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davenport fin620 final exam




Question;Which of the following statements is CORRECT?;Question 2;8 out of 8 points;Which of the;following statements is most CORRECT?;Question 3;8 out of 8 points;Stock X has a required return of 10%, while Stock Y has a;required return of 12%. Which of the;following statements is CORRECT?;Question 4;8 out of 8 points;Which of the following statements is CORRECT?;CorrectB.;Using MACRS depreciation rather than straight line normally;has the effect of speeding up cash flows and thus increasing a project?s;forecasted NPV.;Question 5;8 out of 8 points;Deeble Construction Co.?s stock is trading at $30 a;share. Call options on;the;company?s stock are also available, some with a strike price of $25 and;some with a;strike price of $35. Both options expire;in three months. Which;of the;following best describes the value of these options?;Question 6;8 out of 8 points;You are on the staff of Camden Inc. The CFO believes project acceptance should be;based on the NPV, but Steve Camden, the president, insists that no project can;be accepted unless its IRR exceeds the project?s risk-adjusted WACC. Now you must make a recommendation on a;project that has a cost of $15,000 and two cash flows: $110,000 at the end of;Year 1 and -$100,000 at the end of Year 2.;The president and the CFO both agree that the appropriate WACC for this;project is 10%. At 10%, the NPV is;$2,355.37, but you find two IRRs, one at 6.33% and one at 527%, and a MIRR of;11.32%. Which of the following;statements best describes your optimal recommendation, i.e., the analysis and;recommendation that is best for the company and least likely to get you in;trouble with either the CFO or the president?;Question 7;8 out of 8 points;1. Based on the;corporate valuation model, Hunsader?s value of operations is $300 million. The balance sheet shows $20 million of;short-term investments that are unrelated to operations, $50 million of;accounts payable, $90 million of notes payable, $30 million of long-term debt;$40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock;outstanding. What is the best estimate;of the stock?s price per share?;Question 8;8 out of 8 points;When working with the CAPM, which of the following factors;can be determined with the most precision?;Question 9;8 out of 8 points;Volga Publishing is considering a proposed increase in its;debt ratio, which would also increase the company?s interest expense. The plan would involve issuing new bonds and;using the proceeds to buy back shares of its common stock. The company?s CFO thinks the plan will not;change total assets or operating income, but that it will increase earnings per;share (EPS). Assuming the CFO?s estimates;are correct, which of the following statements is CORRECT?;Question 10;8 out of 8 points;If two firms have the same current dividend and the same;expected dividend growth rate, their stocks must sell at the same current price;or else the market will not be in equilibrium.;Question 11;8 out of 8 points;A highly risk-averse investor is considering adding one;additional stock to a 3-stock portfolio, to form a 4-stock portfolio. The three stocks currently held all have b =;1.0 and a perfect positive correlation with the market. Potential new Stocks A and B both have;expected returns of 15%, and both are equally correlated with the market, with;r = 0.75. However, Stock A's standard;deviation of returns is 12% versus 8% for Stock B. Which stock should this investor add to his;or her portfolio, or does the choice matter?;Question 12;8 out of 8 points;Which of the following statements is CORRECT?;Question 13;8 out of 8 points;You are negotiating to make a 7-year loan of $25,000 to;Breck Inc. To repay you, Breck will pay;$2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end;of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of;Years 4 through 7. Breck is essentially;riskless, so you are confident the payments will be made, and you regard 8% as;an appropriate rate of return on low risk 7-year loans. What cash flow must the investment provide at;the end of each of the final 4 years, that is, what is X?;Question 14;8 out of 8 points;Below is the common equity section (in millions) of Teweles;Technology?s last two year-end balance sheets;2007 2006;Common Stock $2000 $1000;Retained Earnings 2000 2340;Total Common Equity $4000 $3340;Teweles has never paid a dividend to its common;stockholders. Which of the following;statements is CORRECT?;Question 15;8 out of 8 points;Which of the following statements is NOT CORRECT?;Question 16;8 out of 8 points;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?;Question 17;8 out of 8 points;Edmondson Electric Systems is considering a project that has;the following cash flow and WACC data.;What is the project's NPV? Note;that if a project's projected NPV is negative, it should be rejected.;WACC: 10.00%;Year;0 1 2 3;Cash flows;-$1000 $500 $500 $500;Question 18;8 out of 8 points;Suppose firms follow similar financing policies, face;similar risks, have equal access to capital, and operate in competitive product;and capital markets. Under these;conditions, then firms that have;Question 19;8 out of 8 points;Companies E and P each reported the same earnings per share;(EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT?;Question 20;8 out of 8 points;Which of the following statements is CORRECT?;Question 21;8 out of 8 points;Other things held constant, which of the following will;cause an increase in net working capital?;Question 22;8 out of 8 points;Which of the following is NOT a capital component when;calculating the weighted average cost of capital (WACC)?;=;Question 23;8 out of 8 points;Which of the following statements is CORRECT?;Question 24;8 out of 8 points;Which of the following does NOT always increase a company?s;market value?;Question 25;8 out of 8 points;Firm A has a higher degree of business risk than Firm;B. Firm A can offset this by using less;financial leverage. Therefore, the;variability of both firms' expected EBITs could actually be identical.


Paper#49389 | Written in 18-Jul-2015

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