Fin 370 Final Exam Study Guide

Topics: Corporate finance, Net present value, Finance Pages: 7 (1163 words) Published: April 18, 2013
Week One: Introduction to Finance and Analysis

Objective: Define basic financial terminology.

1. Which of the following reasons is most responsible for corporations being the most important form of business organization in the United States?

1. Corporations have limited life.
2. Stockholders have unlimited liability.
3. Corporations are subject to less government regulation than the other forms of business organization. 4. Corporations have the ability to raise larger sums of capital than the other forms of business organization.

Objective: Explain how financial markets work in the United States.

2. Which of the following is NOT an advantage of a private placement (as compared to a public offering)?

1. Greater financing flexibility
2. Lower flotation costs
3. Lower interest costs
4. Quicker availability of funds

Objective: Assess the role of ethics and compliance in the finance environment.

3. Which of the following is a characteristic of an efficient market?

1. Small number of individuals.
2. Opportunities exist for investors to profit from publicly available information. 3. Security prices reflect fair value of the firm.
4. Immediate response occurs for new public information.

Objective: Evaluate financial performance using financial ratios.

4. Which of the following is included in the denominator of the times-interest-earned ratio?

1. Lease payments
2. Principal payments
3. Interest expense
4. Gross profit

Week Two: Financial Planning

Objective: Describe the relationship between strategic planning and financial planning.

5. Which of the following statements is true?

1. The future value of an annuity would be greater if funds are invested at the beginning of each period instead of at the end of each period. 2. An annuity is a series of equal payments that are made, or received, forever. 3. The effective annual rate (APR) of a loan is higher the less frequently payments are made. 4. The future value of an annuity would be greater if funds are invested at the end of each period rather than at the beginning of each period.

Objective: Prepare a cash budget.

6. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?

1. $25,000
2. $15,000
3. $35,000
4. None of the above

Objective: Perform a break-even analysis.

7. Potential applications of the break-even model include:

1. replacement for time-adjusted capital budgeting techniques. 2. pricing policy.
3. optimizing the cash-marketable securities position of a firm. 4. none of these

Objective: Calculate present value and future value of cash flows.

8. If you invest $750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years?

1. $10,065
2. $10,193
3. $22,334
4. $21,731

Week Three: Working Capital Management and Capital Budgeting

Objective: Evaluate effective working capital management techniques.

9. According to the hedging principle, permanent assets should be financed with _______ liabilities.

1. permanent
2. spontaneous
3. current
4. fixed

Objective: Evaluate alternative capital projects.

10. Consider a project with the following cash flows:

After-Tax After-Tax

Accounting Cash Flow

Year Profits from Operations

1 $799 $ 750

2 $150 $1,000

3 $200 $1,200

Initial outlay = $1,500

Terminal cash flow = 0

Compute the profitability index if...
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