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.