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FIN/534 FIN534 FIN 534 Week 11 Final Exam Part 1

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FIN 534 Week 11 Final Exam Part 1 • Question 1 A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase? • Question 2 The capital intensity ratio is generally defined as follows: • Question 3 Which of the following statements is CORRECT? • Question 4 The term “additional funds needed (AFN)” is generally defined as follows: • Question 5 Which of the following is NOT one of the steps taken in the financial planning process? • Question 6 F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)? • Question 7 Which of the following procedures best accounts for the relative risk of a proposed project? • Question 8 Collins Inc. is investigating whether to develop a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated? • Question 9 Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses? • Question 10 Which of the following statements is CORRECT? • Question 11 When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT: • Question 12 While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project, so the building is available for sale or for a new product. Cook owns the building free and clearthere is no mortgage on it. Which of the following statements is CORRECT? • Question 13 Which of the following statements is CORRECT? • Question 14 Suppose Acme Industries correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely • Question 15 Which of the following statements is CORRECT? Assume a company’s target capital structure is 50% debt and 50% common equity. • Question 16 To help them estimate the company’s cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings? • Question 17 Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? • Question 18 Which of the following statements is CORRECT? • Question 19 Suppose you believe that Florio Company’s stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio’s stock price actually dropped to $60, what would your pre-tax net profit be? • Question 20 Which of the following statements is most correct, holding other things constant, for XYZ Corporation’s traded call options? • Question 21 The current price of a stock is $22, and at the end of one year its price

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