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

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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:

Correct

The exercise price of the option is increased.

Correct Answer:

Correct

The exercise price of the option is increased.

     

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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.)

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 3

2 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     

Correct Answer:

Correct

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.

     

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 4

2 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 8

0 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 9

2 out of 2 points

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 13

0 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 14

0 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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.

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 17

2 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 21

2 out of 2 points

 

 
 

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

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 25

0 out of 2 points

 

 
 

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

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 26

2 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 28

0 out of 2 points

 

 
 

The capital intensity ratio is generally defined as follows:

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 29

2 out of 2 points

 

 
 

Which of the following statements is CORRECT?

     
       

https://blackboard.strayer.edu/images/ci/icons/generic_updown.gifQuestion 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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