Question Details

 FIN 534 Week 11 Final Exam Part 1
•	Question 1
The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?			
	
			
•	Question 2
An option that gives the holder the right to sell a stock at a specified price at some future time is			
	
			
•	Question 3
Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?			
	
			
•	Question 4
Which of the following statements is CORRECT?			
	
			
•	Question 5
Which of the following statements is CORRECT?			
	
			
•	Question 6
The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.)			
	
			
•	Question 7
You have been hired as a consultant by Feludi Inc.'s CFO, who wants you to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from reinvested earnings?			
	
			
•	Question 8
Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?			
	
			
•	Question 9
Which of the following statements is CORRECT?			
	
			
•	Question 10
2 out of 2 points
	
	As a consultant to Basso Inc., you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach?			
	
			
•	Question 11

	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 12
With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?			
	
			
•	Question 13
Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true?			
	
•	Question 14
Which of the following statements is CORRECT?			
	
			
•	Question 15

	
	Which of the following statements is CORRECT?			
	
			
•	Question 16
Which of the following statements is CORRECT?			
	
			
•	Question 17
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.			
	
			
•	Question 18
Which of the following statements is NOT a disadvantage of the regular payback method?			
	
			
•	Question 19
Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses?			
	
			
•	Question 20
A firm is considering a new project whose risk is greater than the risk of the firm's average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following?			
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•	Question 21
When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:			
	
			
•	Question 22
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 23
Which of the following statements is CORRECT?			
	
			
•	Question 24
Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?			
	
			
•	Question 25
The Besnier Company had $250 million of sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?			
	
			
•	Question 26
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 27
North Construction had $850 million of sales last year, and it had $425 million of fixed assets that were used at only 60% of capacity. What is the maximum sales growth rate North could achieve before it had to increase its fixed assets?			
	
			
•	Question 28
Which of the following assumptions is embodied in the AFN equation?			
	
			
•	Question 29
The capital intensity ratio is generally defined as follows:			
	
			
•	Question 30
Which of the following statements is CORRECT?