BUSN 379 Final Exam, Week 8 Devry Keller

BUSN 379 Final Exam

1(TCO 4) Which of the following is true regarding the evaluation of
projects? (Points : 4)

2.(TCO 4) Which of the following investment ranking methods does not
consider the time value of money? (Points : 4)

3.(TCO 3 and 4) You can ensure that an investment is expected to create
value for (Points : 4)

4.(TCO 3 and 4) What is the net present value of a project with the
following cash flows, if the discount rate is 10 percent?
5.(TCO 4) Howard Company is considering a new project that will require an
initial cash investment of $575,000. The project will produce no cash flows for
the first three years. The projected cash flows for years 4 through 8 are
$73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long
will it take the firm to recover its initial investment in this project?
(Points : 4)

6.(TCO 4) The postponement of a project until conditions are more
favorable: (Points : 4)

7.(TCO 4) ___________, occurs when a firm cannot raise financing for
a project under any circumstances. (Points : 4)

8.(TCO 4) ABC Cameras is considering an investment that will have a
cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year
2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the
following is true regarding this investment? (Points : 4)

9.(TCO 4) Assume Company X plans to invest $60,000 in industrial
equipment. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the
first year depreciation amount under MACRS? (Points : 4)

10.(TCO 1 and 4) Assume a corporation has earnings
before depreciation, and taxes of $100,000, depreciation of $40,000, and that
it has a 30 percent tax bracket. What are the after-tax cash flows for the
company? (Points : 4)

11.(TCO 8) Which of the following statements is true regarding
systematic risk? (Points : 4)
12.(TCO 8) Which statement is true regarding risk?
(Points : 4)

13.(TCO 8) The stock of Chocolate Galore is expected
to produce the following returns, given the various states of the economy. What
is the expected return on this stock?
14.(TCO 8) You own a portfolio that consists of $8,000
in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What
is the portfolio weight of stock D? (Points : 4)

15.(TCO 8) You currently own a portfolio valued
at $24,000 that has a beta of 1.1. You have another $8,000 to invest, and would
like to invest it in a manner such that the risk of the new portfolio matches
that of the overall market. What does the beta of the new security have to be?
(Points : 4)

1.(TCO 8) If the financial markets are strong form efficient, then:
(Points : 4)

2.(TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be
financed with debt at a cost of 9 percent (after-tax) and common equity at
a cost of 16 percent. Assume debt and common equity each represent 50
percent of the firm’s capital structure. What is the weighted average cost
of capital? (Points : 4)

3.(TCO 5, 6 and 7) An issue of common stock is expected to pay a dividend
of $4.80 at the end of the year. Its growth rate is equal to eight
percent. If the required rate of return is 13 percent, what is its current
price? (Points : 4)

4.(TCO 5, 6 and 7) Which of the following is not true regarding the
cost of debt? (Points : 4)
5.(TCO 5) Which of the following is not true regarding the cost of
retained earnings? (Points : 4)

6.(TCO 4) A project has the following cash flows. What is the internal
rate of return?

7.(TCO 5, 6 and 7) Which one of the following is a correct statement
regarding a firm’s weighted average cost of capital (WACC)? (Points : 4)

8.(TCO 5, 6 and 7) The six percent preferred stock of FKH
Manufacturing is selling for $62 a share. What is the firm’s cost of preferred
stock, if the tax rate is 34 percent and the par value per share is $100?
(Points : 4)

9.(TCO 2) Which one of the following occurs if a firm files for Chapter 7
bankruptcy, but does not generally occur if the firm files for Chapter 11
bankruptcy? (Points : 4)

10.(TCO 5) Which of the following statements is false regarding the
cost of capital? (Points : 4)
11.(TCO 2) Select any actions that do not affect the cash account.
(Points : 4)
12.(TCO 2) Which of the following statements is
true? (Points : 4)

13.(TCO 2) Which one of the following industries is most
apt to have the shortest cash cycle? (Points : 4)

14.(TCO 2) Delphinia’s has the following estimated quarterly sales
for next year. The accounts receivable period is 30 days. What is the expected
accounts receivable balance at the end of the second quarter? Assume each month
has 30 days.
15.(TCO 1) Why is maximization of the current value
per share a more appropriate financial management goal than profit
maximization? (Points : 4)

6.(TCO 1)
Provide three examples of recent well-known unethical behavior cases. Explain
the situation in one or two paragraphs. How do you believe that this behavior
affected the firm’s value? (Points : 10)
7.(TCO 4)
What are sunk costs? Provide at least two real-life examples of sunk costs for
a project. Should sunk costs be included as incremental cash flows? Why or why
not? Explain your rationale. (Points : 10)
8.(TCO 8)
What is the difference between business risk and financial risk? If Company A
has a higher business risk than Company B, should its cost of capital be
higher? Why or why not? Explain your rationale. (Points : 10)
9.(TCO 2)
What are some important factors to consider when conducting a credit evaluation
and scoring? (Points : 10)
10. (TCO 6 and 7) Do you
believe that it is appropriate for some industries to be more leveraged than
others? Explain your rationale. (Points : 10)