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FIN 571 Final

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FIN 571 Final Exam 4

1) 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 __________

2) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

3) An all-equity-financed firm would __________.

4) The capital budgeting process can be broken down into five steps. These steps include which of the following?

5) Projects can be classified into various categories. These include:

6) Boeing Corporation is a world leader in commercial aircraft. In the face of competition, Boeing often faces a critical decision: whether to develop a new generation of passenger aircraft.

7) A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to __________.

8) Studies show systematic differences in capital structures across industries. These are due mostly to differences in __________.

9) Studies show systematic differences in capital structures across industries. These are due mostly to differences in the availability of tax shelter provided by things other than debt, such as __________.

10) Preferred stock payment obligations are typically

11) If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is __________.

12) 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?

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) According to the CAPM, the expected return for a portfolio is determined by the portfolio's.

16) Which of these investments would you expect to have the highest rate of return for the next 20 years?

17) The Principle of __________ implies that the expected return for an asset equals its required return.

18) According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________.

19) Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days.

20) 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,

21) Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)?

22) __________ says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms.

23) __________ says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.

24) __________ says to transfer the tax benefits of ownership to other parties if they are willing to pay for benefits your firm cannot use.

25) Which of the following favors a high dividend payout policy?

26) The weighted average cost of capital (WACC) can be computed using the formula:

27) You are considering the capital budgeting project j with a life expectancy of 20 years.

28) 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__________.

29) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

30) Calculate the IRR for the following investment project: initial investment is $75,000; i

31) Your firm uses the payback method but does not discount any of the cash flows.

32) Compute the NPV for the following project. The initial cost is $5,000. The net cash flows are $1,900 for four years.

33) Each year for eight years, an investment will generate incremental sales of $8,000 and cash operating expenses of $2,500.

34) The __________ method breaks down when evaluating projects in which the sign of the cash flow changes.

35) In practice, the __________ rule is preferred.

36) Net present value ( NPV) is the difference between __________.

37) Compute the IRR for the following project. The initial cost is $10,000. The net cash flows are 3,800 for four years.

38) Suppose you purchase a zero coupon bond for $214.55 with a face value of $1,000 maturing in twenty years.

39) A bond for J. Morris, Inc. a coupon rate of 6%. The yield to maturity is 7%.

40) You own a stock that will start paying $0.50 annually at the end of the year.

FIN 571 Final Exam 4 1) 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 __________ 2) An investor's risky portfolio is made up of i
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