Strayer FIn534 final exam part I and II
• Question 1
2 out of 2 points
Which of the following statements is CORRECT?
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• Question 2
2 out of 2 points
Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?
• Question 3
2 out of 2 points
BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options, other things held constant?
• Question 4
2 out of 2 points
Braddock Construction Co.'s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?
• Question 5
2 out of 2 points
An option that gives the holder the right to sell a stock at a specified price at some future time is
• Question 6
2 out of 2 points
Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio's stock price actually dropped to $60, what would your pre-tax net profit be?
• Question 7
2 out of 2 points
Which of the following statements is CORRECT? Assume a company's target capital structure is 50% debt and 50% common equity.
• Question 8
2 out of 2 points
Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely
• Question 9
2 out of 2 points
Which of the following statements is CORRECT?
• Question 10
2 out of 2 points
Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?
• Question 11
2 out of 2 points
Which of the following statements is CORRECT?
• Question 12
2 out of 2 points
To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?
• Question 13
2 out of 2 points
Which of the following statements is CORRECT?
• Question 14
2 out of 2 points
Which of the following statements is CORRECT?
• Question 15
2 out of 2 points
Which of the following statements is CORRECT?
• Question 16
2 out of 2 points
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
• Question 17
2 out of 2 points
Which of the following statements is CORRECT?
• Question 18
2 out of 2 points
Which of the following statements is CORRECT?
• Question 19
2 out of 2 points
Which of the following statements is CORRECT?
• Question 20
2 out of 2 points
While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project, so the building is available for sale or for a new product. Cook owns the building free and clearthere is no mortgage on it. Which of the following statements is CORRECT?
• Question 21
0 out of 2 points
Which of the following rules is CORRECT for capital budgeting analysis?
• Question 22
2 out of 2 points
When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:
• Question 23
2 out of 2 points
Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?
• Question 24
2 out of 2 points
Which of the following statements is CORRECT?
• Question 25
2 out of 2 points
Spontaneous funds are generally defined as follows:
• Question 26
2 out of 2 points
The Besnier Company had $250 million of sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?
• Question 27
2 out of 2 points
Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?
• Question 28
2 out of 2 points
Last year Baron Enterprises had $350 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity last year. In millions, by how much could Baron's sales increase before it is required to increase its fixed assets?
• Question 29
2 out of 2 points
Which of the following statements is CORRECT?
• Question 30
2 out of 2 points
Which of the following statements is CORRECT?
2 out of 2 points
Which of the following is NOT normally regarded as being a barrier to hostile takeovers?
• Question 2
2 out of 2 points
Which of the following is NOT normally regarded as being a good reason to establish an ESOP?
• Question 3
2 out of 2 points
Which of the following actions will best enable a company to raise additional equity capital?
• Question 4
2 out of 2 points
If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that
• Question 5
2 out of 2 points
Grandin Inc. is evaluating its dividend policy. It has a capital budget of $625,000, and it wants to maintain a target capital structure of 60% debt and 40% equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?
• Question 6
2 out of 2 points
Which of the following statements is correct?
• Question 7
2 out of 2 points
If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay
• Question 8
2 out of 2 points
Which of the following statements is CORRECT?
• Question 9
2 out of 2 points
Which of the following statements is NOT correct?
• Question 10
0 out of 2 points
Which of the following statements is CORRECT?
• Question 11
0 out of 2 points
Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company's common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization?
• Question 12
2 out of 2 points
Which of the following statements best describes the optimal capital structure? The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's ____.
• Question 13
2 out of 2 points
Which of the following statements is CORRECT?
• Question 14
2 out of 2 points
Companies HD and LD have identical tax rates, total assets, and basic earning power ratios, and their basic earning power exceeds their before-tax cost of debt, rd. However, Company HD has a higher debt ratio and thus more interest expense than Company LD. Which of the following statements is CORRECT?
• Question 15
0 out of 2 points
Which of the following is NOT associated with (or does not contribute to) business risk? Recall that business risk is affected by a firm's operations.
.
• Question 16
2 out of 2 points
Which of these items will not generally be affected by an increase in the debt ratio?
• Question 17
2 out of 2 points
Firms generally choose to finance temporary current operating assets with short-term debt because
• Question 18
2 out of 2 points
Which of the following statements is most consistent with efficient inventory management? The firm has a
• Question 19
2 out of 2 points
Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket?
• Question 20
2 out of 2 points
Which of the following items should a company report directly in its monthly cash budget?
• Question 21
2 out of 2 points
A lockbox plan is most beneficial to firms that
• Question 22
2 out of 2 points
Which of the following actions should Reece Windows take if it wants to reduce its cash conversion cycle?
• Question 23
2 out of 2 points
Suppose one U.S. dollar can purchase 144 yen today in the foreign exchange market. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?
• Question 24
2 out of 2 points
Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States?
• Question 25
2 out of 2 points
A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?
• Question 26
2 out of 2 points
In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?
• Question 27
2 out of 2 points
Suppose 1 U.S. dollar equals 1.60 Canadian dollars in the spot market. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?
• Question 28
2 out of 2 points
Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?
• Question 29
2 out of 2 points
If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
• Question 30
2 out of 2 points
Suppose Yates Inc., a U.S. exporter, sold a consignment of antique American muscle-cars to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, Yates agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would Yates actually receive after it exchanged yen for U.S. dollars?
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Solution: Strayer FIn534 final exam part I and II