UOP FIN370 Final exam

1) The goal
of the firm should be

2) An
example of a primary market transaction is

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

4) Which of
the following is a principle of basic financial management?

5) Another
name for the acid test ratio is the

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

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

8) The
primary purpose of a cash budget is to

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

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

11) A
zero-coupon bond

12) 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 5 years?

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

14) The
present value of a single future sum

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

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

Cash flows:
Year 1 = $325
Year 2 = $65
Year 3 = $100

17) For the
NPV criteria, a project is acceptable if the NPV is __________, while for the
profitability index, a project is acceptable if the profitability index is
__________.

18) Which of
the following is considered to be a deficiency of the IRR?

19) The firm
should accept independent projects if

20) The most
expensive source of capital is

21) The cost
associated with each additional dollar of financing for investment projects
is

22) 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. The
before-tax required rate of return on debt is 9%, and the required rate of
return on equity is 14%. If the company is in the 40% tax bracket, what is
the marginal cost of capital?

23) Shawhan
Supply plans to maintain its optimal capital structure of 30% debt, 20%
preferred stock, and 50% common stock far into the future. The required return
on each component is: debt–10%; preferred stock–11%; and common stock–18%.
Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan
Supply earn on its investments if the value of the firm is to remain
unchanged?

24) Lever
Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if
its current capital structure is too conservative. Lever Brothers’ present
EBIT is $3 million, and profits available to common shareholders are
$1,560,000, with 342,857 shares of common stock outstanding. If the firm were
to instead have a debt ratio of 60%, additional interest expense would cause
profits available to stockholders to decline to $1,440,000, but only 228,571
common shares would be outstanding. What is the difference in EPS at a debt
ratio of 60% versus 40%?

25) Zybeck
Corp. projects operating income of $4 million next year. The firm’s income
tax rate is 40%. Zybeck presently has 750,000 shares of common stock which
have a market value of $10 per share, no preferred stock, and no debt. The
firm is considering two alternatives to finance a new product: (a) the
issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares
of common stock. If Zybeck issues common stock this year, what will be the
projected EPS next year?

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

27) Capital
markets in foreign countries

28) Buying
and selling in more than one market to make a riskless profit is called

29) What
keeps foreign exchange quotes in two different countries in line with each
other?

30) One reason
for international investment is to reduce