COMM 309: Business Finance – Final Mock Exam
1.5 D 1.5 5 1 1 2.5
1. 1 ke 0.16 ki 0.07
A firm is considering a project that will generate perpetual end-of-year annual cash flows
of $33,180 per year. The project has the same risk as the firm's overall operations and
must be financed externally. Equity costs 16% and debt costs 7%. The firm’s debt-equity
ratio is 1.5. What is the most the firm could pay (rounded to $1) for the project and still
earn its required return? Round to the nearest dollar.
a. $275,027
b. $283,019 WASC 0.16 0.07 10.6 PV 33180 313019
c. $303,216 15
d. $313,019 0.106
e. $317,027
2. Quality Inc. currently has a debt-equity ratio of 0.70, an after-tax cost of debt of 7.5%, and
a cost of equity of 14%. If the firm changes its debt-equity ratio to 0.50, it will:
a. Decrease the firm’s WACC.
b. Increase the firm’s total debt.
c. Increase the firm’s total equity.
d. Cause the NPV of projects under consideration to decrease.
e. Not have an effect on the firm’s capital budgeting decisions.
3. A company has revenue of $4,087,386, accounts receivable of $319,006, average
inventory of $143,010, and accounts payable of $314,420. How many days are the
operating cycle (OC) and the cash conversion cycle (CCC)?
a. OC=12.77 and CCC=28.49
b. OC=13.18 and CCC=41.26
c. OC=41.26 and CCC=13.18
0C 12.77 28.47 41.24
d. OC=41.26 and CCC=28.08
CC 41.24 28.08 73.16
e. OC=28.08 and CCC=13.18
4. _____ involve issuing special securities that entitle the holders to unusual rights and
privileges if the issuing firm becomes the subject of a takeover bid.
a. Poison pills
b. Tender offers
c. White knights
d. Legal barriers
e. Crown jewels
5. A firm has a cost of equity of 20% and an after-tax cost of debt of 6%. What debt-to-
equity ratio should be used in order to produce a WACC of 14.00%? Choose the closest
answer. Hint: It may help to know that E/V = 1 - D/V.
a. 0.5385
b. 0.6667
0.14 0.2 0.06 1
E E
c. 0.7500
d. 1.0000
e. 1.1667
0.14 0.2 0.06 0.064
0.75
0.08 Dt S V
0.14 D 8 14
D G 1
© Copyright – 2025 – Checkmark Tutorials Inc. – All Rights Reserved.
, COMM 309: Business Finance – Final Mock Exam
6. As a corporate treasurer, you manage a $100 million bond portfolio. Economists suggest
(and you believe) that market interest rates are headed down over the next several
months. To increase interest rate exposure, you should attempt to:
I. Reduce the average maturity of the portfolio by selling long-term bonds and buying
short-term bonds.
II. Lengthen the average maturity of the portfolio by buying long-term bonds and selling
short-term bonds.
III. Reduce the average coupon rate by selling high-coupon bonds and buying low-
coupon bonds.
IV. Increase the average coupon rate by buying high-coupon bonds and selling low-
coupon bonds.
a. I only
b. I and Il only
c. Il and III only
d. I and IV only
e. I, II, III, and IV
7. Which one of the following bond issues would have the HIGHEST price sensitivity to
interest rate changes?
Issue Coupon Term YTM
1 4½% 11 yrs 5.20%
2 5½% 10 yrs 5.40%
3 4½% 11 yrs 5.00%
4 5½% 10 yrs 5.80%
a. 1.
b. 2.
c. 3.
d. 4.
e. It is not possible to make a clear determination regarding sensitivity.
8. Which of the following are possible defenses that a target firm can use against an
unfriendly acquiring firm?
I. Sell attractive assets
II. Issue additional voting shares to dilute voting power
III. Assume a heavy debt burden
a. III only
b. I and I
l and III
II and III
I, Il, and III
2
© Copyright – 2025 – Checkmark Tutorials Inc. – All Rights Reserved.
1.5 D 1.5 5 1 1 2.5
1. 1 ke 0.16 ki 0.07
A firm is considering a project that will generate perpetual end-of-year annual cash flows
of $33,180 per year. The project has the same risk as the firm's overall operations and
must be financed externally. Equity costs 16% and debt costs 7%. The firm’s debt-equity
ratio is 1.5. What is the most the firm could pay (rounded to $1) for the project and still
earn its required return? Round to the nearest dollar.
a. $275,027
b. $283,019 WASC 0.16 0.07 10.6 PV 33180 313019
c. $303,216 15
d. $313,019 0.106
e. $317,027
2. Quality Inc. currently has a debt-equity ratio of 0.70, an after-tax cost of debt of 7.5%, and
a cost of equity of 14%. If the firm changes its debt-equity ratio to 0.50, it will:
a. Decrease the firm’s WACC.
b. Increase the firm’s total debt.
c. Increase the firm’s total equity.
d. Cause the NPV of projects under consideration to decrease.
e. Not have an effect on the firm’s capital budgeting decisions.
3. A company has revenue of $4,087,386, accounts receivable of $319,006, average
inventory of $143,010, and accounts payable of $314,420. How many days are the
operating cycle (OC) and the cash conversion cycle (CCC)?
a. OC=12.77 and CCC=28.49
b. OC=13.18 and CCC=41.26
c. OC=41.26 and CCC=13.18
0C 12.77 28.47 41.24
d. OC=41.26 and CCC=28.08
CC 41.24 28.08 73.16
e. OC=28.08 and CCC=13.18
4. _____ involve issuing special securities that entitle the holders to unusual rights and
privileges if the issuing firm becomes the subject of a takeover bid.
a. Poison pills
b. Tender offers
c. White knights
d. Legal barriers
e. Crown jewels
5. A firm has a cost of equity of 20% and an after-tax cost of debt of 6%. What debt-to-
equity ratio should be used in order to produce a WACC of 14.00%? Choose the closest
answer. Hint: It may help to know that E/V = 1 - D/V.
a. 0.5385
b. 0.6667
0.14 0.2 0.06 1
E E
c. 0.7500
d. 1.0000
e. 1.1667
0.14 0.2 0.06 0.064
0.75
0.08 Dt S V
0.14 D 8 14
D G 1
© Copyright – 2025 – Checkmark Tutorials Inc. – All Rights Reserved.
, COMM 309: Business Finance – Final Mock Exam
6. As a corporate treasurer, you manage a $100 million bond portfolio. Economists suggest
(and you believe) that market interest rates are headed down over the next several
months. To increase interest rate exposure, you should attempt to:
I. Reduce the average maturity of the portfolio by selling long-term bonds and buying
short-term bonds.
II. Lengthen the average maturity of the portfolio by buying long-term bonds and selling
short-term bonds.
III. Reduce the average coupon rate by selling high-coupon bonds and buying low-
coupon bonds.
IV. Increase the average coupon rate by buying high-coupon bonds and selling low-
coupon bonds.
a. I only
b. I and Il only
c. Il and III only
d. I and IV only
e. I, II, III, and IV
7. Which one of the following bond issues would have the HIGHEST price sensitivity to
interest rate changes?
Issue Coupon Term YTM
1 4½% 11 yrs 5.20%
2 5½% 10 yrs 5.40%
3 4½% 11 yrs 5.00%
4 5½% 10 yrs 5.80%
a. 1.
b. 2.
c. 3.
d. 4.
e. It is not possible to make a clear determination regarding sensitivity.
8. Which of the following are possible defenses that a target firm can use against an
unfriendly acquiring firm?
I. Sell attractive assets
II. Issue additional voting shares to dilute voting power
III. Assume a heavy debt burden
a. III only
b. I and I
l and III
II and III
I, Il, and III
2
© Copyright – 2025 – Checkmark Tutorials Inc. – All Rights Reserved.
