FIN 534 Final Exam Part 2 Set 1 “� � � Question 1 � � � � Which of the following is NOT normally regarded as being a good reason to establish an ESOP? � � � � � � � “� � � Question 2 � � � � Which of the following is NOT normally regarded as being a barrier to hostile takeovers? “� � � Question 3 � � � � RohterGaleano Inc. is considering how to set its dividend policy. It has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15% debt and 85% equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment? � � � � � � � “� � � Question 4 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 5 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 6 � � � � Which of the following statements is NOT correct? � � � � � � � “� � � Question 7 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 8 � � � � The capital budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target capital structure that is 30% debt and 70% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual dividend policy, what will be its total dividend payment? � � � � � � � “� � � Question 9 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 10 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 11 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 12 � � � � Other things held constant, which of the following events is most likely to encourage a firm to increase the amount of debt in its capital structure? � � � � � � � “� � � Question 13 � � � � Blueline Publishers is considering a recapitalization plan. It is currently 100% equity financed but under the plan it would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company’s total assets, nor would it affect the firm’s basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? � � � � � � � “� � � Question 14 � � � � Which of the following is NOT associated with (or does not contribute to) business risk? Recall that business risk is affected by a firm’s operations. “� � � Question 15 � � � � Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company’s common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization? � � � � � � � “� � � Question 16 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 17 � � � � Which of the following actions should Reece Windows take if it wants to reduce its cash conversion cycle? � � � � � � � “� � � Question 18 � � � � Which of the following will cause an increase in net working capital, other things held constant? � � � � � � � “� � � Question 19 � � � � A lockbox plan is most beneficial to firms that � � � � � � � “� � � Question 20 � � � � Which of the following actions would be likely to shorten the cash conversion cycle? � � � � � � � “� � � Question 21 � � � � Other things held constant, which of the following would tend to reduce the cash conversion cycle? � � � � � � � “� � � Question 22 � � � � Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket? � � � � � � � “� � � Question 23 � � � � Suppose one U.S. dollar can purchase 144 yen today in the foreign exchange market. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow? � � � � � � � “� � � Question 24 � � � � If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ____ to the spot rate. � � � � � � � “� � � Question 25 � � � � Which of the following statements is NOT CORRECT? � � � � � � � “� � � Question 26 � � � � A U.S.-based importer, Zarb Inc., makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure? � � � � � � � “� � � Question 27 � � � � In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT? � � � � � � � “� � � Question 28 � � � � Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States? � � � � � � � “� � � Question 29 � � � � If it takes $0.71 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy? � � � � � � � “� � � Question 30 � � � � Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc? � � � � � � � FIN 534 Final Exam Part 2 Set 2 “� � � Question 1 � � � � Which of the following is NOT normally regarded as being a good reason to establish an ESOP? “� � � Question 2 � � � � Which of the following is NOT normally regarded as being a barrier to hostile takeovers? � � � � � � � “� � � Question 3 � � � � If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that � � � � � � � “� � � Question 4 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 5 � � � � Which of the following statements is NOT correct? � � � � � � � “� � � Question 6 � � � � Which of the following actions will best enable a company to raise additional equity capital? “� � � Question 7 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 8 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 9 � � � � Which of the following statements is correct? � � � � � � � “� � � Question 10 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 11 � � � � Which of these items will not generally be affected by an increase in the debt ratio? � � � � � � � “� � � Question 12 � � � � Based on the information below for Benson Corporation, what is the optimal capital structure? � � � � � � � “� � � Question 13 � � � � Blueline Publishers is considering a recapitalization plan. It is currently 100% equity financed but under the plan it would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company’s total assets, nor would it affect the firm’s basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? � � � � � � � “� � � Question 14 � � � � Which of the following statements is CORRECT? � � � � � � � “� � � Question 15 � � � � Two operationally similar companies, HD and LD, have the same total assets, operating income (EBIT), tax rate, and business risk. Company HD, however, has a much higher debt ratio than LD. Also HD’s basic earning power (BEP) exceeds its cost of debt (rd). Which of the following statements is CORRECT? � � � � � � � “� � � Question 16 � � � � Which of the following events is likely to encourage a company to raise its target debt ratio, other things held constant? � � � � � � � “� � � Question 17 � � � � A lockbox plan is � � � � � � � “� � � Question 18 � � � � Which of the following will cause an increase in net working capital, other things held constant? � � � � � � � “� � � Question 19 � � � � Firms generally choose to finance temporary current operating assets with short-term debt because � � � � � � � “� � � Question 20 � � � � Which of the following statements is most consistent with efficient inventory management? The firm has a “� � � Question 21 � � � � Other things held constant, which of the following would tend to reduce the cash conversion cycle? � � � � � � � “� � � Question 22 � � � � Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket? � � � � � � � “� � � Question 23 � � � � Suppose that 1 British pound currently equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc? � � � � � � � “� � � Question 24 � � � � Suppose it takes 1.82 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days? � � � � � � � “� � � Question 25 � � � � Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor’s required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return? � � � � � � � “� � � Question 26 � � � � Suppose 1 U.S. dollar equals 1.60 Canadian dollars in the spot market. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market? � � � � � � � “� � � Question 27 � � � � Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States? � � � � � � � “� � � Question 28 � � � � Suppose Yates Inc., a U.S. exporter, sold a consignment of antique American muscle-cars to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, Yates agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would Yates actually receive after it exchanged yen for U.S. dollars? � � � � � � � “� � � Question 29 � � � � Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.65. If interest rate parity holds, what is the spot exchange rate? � � � � � � � � � � � � � � “� � � Question 30 � � � � In 1985, a given Japanese imported automobile sold for 1,476,000 yen, or $8,200. If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S. dollars? FIN 534 Final Exam Part 2 Set 3 “� � � Question 1 � � Which of the following is NOT normally regarded as being a good reason to establish an ESOP? � � � � � � � � � � � � � “� � � Question 2 � � Which of the following is NOT normally regarded as being a barrier to hostile takeovers? � � � � � � � � � � � � “� � � Question 3 � � Consider two very different firms, M and N. Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M’s growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct? � � � � � � � � � � � � � � “� � � Question 4 � � Which of the following actions will best enable a company to raise additional equity capital? � � � � � � � � � � � � “� � � Question 5 � � Which of the following statements is NOT correct? � � � � � � � � � � � � � � “� � � Question 6 � � If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that � � � � � � � � � � � � � � “� � � Question 7 � � Poff Industries’ stock currently sells for $120 a share. You own 100 shares of the stock. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place? � � � � � � � � “� � � Question 8 � � Which of the following statements is correct? � � � � � � � � � � � � � “� � � Question 9 bettyboo26 Rated: A Always the best work and always available! honeydame Rated: A Thanks for the help! 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