FIN 515 Final Exam (Version 1)
- TCO A) In the United States, which of the following types of organization has the greatest revenue in total?
- TCO A) A sole proprietorship is owned by
- TCO B) Which of the following would cause the present value of an annuity to increase?
- TCO B) Which of the following is an annuity due?
- TCO G) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three.
- TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0?
- TCO D) A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0?
- (TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for?
- (TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM?
- (TCO D) What is β and why is it important to investors and issuers of stock? Describe the behavior of stocks with βs of greater than one, less than one, and less than zero.
- TCO E) A company has 100 million shares outstanding trading for $8 per share. It also has $900 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 12%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
- TCO A) What is the difference between capital structure and capital budgeting? Explain and give an example of a capital structure decision and an example of a capital budgeting decision.
- TCO H) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same?
- (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work
FIN 515 Final Exam (Version 2)
- Question. (TCO A) In the United States, which of the following types of organization has the greatest revenue in total?
- Question. (TCO A) Which of the following statements is NOT correct?
- Question. (TCO A) Sole proprietorships have all of the following advantages except ?
- Question. (TCO B) Which of the following would cause the present value of an annuity to decrease?
- Question. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing cash flows must be
- Question. Which of the following statements is correct?
- Question. (TCO G) The Chadmark Corporation’s budgeted monthly sales are $3,000. In the first month, 40% of its customers pay and take the 2% discount. The remaining 60% pay in the month following the sale and don’t receive a discount. Chadmark’s bad debts are very………the Chadmark Corporation?
- If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you want to decrease, other things being equal? Give a specific example for how to do that for each of the three.
- (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).
- A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0?
- A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate.The return on equity for similar stocks is 12%.What is P0?
- A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price?
- A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM?
- A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
- Name and describe the three functions of managerial finance. For each, give an example other than those used in the text and lecture.
- Explain thoroughly how stock portfolios affect the risk to an investor.
- What is the Cash Conversion Cycle (CCC)? Name the components of the CCC and explain why the CCC is important to business.
- A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods.
FIN 515 Final Exam (Version 3)
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- (TCO A) Which of the following does NOT always increase a company’s market value?(a) Increasing the expected growth rate of sales (b) Increasing the expected operating profitability (NOPAT/Sales) (c) Decreasing the capital requirements (Capital/Sales) (d) Decreasing the weighted average cost of capital (e) Increasing the expected rate of return on invested capital
- (TCO F) Which of the following statements is correct? (a) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. (b) For mutually exclusive projects with normal cash flows, ……….(e) The percentage difference between the MIRR and the IRR is equal to the project’s WACC
- (TCO F) Which of the following statements is correct? (a) The MIRR and NPV decision criteria can never conflict. (b) The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be………….(e) The MIRR method assumes that cash flows are reinvested at the crossover rate.
- (TCO F) Which of the following statements is correct? (a) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. (b) To find the MIRR, we first compound cash flows at the regular IRR to find the TV,……….cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.
- (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
- (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?
- (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?
- (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t receive a discount………What is the average cash gain or (loss) during a typical month for the ABC Corporation?
- (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN)……….increased the payout from 10% to the new and higher level? All dollars are in millions.
- (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t………What is the average cash gain or (loss) during a typical month for the ABC Corporation?
- (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity………. change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.
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- (TCO H) Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and…….If these changes were made, by how many days would the cash conversion cycle be lowered?
- (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)
- (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC?
- (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?
- (TCO G) Based on the corporate valuation model, Hunsader’s value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of …….10 million shares of stock outstanding. What is the best estimate of the stock’s price per share?
- TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm’s additional funds needed (AFN).The firm is operating at full capacity.Data for use in your forecast are shown below.Based on the AFN equation, what is the AFN for the coming..? Dollars are in millions.
- (TCO H) Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?
- (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)
- (TCO E) Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. ………CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?
- (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?
- (TCO G) Based on the corporate valuation model, the value of a company’s operations is $900 million. Its balance sheet shows $70 million in accounts receivable, …………..estimate of the stocks price per share?
- (TCO H) The Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
- (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)
- (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC?
- (TCO B) Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).
- (TCO G) Based on the corporate valuation model, the value of a company’s operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations……..what is the best estimate of the stock’s price per share?
FIN 515 Final Exam (Version 4)
- (TCO A) Which of the following statements is NOT correct?
- (TCO F) Which of the following statements is correct?
- (a) (TCO F) Which of the following statements is correct? (b) TCO D) The Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?
- (a) (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend,D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
- (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?
- (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.
- (TCO H) The Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
- (TCO C) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)
- (TCO E) Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, ……..common stock, and it does not expect to issue any new shares. What is its WACC?
- (TCO B) Zhdanov Inc. forecasts that its free cash flow in the coming year, that is, at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm’s value of operations, in millions?
- (TCO G) Based on the corporate valuation model, the value of a company’s operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable……..estimate of the stock’s price per share?