This document contains 57 multiple choice questions covering various topics in finance including capital budgeting, capital structure, time value of money, security issuance, and financial planning. The questions would be used on a final exam for an undergraduate finance course and assess students' understanding of key concepts and ability to apply analytical techniques.
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Chapter 4 focuses on describing how to estimate and calculate Weighted Average Cost of Capital, answering the following questions:
How is the WACC calculated?
What is the Cost of Debt, Cost of Equity and Beta?
What is the Market Risk Premium and Country Risk Premium?
What is the periodicity of WACC calculation?
[EN] Convertible bonds offer investors equity-like returns with a risk profil...NN Investment Partners
NN Investment Partners explains how convertible bonds offer investors equity-like returns with a risk profile comparable to that of bonds, from November 2015.
[EN] A detailed look at the treatment of convertible bonds under the new Solv...NN Investment Partners
NN Investment Partners takes a detailed look at the treatment of convertible bonds under the new Solvency II regulatory regime for European insurers, from November 2015.
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Chapter 4 focuses on describing how to estimate and calculate Weighted Average Cost of Capital, answering the following questions:
How is the WACC calculated?
What is the Cost of Debt, Cost of Equity and Beta?
What is the Market Risk Premium and Country Risk Premium?
What is the periodicity of WACC calculation?
[EN] Convertible bonds offer investors equity-like returns with a risk profil...NN Investment Partners
NN Investment Partners explains how convertible bonds offer investors equity-like returns with a risk profile comparable to that of bonds, from November 2015.
[EN] A detailed look at the treatment of convertible bonds under the new Solv...NN Investment Partners
NN Investment Partners takes a detailed look at the treatment of convertible bonds under the new Solvency II regulatory regime for European insurers, from November 2015.
Franco Modigliani and Merton H Miller Irrelevance Theory, Financial Indifference Point, Financial Leverage, Operating Leverage, Combined Leverage, Financial Break Even Point,
Franco Modigliani and Merton H Miller Irrelevance Theory, Financial Indifference Point, Financial Leverage, Operating Leverage, Combined Leverage, Financial Break Even Point,
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1.Stock cash dividend will __________Increase the total weal.docxChereCoble417
1.
Stock cash dividend will __________
Increase the total wealth of stockholders.
Reduce retained earnings.
Increase the number of shares to stockholders.
Decrease the number of shares to stockholders.
2.
Generally, the variability in both ROE and EPS increase when a firm increases its financial leverage. _______
True.
False.
3.
A portfolio weight is defined as the total number of shares in a particular asset divided by the total number of shares held in a portfolio.______
True.
False.
4.
Which of the following statements about portfolio is true? ______
The expected return of a portfolio is the weighted average of the expected returns of all individual stocks in the portfolio.
The standard deviation of a portfolio is the weighted average of the standard deviations of all individual stocks in the portfolio.
Portfolio beta is the weighted average of the beta values of all individual stocks in the portfolio.
Both Statement (A) and Statement (C) are correct.
5.
If preferred stock pays a $5 annual dividend and sells for $100. The cost of preferred stock financing is _______ if we don't consider floatation costs.
5%
10%
25%
50%
6.
A well-diversified portfolio can diversify the company-unique risk, but it cannot diversify the market risk ______
True.
False
7.
The cost of debt must be adjusted for corporate taxes and this is accomplished by multiplying by (1 - T
c
), where T
c
is corporate tax rate. ______
True.
False.
8.
Operating cash flow is equal to _____
Net income plus depreciation minus taxes.
Net income minus depreciation minus interest expense.
EBIT minus taxes minus depreciation.
EBIT minus taxes plus depreciation.
9.
Which of the following transactions will NOT affect a firm's retained earnings? _____
quarterly dividend payments
special dividend payments
stock dividend
All of the above
10.
Using the tax shield approach, a(n) _____ will increase the operating cash flow.
decrease in depreciation
decrease in sales
increase in costs
increase in depreciation
11.
A company's cost of capital is equal to the weighted average of its investors' required returns even when we consider floatation costs and taxes._________
True
False
12.
Which one of the following can be completely ignored when analyzing a project?______
depreciation
taxes
net working capital
sunk cost
13.
Working capital includes all of the following items except:
Accounts receivable.
Cash.
Long-term debt.
Account payables.
14.
Which of the following statements about Capital Asset Pricing Model (CAPM) equation "E(R
A
) = R
f
+
A
(E(R
M
) - R
f
) " is NOT true ______
E(R
A
) is the required rate of return for stock A.
R
f
is the nominal risk-free rate.
E(R
M
) is the required rate of return on the individual security.
BA
is the beta coefficient for the individual security.
15.
If a stock has beta 0.8, how to interpret it? ______
The stock is riskier than average.
The stock has average risk.
The stock is less ri.
Question 1 (17 marks)HiSpeed Ltd. plans to manufacture cross-cou.docxamrit47
Question 1 (17 marks)
HiSpeed Ltd. plans to manufacture cross-country skiing equipment. Its cash flows are highly dependent on the weather in early winter. HiSpeed operates under ideal conditions of uncertainty. On August 1, 2014, the beginning of its first year in business, HiSpeed acquires equipment to be used in its operations. The equipment will last two years, at which time its salvage value will be zero. The company finances the equipment purchase by issuing common shares.
HiSpeed’s annual net cash flows will be $800 if the weather is snowy and $300 if it is not snowy. Assume that cash flows are received at year end. In each year, the objective probability that the weather is snowy is 0.7 and 0.3 that it is not snowy. The interest rate in the economy is 3% in both years.
HiSpeed will pay a dividend of $50 at the end of each year of operation.
Required
a. (9 marks)
In 2014, the weather is snowy. Prepare a statement of financial position as at July 31, 2015, the end of HiSpeed’s first year of operations, and an income statement for the year.
b. (2 marks)
What timing of revenue recognition is implicit in the income statement you have prepared in part (a)? When ideal conditions do not hold, is this timing of revenue recognition relevant? Is it reliable? Explain.
c. (6 marks)
Assume that HiSpeed paid the present value you calculated in part (a) for its equipment. Calculate HiSpeed’s net income for the year ended July 31, 2015 on a historical cost basis, assuming that equipment is depreciated on a straight-line basis. Under the more realistic assumption that ideal conditions do not hold, which measure of net income is most relevant? Which is most reliable? Why?
Question 2 (18 marks)
Prem has $2,000 that he wishes to invest for one year. He has narrowed his choices down to one of the following two actions:
i: Buy bonds of X Ltd., a company that has a very high debt-to-equity ratio. These bonds pay 8% interest, unless X defaults, in which case Prem will receive no interest but will recover his principal. (a1)
ii: Buy Canada Savings Bonds, paying 3% interest. (a2)
Prem assesses the prior probability of X Ltd. defaulting as 0.40. His utility for money is given by the square root of the amount of his net payoff. That is, if he buys the Canada Savings Bonds, his net payoff is $60, yielding utility of √60 = 7.75, and so on. Prem is a rational decision maker.
Required
a. (4 marks)
Based on his prior probability calculations, which action should Prem take? Show your calculations.
b. (9 marks)
Before making a final decision, Prem decides he needs more information. He obtains X Ltd.’s current financial statements and examines its times-interest-earned ratio. This ratio can be either high or low. Upon calculating the ratio, Prem observes that it is low. On the basis of his prior experience in bond investments, Prem knows the following conditional probabilities:
Debt-to-Equity Ratio
Future State
Low
High
ND (no default)
0.50
0.50
D ( ...
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could be convertible into 32 shares of stock). Coupon payments will be made annually. The
bonds will be noncallable for 5 years, after which they will be callable at a price of 91,090;
this call price would decline by $6 per year in Year 6 and each year thereafter. For
simplicity, assume that the bonds may be called or converted only at the end of a year,
immediately after the coupon and dividend payments. Management will call the bonds
when their conversion value exceeds 25o/o of thetr par value (not their call price).
a. For each year, caiculate (1) the anticipated stock price, (2) the anticipated conversion
value, (3) the anticipated straight-bond price, and (4) the cash flow to the investor
asstrming conversion occurs. At what year do you expect the bonds will be forced into
conversion with a call? What is the bond's value in conversion when it is converted at
this time? What is the cash flow to the bondholder when it is converted at this time?
(Hint: The cash flow includes the conversion value and the coupon payment, because
the conversion occurs immediately after the coupon is paid.)
b. What is the expected rate of return (i.e., the before-tax component cost) on the
proposed convertible issue?
c. Assume that the convertible bondholders require a 9o/o rale of return. If the coupon
rate remains unchanged, then what conversion ratio will give a bond price of $1,000?
Paul Duncan, financiai manager of EduSoft Inc., is facing a dilemma. The firm was
founded 5 years ago to provide educational software f<lr the rapidly expanding primary
and secondary school rnarkets. Although EduSoft has done well, the firm's founder
believes an industry shakeout is irnminent. To surwive, EduSoft must grab market share
now, and this will require a large infusion of new capital.
Because he expects earnings to continue rising sharply and looks for the stock price to
follow suit, Mr. Duncan does not think it lvouid be wise to issue new common stock at
this time. On the other hand, interest rates are currently high by historical standards, and
the firm's B rating means that interest payments on a nerv debt issue nould be prohibitive.
Thus, he has narrowed his choice offinancing alternatives to (l) preferred stock, (2) bonds
with warrants, or (-l) convertible bonds.
As Duncan's assistant, you have been asked to help in the decision process by
ansu,ering the following questions.
a. How does preferred stock differ from both common equity and debt? Is preferred
stock more risky than common stock? What is floating rate preferred stock?
b. How can knowledge of call options help a financial manager to better understand
warrants and convertibles?
c. Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and
focus on the others. EcluSoll's investment banker estimates that EduSoft could issue a
bond-with-warrants package consisting of a 2O-year bond and 27 warrants. Each
warrant would have a strike p.
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BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...
Fin 571 final exams
1. FIN 571 FINAL EXAMS
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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)?
21) Stony Products has a receivables turnover of ten times. What is Stony’s receivables
collection period (RCP)?
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?
2. 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 __________.
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?
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 the contribution margin?
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?
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 ___________.
3. 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.
57) __________ says to use common industry practices as a good starting place for the planning
process.