the following can create ethical dilemmas between corporate managers and stockholders? Auditors Board of directors Agency relationship Venture Capitalist 28. 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 0 CF0 2.00 C01, 1 F01 77.14 C02, 1 F02 10 I NPV = 65.57 29. 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 30. 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.
Solution Description

?1. 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

2. 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

3. 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
?4. 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

5. 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

6. 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

6%½101.7%=0.058997=5.9%

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

?computing.

?multiplying.

?compounding.

?discounting.

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

?Balance sheet

?Income statement