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University of Phoenix FIN 571 Final Exam (2nd Set) 57 Questions with ANSWERS

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Question;FIN 571 Final Exam..1) Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.A. adverse selectionB. moral hazardC. zero-sum gameD. The Behavioral Principle2) Which of the following statements is true? A. A call option analyzes conflicts of interest and behavior in a principal-agent relationship. B. The difference between the value of one action and the value of the best alternative is called an opportunity cost. C. An agent-manager can never make bad decisions. D. A security is a claim issued by a firm that pays owners interest but not dividends.3) Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.A. adverse selectionB. moral hazardC. zero-sum gameD. The Behavioral Principle4) The annual report refers toA. a report issued annually by managers to primarily convey information about select working capital ratios.B. the length of time remaining until an asset's maturity.C. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.D. the extent to which something can be sold for cash quickly and easily without loss of value.5) Remaining maturity refers to:A. the length of an asset's life when it is issued.B. a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.C. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.D. the amount of time remaining until its maturity.6) Generally accepted accounting principles (GAAP) refers toA. the length of an asset's life when it is issued.B. a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.C. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.D. the extent to which something can be sold for cash quickly and easily without loss of value.7) Original maturity refers to:A. the length of an asset's life when it is issued.B. a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.C. the price for which something could be bought or sold in a reasonable length of time, where ?reasonable length of time? is defined in terms of the item's liquidity.D. the net amount (net book value) for something shown in quarterly accounting statements.8) The firm's assets in the balance sheet refer to:A. the extent to which something can be sold for cash quickly and easily without loss of value.B. the statement of a firm's financial position at one point in time, including its assets and the claims on those assets by creditors (liabilities) and owners (stockholders' equity).C. the productive resources in the firm's operations9) Book value (or Net book value) refers to:A. the length of an asset's life when it is issued.B. the statement of a firm's financial position at one point in time, including its assets and the claims on those assets by creditors (liabilities) and owners (stockholders' equity).C. the price for which something could be bought or sold in a reasonable length of time, where ?reasonable length of time? is defined in terms of the item's liquidity.D. the net amount shown in the accounting statements.10) Preferred stock payment obligations are typically __________. A. viewed like debt obligations. B. issued with a maturity date. C. valued as an annuity. D. none of these11) If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is __________. A. greater than the par value. B. equal to the par value. C. cannot tell D. less than the par value.12) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? A. The current yield was a lot less than 9% when the bond was first issued B. The market value of the bond is more than $1,000 C. The market value of the bond is less than $1,000 D. The current yield was a lot greater than 9% when the bond was first issued13) Certain countries have restrictions. In practice, U.S. investors have NOT invested very much internationally. Possible factors include __________. A. lower transaction costs. B. expropriation risk. C. firm-specific risk. D. all of these14) Certain countries have restrictions. In practice, U.S. investors have NOT invested very much internationally. Possible factors include __________. A. non-listing of foreign securities on U.S. stock exchanges. B. foreign tax considerations. C. efficiency in converting currencies. D. all of these15) According to the CAPM, the expected return for a portfolio is determined by the portfolio's. A. variance. B. beta. C. standard deviation. D. none of these16) Which of these investments would you expect to have the highest rate of return for the next 20 years? A. U.S. Treasury bills B. intermediate-term U.S. government bonds C. anybody?s guess D. long-term corporate bonds17) The Principle of __________ implies that the expected return for an asset equals its required return. A. Capital Market Efficiency B. Comparative Advantage C. Signaling D. Risk-Return Trade-Off18) According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________. A. lack of diversification B. less risk C. greater risk D. diversification19) __________ says to calculate the incremental after-tax cash flows connected with working capital decisions. A. The Signaling Principle B. The Principle of Incremental Benefits C. The Principle of Time Value of Money D. The Options Principle20) Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)? A. about 30.42 days B. about 56.50 days C. about 60.83 days D. none of these21) Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)? A. about 66 days B. about 67 days C. about 68 days D. about 69 days22) Bank term loans represent __________. A. long-term loans that looks like short-term debt B. loans for specified amounts that require borrowers to repay them according to specified schedules C. the pledge of receivables D. all of these23) Firms make short-term financial decisions just about every day solving such questions as __________. A. Where should we borrow? B. Where should we invest our cash? C. How much liquidity should we have? D. all of these25) Which (if any) of the following statements is false? A. When invoices are numerous, a firm may use statement billing instead of invoice billing. B. With statement billing, all of the sales for a period such as a month (for which a customer receives invoices, too) are collected into a single statement and sent to the customer as one bill. C. CIA (cash in advance) refers to when the shipper collects the payment (on behalf of the seller) upon delivery. D. none of these26) Which of the following statements is (are) true? A. The "dating 120" or the "60 extra" mean that the clock does not start until 120 or 60 days after the invoice date. B. Prox or proximate refers to the next month. C. Invoices with "10th prox" must be paid by the 10th of the next month. D. all of these27) Credit-policy decisions involve all aspects of receivables management. The decision does NOT include which of the following? A. setting evaluation methods and credit standards B. the choice of credit terms C. monitoring receivables and avoiding actions for slow payment D. controlling and administering the firm's credit functions28) Main sources of short-term funds include __________. A. trade credit and commercial paper B. futures and bank loans C. bonds and trade credit D. none of these29) Which (if any) of the following statements is false? A. The invoice is a written statement about goods that were ordered, along with their prices and the payment dates. In other words, the invoice is simply the bill for purchases. B. For the 4/10, net 40 credit terms, you are offering a total credit period of 30 days from the date of the invoice, a discount period of 10 days, and a 4% discount if paid on or before the discount period expires. C. When a firm is using invoice billing, the invoice that accompanies shipment is a separate bill to be paid. D. none of these30) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? A. Each stock in the portfolio has its own beta. B. Each stock in the portfolio will have a beta greater than one. C. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing). D. Selling any stock in this portfolio will lower the beta of the portfolio.31) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? a. Each stock in the portfolio has its own beta. b. Each stock contributes to the beta of the portfolio. c. An investor can lower the risk of this portfolio by her choice about personal leverage (lending or borrowing). d. all of these 32) The weighted average cost of capital (WACC) can be computed using the formula: WACC = (1 - L)re + L(1 - T)rd. Which of the following statements is true? a. L is debt divided by firm value. b. T is the personal tax rate. c. rd is the required return on equity. d. none of these 33) You are considering the capital budgeting project j with a life expectancy of 20 years. The short-term government rate (rf) is 5%, the beta of firms that produce products similar to project j is 1.2, and the return on the market (rm) the last 20 years has been 10%. What is the cost of capital for this project? a. 9.00% b. 10.00% c. 11.00% d. cannot tell 34) Calculate the IRR for the following investment project: initial investment is $75,000, inflows are $20,000 for the next five years, required rate of return is 15%. (Round your answer to the nearest whole percentage) a. 10% b. 11% c. 12% d. 13% 35) Your firm uses the payback method but does not discount any of the cash flows. Calculate the payback for the following investment: A machine costs $200,000 with after-tax installation costs of $15,000. After-tax cash inflows are expected to be 36,000 per year for the next seven years. a. greater than 6 b. 5.85 years c. 5.14 years d. 4.42 years 36) Compute the NPV for the following project. The initial cost is $5,000. The net cash flows are $1,900 for four years. The net salvage value is $1,000 when the project terminates. The cost of capital is 10%. a. $1,705.76 b. $5,000.00 c. $6,705.76 d. none of these 37) Each year for eight years, an investment will generate incremental sales of $8,000 and cash operating expenses of $2,500. The applicable tax rate is 30% and depreciation is $2,000. What is the net cash flows for each of the eight years? a. $8,000 b. $6,500 c. $4,500 d. none of these38) Which of the following favors a high dividend payout policy?A. no legal restrictionsB. policy restrictions affecting trust and endowment fundsC. higher taxesD. all of these39) There can be a variety of motives for stock repurchases including __________.A. a decrease in anticipated earnings.B. a buyback of undervalued stock.C. a decrease in leverage.D. all of these40) Some countries have __________ in which shareholders' returns are not fully taxed twice.A. an imputation tax systemB. a split tax systemC. a two-tier tax systemD. none of these 41) Compute the IRR for the following project. The initial cost is $10,000. The net cash flows are 3,800 for four years. The net salvage value is $2,000 when the project terminates. The cost of capital is 10%. a. 13.91% b. 18.91% c. 23.91% d. 25.91%42) There are two important tax considerations for a capital budgeting project. These include which (if any) of the following? A. It is indeed cash flow that?s irrelevant. B. The standard cash flow estimation does not explicitly identify the financing costs. C. The Principle of Incremental Benefits reminds us that it is the incremental cash flow that?s relevant. D. none of these43) Net present value (NPV) is the difference between __________. A. what a capital budgeting project produces and what it is pays B. what a capital budgeting project produces and what it is worth (its market value) C. what a capital budgeting project costs and what it is worth (its market value) D. cash flows before taxes and cash flows after taxes 44) The Principle of Self-Interested Behavior says __________. A. to look for profitable opportunities to lease (or rent) an asset, rather than borrow and buy it. B. to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide. C. that leasing transfers the tax benefits of ownership from the lessee to the lessor. D. to use discounted cash flow analysis to compare the costs and benefits of leasing, relative to the alternative of borrowing and buying.45) __________ says to transfer the tax benefits of ownership to other parties if they are willing to pay for benefits your firm cannot use. A. The Principle of Incremental Benefits B. The Principle of Two-Sided Transactions C. The Capital Market Efficiency Principle D. The Principle of Comparative Advantage46) The wholesale price for Captain John?s is $1.00 per loaf, and the variable cost of production is $0.50 per loaf. Captain John?s is expecting that expansion will allow them to sell an additional 5.0 million loaves in the next year. What additional revenues minus expenses will be generated from expansion? A. $25,000 B. $250,000 C. $550,000 D. none of these47) In efficient markets, as in the United States, you should think long and hard before you conclude that a market price is __________. A. wrong. B. fair. C. followed by many analysts. D. all of these48) Which of the following statements is true? A. Soft capital rationing refers to the rationing imposed externally by limited funds for borrowing from outside sources. B. Hard capital rationing refers to the rationing imposed internally by the firm. C. A post audit is a set of procedures for evaluating a capital budgeting decision after the fact. D. all of these49) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is ___________. A. undervalued. B. overvalued. C. caught up in a bear market. D. being sold by insiders.50) __________ says to forecast the firm?s cash flows, and analyze the incremental cash flows of alternative decisions. A. The Signaling Principle B. The Principle of Incremental Benefits C. The Principle of Risk-Return Trade-Off D. The Time Value of Money Principle51) __________ says to use common industry practices as a good starting place for the planning process. A. The Principle of Incremental Benefits B. The Principle of Self-Interested Behavior C. The Principle of Valuable Ideas D. The Behavioral Principle52) __________ says to carefully evaluate and monitor the financial plan?s impact on the firm and its stakeholders. A. The Principle of Risk-Return Trade-Off B. The Principle of Capital Market Efficiency C. The Principle of Self-Interested Behavior D. The Principle of Diversification53) __________ says to recognize the value of hidden options in a situation, such as the foreign exchange options in some derivative instruments. A. The Options Principle B. The Principle of Comparative Advantage C. The Principle of Two-Sided Transactions D. The Time Value of Money Principle54) __________ says to look for opportunities to invest in positive-NPV projects in foreign markets or to develop derivatives or design arrangements that enable firms to cope better with the risks they face in their foreign operations. A. The Principle of Risk-Return Trade-off B. The Principle of Diversification C. The Principle of Capital Market Efficiency D. The Principle of Valuable Ideas55) ?Hard? capital rationing refers to the rationing __________. A. imposed by external factors B. imposed internally by the shareholders C. always imposed by competitors D. always imposed by debt holders56) Which of the following statements is true? A. The Principle of Capital Market Efficiency says to consider the possible ways to minimize the value lost to capital market imperfections, such as asymmetric taxes, asymmetric information, and transaction costs. B. The Behavioral Principle suggests to look for opportunities to create value by issuing securities that are in short supply, perhaps resulting from changes in tax law. C. The Signaling Principle says to consider any possible change in capital structure carefully, because financing transactions and capital structure changes convey information to outsiders and can be misunderstood. D. all of these57) __________ says to seek out investments that offer the greatest expected risk-adjusted real return. A. The Principle of Self-Interested Behavior B. The Principle of Incremental Benefits C. The Signaling Principle D. The Principle of Valuable Ideas58) Under capital rationing, a good tool to use is the __________. A. PI method B. IRR method C. payback method D. NPV method

 

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