FIN 515 WEEK 8 EXAM

FIN 515 
1.
(TCO A) Double taxation is a drawback for which of the following types of business 
organization except?
(Points : 5)
2.
(TCO A) Sole proprietorships have all of the following advantages except
(Points : 5)
3.
(TCO B) Which of the following would cause the present value of an annuity to 
decrease?
(Points : 5)
4.
(TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing cash flows 
must be
(Points : 5)
5.
(TCO G) If net income, total assets, and book value of equity stayed the same, what would
be the effect on the DuPont Identity of an increase in sales?
6.
(TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The 
dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is 
P
0
?
(Points : 20)
7.
(TCO D) A stock has just declared an annual dividend of $2.25 to be paid one year from 
today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 
12%. What is P
0
?
8.
(TCO D) A given bond has 5 years to maturity. It has a face value of $1,000. It has a YTM 
of 6% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell 
for?
9.
(TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued 
two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are 
made semiannually. What is its YTM?
10.
(TCO D) Using examples, explain the difference between systematic risk and 
nonsystematic risk. Explain why the distinction is important for both investors and issuers of 
stock.
11.
(TCO E) A company has 100 million shares outstanding trading for $8 per share. It also 
has $900 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 
12%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
(Points : 
12.
(TCO A) Relate how the job of the financial manager can be explained using the 
balance sheet.
(Points : 25)
13.
(TCO H) Other things being equal, would a firm prefer a longer or shorter Cash 
Conversion Cycle? What are some examples of ways a firm could attain this?
(Points : 30)
14.
(TCO F) A company has the opportunity to do any of the projects for which the net cash 
flows per year are shown below. The company has a cost of capital of 12%. Which should the company 
do and why? You must use at least two capital budgeting methods. Show your work.
Year
A
B
C
0
-300
-100
-300
1
100
-50
100
2
100
100
100
3
100
100
100
4
100
100
100
5
100
100
100
6
100
100
100
7
-100
-200
0
(Points : 40)