FINC 331 Final Exam – Finance for Nonfinancial Manager

FINC 331: Finance for Nonfinancial ManagerFinal ExamPlease submit your final exam answers through your Assignments Folder. Create a word document that containsyour numbered answers to the exam. There is no need to retype the questions. Number your answers tocorrespond with the exam. You will then submit the file through the Assignment Folder in the WebTychoclassroom. Alternatively, you may type your answers directly in the Text area of the Create Assignmentwindow (within the Assignment Folder). With either method please clearly mark your exam answers with yourname.1) Which of the following forms of business organization has the greatest ability to attract new capital?A) sole proprietorshipB) general partnershipC) corporationD) none of the above2) Which of the following forms of business organizations provide limited liability to all its owners?A) limited partnershipB) general partnershipC) corporationD) both B and C3) Which of the following best describes the goal of the firm?A) the maximization of the total market value of the firm’s common stockB) risk minimizationC) profit maximizationD) All of the above are equally important.4) Which of the following categories of owners have limited liability?A) sole proprietorsB) shareholders of a corporationC) general partnersD) both A and B5) Which of the following applies to minimize the disruptions to the continuation of business in a generalpartnership?A) the partnership can be extended only through the courts of law.B) there is no way to accomplish this; that is, the partnership dies when the partner dies or retires, orwithdraws.C) No continuation is possible upon the death of a partner, but only forcases of withdrawal of a partner,and hence is rarely practiced.D) the partnership can be extended through procedures specified in the partnership agreement.6) If an investor is said to be “risk averse” then that investorA) is not behaving in a typical manner.B) will only take on the least risk possible.C) will only take on additional risk if they expect to be compensated in the form of additional return.D) will not be induced to take on any risk.1 7) Maximization of shareholder wealth as a goal is superior to profit maximization becauseA) it considers the time value of the money.B) following the goal of shareholder wealth maximization will ensure high stock prices.C) it considers uncertainty.D) A and C8) Which of the following is an advantage of the sole proprietorship?A) easily transferred ownershipB) limited liability for its ownersC) no significant legal requirements for starting the businessD) double taxation for its owners9) Which of the following is considered an advantage of the corporate form of business organization?A) limited liability of ownersB) ability to raise large amounts of capitalC) ease of transferring ownershipD) all of the aboveE) none of the above10) Capital market transactions include which of the following?A) common stock of a public corporationB) all securities that are purchased in the open marketC) any security that is purchased from a brokerage firm that is well capitalizedD) U.S. Treasury billsE) all of the above11) The costs associated with issuing securities to the public can be high. Some types of securities have greaterexpenses associated with them than others. Which of the following is the most costly security to issue?A) corporate bondsB) preferred stockC) common stockD) All of the above are about equal in cost to issue.12) When an investment-banking firm “underwrites” an issue of securities, the firm is performing which of thefollowing?A) offering to purchase the securities from the firm, thereby assuming the risk of resale to investorsB) giving legal advice to the firm that is issuing the securitiesC) agreeing to provide insurance that the firm’s securities will sell for a price that is established by thefirmD) agreeing to market the securities to investors for a fee13) Which of the following refers to all institutions and procedures that provide for transactions in short-termdebt instruments generally issued by borrowers with very high credit ratings?A) commercial banksB) capital marketC) stock marketD) money market 2 14) Which of the following is an advantage of a private placement?A) Every issue is standardized, thus it is more efficient.B) It is slower, thus it is a less risky process.C) Greater fees for the investment bankers.D) None of the above are true.15) The majority of public offerings of securities must be registered with the Securities and ExchangeCommission, a costly and time consuming process. Which of the following methods allows corporationswith the ability to “speed up” the registration process?A) File a secondary offering.B) Offer a privileged subscription.C) File a shelf registration.D) Offer an underwriting.16) Which of the following does require registration with the SEC?A) issues sold entirely intrastateB) public utility and railroad issuesC) public issues with proceeds of more than $1.5 million annuallyD) issues with a maturity of 270 days or lessE) All of the above must be registered with the SEC.17) Which of the following is not a benefit provided by the existence of organized security exchanges?A) establishing and publicizing fair security pricesB) helping businesses raise new capitalC) standardization of all debt agreementsD) providing a continuous market18) Which of the below does not belong on the asset side of a balance sheet?A) accounts receivableB) accrualsC) cashD) accumulated depreciation19) Which of the below belongs in the liability section of a balance sheet?A) accumulated depreciationB) interest expenseC) accounts payableD) preferred stock20) Which of the below belongs on the asset side of a balance sheet?A) common stockB) accrualsC) accounts receivableD) depreciation expense21) Which of the following best describes free cash flow from an asset perspective?A) cash flows generated from accruals and accounts payableB) earnings before interest and taxesC) cash available to common stockholders that have no cost to the firmD) the after-tax cash flows generated from operations less the firm’s investments in operating workingcapital, fixed and other assets3 22) What information does a firm’s statement of cash flows provide to the viewing public?A) a report of revenues and expenses for a defined period of timeB) a complete listing of all of a firm’s cash receipts and cash expenditures for a defined period of timeC) an itemization of all of a firm’s assets, liabilities, and equity for a defined period of, timeD) a report of investments made and their cost for a specific period of time23) Corporations are allowed to deduct specific expenses for income tax purposes. Several of these expendituresare deductible but they are not cash expenses. Which of the following is not a cash expenditure but is stilldeductible for income tax purposes?A) depreciation expenseB) marketing expensesC) wages and salariesD) payroll tax payments24) A Cash Flow Statement can be used to answer a variety of questions. Which of the following would thisstatement not be likely to answer?A) Why was money borrowed?B) Where did profits go?C) How was the retirement of debt accomplished?D) What is the current level of inventory?25) Which of the following ratios would be the best way to determine how customers are paying for theirpurchases?A) total asset turnoverB) average collection periodC) current ratioD) inventory turnover26) You are an investor and you want to achieve the highest possible return on your money. Which would bebest for you to do, everything else equal?A) Set aside funds on a semi-annual basis to make investments.B) Set aside funds on a monthly basis to make investments.C) Set aside funds on a quarterly basis to make investments.D) Set aside funds on an annual basis to make investments.E) All of the above will result in the same return.27) The time value of money is created byA) the fact that the value of saving money for tomorrow could be more or less than spending it today.B) the existence of profitable investment alternatives and positive interest rates.C) the elimination of the opportunity cost as a consideration.D) the fact that the passing of time increases the value of money.28) Which of the following has a beta of one?A) a risk-free assetB) All assets have a beta greater than one.C) the marketD) All assets have a beta less than one. 4 29) Which of the following has a beta of zero?A) a risk-free assetB) All assets have a beta greater than zero.C) the marketD) none of the above30) The appropriate measure for risk according to the capital asset pricing model isA) the coefficient of variation of a firm’s cash flows.B) the standard deviation of a firm’s cash flows.C) alpha.D) none of the above31) What is diversifying among different kinds of assets known as?A) capital asset classificationB) portfolio fundingC) multi-diversificationD) asset allocation32) Which of the following statements is true?A) All bonds have equal interest rate risk.B) Short-term bonds have greater interest rate risk than do long-tenn bonds.C) Long-term bonds have greater interest rate risk than do short-tenn bonds.D) none of the above33) As interest rates, and consequently investors’ required rates of return, change over time, the_______________ of outstanding bonds will change as a result.A) coupon interest paymentB) maturity dateC) priceD) par value34) If market interest rates declineA) short-term bonds will decline in value more than long-term bonds.B) long-term bonds will rise in value more than short-term bonds.C) short-term bonds will rise in value more than long-term bonds.D) long-term bonds will decline in value more than short-term bonds.35) A bond will sell at a discount (below par value) ifA) current market interest rates are moving in the same direction as bond values.B) the market value of the bond is less than the present value of the discount rate of the bond.C) investors’ required rate of return is above the coupon rate of the bond.D) the economy is booming.36) If a corporation were to choose between issuing a debenture, a mortgage bond, or a subordinated debenture,which would have the highest yield to maturity, everything else equal?A) the mortgage bondB) the subordinated debentureC) the debentureD) All of the above types of bonds would have the same coupon rate. 5 37) All of the following affect the value of a share of common stock exceptA) the par value of stock.B) the future dividends.C) the future growth in dividends.D) investors’ required rate of return.38) Many preferred stocks have a provision that entitles a company to repurchase its preferred stock from theirholders at stated prices over a given time period. What is the name of this provision?A) CallableB) CumulativeC) PortableD) Convertible39) What provision entitles the common shareholder to maintain a proportionate share of ownership in a firm?A) the cumulative featureB) the preemptive rightC) the proxyD) the convertible feature40) How is preferred stock affected by a decrease in the required rate of return?A) the dividend increasesB) the value of a share of preferred stock decreasesC) the dividend decreasesD) none of the above41) Preferred stock is similar to a bond in the following wayA) preferred stock always contains a maturity date.B) both provide interest payments.C) both contain a growth factor similar to common stock.D) both investments provide a stated income stream.42) A significant advantage of the payback period is that itA) tends to reduce firm risk because it favors projects that generate early, less uncertain returns.B) gives proper weighting to all cash flows.C) places emphasis on time value of money.D) allows for the proper ranking of projects.43) Incremental cash flows refer toA) the cash flows of a project, minus financing costs.B) the new cash flows that will be generated if a project is undertaken.C) the cash flows that are foregone if a firm does not undertake a project.D) the difference between after-tax cash flows and before-tax accounting profits.44) What method is used for calculation of the accounting beta?A) sensitivity analysisB) regression analysisC) simulationD) both A and C 6 45) Market Value Added isA) the additional value received for a firm’s common stock once the firm is listed on the NYSE.B) stockholder’s required rate of return that is based upon the market value of a firm’s common stockrelative to the book value of a firm’s common stock.C) the difference in the current market value of a firm and the sum of all the funds that have beeninvested in the firm over its entire operating life.D) market value of a firm’s common stock, plus the book value of its common stock.46) Which of the following would be considered a variable cost in a manufacturing setting?A) direct laborB) administrative salariesC) insuranceD) rentE) all of the above47) A high degree of variability in a firm’s earnings before interest and taxes refers toA) financial risk.B) financial leverage.C) operating leverage.D) business risk.48) The true owners of the corporation are theA) board of directors of the firm.B) preferred stockholders.C) common stockholders.D) holders of debt issues of the firm.49) A firm’s “sustainable rate of growth” is positively affected byA) a decrease in a firm’s operating profit margin.B) an increase in a firm’s spontaneous sources of funds.C) a decrease in a firm’s ROE.D) an increase in a firm’s dividend payout ratio.50) All of the following are typical benefits of stock repurchases exceptA) an approach for modifying the firm’s capital structure.B) reduction in the firm’s costs associated with servicing small stockholders.C) a means for providing an internal investment opportunity.D) preservation of cash to be used for dividends. 7

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