FIN 540 Advanced Corporate Finance Final Exam Answers (Strayer)
- Which of the following statements concerning capital structure theory is NOT CORRECT?
- Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?
- Which of the following statements is CORRECT?
- Which of the following statements concerning the MM extension with growth is NOT
CORRECT? - Which one of the following is an example of a “flexibility” option?
- A firm’s credit policy consists of which of the following items?
- Which of the following statements about defined contribution plans is incorrect?
- 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. - Which of the following statements about pension plans if any, is incorrect?
- Which of the following statements about project risk analysis in not-for-profit firms is incorrect?
- Which of the following would cause average inventory holdings to decrease, other things held constant?
- Which of the following statements concerning the MM extension with growth is NOT
CORRECT? - Which of the following will NOT increase the value of a real option?
- 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?
- Which of the following are the factors for the Fama-French model?
- Which of the following is NOT a real option?
- Which of the following statements is CORRECT?
- 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.)
- Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.
- A swap is a method used to reduce financial risk. Which of the following statements about swaps, if any, is NOT CORRECT?
- Which of the following statements concerning the MM extension with growth is NOT
CORRECT? - Which of the following statements about pension plan portfolio performance is incorrect?
- Which of the following statements is CORRECT?
- For markets to be in equilibrium (that is, for there to be no strong pressure for prices to depart from their current levels),
- Which of the following is not correct?
- Which of the following is NOT a potential problem with beta and its estimation?
- In a portfolio of three different stocks, which of the following could NOT
be true? - The major contribution of the Miller model is that it demonstrates that
- Which of the following are NOT ways risk management can be used to increase the value of a firm?
- Which of the following statements is most CORRECT?
- 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?
- 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?
- 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%.
- 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?
- 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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