FIN 370 Final Exam

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Which financial statement reports the amounts of cash that the firm generated
and distributed during a particular time period?
statement of retained earnings
Income statement
Statement of cash flows
Balance sheet
Which of these provide a forum in which demanders of funds raise funds by
issuing new financial instruments, such as stocks and bonds?
Money markets
Investment banks
Primary markets
Secondary markets
The top part of Mars, Inc.s 2013 balance sheet is listed as follows (in millions of
dollars).
What are Mars, Inc.s current ratio, quick ratio, and cash ratio for 2013?
4.2, 1.0, 0.2
2.3333, 0.5556, 0.1111
10.5, 6.0, 1.0
0.1111, 0.5556, 0.2

Which of these ratios show the combined effects of liquidity, asset management,
and debt management on the overall operation results of the firm?

Financial
Profitability
Coverage
Liquidity

As new capital budgeting projects arise, we must estimate__________.

the cost of the stock being sold for the specific project
when such projects will require cash flows
the cost of the loan for the specific project
the float costs for financing the project

Whats the current yield of a 6 percent coupon corporate bond quoted at a price
of 101.70?

6.1 percent
10.2 percent
6.0 percent
5.9 percent

We call the process of earning interest on both the original deposit and on the
earlier interest payments:

computing.
multiplying.
compounding.
discounting.

Which financial statement reports a firms assets, liabilities, and equity at a

particular point in time?

Balance sheet
Income statement
Statement of retained earnings
Statement of cash flows
You are trying to pick the least-expensive machine for your company. You have
two choices: machine A, which will cost $50,000 to purchase and which will have
OCF of -$3,500 annually throughout the machines expected life of three years;
and machine B, which will cost $75,000 to purchase and which will have OCF of $4,900 annually throughout that machines four-year life. Both machines will be
worthless at the end of their life. If you intend to replace whichever type of
machine you choose with the same thing when its life runs out, again and again
out into the foreseeable future, and if your business has a cost of capital of 14
percent, which one should you choose?

Machine A
Machine B
Neither machine A nor B
Both machines A and B

When firms use multiple sources of capital, they need to calculate the
appropriate discount rate for valuing their firms cash flows as__________.

a simple average of the capital components costs

a weighted average of the capital components costs
a sum of the capital components costs
they apply to each asset as they are purchased with their respective forms of debt or equity

Which of these is used as a measure of the total amount of available cash flow
from a project?

Operating cash flow

Investment in operating capital
Free cash flow
Sunk cash flow
Which of these does NOT perform vital functions to securities markets of all
sorts by channeling funds from those with surplus funds to those with shortages
of funds?

Secondary markets
Mutual funds
Insurance companies
Commercial banks

Wills Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of
2013. If the firms total debt at year-end was $5 million, how much equity does
Wills Wheels have?

$7.69 million
$5 million
$0.65 million
$3.25 million

Which of these is the term for portfolios with the highest return possible for
each risk level?

Total portfolios
Modern portfolios
Optimal portfolios
Efficient portfolios

What are the tools available for the manager in financial planning?

Delaying disbursement of cash, reducing collection period, cash management, and Increasing inventory
turnover
Reducing collection period and delaying disbursement of cash
Increasing inventory turnover and reducing collection period
Delaying disbursement of cash and cash management

Suppose that Model Nails, Inc.s capital structure features 60 percent equity, 40
percent debt, and that its before-tax cost of debt is 6 percent, while its cost of
equity is 10 percent. If the appropriate weighted average tax rate is 28 percent,
what will be Model Nails WACC?
7.73 percent
8.40 percent
8.00 percent
16.00 percent

We commonly measure the risk-return relationship using which of the

following?
Coefficient of variation
Standard deviation
Expected returns
Correlation coefficient

Financial plans include which of the following?

Schedule of Sales, Expenses, and Capital Expenditure

All of the above

Short Term and Long Term Plan
Pro forma Income Statement, Balance Sheet

Which of the following terms means that during periods when interest rates
change substantially, bondholders experience distinct gains and losses in their
bond investments?
Interest rate risk
Credit quality risk
Reinvestment rate risk
Liquidity rate risk

What are reasons for the firm to go abroad?

Access to raw materials

Diversification
Lower production cost
All of the above

Which of these statements is true regarding divisional WACC?

Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that
present more risk than the firms average beta.
Using a divisional WACC versus a WACC for the firms current operations will result in quite a few
incorrect decisions.
Using a firmwide WACC to evaluate new projects would have no impact on projects that present less
risk than the firms average beta.
Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that
present less risk than the firms average beta.

The Rule of 72 is a simple mathematical approximation for__________. the number

of years required to double an investment
the payments required to double an investment
the present value required to double an investment
the number of years required to double an investment
the future value required to double an investment

We can estimate a stocks value by__________.

using the book value of the total stockholder equity section
using the book value of the total assets divided by the number of shares outstanding
discounting the future dividends and future stock price appreciation
compounding the past dividends and past stock price appreciation
Which of these is the process of estimating expected future cash flows of a
project using only the relevant parts of the balance sheet and income
statements?
Substitutionary analysis
Incremental cash flows
Cash flow analysis
Pro forma analysis

Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest
rate for 25 years (ending 20 years from now). James can make a 20-year
investment today and lock in a 10 percent interest rate. How much money
should he invest now in order to have the same amount of money in 20 years as
Jane?
$7,346.64
$5,089.91
$3,160.43
$3,464.11

The overall goal of the financial manager is to__________.

maximize net income
maximize earnings per share
maximize shareholder wealth
minimize total costs

Which of the following can create ethical dilemmas between corporate

managers and stockholders?
Auditors
Board of directors
Agency relationship
Venture Capitalist

A firm is expected to pay a dividend of $2.00 next year and $2.14 the following
year. Financial analysts believe the stock will be at their target price of $75.00
in two years. Compute the value of this stock with a required return of 10
percent.
$79.14
$65.40
$65.57
$66.67

Which financial statement shows the total revenues that a firm earns and the
total expenses the firm incurs to generate those revenues over a specific period
of time generally one year?
Statement of cash flows
Statement of retained earnings
Balance sheet
Income statement

Which of the following is a true statement?

If interest rates fall, all bonds will enjoy rising values.

If interest rates fall, corporate bonds will have decreasing values.
If interest rates fall, no bonds will enjoy rising values.
If interest rates fall, U.S. Treasury bonds will have decreasing values.