FINC 5310 FINAL EXAM Questions with Correct Answers| Latest Update Guaranteed Success
The weighted average cost of capital for a firm is the:
Selected
A. rate of return that the firm's preferred stockholders should
expect to earn over the long term.
B. rate the firm should expect to pay on its next bond issue.
C. discount rate which the firm should apply to all of the projects it
undertakes.
D. overall rate which the firm must earn on its existing assets to
maintain its value.
E. maximum rate which the firm should require on any projects it
undertakes. D. overall rate which the firm must earn on its existing assets to
maintain its value.
For a multi-product firm, if a project's level of risk differs from that of the
overall firm, then the:
A. project should be discounted at the market rate.
B. project should be discounted at the T-bill rate.
C. project should be discounted using the overall firm's beta.
,D. project should be discounted using a beta commensurate with
the project's risks.
E. CAPM can no longer be used to estimate the cost of equity as
beta no longer applies. D. project should be discounted using a beta commensurate with
the project's risks.
The accounting break-even production quantity for a project is 5,799 units.
The fixed costs are $92,640, the depreciation is $36,210, and the sales price
per unit is $48.29. What is the variable cost per unit?
A. $32.81
B. $27.04
C. $26.07
D. $33.04
E. $31.18 C. $26.07
5,799 = ($92,640 + 36,210) / ($48.29 - Variable cost per
unit)
Variable cost per unit = $26.07
,All else held constant, which one of these is most apt to increase the WACC
of a leveraged firm?
A. an increase in the weight of debt
B. a decrease in the tax rate
C. a decrease in the dividend growth rate
D. a decrease in a firm's equity beta
E. an increase in the risk-free rate when the equity beta >
1 B. a decrease in the tax rate
An analysis of what happens to the estimate of a project's net present value
when you examine a vast number of different likely economic situations is
called _____ analysis.
A. sensitivity
B. simulation
C. break-even
D. scenario
E. forecasting B. simulation
, A proposed new venture will cost $175,000 and should produce annual cash
flows of $48,500, $85,000, $40,000, and $40,000 for Years 1 to 4,
respectively. The required payback period and discounted payback period is
3 years. The discount rate is 9 percent. Which methods indicate project
acceptance and which indicate project rejection?
A. accept: NPV, IRR; reject: PI, payback, discounted payback
B. accept: payback, discounted payback; reject: NPV, IRR, PI
C. accept: NPV, IRR, PI, payback; reject: discounted payback
D. accept: NPV, IRR, PI; reject: payback, discounted payback
E. accept: payback, PI; reject: NPV, IRR, discounted payback D. accept: NPV, IRR, PI; reject:
payback, discounted payback
Hu's has 25,000 shares of common stock outstanding with a beta of 1.4, a
market price of $32 a share, and a dividend yield of 5.7 percent. Dividends
increase by 4.2 percent annually. The firm also has $450,000 of debt
outstanding that is selling at 102 percent of par that has a yield to maturity of
6.8 percent. The tax rate is 35 percent. The firm is considering a project that
has the same risk level as the firm's current operations, an initial cost of
$328,000 and cash inflows of $52,500, $155,000, and $225,000 for Years 1
to 3, respectively. What is the NPV of the project?
The weighted average cost of capital for a firm is the:
Selected
A. rate of return that the firm's preferred stockholders should
expect to earn over the long term.
B. rate the firm should expect to pay on its next bond issue.
C. discount rate which the firm should apply to all of the projects it
undertakes.
D. overall rate which the firm must earn on its existing assets to
maintain its value.
E. maximum rate which the firm should require on any projects it
undertakes. D. overall rate which the firm must earn on its existing assets to
maintain its value.
For a multi-product firm, if a project's level of risk differs from that of the
overall firm, then the:
A. project should be discounted at the market rate.
B. project should be discounted at the T-bill rate.
C. project should be discounted using the overall firm's beta.
,D. project should be discounted using a beta commensurate with
the project's risks.
E. CAPM can no longer be used to estimate the cost of equity as
beta no longer applies. D. project should be discounted using a beta commensurate with
the project's risks.
The accounting break-even production quantity for a project is 5,799 units.
The fixed costs are $92,640, the depreciation is $36,210, and the sales price
per unit is $48.29. What is the variable cost per unit?
A. $32.81
B. $27.04
C. $26.07
D. $33.04
E. $31.18 C. $26.07
5,799 = ($92,640 + 36,210) / ($48.29 - Variable cost per
unit)
Variable cost per unit = $26.07
,All else held constant, which one of these is most apt to increase the WACC
of a leveraged firm?
A. an increase in the weight of debt
B. a decrease in the tax rate
C. a decrease in the dividend growth rate
D. a decrease in a firm's equity beta
E. an increase in the risk-free rate when the equity beta >
1 B. a decrease in the tax rate
An analysis of what happens to the estimate of a project's net present value
when you examine a vast number of different likely economic situations is
called _____ analysis.
A. sensitivity
B. simulation
C. break-even
D. scenario
E. forecasting B. simulation
, A proposed new venture will cost $175,000 and should produce annual cash
flows of $48,500, $85,000, $40,000, and $40,000 for Years 1 to 4,
respectively. The required payback period and discounted payback period is
3 years. The discount rate is 9 percent. Which methods indicate project
acceptance and which indicate project rejection?
A. accept: NPV, IRR; reject: PI, payback, discounted payback
B. accept: payback, discounted payback; reject: NPV, IRR, PI
C. accept: NPV, IRR, PI, payback; reject: discounted payback
D. accept: NPV, IRR, PI; reject: payback, discounted payback
E. accept: payback, PI; reject: NPV, IRR, discounted payback D. accept: NPV, IRR, PI; reject:
payback, discounted payback
Hu's has 25,000 shares of common stock outstanding with a beta of 1.4, a
market price of $32 a share, and a dividend yield of 5.7 percent. Dividends
increase by 4.2 percent annually. The firm also has $450,000 of debt
outstanding that is selling at 102 percent of par that has a yield to maturity of
6.8 percent. The tax rate is 35 percent. The firm is considering a project that
has the same risk level as the firm's current operations, an initial cost of
$328,000 and cash inflows of $52,500, $155,000, and $225,000 for Years 1
to 3, respectively. What is the NPV of the project?
