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1. FIN 571 Final Exam Guide
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FIN 571 Final Exam Guide 2
1) Occurs when a "follower" receives the benefit of an expenditure made by a
"leader" by imitating the leader's behavior.
2) Occurs when inaccurate information can falsely exist.
3) Refers to situations wherein the agent can take unseen actions for personal
benefit even though such actions are costly to the principal.
4) The annual report refers to
5) Remaining maturity refers to:
6) Generally accepted accounting principles (GAAP) refers to
7) Original maturity refers to:
8) The firm's assets in the balance sheet refer to:
9) Book value (or Net book value) refers to:
10) The return expected by equity investors is called the __________.
11) Assume that the par value of a bond is $1,000. Consider a bond where the
coupon rate is 9% and the current yield is 10%. Which of the following
statements is true?
12) Preferred stock payment obligations are typically __________.
13) Certain countries have restrictions. In practice, U.S. investors have NOT
invested very much internationally. Possible factors include __________.
14) Certain countries have restrictions. In practice, U.S. investors have NOT
invested very much internationally. Possible factors include __________.
15) For diversified investors, the proper measure of a stock's risk is
__________.
16) One problem with using negative values for w1 (the proportion invested in
the riskless asset) to represent a borrowed amount is that the implied
borrowing rate of interest is the same as __________.
17) Which of these investments would you expect to have the highest rate of
return for the next 20 years?
18) According to the Principle of Risk-Return Trade-Off, investors require a
higher return to compensate for .
19) Suppose the Ruskin Oil Corporation has $150,000 for both its book balance
and its bank balance. It takes 4 days for a check to clear.
If Ruskin writes a $3,000 check, which of the following statements is false?
20) Stony Products has a payables turnover of six times. What is Stony's
payables deferral period (PDP)?
The payables deferral period is the average length of time between the purchase
of the materials and labor that go into inventory and the payment of cash for
these materials and labor. We have: PDP = where PTO is the payables turnover
and is equal to : where CS is cost of sales, SGA is selling, general, and
administrative expenses, AP is account payables, and WBT is wages, benefits, and
payroll taxes payable. We have: PDP = = = 60.83333 days ? 60.83 days.
21) Stony Products has a receivables turnover of ten times. What is Stony’s
receivables collection period (RCP)?
The receivables collection period (RCP), or days' sales outstanding (DSO), is
the average number of days that it takes to collect on accounts receivable. We
have: RCP = where RTO is the receivables turnover and is equal to where AR
is account receivables. We have: RCP = = = 36.5 days.]
22) __________ says to calculate the incremental after-tax cash flows connected
with working capital decisions.
23) __________ says to compare the benefits and costs of alternative uses and
sources of money using after-tax APYs.
24) Bank term loans represent __________.
25) Which (if any) of the below statements is false?
26) Credit-policy decisions involve all aspects of receivables management. The
decision does NOT include which of the following?
27) Most credit sales are made on an open account basis, which means
__________.
28) An all-equity-financed firm would __________.
29) A profitable firm would __________.

3. 30) Whenever a firm splits itself into separate units, with each unit having
limited liability with respect to its financing, the capital structure of each
unit becomes __________.
31) There are two important tax considerations for a capital budgeting project.
These include which (if any) of the following?
32) Projects can be classified into various categories. These include:
33) Ideas for capital budgeting projects come from all levels within an
organization. The bottom up process results in ideas percolating through the
organization.
34) In practice, the __________ rule is preferred.
35) Whenever projects are both independent and conventional, then the IRR and
NPV methods agree. Which of the following statements is true?
36) The __________ method breaks down when evaluating projects in which the
sign of the cash flow changes.
37) Studies show systematic differences in capital structures across
industries. These are due mostly to differences in __________.
38) A firm cannot simply adopt the industry average debt ratio, because
differences exist among firms in any particular industry with respect to
__________.
39) Studies show systematic differences in capital structures across
industries. These are due mostly to differences in __________.
40) Which of the following favors a high dividend payout policy?
41) There can be a variety of motives for stock repurchases including
__________.
42) Some countries have __________ in which shareholders' returns are not fully
taxed twice.
43) Conditional sales contracts __________.
44) The Time Value of Money Principle says __________.
45) Stated maturity is __________.
46) The Time Value of Money Principle says to __________.
47) __________ says to calculate the net advantage of leasing based on the
incremental after-tax benefits that leasing will provide.
48) __________ says to look for opportunities to develop asset-based financing
arrangements that offer new positive-NPV financing mechanisms.
49) The wholesale price for Captain John’s is $1.00 per loaf, and the variable
cost of production is $0.50 per loaf. Captain John’s is expecting that
expansion will allow them to sell an additional 5.0 million loaves in the next
year. What additional revenues minus expenses will be generated from expansion?
[Contribution margin = wholesale price ? variable cost = $1.00 ? $0.50 = $0.50
per loaf. The additional 5 million loaveswould therefore
generate an increase of $0.50 per loaf times 5 million loaves = $2,500,000 in
revenues minus expenses each year.]
50) The wholesale price for Captain John’s is $3.00 per loaf. One million
loaves will be sold in the next year. What is t-he contribution margin? [We
need the variable cost to determine the contribution margin which is equal to
the wholesale price minus the variable cost; thus, we cannot tell.]
51) The wholesale price for Captain John’s is $0.612 per loaf, and the variable
cost of production is $0.387 per loaf. Captain John’s is expecting that
expansion will allow them to sell an additional 4.5 million loaves in the next
five years. What additional revenues minus expenses will be generated from
expansion?
[Contribution margin = wholesale price ? variable cost = $0.612 ? $0.387 =
$0.225 per loaf. The additional 4.5 million loaves would therefore generate an
increase of $0.225 per loaf times 4.5 million loaves = $1,012,500 in revenues
minus expenses each year.]
52) In efficient markets, as in the United States, you should think long and
hard before you conclude that a market price is __________.
53) Due to asymmetric information, the market fears that a firm issuing
securities will do so when the stock is
54) Which of the following statements is true?
55) __________ says to forecast the firm’s cash flows, and analyze the
incremental cash flows of alternative decisions.
56) __________ says to carefully evaluate and monitor the financial plan’s
impact on the firm and its stakeholders.

4. 57) __________ says to use common industry practices as a good starting place
for the planning process.