FIN 534 Final Exam Part 1 and 2

FIN 534 Final Exam, Part 1

1. Which of the
following is NOT normally regarded as being a barrier to hostile takeovers?
2. Which of the
following is NOT normally regarded as being a good reason to establish an ESOP?
3. Which of the
following statements is CORRECT?
4. 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?
5. 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?
6. The capital budget
of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target
capital structure that is 30% debt and 70% equity. The company forecasts that
its net income this year will be $800,000. If the company follows a residual
dividend policy, what will be its total dividend payment?
7. Poff Industries’
stock currently sells for $120 a share. You own 100 shares of the stock. The
company is contemplating a 2-for-1 stock split. Which of the following best
describes what your position will be after such a split takes place?
8. The projected
capital budget of Kandell Corporation is $1,000,000, its target capital
structure is 60% debt and 40% equity, and its forecasted net income is $550,000.
If the company follows a residual dividend policy, what total dividends, if
any, will it pay out?
9. Which of the
following statements is NOT correct ?
10. Which of the
following statements is CORRECT?
11. Firms U and L
both have a basic earning power ratio of 20% and each has the same amount of
assets. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L
is financed with 50% debt and 50% equity. Firm L’s debt has a before-tax cost
of 8%. Both firms have positive net income. Which of the following statements
is CORRECT?
12. Which of the
following statements is CORRECT?
13. 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?
14. Which of the
following statements is CORRECT?
15. 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?
16. Which of the
following statements is CORRECT?
17. Which of the
following is NOT directly reflected in the cash budget of a firm that is in the
zero tax bracket?
18. Which of the
following will cause an increase in net working capital, other things held
constant?
19. A lockbox plan is
20. Which of the
following statements is most consistent with efficient inventory management?
The firm has a
21. Which of the
following is NOT commonly regarded as being a credit policy variable?
22. Which of the
following actions should Reece Windows take if it wants to reduce its cash
conversion cycle?
23. Which of the
following statements is NOT CORRECT?
24. 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?
25. 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?
26. Suppose the
exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the
exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What
is the cross-rate of Swiss francs to euros?
27. Suppose it takes
1.82 U.S. dollars today to purchase one British pound in the foreign exchange
market, and currency forecasters predict that the U.S. dollar will depreciate
by 12.0% against the pound over the next 30 days. How many dollars will a pound
buy in 30 days?
28. In Japan, 90-day
securities have a 4% annualized return and 180-day securities have a 5%
annualized return. In the United States, 90-day securities have a 4% annualized
return and 180-day securities have an annualized return of 4.5%. All securities
are of equal risk, and Japanese securities are denominated in terms of the
Japanese yen. Assuming that interest rate parity holds in all markets, which of
the following statements is most CORRECT?
29. 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?
30. Suppose that 1
British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62
Swiss francs. What is the cross exchange rate between the pound and the franc?

FIN 534 Final Exam Part 2

1. Which of the
following is NOT normally regarded as being a good reason to establish an ESOP?
2. Which of the
following is NOT normally regarded as being a barrier to hostile takeovers?
3. Which of the
following statements is correct?
4. 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
5. The capital
budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a
target capital structure that is 30% debt and 70% equity. The company forecasts
that its net income this year will be $800,000. If the company follows a
residual dividend policy, what will be its total dividend payment?
6. Which of the
following statements is correct?
7. Which of the
following statements is CORRECT?
8. Which of the
following statements is correct?
9. In the real
world, dividends
10. Which of the
following statements is CORRECT?
11. 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 ____.
12. Other things
held constant, which of the following events is most likely to encourage a firm
to increase the amount of debt in its capital structure?
13. 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?
14. Based on the
information below for Benson Corporation, what is the optimal capital
structure?
15. Which of the
following statements is CORRECT?
16. Daylight
Solutions is considering a recapitalization that would increase its debt ratio
and increase its interest expense. The company would issue new bonds and use
the proceeds to buy back shares of its common stock. The company’s CFO thinks
the plan will not change total assets or operating income, but that it will
increase earnings per share (EPS). Assuming the CFO’s estimates are correct,
which of the following statements is CORRECT?
17. Which of the
following is NOT directly reflected in the cash budget of a firm that is in the
zero tax bracket?
18. Firms
generally choose to finance temporary current operating assets with short-term
debt because1
19. Which of the
following actions would be likely to shorten the cash conversion cycle?
20. Which of the
following is NOT commonly regarded as being a credit policy variable?
21. Which of the
following items should a company report directly in its monthly cash budget?
22. Which of the
following will cause an increase in net working capital, other things held
constant?
23. If 1.64
Canadian dollars can purchase one U.S. dollar, how many U.S. dollars can you
purchase for one Canadian dollar?
24. A U.S.-based
importer, Zarb Inc., makes a purchase of crystal glassware from a firm in
Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665
francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm
wants to cover this trade payable with a forward market hedge to eliminate its
exchange rate risk. Suppose the firm completes a forward hedge at the 90-day
forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638
francs, how much will the U.S. firm have saved or lost in U.S. dollars by
hedging its exchange rate exposure?
25. 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?
26. 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?
27. In Japan,
90-day securities have a 4% annualized return and 180-day securities have a 5%
annualized return. In the United States, 90-day securities have a 4% annualized
return and 180-day securities have an annualized return of 4.5%. All securities
are of equal risk, and Japanese securities are denominated in terms of the
Japanese yen. Assuming that interest rate parity holds in all markets, which of
the following statements is most CORRECT?
28. Suppose the
exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the
exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What
is the cross-rate of Swiss francs to euros?
29. 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?
30. 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?