1.Which one of the following is a means by which shareholders can replace company management? A. stock options
B. promotion
C. Sarbanes-Oxley Act
D. agency play
E. proxy fight
2.Decisions made by financial managers should primarily focus on increasing which one of the following? A. size of the firm
B. growth rate of the firm
C. gross profit per unit produced
D. market value per share of outstanding stock
E. total sales
3.Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A. income statement
B. creditor's statement
C. balance sheet
D. statement of cash flows
E. dividend statement
4.Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement
B. balance sheet
C. statement of cash flows
D. tax reconciliation statement
E. market value report
5.The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. A. mean
B. residual
C. total
D. average
E. marginal
EDCAE
6.The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: A. operating cash flow.
B. net capital spending.
C. net working capital.
D. cash flow from assets.
E. cash flow to stockholders.
7.Canine Supply has sales of $2,200, total assets of $1,400, and a debt-equity ratio of 0.3. Its return on equity is 15 percent. What is the net income? A. $138.16
B. $141.41
C. $152.09
D. $156.67
E. $161.54
8.Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold? A. $980,000
B. $1,060,000
C. $1,200,000
D. $1,400,000
E. $1,560,000
9.The sustainable growth rate of a firm is best described as the: A. minimum growth rate achievable assuming a 100 percent retention ratio. B. minimum growth rate achievable if...

...costs are 10 percent. The cost of preferred stock is 9 percent and the cost of debt is 7 percent. (Assume debt and preferred stock have no flotation costs.) What is the weighted average cost of capital at the firm’s optimal capital budget?
6. Lamonica Motors just reported earnings per share of $2.00. The stock has a price earnings ratio of 40, so the stock’s current price is $80 per share. Analysts expect that one year from now the company will have an EPS of $2.40, and it will pay its first dividend of $1.00 per share. The stock has a required return of 10 percent. What price earnings ratio must the stock have one year from now so that investors realize their expected return?
7. Heavy Metal Corp. is a steel manufacturer that finances its operations with 40 percent debt, 10 percent preferred stock, and 50 percent equity. The interest rate on the company’s debt is 11 percent. The preferred stock pays an annual dividend of $2 and sells for $20 a share. The company’s common stock trades at $30 a share, and its current dividend (D0) of $2 a share is expected to grow at a constant rate of 8 percent per year. The flotation cost of external equity is 15 percent of the dollar amount issued, while the flotation cost on preferred stock is 10 percent. The company estimates that its WACC is 12.30 percent. Assume that the firm will not have enough retained earnings to fund the equity portion of its capital budget. What is the company’s tax rate?
8....

...coupon rate could cause a serious depreciation of funds if this method is used
because; the coupon rate uses the face value of the bond, in order to compute the
bond(s) value, and does not take into consideration the price at which the issue of
this bond was or the redemption value of the bond. The Yield to maturity (YTM)
method is better to use because the Yield to maturity (YTM) method incorporates
all fluctuations and the issuing expenses, if any. Thus, the Yield to maturity
(YTM) method is a better method to use, and not the coupon rate as the required
return for debt.
2. Compute the cost of common equity using the CAPM model. For beta, use the average
beta of three selected competitors. You may obtain the betas from Yahoo Finance.
Assume the risk free rate to be 3% and the market risk premium to be 4%.
Risk free Rate 3%
Market risk premium, MRP 4%
Competitors Beta As on October 6, 2010
Dendreon Corp .65 http://finance.yahoo.com/q/ks?s=RTN+Key+Statistics
Douglas Emmet 1.40 http://finance.yahoo.com/q/ks?s=BA+Key+Statistics
Raytheon Company
Common Stock
1.07 http://finance.yahoo.com/q/ks?s=LMT+Key+Statistics
Average Beta 1.04
a. What is the cost of common equity? (5 pts)
The cost of common equity is the annual rate of return that a company, business,
investor, and so on expect to earn when they are investing in shares of a
company.
The cost of common equity is the risk free rate plus (MRP * Beta) = 7.16%
.65 + 1.40 + 1.07= 3.12...

...I need help answering 50 multiple choice Business – Finance Questions.
1. Which of the following is NOT a cash flow that should be included in the analysis of a project?
a. Changes in net operating working capital.
b. Shipping and installation costs.
c. Cannibalization effects.
d. Opportunity costs.
e. Sunk costs that have been expensed for tax purposes.
2. When evaluating a new project, firms should include in the projected cash flows all of the following factors EXCEPT:
a. Changes in net operating working capital attributable to the project.
b. Previous expenditures associated with a market test to determine the feasibility of the project that have been expensed for tax purposes.
c. The value of a building owned by the firm that will be used for this project.
d. A decline in the sales of an existing product that is directly attributable to this project.
e. Salvage value of assets used for the project at the end of the project’s life.
3. A company is considering a proposed expansion to its facilities. Which of the following statements is CORRECT?
a. In calculating the project's operating cash flows, the firm should not deduct financing costs such as interest expense, because financing costs are handled by discounting at the WACC. If interest was deducted in the cash flow estimation, it would thus be “double counted.”
b. Since depreciation is a non-cash expense, the firm does not need to know the...

...CorporateFinance Exam with Answers
Posted on May 10, 2012 by Sam
CorporateFinance, Chapters 8, 9 & 10. Exam Questions:
1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project.
2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1.
3. What is the NPV of a project that costs $100,000 and returns $50,000 annually for 3 years if the opportunity cost of capital is 14%? C. $16,085
4. The decision rule for net present value is to: C. Accept all projects with positive net present values
5. What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for 3 years, and the cost of capital is 9%? C. $126,565
6. What is the NPV for the following project cash flows at a discount rate of 15%? [C0= ($1,000), C1= $700, C3= $700.] C. $138
7. Which mutually exclusive project would you select, if both are priced at $1,000 and your discount rate is 15%: Project A with three annual cash flows of $1,000; or project B, with 3 years of zero cash flow followed by 3 years of $1,500 annually? A. Project A
8. What is the approximate IRR for a project that costs $100,000 and provides cash inflows of $30,000 for 6 years? A. 19.9%
9. What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for 6 years? A. 0.57%...

...Final Exam CorporateFinance FINC 650 1. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting? a. b. c. d. e. Long-term debt. Common stock. Short-term debt used to finance seasonal current assets. Preferred stock. All of the above are considered capital components for WACC and capital budgeting purposes.
2. A company has a capital structure which consists of 50 percent debt and 50 percent equity. Which of the following statements is most correct? a. b. c. d. The cost of equity financing is greater than the cost of debt financing. The WACC exceeds the cost of equity financing. The WACC is calculated on a before-tax basis. The WACC represents the cost of capital based on historical averages. In that sense, it does not represent the marginal cost of capital. e. The cost of retained earnings exceeds the cost of issuing new common stock.
3. Which of the following statements is most correct? a. Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed. b. The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt. c. The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets...

...of a new machine to produce this product
d. Salvage value of the new machine at the end of its useful life
e. Increase in net working capital at the beginning of the project’s life
f. Cost to develop a product prototype last year
11.2 A division of Blakewell Manufacturing is considering purchasing an auto insert machine to load computer components on mother boards for $1,500,000. The machine will have annual operating costs of $50,000 and save the company $370,000 in labor costs each year. The machine will have a useful life of 10 years. For tax purposes, straight-line depreciation will be used with an estimated salvage value of $300,000 (which will be the market value at that time). The discount rate is 12% and the corporate tax rate is 32%. What is the NPV of this proposal?
11.3 After examining a potential project’s NPV analysis, the manager advises that the initial fixed capital outlay be increased by $480,000. The initial fixed capital outlay is fully depreciated straight-line over a twelve year life. The tax rate is 35 percent and the required rate of return is 10 percent. No other changes are made to the analysis. What is the effect on the project NPV?
11.4 Central Embroidery needs to purchase a new monogram machine and is considering two options. The first machine costs $100,000 and is expected to last 5 years, and the second machine costs $160,000 and is expected to last 8 years. Assume that the opportunity cost of capital is 8...

...of capital:
A. will decrease as the risk level of the firm increases.
B. for a specific project is primarily dependent upon the source of the funds used for the project.
C. is independent of the firm's capital structure.
D. should be applied as the discount rate for any project considered by the firm.
E. depends upon how the funds raised are going to be spent.
6. The weighted average cost of capital for a wholesaler:
A. is equivalent to the aftertax cost of the firm's liabilities.
B. should be used as the required return when analyzing a potential acquisition of a retail outlet.
C. is the return investors require on the total assets of the firm.
D. remains constant when the debt-equity ratio changes.
E. is unaffected by changes in corporate tax rates.
7. Which one of the following is the primary determinant of a firm's cost of capital?
A. debt-equity ratio
B. applicable tax rate
C. cost of equity
D. cost of debt
E. use of the funds
8. Scholastic Toys is considering developing and distributing a new board game for children. The project is similar in risk to the firm's current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth. How should the firm determine its cost of equity?
A. by adding the market risk premium to the aftertax cost of debt
B. by multiplying the market risk premium by (1 - 0.40)
C. by using the dividend growth model
D. by using the capital asset pricing model
E. by...

...TABLE OF CONTENTS
0.1 Introduction of Finance in your organization…………………………..............
Task: 1: Be able to explore the sources of finance available to Sainsbury’s
1.1: Identify the sources of finance available to Sainsbury’s............................................
1.2: assess the implications of the different sources of finance in Sainsbury’s………….
1.3: select appropriate sources of finance for a project in Sainsbury’s…………………..
Task: 2: Be able to analyses the implications of finance as a resource within a business
2.1: assess and compare the costs of different sources of finance in your Sainsbury’s……..
2.2: explain the importance of financial planning in Sainsbury’s…………………………….
2.3: describe the information needs of different decision makers…………………………….
2.4: describe the impact of finance on the financial statements in Sainsbury’s……………….
Task:3: be able to make financial decisions based on financial information in Sainsbury’s
3.1: Analyse budgets and make appropriate decisions in Sainsbury’s…………………………..
3.2: Calculate unit costs and make pricing decisions using relevant information……………….
3.3: Assess the viability of a project in Sainsbury’s using investment appraisal techniques…….
Task:4: Be able to analyse and evaluate the financial performance of Sainsbury’s
4.1: Explain the purpose of the main financial statements in...