KU FIN 310 PREVIOUS FINAL EXAM MUESTIONS
Which of the following statements is FALSE?
A. Financial Managers make three basic types of decisions: Capital Budgeting, Capital
Structure, and Working Capital Management.
B. Capital budgeting is the process of planning and managing a firm's short-term
investments.
C. The primary goal for corporate managers should be to make good decisions to
maximize the market value of the owner's equity.
D. Agency conflicts, which sometimes arise when CEOs are overly motivated to seek
job security, can be reduced by adjusting managerial compensation. - Answers -B.
Which of the following choices is NOT a CORRECT way to complete this sentence:
Other things equal, a set of cash flows is more valuable ...
A. The longer they last
B. The less frequently they are paid
C. The faster they grow
D. The smaller the time value that investors require compensation for trading a dollar
today for dollars tomorrow - Answers -B.
Fill in the blanks: If investors decide to require higher yields to invest rather than spend
today, then bond prices will __________, and long-term bond prices will change ____
than short-term bond prices
A. rise, more
B. rise, less
C. fall, more
D. fall, less - Answers -C.
If any, which of the following statements is FALSE?
A. NPV measures the value created by taking on an investment
B. NPV indicates how much a project will improve owner wealth
C. NPV is the discounted present value of a project's expected future cash flows at the
required
return, subtracting the initial investment
D. None of the above statements is false - Answers -D.
Which of the following statements is TRUE?
, A. The risk-free rate of return has a portfolio risk premium of 1.0.
B. The higher the expected rate of return, the wider the distribution of returns for
portfolios.
C. The reward for bearing risk in portfolios is called the standard deviation.
D. Risk premiums are inversely related to the standard deviation of returns for portfolios.
- Answers -B.
Which of the following statements is FALSE?
A. The cost of capital is the minimum required return to compensate financial investors.
B. The cost of capital for a project depends primarily on the source of funds.
C. The cost of equity is the return required by equity investors given the risk of the cash
flows
from the firm.
D. A firm's WACC reflects the average risk of the existing projects undertaken by the
firm. - Answers -B.
Which of the following statements is TRUE?
A. Bankruptcy occurs whenever a firm is unable to meet obligations or reports negative
book
equity.
B. A Chapter 7 bankruptcy allows a firm to reorganize and continue operations as
"debtor-in-
possession."
C. Under bankruptcy, trade creditors have lower priority than secured bank loans.
D. Financial distress and bankruptcy costs cause WACC to decrease as leverage
increases. - Answers -C.
Which of the following statements is FALSE?
A. Interest expense reduces taxable income and net income but not EBIT.
B. When a company repurchases its shares using proceeds from new issues of debt, its
future
expected earnings per share increases.
C. 'Homemade leverage' is the use of personal borrowing to adjust the overall amount
of financial
leverage to which the individual investor is exposed.
D. Under M&M assumptions which ignore special benefits and costs of debt, leverage
has a
substantial impact on total firm value and on WACC. - Answers -D.
Research conducted on firms' dividend policies over time support which one of the
following conclusions?
Which of the following statements is FALSE?
A. Financial Managers make three basic types of decisions: Capital Budgeting, Capital
Structure, and Working Capital Management.
B. Capital budgeting is the process of planning and managing a firm's short-term
investments.
C. The primary goal for corporate managers should be to make good decisions to
maximize the market value of the owner's equity.
D. Agency conflicts, which sometimes arise when CEOs are overly motivated to seek
job security, can be reduced by adjusting managerial compensation. - Answers -B.
Which of the following choices is NOT a CORRECT way to complete this sentence:
Other things equal, a set of cash flows is more valuable ...
A. The longer they last
B. The less frequently they are paid
C. The faster they grow
D. The smaller the time value that investors require compensation for trading a dollar
today for dollars tomorrow - Answers -B.
Fill in the blanks: If investors decide to require higher yields to invest rather than spend
today, then bond prices will __________, and long-term bond prices will change ____
than short-term bond prices
A. rise, more
B. rise, less
C. fall, more
D. fall, less - Answers -C.
If any, which of the following statements is FALSE?
A. NPV measures the value created by taking on an investment
B. NPV indicates how much a project will improve owner wealth
C. NPV is the discounted present value of a project's expected future cash flows at the
required
return, subtracting the initial investment
D. None of the above statements is false - Answers -D.
Which of the following statements is TRUE?
, A. The risk-free rate of return has a portfolio risk premium of 1.0.
B. The higher the expected rate of return, the wider the distribution of returns for
portfolios.
C. The reward for bearing risk in portfolios is called the standard deviation.
D. Risk premiums are inversely related to the standard deviation of returns for portfolios.
- Answers -B.
Which of the following statements is FALSE?
A. The cost of capital is the minimum required return to compensate financial investors.
B. The cost of capital for a project depends primarily on the source of funds.
C. The cost of equity is the return required by equity investors given the risk of the cash
flows
from the firm.
D. A firm's WACC reflects the average risk of the existing projects undertaken by the
firm. - Answers -B.
Which of the following statements is TRUE?
A. Bankruptcy occurs whenever a firm is unable to meet obligations or reports negative
book
equity.
B. A Chapter 7 bankruptcy allows a firm to reorganize and continue operations as
"debtor-in-
possession."
C. Under bankruptcy, trade creditors have lower priority than secured bank loans.
D. Financial distress and bankruptcy costs cause WACC to decrease as leverage
increases. - Answers -C.
Which of the following statements is FALSE?
A. Interest expense reduces taxable income and net income but not EBIT.
B. When a company repurchases its shares using proceeds from new issues of debt, its
future
expected earnings per share increases.
C. 'Homemade leverage' is the use of personal borrowing to adjust the overall amount
of financial
leverage to which the individual investor is exposed.
D. Under M&M assumptions which ignore special benefits and costs of debt, leverage
has a
substantial impact on total firm value and on WACC. - Answers -D.
Research conducted on firms' dividend policies over time support which one of the
following conclusions?
