FIN 540 FIN540 Advanced Corporate Finance Final Exam Answers (Strayer)

FIN 540 FIN540 Advanced Corporate Finance Final Exam Answers (Strayer)

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FIN 540 Advanced Corporate Finance Final Exam Answers (Strayer)

  1. Which of the following statements concerning capital structure theory is NOT CORRECT?
  2. Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?
  3. Which of the following statements is CORRECT?
  4. Which of the following statements concerning the MM extension with growth is NOT
    CORRECT?
  5. Which one of the following is an example of a “flexibility” option?
  6. A firm’s credit policy consists of which of the following items?
  7. Which of the following statements about defined contribution plans is incorrect?
  8. You have the following data on three stocks:
     
                     Stock     Standard Deviation     Beta
                       A            0.15              0.79
                       B            0.25              0.61
                       C            0.20              1.29
     
    As a risk minimizer, you would choose Stock       if it is to be held in isolation and Stock       if it is to be held as part of a well-diversified portfolio.
  9. Which of the following statements about pension plans if any, is incorrect?
  10. Which of the following statements about project risk analysis in not-for-profit firms is incorrect?
  11. Which of the following would cause average inventory holdings to decrease, other things held constant?
  12. Which of the following statements concerning the MM extension with growth is NOT
    CORRECT?
  13. Which of the following will NOT increase the value of a real option?
  14. Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
  15. Which of the following are the factors for the Fama-French model?
  16. Which of the following is NOT a real option?
  17. Which of the following statements is CORRECT?
  18. Stock A’s beta is 1.5 and Stock B’s beta is 0.5.  Which of the following statements must be true about these securities?  (Assume market equilibrium.)
  19. Which of the following is true of the EOQ model?  Note that the optimal order quantity, Q, will be called EOQ.
  20. A swap is a method used to reduce financial risk.  Which of the following statements about swaps, if any, is NOT CORRECT?
  21. Which of the following statements concerning the MM extension with growth is NOT
    CORRECT?
  22. Which of the following statements about pension plan portfolio performance is incorrect?
  23. Which of the following statements is CORRECT?
  24. For markets to be in equilibrium (that is, for there to be no strong pressure for prices to depart from their current levels),
  25. Which of the following is not correct?
  26. Which of the following is NOT a potential problem with beta and its estimation?
  27. In a portfolio of three different stocks, which of the following could NOT
    be true?
  28. The major contribution of the Miller model is that it demonstrates that
  29. Which of the following are NOT ways risk management can be used to increase the value of a firm?
  30. Which of the following statements is most CORRECT?
  31. Coverall Carpets Inc. is planning to borrow $12,000 from the bank.  The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments.  What is the effective rate of interest on the 12 percent discounted loan?
  32. Suppose you borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value.  What effective annual interest rate are you being charged?
  33. Oklahoma Instruments (OI) is considering a project called F-200 that has an up-front cost of $250,000.  The project’s subsequent cash flows are critically dependent on whether another of its products, F-100, becomes an industry standard.  There is a 50% chance that the F-100 will become the industry standard, in which case the F-200’s expected cash flows will be $110,000 at the end of each of the next 5 years.  There is a 50% chance that the F-100 will not become the industry standard, in which case the F-200’s expected cash flows will be $25,000 at the end of each of the next 5 years. Assume that the cost of capital is 12%.
  34. The Kimberly Corporation is a zero growth firm with an expected EBIT of $100,000 and a corporate tax rate of 30%.  Kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.
     
                What is the firm's cost of equity?
  35. Picard Orchards requires a $100,000 annual loan in order to pay laborers to tend and harvest its fruit crop.  Picard borrows on a discount interest basis at a nominal annual rate of 11 percent.  If Picard must actually receive $100,000 net proceeds to finance its crop, then what must be the face value of the note?

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