### Question details

FIN 534 Final Exam Part 1 A+ work
\$ 15.00
 User Joi Parker Course Financial Management Test Week 11 Final Exam Part 1 Started 3/14/17 6:17 PM Submitted 3/14/17 8:24 PM Due Date 3/15/17 6:00 PM Status Completed Attempt Score 44 out of 60 points Time Elapsed 2 hours, 6 minutes out of 3 hours Instructions This exam consist of 30 multiple choice questions and covers the material in Chapters 8 through 12. There are six questions from each chapter. Results Displayed Submitted Answers, Correct Answers, Feedback

Question 1

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?

 Selected Answer: The exercise price of the option is increased. Correct Answer: The exercise price of the option is increased.

Question 2

2 out of 2 points

 The current price of a stock is \$22, and at the end of one year its price will be either \$27 or \$17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of \$22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)

Question 3

2 out of 2 points

Which of the following statements is CORRECT?

 Correct Answer: If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

Question 4

2 out of 2 points

 Which of the following statements is CORRECT?

Question 5

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 6

2 out of 2 points

 The current price of a stock is \$50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of \$55 sells for \$7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?

Question 7

2 out of 2 points

 As a consultant to Basso Inc., you have been provided with the following data: D1 = \$0.67; P0 = \$27.50; and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach?

Question 8

0 out of 2 points

 Which of the following statements is CORRECT?

Question 9

2 out of 2 points

Question 10

2 out of 2 points

 Perpetual preferred stock from Franklin Inc. sells for \$97.50 per share, and it pays an \$8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?

Question 11

2 out of 2 points

 With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

Question 12

2 out of 2 points

 Adams Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of common from reinvested earnings based on the CAPM?

Question 13

0 out of 2 points

 Which of the following statements is CORRECT?

Question 14

0 out of 2 points

 Which of the following statements is CORRECT?

Question 15

2 out of 2 points

 Projects S and L are both normal projects with an initial cost of \$10,000, followed by a series of positive cash inflows. Project S's undiscounted net cash flows total \$20,000, while L's total undiscounted flows are \$30,000. At a WACC of 10%, the two projects have identical NPVs. Which project's NPV is more sensitive to changes in the WACC?

Question 16

0 out of 2 points

 Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Question 17

2 out of 2 points

 Which of the following statements is CORRECT?

Question 18

2 out of 2 points

 The WACC for two mutually exclusive projects that are being considered is 12%. Project K has an IRR of 20% while Project R's IRR is 15%. The projects have the same NPV at the 12% current WACC. Interest rates are currently high. However, you believe that money costs and thus your WACC will soon decline. You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?

Question 19

0 out of 2 points

 Which of the following factors should be included in the cash flows used to estimate a project's NPV?

Question 20

2 out of 2 points

 Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects?

Question 21

2 out of 2 points

 When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Question 22

2 out of 2 points

 To increase productive capacity, a company is considering a proposed new plant. Which of the following statements is CORRECT?

Question 23

2 out of 2 points

 Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses?

Question 24

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 25

0 out of 2 points

 Which of the following is NOT one of the steps taken in the financial planning process?

Question 26

2 out of 2 points

 Which of the following statements is CORRECT?

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

0 out of 2 points

 The capital intensity ratio is generally defined as follows:

Question 29

2 out of 2 points

 Which of the following statements is CORRECT?

Question 30

0 out of 2 points

 The term "additional funds needed (AFN)" is generally defined as follows:

Tuesday, March 14, 2017 8:24:10 PM EDT

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• FIN 534 Final Exam Part 1 A+ work
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User Joi Parker Course Financial Management Test Week 11 Final Exam Part 1

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