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FINC 3610 Final Exam Prep Newest
Actual Exam With Complete 100
Questions And Correct Detailed Answers
(Verified Answers) |Already Graded A+
The internal rate of return (IRR) rule states that - - ANS✔️--An investment is acceptable if its
IRR exceeds the required return. If not, it should be rejected
Which of the following statements is not correct? - - ANS✔️--Book value capital structure weighs
should be used to calculate the WACC instead of market value weighs
A firm has 5,000,000 shares of common stock outstanding with a market price of 9 per share. It
has 25,000 bonds outstanding, each with a face value of 1,000 and selling for 1,100. The bonds
mature in 12 years, have a coupon rate of 8.5% and pay coupons annually. The firm's beta is 1.4,
the risk-free rate is 5% and the market risk premium is 9%. The tax rate is 35%. Calculate the
weighted average cost of capital (WACC). - - ANS✔️--12.71%
You are considering purchasing 6,000 in equipment for a equipment for a project that will last 4
years. After the project, the equipment can be sold 2,000. The project will result in cost savings
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of 2,500 each year. Assuming straight-line depreciation to zero, and knowing the firm is in the
35% tax bracket and uses a discount rate of 10% on project of this risk, what is the IRR of this
project? - - ANS✔️--21.56%
You discover the engine-oil additive your scientists developed three years ago makes a great
men's aftershave once diluted properly using certain chemicals. How should you treat the
original 125,000 of research and development expenditures that went into the initial development
of the engine-oil additive when making your present decision regarding whether or not to begin
production of the aftershave? - - ANS✔️--As a sunk cost since the research and development
expenditure has no bearing on todays decision
Etling Inc's divided is expected to grow at a rate of 5% for the next 2 years and then at a rate of
3% from that point forward. If the firm has just paid a $2 dividend and the required return is
14%, what is the price of the stock? - - ANS✔️--$19.43
A common stock issue is currently selling for 31 per share. You expect the next dividend next
year to be 1.40 per share. If the firm has a dividend growth rate of 5% that is expected to remain
constant indefinitely, what is the firm's cost of equity? - - ANS✔️--9.5%
Your firm needs a computerized machine tool lathe, which costs 50,000 and requires 12,000 in
maintenance each year of its 3-year life. After 3 years, this machine will be replaced. The
machine falls into the MACRS 3-year asset class. Assume a tax rate of 35% and a discount rate
FINC 3610 Final Exam Prep Newest
Actual Exam With Complete 100
Questions And Correct Detailed Answers
(Verified Answers) |Already Graded A+
The internal rate of return (IRR) rule states that - - ANS✔️--An investment is acceptable if its
IRR exceeds the required return. If not, it should be rejected
Which of the following statements is not correct? - - ANS✔️--Book value capital structure weighs
should be used to calculate the WACC instead of market value weighs
A firm has 5,000,000 shares of common stock outstanding with a market price of 9 per share. It
has 25,000 bonds outstanding, each with a face value of 1,000 and selling for 1,100. The bonds
mature in 12 years, have a coupon rate of 8.5% and pay coupons annually. The firm's beta is 1.4,
the risk-free rate is 5% and the market risk premium is 9%. The tax rate is 35%. Calculate the
weighted average cost of capital (WACC). - - ANS✔️--12.71%
You are considering purchasing 6,000 in equipment for a equipment for a project that will last 4
years. After the project, the equipment can be sold 2,000. The project will result in cost savings
, 2|Page
of 2,500 each year. Assuming straight-line depreciation to zero, and knowing the firm is in the
35% tax bracket and uses a discount rate of 10% on project of this risk, what is the IRR of this
project? - - ANS✔️--21.56%
You discover the engine-oil additive your scientists developed three years ago makes a great
men's aftershave once diluted properly using certain chemicals. How should you treat the
original 125,000 of research and development expenditures that went into the initial development
of the engine-oil additive when making your present decision regarding whether or not to begin
production of the aftershave? - - ANS✔️--As a sunk cost since the research and development
expenditure has no bearing on todays decision
Etling Inc's divided is expected to grow at a rate of 5% for the next 2 years and then at a rate of
3% from that point forward. If the firm has just paid a $2 dividend and the required return is
14%, what is the price of the stock? - - ANS✔️--$19.43
A common stock issue is currently selling for 31 per share. You expect the next dividend next
year to be 1.40 per share. If the firm has a dividend growth rate of 5% that is expected to remain
constant indefinitely, what is the firm's cost of equity? - - ANS✔️--9.5%
Your firm needs a computerized machine tool lathe, which costs 50,000 and requires 12,000 in
maintenance each year of its 3-year life. After 3 years, this machine will be replaced. The
machine falls into the MACRS 3-year asset class. Assume a tax rate of 35% and a discount rate
