Fin 370 final exam new 2016 version

1. FIN 370 FINAL EXAM - NEW 2016
VERSION
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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

2. 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

3. 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

4. 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
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

5. 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.