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Fin/370 1 What are reasons for the firm to go abroad? o Lower production cost o Diversification o All of the above o Access to raw materials 2 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? o 8.40 percent o 7.73 percent o 16.00 percent o 8.00 percent 3 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. o $79.14 o $66.67 o $65.57 o $65.40 4 What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70? o 5.9 percent o 6.1 percent o 6.0 percent o 10.2 percent 5 We call the process of earning interest on both the original deposit and on the earlier interest payments: o multiplying. o compounding. o computing. o discounting. 6 We can estimate a stock's value by__________. o discounting the future dividends and future stock price appreciation o using the book value of the total assets divided by the number of shares outstanding o compounding the past dividends and past stock price appreciation o using the book value of the total stockholder equity section 7 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 machine's 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 machine's 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? o Neither machine A nor B o Machine B o Both machines A and B o Machine A 8 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? o Incremental cash flows o Pro forma analysis o Substitutionary analysis o Cash flow analysis 9 We commonly measure the risk-return relationship using which of the following? o Standard deviation o Expected returns o Correlation coefficient o Coefficient of variation 10 Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm? o Financial o Profitability o Liquidity o Coverage 11 Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds? o Money markets o Investment banks o Secondary markets o Primary markets 12 When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as__________. o a weighted average of the capital components costs o a sum of the capital components costs o they apply to each asset as they are purchased with their respective forms of debt or equity o a simple average of the capital components costs 13 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? o $3,464.11 o $5,089.91 o $3,160.43 o $7,346.64 14 Which of these is the term for portfolios with the highest return possible for each risk level? o Total portfolios o Optimal portfolios o Efficient portfolios o Modern portfolios 15 Which of the following is a true statement? o If interest rates fall, no bonds will enjoy rising values. o If interest rates fall, U.S. Treasury bonds will have decreasing values. o If interest rates fall, all bonds will enjoy rising values. o If interest rates fall, corporate bonds will have decreasing values. 16 Which of these statements is true regarding divisional WACC? o Using a divisional WACC versus a WACC for the firm's current operations will result in quite a few incorrect decisions. o Using a firm wide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta. o Using a simple firm wide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta. o Using a simple firm wide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta. 17 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? o Secondary markets o Commercial banks o Insurance companies o Mutual funds 18 Financial plans include which of the following? o Pro forma Income Statement, Balance Sheet o Schedule of Sales, Expenses, and Capital Expenditure o All of the above o Short Term and Long Term Plan 19 Will's Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of 2013. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have? o $5 million o $0.65 million o $3.25 million o $7.69 million 20 Which financial statement reports a firm's assets, liabilities, and equity at a particular point in time? o Statement of retained earnings o Statement of cash flows o Income statement o Balance sheet 22 Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period? o Income statement o Statement of cash flows o Balance sheet o statement of retained earnings 21 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? o o o o 2.3333, 0.5556, 0.1111 10.5, 6.0, 1.0 4.2, 1.0, 0.2 0.1111, 0.5556, 0.2 23 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? o Statement of cash flows o Statement of retained earnings o Income statement o Balance sheet 24 Which of the following can create ethical dilemmas between corporate managers and stockholders? o Auditors o Venture Capitalist o Agency relationship o Board of directors 25 Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments? o Credit quality risk o Liquidity rate risk o Interest rate risk o Reinvestment rate risk 26 What are the tools available for the manager in financial planning? o Reducing collection period and delaying disbursement of cash o Delaying disbursement of cash and cash management o Increasing inventory turnover and reducing collection period o Delaying disbursement of cash, reducing collection period, cash management, and Increasing inventory turnover 27 The overall goal of the financial manager is to__________. o maximize earnings per share o maximize net income o maximize shareholder wealth o minimize total costs 28 As new capital budgeting projects arise, we must estimate__________. o the float costs for financing the project o when such projects will require cash flows o the cost of the stock being sold for the specific project o the cost of the loan for the specific project 29 The Rule of 72 is a simple mathematical approximation for__________. the number of years required to double an investment o the payments required to double an investment o the present value required to double an investment o the number of years required to double an investment o the future value required to double an investment 30 Which of these is used as a measure of the total amount of available cash flow from a project? o Operating cash flow o Investment in operating capital o Sunk cash flow o Free cash flow