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Strayer FIN 534 Final Exam Part 1&2 Answers (Summer 2016)

  • Strayer FIN 534 Final Exam Part 1&2 Answers (Summer 2016)
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Strayer FIN 534 Final Exam Part 1&2 Answers (Summer 2016)

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FIN 534 Final Part 1 (SUMMER 2016)

1. Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?
2. An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?
3. Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?
4. 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?
5. Which of the following statements is CORRECT?
6. Which of the following statements is CORRECT?
7. 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?
8. Which of the following statements is CORRECT?
9. Which of the following statements is CORRECT?
10. Which of the following statements is CORRECT?
11. Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely
12. 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?
13. Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true?
14. Which of the following statements is CORRECT?
15. Which of the following statements is CORRECT?
16. Which of the following statements is CORRECT?
17. Which of the following statements is CORRECT?
18. Which of the following statements is CORRECT?
19. Which of the following rules is CORRECT for capital budgeting analysis?
20. Which of the following procedures best accounts for the relative risk of a proposed project?
21. 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?
22. To increase productive capacity, a company is considering a proposed new plant. Which of the following statements is CORRECT?
23. Which of the following statements is CORRECT?
24. 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?
25. The term "additional funds needed (AFN)" is generally defined as follows:
26. Last year Baron Enterprises had $350 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity last year. In millions, by how much could Baron's sales increase before it is required to increase its fixed assets?
27. Which of the following statements is CORRECT?
28. A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?
29. The capital intensity ratio is generally defined as follows:
30. The Besnier Company had $250 million of sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?

FIN 534 Final Part 2 (SUMMER 2016)

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. Consider two very different firms, M and N. Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M's growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct?
4. Which of the following statements is correct?
5. 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?
6. Which of the following statements is NOT correct?
7. Which of the following statements is correct?
8. 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?
9. Rohter Galeano Inc. is considering how to set its dividend policy. It has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15% debt and 85% equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
10. 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?
11. 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 events is likely to encourage a company to raise its target debt ratio, other things held constant?
15. Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant?
16. Which of the following statements is CORRECT?
17. Other things held constant, which of the following would tend to reduce the cash conversion cycle?
18. Which of the following actions should Reece Windows take if it wants to reduce its cash conversion cycle?
19. Which of the following actions would be likely to shorten the cash conversion cycle?
20. Which of the following items should a company report directly in its monthly cash budget?
21. A lockbox plan is
22. Firms generally choose to finance temporary current operating assets with short-term debt because
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. 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?
26. Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate?
27. If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will
28. Which of the following is NOT a reason why companies move into international operations?
29. In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars?
30. 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?

 

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