FINC 341 Final Exam 2025

T/F: EVA considers the cost of debt and the cost of equity - Correct Answer-T T/F: EVA is highly correlated with stock price - Correct Answer-T T/F: EVA is good for measuring management performance in specific divisions - Correct Answer-T T/F: MVA is good for measuring management performance in specific divisions - Correct Answer-F Old Dividend Exclusion Rules - Correct Answer-70/80/100 New Dividend Exclusion Rules - Correct Answer-50/65/100 T/F: The higher the tax bracket an individual is in, the more attractive municipal bonds are - Correct Answer-T T/F: Dividend income received by individuals used to be taxed as ordinary income - Correct Answer-T T/F: You can reduce annual ordinary income by 3000 when dealing with capital losses - Correct Answer-T If debt ratio increases, EM _____________________ - Correct Answer-increases T/F: If a firm maximizes ROE, it is quite probable it has taken on too much debt - Correct Answer-T T/F: Firms have learned that using ROE for bonuses can be problematic, and are increasingly turning to EVA to determine bonuses - Correct Answer-T T/F: A number of companies use ROE to determine executives' bonuses, but it can entice an executive to turn down a project that is profitable but brings down the average ROE for the year - Correct Answer-T T/F: When two projects of different size/investment are compared using ROE, the one with the lower ROE adds less value ($) to the firm than the other one - Correct Answer F T/F: A firm's ROA can equal its ROE only if the firm has no debt in its capital structure - Correct Answer-T DR = - Correct Answer-1-(1/EM) FINC 341 FINC 341 EM = - Correct Answer-1/(1-DR) T/F: A benefit of focusing on ROE is that it ensures that all profitable projects will be accepted so that the average ROE of the firm will be boosted - Correct Answer-F T/F: Since ROE is an important measure of performance, financial managers should try to maximize the company's ROE - Correct Answer-F T/F: EVA is different for Net Income because EVA reflects the cost of equity as well as the cost of debt - Correct Answer-T T/F: When two mutually exclusive projects are being considered, the one with the higher ROE should be chosen, regardless of the project size - Correct Answer-F T/F: A firm's EPS is highly correlated with its stock price - Correct Answer-F T/F: While the NASDAQ trades more dollar volume than the NYSE, the NYSE has a higher share volume traded than the NASDAQ - Correct Answer-F T/F: While the NASDAQ trades less dollar volume than the NYSE, the NYSE has a lower share volume traded than the NASDAQ - Correct Answer-T T/F: In 1972, 68 brokers created the NYSE Board under the Buttonwood Agreement - Correct Answer-F T/F: In 1972, 24 brokers created the NYSE Board under the Buttonwood Agreement - Correct Answer-T T/F: In a dutch auction, stocks are sold at the highest bid price that would sell all of the shares in the offering - Correct Answer-T T/F: When a company puts out a bond issue and then two years later puts out another bond issue, the second bond issue is being sold on the secondary market - Correct Answer-F T/F: A dealer's profit is the bid-ask spread, and this spread generally becomes larger when the stock is traded more often - Correct Answer-F T/F: The Federal Reserve typically lowers interest rates during recessions to stimulate the economy - Correct Answer-T T/F: When a manager's bonus compensation is determined by ROE, they may be encouraged to not accept good projects with lower (but good) ROEs - Correct Answer-T FINC 341 FINC 341 T/F: EVA is different from Net Income because EVA reflects the cost of equity but not the cost of debt - Correct Answer-F T/F: A firm's MVA is highly correlated with its stock price - Correct Answer-F T/F: If a firm's Equity Multiplier is 1.0, the firm does not have any equity in its capital structure - Correct Answer-F T/F: A firm's ROE considers the risk of accepting a project - Correct Answer-F T/F: The TC&J Act lowered the maximum marginal tax rate for individuals from 39.6% to 37% - Correct Answer-T T/F: Management's goal should be to take actions designed to maximize a firm's net income - Correct Answer-F T/F: The corporate alternative minimum tax rule was kept, but individuals no longer have an alternative minimum tax rule - Correct Answer-F T/F: An S corporation has double taxation - Correct Answer-F T/F: The way the corporate tax system was structured prior to 2018 favored equity financing over debt financing since dividends were tax-deductible and interest expense was not - Correct Answer-F T/F: If a wealthy corporation owns real estate for 3 years and then sells it, the tax on the profit would not be capped at the 20% L-T capital gains rate - Correct Answer-T T/F: To be treated as a l-T capital gain, the capital asset must be own for at least 24 months - Correct Answer-F T/F: Individuals' capital losses are not allowed to be carried forward indefinitely - Correct Answer-F T/F: A man buys a house for $600,000. He passes away 15 years later when his house is worth $1,000,000. If his heir sells the house for $1,000,000, he would owe federal tax on the $400,000 profit. - Correct Answer-F T/F: If an individual has $3,000 of capital gains and $14,000 of capital losses this year, that person will pay no tax on the capital gain and then carry $7,000 of capital loss forward to the next tax year. - Correct Answer-F T/F: When the Fed started bringing the interest rate up in recent years, it was "firing the gun" to have a weapon against a future recession in the U.S. - Correct Answer-F FINC 341 FINC 341 T/F: The spread between yield curves of corporate bonds and Treasury bonds is larger the longer the maturity because the corporate bonds are considered to have more risk of default if they have a long time to maturity, and because of this extra risk, they are less liquid. - Correct Answer-T T/F: After the Financial Crisis, the Fed Funds rate went down to the range of 0% to 0.25%, and stayed at that rate until the Fed finally decided to start increasing the rate in December of 2015 - Correct Answer-T T/F: When Ms. Guyton took students to France for six weeks in 2001, the students benefited from exchange rate fluctuation - Correct Answ