FIN 534 Midterm Exam 1

FIN 534 Midterm Exam 1

1. Of the following investments,
which would have the lowest present value? Assume that the effective annual
rate for all investments is the same and is greater than zero.
2.You plan to analyze the value of a
potential investment by calculating the sum of the present values of its
expected cash flows. Which of the following would increase the calculated value
of the investment?
3. Which of the following statements
regarding a 20-year monthly payment amortized mortgage with a nominal interest
rate of 10% is CORRECT?
4. Which of the following statements
is CORRECT, assuming positive interest rates and holding other things constant?
5. You are considering two equally
risky annuities, each of which pays $25,000 per year for 10 years. Investment
ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity
due. Which of the following statements is CORRECT?
6. Ellen now has $125. How much
would she have after 8 years if she leaves it invested at 8.5% with annual
compounding?
7. Which of the following statements
is CORRECT?
8. Bond A has a 9% annual coupon
while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity,
and the YTM is expected to remain constant. Which of the following statements
is CORRECT?
9. Which of the following statements
is CORRECT?
10. Bonds A and B are 15-year,
$1,000 face value bonds. Bond A has a 7% annual coupon, while Bond B has a 9%
annual coupon. Both bonds have a yield to maturity of 8%, which is expected to
remain constant for the next 15 years. Which of the following statements is
CORRECT?
11. A Treasury bond has an 8% annual
coupon and a 7.5% yield to maturity. Which of the following statements is
CORRECT?
12. Which of the following
statements is CORRECT?
13. Which of the following
statements is NOT CORRECT?
14. How would the Security Market
Line be affected, other things held constant, if the expected inflation rate
decreases and investors also become more risk averse?
15. Which of the following
statements is CORRECT?
16. Recession, inflation, and high
interest rates are economic events that are best characterized as being
17. Assume that the risk-free rate
is 6% and the market risk premium is 5%. Given this information, which of the
following statements is CORRECT?
18. Which of the following
statements is CORRECT?
19. Which of the following
statements is CORRECT?
20. Two constant growth stocks are
in equilibrium, have the same price, and have the same required rate of return.
Which of the following statements is CORRECT?
21. The required returns of Stocks X
and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?
22. Which of the following
statements is NOT CORRECT?
23. Stocks X and Y have the
following data. Assuming the stock market is efficient and the stocks are in
equilibrium, which of the following statements is CORRECT?
24. Franklin Corporation is expected
to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The
stock sells for $32.50 per share, and its required rate of return is 10.5%. The
dividend is expected to grow at some constant rate, g, forever. What is the
equilibrium expected growth rate?
25. Which of the following
statements is CORRECT?

FIN
534 Midterm Exam Part 2

1.You recently sold 100 shares of
your new company, XYZ Corporation, to your brother at a family reunion. At the
reunion your brother gave you a check for the stock and you gave your brother
the stock certificates. Which of the following statements best describes this
transaction?
2. Which of the following statements
is CORRECT?
3. Which of the following statements
is CORRECT?
4. Which of the following statements
is CORRECT?
5. Which of the following statements
is CORRECT?
6. Which of the following statements
is CORRECT?
7. Which of the following is a
primary market transaction?
8. Which of the following statements
is CORRECT?
9. DeYoung Devices Inc., a new
high-tech instrumentation firm, is building and equipping a new manufacturing
facility. Assume that currently its equipment must be depreciated on a
straight-line basis over 10 years, but Congress is considering legislation that
would require the firm to depreciate the equipment over 7 years. If the
legislation becomes law, which of the following would occur in the year
following the change?
10. Analysts following Armstrong
Products recently noted that the company’s operating net cash flow increased
over the prior year, yet cash as reported on the balance sheet decreased. Which
of the following factors could explain this situation?
11. Which of the following items
cannot be found on a firm’s balance sheet under current liabilities?
12. For managerial purposes, i.e.,
making decisions regarding the firm’s operations, the standard financial
statements as prepared by accountants under Generally Accepted Accounting
Principles (GAAP) are often modified and used to create alternative data and
metrics that provide a somewhat different picture of a firm’s operations.
Related to these modifications, which of the following statements is CORRECT?
13. Which of the following
statements is CORRECT?
14. Lucy’s Music Emporium opened its
doors on January 1, 2012, and it was granted permission to use the same
depreciation calculations for shareholder reporting and income tax purposes.
The company planned to depreciate its fixed assets over 20 years, but in
December 2012 management realized that the assets would last for only 15 years.
The firm’s accountants plan to report the 2012 financial statements based on
this new information. How would the new depreciation assumption affect the
company’s financial statements?
15. Which of the following
statements is CORRECT?
16. Which of the following
statements is CORRECT?
17. Danielle’s Sushi Shop last year
had (1) a negative net cash flow from operations, (2) a negative free cash
flow, and (3) an increase in cash as reported on its balance sheet. Which of
the following factors could explain this situation?
18. Which of the following
statements is CORRECT?
19. Which of the following would
indicate an improvement in a company’s financial position, holding other things
constant?
20. Cordelion Communications is
considering issuing new common stock and using the proceeds to reduce its
outstanding debt. The stock issue would have no effect on total assets, the
interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is
likely to occur if the company goes ahead with the stock issue?
21. Which of the following
statements is CORRECT?
22. Which of the following
statements is CORRECT?
23. Considered alone, which of the
following would increase a company’s current ratio?
24. A firm’s new president wants to
strengthen the company’s financial position. Which of the following actions
would make it financially stronger?
25. Which of the following would,
generally, indicate an improvement in a company’s financial position, holding
other things constant?