FIN 381 final
You just received an insurance settlement offer related to an accident you had 3 years ago. The offer provides you with three choices
A: $1500 a month for 6 years B: $1025 a month for 10 years C: $85000 as a lump sum payment today
Which one of the following terms is defined as a conflict of interst between the corporate shareholders and the corporate managers?
Agency Problem
The sustainable growth rate:
Assumes the debt-equity ratio is constant
Which of the following terms is defined as the management of a firm's long-term investments?
Capital Budgeting
Which form of business would be the best choice if it were necessary to raise large amounts of capital?
Corporation
A decrease in which of the following will increase the current value of a stock according to the dividend growth model?
Discount rate
Which one of the following is computed by dividing next year's annual dividend by the current stock price?
Dividend yield
National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:
Equal in value to the present value of $1 paid one year from today
Bert owns a bond that will pay him $75 each year in interest plus a $1000 principle payment at maturity. What is the $1000 called?
Face value
Which one of the following is an agency cost?
Hiring outside accountants to audit the company's financial statements
Which of the following accounts are included in working capital management?
I. Accounts Payable II. Accounts Receivable IV. Inventory
Buster's Market has a dividend payout ratio of 30%. The firm does not want to issue additional equity shares nor increase its debt at this time. The firm is profitable. Which one of the following defines the maximum rate at which this firm can currently grow?
International growth rate
Which one of the following is classified as a current asset?
Inventory
Decisions made by financial managers should primarily focus on increasing which one of the following?
Market value per share of outstanding stock
Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?
Net present value
You can earn 7.5% on your investments an do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified?
Option A: It has the greatest value today
You are considering two mutually exclusive projects. Both projects have an initial cost of $52000. Project A produces cash inflows of $25300, $37100, and $22000 for years 1 through 3, respectively. Project B produces cash inflows of $43600, $19800, and $10400 for years 1 thorugh 3, respectively. The required rate of return is 14.2% for Project A and 13.9% for Project B. Which project should you accept and why?
Project A; because it has the larger NPV
Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed.)
Project X has both a higher present and a higher future value than Project Y.
Which one of the following is a primary market transaction?
Sale of a new share of stock from a corporation to an individual investor
Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following?
Secondary, auction market
Which one of the following parties has ultimate control of a corporation?
Shareholders
A business owned by a solitary individual who has unlimited liablity for its debt is called a:
Sole prorietorship
A positive cash flow to stockholders indicates which one of the following with certainty?
The dividends paid exceeded the net new equity raised
Which one of the following involves a working capital management decision?
What is the maximum level of cash to be kept in the firm's bank account?
Assume the current market price of a bond exceeds its par value. Which one of these relationships applies?
YTM<CR
A proposed project has an initial cost of $38000 and cash inflows of $12300, $24200, and $16100 for years 1 through 3, respectively. The required rate of return is 16.8%. Based on IRR, should this project be accepted? Why or why not?
Yes; The IRR exceeeds the required return by .58%
You own a bond that has a 6% annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8%?
You will realize a capital gain on the bond if you sell it today
Using the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:
a decrease in all stock values.
The bond prinicipal is repaid on which one of these dates?
discount rate which causes the net present value of a project to equal zero
Sullivan bought a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:
face value
Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:
interest on interest
Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted?
net present value
Decisions made by financial managers should primarily focus on increasing the:
size of the firm.
The market requires a return of 6.2 percent on the 15-year bonds issued by Lewis-Terrell & Associates. The 6.2 percent is referred to as the:
yield to maturity
