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FIN 370 Final Exam 1

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FIN 370 Final Exam

1) In terms of organizational costs, which of the following sequences is correct, moving from lowest to highest cost?

2) Which of the following best describes the goal of the firm?

3) Which of the following categories of owners have limited liability?

4) Money market instruments include:

5) Which of the following would increase the need for external equity?

6) When public corporations decide to raise cash in the capital markets, what type of financing vehicle is most favored?

7) Which of the following is NOT a principle of basic financial management?

8) Difficulty in finding profitable projects is due to:

9) According to the agency problem, _________ represent the principals of a corporation.

10) The accounting rate of return on stockholders’ investments is measured by:

11) Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management?

12) Marshall Networks, Inc. has a total asset turnover of 2.5% and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio.

13) If you are an investor, which of the following would you prefer?

14) When George Washington was president of the United States in 1797, his salary was$25,000. If you assume an annual rate of inflation of 2.5%, how much would his salary have been in 1997?

15) Northwest Bank pays a quoted annual (nominal) interest rate of 4.75%. However, it pays interest (compounded) daily using a 365-day year. What is the effective annual rate of return(APY)?

16) Which of the following is NOT a basic function of a budget?

17) The primary purpose of a cash budget is to:

18) All of the following are found in the cash budget EXCEPT:

19) Which of the following is a non-cash expense?

20) A plant can remain operating when sales are depressed:

21) The break-even model enables the manager of a firm to:

22) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

23) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?

24) How long will it take $750 to double at 8% compounded annually?

25) Which of the following is considered to be a spontaneous source of financing?

26) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with:

27) Which of the following is NOT considered a permanent source of financing?

28) We compute the profitability index of a capital-budgeting proposal by:

29) Dieyard Battery Recyclers is considering a project with the following cash flows: If the appropriate discount rate is 15%, compute the NPV of this project.

30) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%.

31) Many firms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk.

32) Most firms use the payback period as a secondary capital-budgeting technique, which, in a sense, allows them to control for risk.

33) You have been asked to analyze a capital investment proposal. The project’s cost is$2,775,000. Cash inflows are projected to be

34) The firm should accept independent projects if:

35) The NPV assumes cash flows are reinvested at the:

36) ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years.

37) PepsiCo uses 30-year Treasury bonds to measure the risk-free rate because:

38) The most expensive source of capital is:

39) The average cost associated with each additional dollar of financing for investment projects is:

40) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future.

41) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock.

42). Given the following information, determine the risk-free rate.

43) Zybeck Corp. projects operating income of $4 million next year. The firm’s income tax rate is40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10per share,

44) Castle Corp. generated $2 million in operating income from sales of $20 million during the latest fiscal year. The firm’s interest expense was $500,000,

45) Farar, Inc. projects operating income of $4 million next year. The firm’s income tax rate is40%. Farar presently has 750,000 shares of common stock, no preferred stock,

46) _________ risk is generally considered only a paper gain or loss.

47) Which of the following statements about exchange rates is true?

48) Capital markets in foreign countries:

49) If the quote for a forward exchange contract is greater than the computed price, the forward contract is:

50) The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and

FIN 370 Final Exam 1) In terms of organizational costs, which of the following sequences is correct, moving from lowest to highest cost? 2) Which of the following best describes the goal of the firm? 3) Which of the following categories of owners
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