LAW531 Final Exam (2019) SCORE 100 PERCENT

Question 1
Which of the following applies to trade restraints that are inherently anticompetitive?
The rule of reason
The pro rata rule
The per se rule
The rule of four

Question 2
When one party acquires a license to use another party's business model and intellectual property in the distribution of goods and services, the arrangement is a __________.

    limited liability partnership
    franchise
    joint venture
    Kickback

Question 3
Which of the following is prohibited by the Food, Drug, and Cosmetic Act (FDCA) with regard to food?

    The sale of adulterated food
    Labeling of genetically engineered food products
    The sale of non-organic food products
    Labeling of raw seafood products

Question 4
The obligation owed by individuals to one another not to cause any unreasonable harm or any risk of harm is called:

    duty of restoration.
    duty of care
    duty of loyalty.
    duty of restitution.

Question 5
When can an arbitrator's decision and award be appealed to the courts?

    While drafting a submission agreement
    When an arbitration is binding
    While entering a negotiation
    When an arbitration is nonbinding

Question 6
Which of the following is an advantage of franchising?

    It enables two businesses to pool their resources to pursue a common goal.
    It allows a business to consist of only general partners.
    It allows businesses to reach profitable new markets.
    It grants free access to the intellectual property of a business to anyone in the same market.

Question 7
Workers' compensation is defined as the:

    system that provides retirement and death benefits to covered employees and their dependents.
    insurance obtained by employees from private insurance companies and government-sponsored programs.
    remuneration awarded to employees and their families when the employees are injured on the job.
    set of programs mandated by the government to ensure safety in places of work.

Question 8
Corporate officers are elected by a corporation's __________.

    owners
    board of directors
    common stockholders
    preferred stockholders

Question 9
Which of the following is a difference between embezzlement and larceny?

    Embezzlement is the snatching of personal property from a person's home, whereas larceny is the snatching of personal property from a person on the street.
    Embezzlement is an unintentional tort, whereas larceny is a nonintent crime.
    Embezzlement is the stealing of property by a person to whom the property was entrusted, whereas larceny is the stealing of property by a person not entrusted with it.
    Embezzlement is usually punishable by the payment of monetary damages, whereas larceny is usually punishable by the death penalty.

Question 10
Which of the following is a criticism of the ethical fundamentalism theory?

    It does not allow people to decide for themselves what is right and what is wrong.
    It is impossible in the real world to expect that everyone in society will obey moral rules.
    It does not reach an agreement on what the universal rules should be.
    It is impossible to measure the "good" that may result from different actions.

Question 11
The manifestation of the substance of a contract by two or more individuals is called __________.

    consideration
    an offer
    acceptance
    an agreement

Question 12
Which of the following is a remedy that requires the breaching party to perform the acts promised in a contract?

    Specific performance
    Binding arbitration
    Punitive damages
    Special damages

Question 13
Laws that prohibit discrimination based on race, gender, or religion in the workplace primarily serve the function of:

    advocating social justice.
    providing a basis for compromise.
    creating a new status quo.
    minimizing the freedom of employees.

Question 14
Which of the following is a difference between arbitration and mediation?

    Arbitration is an informal method of dispute resolution, whereas mediation is a formal method of dispute resolution.
    The decision of an arbitrator is nonbinding, whereas the decision of a mediator is binding.
    The role of an arbitrator is merely to assist parties in reaching a settlement, whereas the role of a mediator is similar to the role of a trial judge.
    An arbitrator is authorized to issue an award, whereas a mediator can only assist in reaching a settlement.

Question 15
Which of the following is a requirement for obtaining a patent for an invention?

    The invention needs to be made of highly valuable components.
    The invention must be in the form of a service.
    The invention must be original.
    The invention needs to be recognizable to the general public.

Question 16
An agency that appears to be created by a principal but does not exist in reality is called a(n) __________.

    apparent agency
    implied agency
    agency by ratification
    fully disclosed agency

Question 17
Laws that protect governments from being overthrown primarily serve the function of:

    advocating social justice
    providing bases for compromise.
    maintaining the status quo.
    minimizing individual freedom.

Question 18
Ken owns a small convenience store in a street corner in California. One afternoon, a teenage boy enters his store, looks around, and prepares to walk out without buying anything. Ken is wary of the boy because of the boy's shabby clothing. He stops and asks the boy to empty his pockets and then questions him for about five minutes. After finding that the boy does not have anything from the store on him, Ken reluctantly lets him go. Which of the following is a merchant protection statute that Ken has violated?

    Reasonable grounds for suspicion
    Reasonable duration of detention
    Adverse possession
    Adequate assurance of performance

Question 19
Corporate officers are best described as:

    directors elected by a corporation's shareholders.
    partners pursuing a joint venture transaction
    owners of a corporation with limited liability for its debts and obligations.
    employees appointed to manage the daily operations of a corporation.

Question 20
Which of the following scenarios is an example of law and ethics contradicting each other?

    A florist in the United States employs an illegal immigrant to help the immigrant and her family overcome their financial difficulties.
    A large apparel retailer copies the trademarked garment designs of a well-known fashion designer.
    A restaurateur, whose restaurant is violating labor laws, bribes a federal official to prevent him from reporting the violations.
    An iron-ore manufacturing company provides its employees with high-quality safety equipment.

Question 21
Robert orders coffee while having breakfast in a diner. He suffers third-degree burn injuries when the coffee accidently spills on him. He presses charges against the diner for failing to notify him that the coffee was exceptionally hot. In this scenario, the diner is guilty of a(n) __________.

    unintentional tort
    intent crime
    intentional tort

Question 22
Which of the following best describes the term warranty?

    It refers to the transfer of possession of stolen property to a person who had bought the property without the knowledge that it has been stolen.
    It is a purchaser's title to goods obtained by the impersonation of another person.
    It refers to the terms in a sales contract stipulating the party that will bear the risk of loss of goods during shipment.
    It is the seller's assurance to a buyer that the goods sold meet certain standards of quality.
    nonintent crime

Question 23
Which of the following is a characteristic of torts?

    They are punishable by the death penalty.
    They are usually not tried by the jury.
    They are brought to court by a plaintiff.
    They are tried by criminal procedure.

Question 24
A group boycott occurs when:

    competitors at one level of distribution collectively refuse to deal with others at a different level of distribution.
    parties enter into a trade agreement that has greater anticompetitive effects than procompetitive effects.
    parties at different levels of distribution enter into an agreement to adhere to a schedule that will stabilize prices.
    competitors agree that they will distribute their goods to only a particular portion of the market.

Question 25
A goal of the Sarbanes-Oxley Act of 2002 is to:

    control and closely monitor the financial accounts of all corporations in the United States.
        allow directors and executive officers of public companies to be given personal loans from the companies.

end conflicts of interest, establishing better corporate governance.

enable smooth settlement of alleged fraud among major corporations.

Question 26
Helen buys a toy railway set for her 3-year-old son, Ben. The product's cover mentions that the toy is suitable for children only aged between 3 and 12. While playing with the toy one evening, without Helen's supervision, Ben chokes on an inch-long engine driver figure that forms part of the train. Although he survives, he is traumatized by the incident. For which type of defect can Helen sue the toy manufacturer?

    Failure to tamperproof
    Defect in product packaging
    Defect in manufacture
    Failure to warn

Question 27
Insider trading is considered illegal because:

    it results in excessive losses for the company.
    it makes use of nonmaterial public information.
    it fails to account for the short-swing profits brought into a company.
    it limits investment opportunities for the investing public.

Question 28
When an employer does not discriminate against women in general but treats women above the age of 40 differently, the employer is practicing __________.

    color discrimination
    sex-plus discrimination
    religious discrimination
    racial discrimination

Question 29
The power and authority to exclude competition or control prices is known as __________.

    enumerated power
    monopoly power
    implied power
    reserved power

Question 30
Which of the following is a category of torts?
    Professional malpractice
    Personal liability
    Strict liability
    Nonintent crime

Exam 500304 Cost of Capital......FINANCE

1.   What's the abbreviation for the overall return that a firm must make on its existing assets, used as the required rate of return on any investment that has essentially the same risks as existing operations?
    
  A. WACC

  B. ROE

  C. CM

  D. NPV



2.   Analysts project Microsoft (MSFT) will have an annualized dividend of $1.50 and a long-term growth rate of 10 percent. Currently, the stock price is $60. Using the dividend growth model approach, what's the implied cost of equity?
    
  A. 12.5 percent

  B. 11 percent

  C. 10 percent

  D. 2.5 percent



3.   New Schools expects an EBIT of $87,000 every year, forever. The firm currently has no debt, and its cost of equity is 14.6 percent. The firm can borrow at 7.4 percent, and the corporate tax rate is 34 percent. What will the value of the firm be if it converts to 50 percent debt?
    
  A. $460,146.57

  B. $381,796.47

  C. $377,407.16

  D. $437,552.08



4.   Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 90,000 shares of stock outstanding and $1.4 million in debt. The interest rate on the debt is 7 percent, and there are no taxes. What's the break-even EBIT?
    
  A. $201,764.71

  B. $341,414.14

  C. $351,111.11

  D. $287,878.78


5.   What's the concept of using debt to make a return known as?
    
  A. Debt reliance

  B. Financial liquidity

  C. Debt coverage

  D. Financial leverage


6.   Because the WACC varies with the use of funds rather than the source of funds, some firms evaluate new projects by sorting projects into risk classes, and add or subtract adjustment factors from the WACC. This approach is called the
    
  A. DuPont approach.

  B. divisional approach.

  C. pure play approach.

  D. subjective approach.


7.   According to the static tradeoff theory, what's the optimal capital structure?
    
  A. A firm should borrow up to the point at which the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial distress.
  B. A firm should borrow up to the point at which the tax benefit from an extra dollar is equal to zero.

  C. A firm should have equal parts equity and debt.

  D. A firm should borrow up to the point at which the interest is equal to the total tax expense.





 
8.   Which of the following is not a major disadvantage to the SML approach?
    
  A. We rely on the past to predict the future, and economic conditions can change quickly.

  B. It requires that we estimate the market risk premium, and if this estimate is poor, the resulting cost of equity will also be poor.

  C. It requires that we estimate the beta coefficient of the stock, and if this estimate is poor, the resulting cost of equity will also be poor.

  D. It doesn't explicitly adjust for risk






9.   Silo Mills is an all-equity financed firm that has a beta of 1.14 and a cost of equity of 12.8 percent. The risk-free rate of return is 2.8 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of six years. What discount rate should be assigned to this project?
    
  A. 13.62 percent

  B. 11.84 percent

  C. 13.33 percent

  D. 12.09 percent


 
10.   Which of the following is true about a firm with no equity financing?
    
  A. The after-tax cost of debt = WACC

  B. The return on equity = WACC

  C. The cost of debt = WACC

  D. The return on equity = cost of debt



11.   A higher debt level usually equates to a
    
  A. larger tax shield and decreased financial risk.

  B. smaller tax shield and increased financial risk.

  C. larger tax shield but increased financial risk.

  D. smaller tax shield and decreased financial risk.



12.   Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, how long after a firm files for bankruptcy protection do creditors have to wait before submitting their own reorganization plan to the court?
    
  A. 18 months

  B. 45 days

  C. 180 days

  D. 12 months



13.   Alphabet, Inc. (GOOGL) has a 40 percent debt/asset ratio; assume a tax rate of 16 percent. The average yield to maturity on GOOGL's bonds is 3 percent. Your market analyst estimates that the risk-free rate is 1 percent and that the market risk premium is 7 percent. The firm's beta coefficient is 0.97. What's Alphabet's weighted average cost of capital (WACC)? (Round to the nearest tenth of a percent.)
    
  A. 6 percent

  B. 5.7 percent

  C. 5.9 percent

  D. 7.3 percent



14.   The Shoe Outlet has paid annual dividends of $.65, $.70, $.72, and $.75 per share throughout the last four years, respectively. The stock is currently selling for $9 a share. What's this firm's cost of equity?
    
  A. 11.79 percent

  B. 9.53 percent

  C. 13.65 percent

  D. 8.74 percent



15.   Deep Mines has 14 million shares of common stock outstanding with a beta of 1.15 and a market price of $42 a share. There are 900,000 shares of 9 percent preferred stock outstanding, valued at $80 a share. The 10 percent semiannual bonds have a face value of $1,000 and are selling at 91 percent of par. There are 220,000 bonds outstanding that mature in 17 years. The market risk premium is 11½ percent, T-bills are yielding 7½ percent, and the firm's tax rate is 32 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the firm's typical project?
    
  A. 14.72 percent

  B. 13.15 percent

  C. 15.54 percent

  D. 14.59 percent



16.   Hanover Tech is currently an all-equity firm that has 320,000 shares of stock outstanding with a market price of $19 a share. The current cost of equity is 15.4 percent, and the tax rate is 34 percent. The firm is considering adding $1.2 million of debt with a coupon rate of 8 percent to its capital structure. The debt will be sold at par value. What's the levered value of the equity?
    
  A. $5.209 million

  B. $6.708 million

  C. $6.512 million

  D. $5.288 million



17.   Mulberry, Inc. has a weighted average cost of capital (ignoring taxes) of 20 percent. It can borrow at 10 percent. Mulberry has a target ½ debt/equity ratio. Using the M&M Proposition II, what's the cost of equity?
    
  A. 29 percent

  B. 25 percent

  C. 31 percent

  D. 15 percent



18.   Flotation costs are the costs associated with
    
  A. market inefficiencies.

  B. reporting.

  C. bankruptcy.

  D. new stock or bond issues.



19.   The dividend growth model is used to calculate
    
  A. the cost of debt by using the equation for a growing perpetuity, plugging in the current price of the bond, the coupon, and the expected growth rate and solving for R(D).
  B. the weighted average cost of capital by using the equation for a growing perpetuity, plugging in the current price of the stock, the dividend paid, and the expected growth rate. Then we solve for R(E).
  C. the cost of equity by comparing the dividend growth to similar firms.

  D. the cost of equity by using the equation for a growing perpetuity, plugging in the current price of the stock, the dividend paid, and the expected growth rate. Then we solve for R(E).

 
20.   Amazon Inc. (AMZN) has 55 percent equity-to-asset ratio. The average yield to maturity on AMZN's bonds is 3.2 percent; assume a tax rate of 30 percent. The firm's estimated required rate of return on equity is estimated at about 10.8 percent. What's Amazon's weighted average cost of capital (WACC)? (Round to the nearest tenth of a percent.)
    
  A. 6.1 percent

  B. 7.3 percent

  C. 6.6 percent

  D. 6.9 percent

Exam 500300 corporate finance.2019

1.   Which of the following would result in an increase in cash flow and a source of cash?
    
  A. A decrease in accounts payable

  B. A decrease in long-term debt

  C. A decrease in inventory

  D. An increase in accounts receivable

2.   The DuPont identity breaks down return on equity (ROE) into three parts, which are
    
  A. overall efficiency (as measured by profit margin), asset-use efficiency (as measured by current asset turnover), and financial leverage (as measured by long-term debt ratio).
  B. operating efficiency (as measured by inventory turnover), asset use efficiency (as measured by total asset turnover), and short-term solvency (as measured by the current ratio).
  C. operating efficiency (as measured by profit margin), asset use efficiency (as measured by total asset turnover), and financial leverage (as measured by the equity multiplier).
  D. operating efficiency (as measured by inventory turnover), customer reach (as measured by total customers served), and short-term solvency (as measured by the current ratio).

3.   What's the most likely reason a firm would decide to go public?
    
  A. To increase the total liability of the firm

  B. To increase the value of the firm

  C. As an inexpensive way to raise new capital

  D. As an exit strategy for venture capital investors

4.   In corporate finance, the term dilution is used to
    
  A. determine when cash flows can be distributed to shareholders as dividends.

  B. determine when and how to go public.

  C. discuss the effects of liquidity, solvency, and bankruptcy.

  D. determine the loss in existing shareholder value.

5.   RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be
    
  A. using its total assets more efficiently than Sam's.

  B. using its fixed assets more efficiently than Sam's.

  C. generating $1 in sales for every $1.26 in net fixed assets.

  D. generating $1.26 in net income for every $1 in net fixed assets.

6.   A.K. Stevenson wants to raise $10.2 million through a rights offering. The subscription price is set at $16 a share. Currently, the company has 1.7 million shares outstanding with a current market price of $25 a share. Shareholders will receive one right for each share of stock they currently own. How many rights will be needed to purchase one new share of stock in this offering?
    
  A. 2.40 rights

  B. 2.75 rights

  C. 2.82 rights

  D. 2.67 rights


7.   A firm generated net income of $911. The depreciation expense was $47, and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?
    
  A. $922

  B. $865

  C. $776

  D. $959


8.   The PE ratio falls within which of the following classifications of financial ratios?
    
  A. Market value measures

  B. Asset management or turnover measures

  C. Profitability measures

  D. Short-term solvency ratios

9.   Bonner Automotive has shareholders's equity of $218,700. The firm owes a total of $141,000, of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What's the amount of the net working capital?
    
  A. $125,600

  B. $56,500

  C. $149,900

  D. $93,500

10.   Shareholders's equity can best be described as
    
  A. decreasing whenever new shares of stock are issued.

  B. representing the residual value of a firm.

  C. including patents, preferred stock, and common stock.

  D. a firm's financial leverage.

11.   A firm has total debt of $4,850 and a debt-equity ratio of .57. What's the value of the total assets?
    
A. $13,358.77
  B. $7,253.40

  C. $11,034.00

  D. $6,128.05


12.   Earnings before interest and taxes (EBIT) would equal operating cash flow (OCF) if
    
  A. there was no depreciation, no amortization, and no other noncash expenses.

  B. cash flow from assets equaled cash flow from creditors plus cash flow to stockholders.

  C. any factors applied; EBIT is always equal to operating cash flows.

  D. depreciation was equal to taxes, and if there was no amortization.



 
13.   A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to
    
  A. cover its operating costs for the next 48 days.

  B. pay all of its debts that are due within the next 48 hours.

  C. cover its operating costs for the next 48 hours.

  D. pay all of its debts that are due within the next 48 days.


 
14.   What type of financial statement starts by taking the cash balance of a firm at the beginning of the year, and reconciles any changes in account balances?
    
  A. Balance sheet

  B. Income statement

  C. Statement of cash flows

  D. Statement of owners's equity



 
15.   Which term relates to the cash flow that results from a firm's ongoing, normal business activities?
    
  A. Net working capital

  B. Cash flow from assets

  C. Capital spending

   D. Operating cash flow



 
16.   What's the best description of a prospectus?
    
  A. A report stating that the SEC recommends a new security to investors

  B. A document that describes the details of a proposed security offering along with relevant information aboutthe issuer

  C. An advertisement in a financial newspaper that describes a security offering

  D. A letter issued by the SEC that outlines the changes required for a registration statement to be approved


.
 
17.   A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What's the value of the interval measure?
    
  A. 31.47 days

  B. 47.52 days

  C. 68.05 days

  D. 56.22 days

















 


 






 
18.   Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. This type of funding is called
    
  A. green shoe funding.

  B. red herring funding.

  C. venture capital.

  D. life-cycle capital.



19.   If a firm has a notes payable balance of $42,400 at the end of 2014, and $30,100 at the end of 2015, which of the following statements about accounts payable is correct?
    
  A. Notes payable increased by $12,300 and represented a use of cash.

  B. Notes payable decreased by $12,300 and represented a use of cash.

  C. Notes payable decreased by $12,300 and represented a source of cash.

  D. Notes payable increased by $12,300 and represented a source of cash.

20.   What's the definition of a syndicate?
    
  A. A group of underwriters sharing the risk of selling a new issue of securities

  B. A block of investors who control a firm

  C. A bank that loans funds to finance the start-up of a new firm

  D. A group of attorneys providing services for an IPO




 

Exam 500303 Risk Return....FINANCE

1.   Which one of the following categories of securities had the highest average return for the period 1926–2013?
    
  A. Long-term government bonds

  B. Small-company stocks

  C. Long-term corporate bonds

  D. Large-company stocks



2.   A stock has a beta of 1.2 and an expected return of 17 percent. A risk-free asset currently earns 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stock?
    
  A. 92 percent

  B. 77 percent

  C. 71 percent

  D. 81 percent


3.   _______ market efficiency suggests that at a minimum, the current price of the stock reflects the stock's own past prices.
    
  A. Weak form

  B. Strong form

  C. Semistrong

  D. Loose form



4.   Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $.15 a share. Today, you sold all of your shares for $40.10 per share. What's the total amount of your dividend income on this investment?
    
  A. $15

  B. $45

  C. $50

  D. $30


5.   Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?
    
  A. Evenly distributed market

  B. Blume's market

  C. Efficient capital market

  D. Zero volatility market

6.   Suppose that you purchased 300 shares of a stock at $36 per share, ignoring all commissions. Assume the stock paid a dividend of $2.15 per share for the year. The stock price rose to $41.05 per share and was then sold at that price. What was the dividends yield? (Round your answer to the nearest tenth of a percent.)
    
  A. 5.2 percent

  B. 6 percent

  C. 5 percent

  D. 6.5 percent






 


 
7.   Aimee is the owner of a stock with annual returns of 27 percent, –32 percent, 11 percent, and 23 percent for the last four years, respectively. She thinks the stock may be able to achieve a return of 50 percent or more in a single year. What's the probability that your friend is correct?
    
  A. Greater than 1 percent but less than 2.5 percent

  B. Greater than 16 percent

  C. Greater than .5 percent but less than 1 percent

  D. Greater than 2.5 percent but less than 16 percent


 

8.   Eliminating unsystematic risk by holding a portfolio of different assets reflects
    
  A. the elimination of systematic risk.

  B. beta coefficiency.

  C. the principle of diversification.

  D. portfolio variance spreading.


 

9.   West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 3.2 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?
    
  A. $307.20

  B. $362.00

  C. $24.96

  D. $36.20


10.   Systematic risk is measured by the
    
  A. beta.

  B. arithmetic average.

  C. mean.

  D. geometric average.





11.   The market risk premium—the concept that investors should be rewarded for taking on extra risk—is illustrated as the
    
  A. slope of the SML.

  B. y-access intersection of the SML.

  C. x-access intersection of the SML.

  D. peak of the SML.


 

12.   One year ago, you purchased a stock at a price of $32.15. The stock pays quarterly dividends of $.20 per share. Today, the stock is selling for $33.09 per share. What's your capital gain on this investment?
    
  A. $1.14

  B. $.94

  C. $1.04

  D. $.74


 
13.   With regard to the efficient markets hypothesis (EMH), which of the following answers illustrates market inefficiencies?
    
  A. Delayed reactions, overreactions, and corrections

  B. Insider trading, corruption, and government bailouts

  C. An immediate price fall after bad news is announced

  D. An immediate price jump after good news is announced



14.   The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of stock B. Stock A has a beta of 0.82 and stock B has a beta of 1.29. This information implies that
    
  A. stock A is riskier than stock B, and both stocks are fairly priced.

  B. either stock A is overpriced, stock B is underpriced, or both.

  C. either stock A is underpriced, stock B is overpriced, or both.

  D. stock A is less risky than stock B, and both stocks are fairly priced.


 


15.   Suppose you estimate a boom will occur only 45 percent of the time and that the expected return on the portfolio in such an environment is 40 percent. You also estimate that a recession will occur 55 percent of the time and that the expected return in such an environment is 5 percent. What's the expected return of the portfolio?
    
  A. 20.75 percent

  B. 5 percent

  C. 40 percent

  D. 22.5 percent


16.   How can the expected return of a portfolio be calculated?
    
  A. Take a weighted average by taking the expected return of each asset and multiplying by their proportion in the portfolio. Add the results.
  B. Square the expected returns before multiplying by the portfolio weights. Add each of the results, and then take the square root of the sum.
  C. If the portfolio has two assets, multiply the expected returns by 50 percent, and then add the results. If the portfolio has three assets, multiply the expected returns by 1/3, and so on. Then multiply the result. The proportions of each asset do not affect the answer.
  D. Expected return can be calculated only with Excel.





17.   How do you calculate risk premium?
    
  A. The risk-free rate minus the expected return

  B. Expected return plus the risk-free rate

  C. Expected return divided by the risk-free rate

  D. Expected return minus the risk-free rate



18.   The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return is 3.7 percent. What's the expected market risk premium?
    
  A. 7.90 percent

  B. 7.02 percent

  C. 11.22 percent

  D. 10.63 percent




19.   The term "unsystematic risk" is synonymous with which of the following?
    
  A. Undiversifiable risk

  B. Systematic risk

  C. Beta risk

  D. Diversifiable risk



20.   The intercept point of the security market line is the rate of return that corresponds to
    
  A. a return of zero.

  B. the market rate.

  C. the risk-free rate.

  D. the market risk premium

.


 

Exam 500302 Capital Budget

1.   What's the best investment criteria when dealing with mutually exclusive projects?
    
  A. Payback period

  B. Net present value (NPV)

  C. Profitability index (PI)

  D. Internal rate of return (IRR)

2.   The change in revenue that occurs when one more unit of output is sold is referred to as
    
  A. scenario revenue.

  B. total revenue.

  C. average revenue.

  D. marginal revenue.





3.   A project requires an initial investment of $1,000 and will pay only one payment of $1,160 in one year. Assuming a firm's required rate of return is 15 percent, should the firm accept the project according to the IRR rule? Why or why not?
    
  A. The firm should be indifferent toward the decision.

  B. There isn't enough information to determine if the project should be accepted or rejected.

  C. Yes, the IRR is greater than the required rate of return.

  D. No, the IRR is less than the required rate of return.

4.   PA Petroleum just purchased some equipment at a cost of $67,000. The equipment is classified as MACRS five-year property. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for years one through six, respectively. What's the proper methodology for computing the depreciation expense for year two?
    
  A. $67,000 × (1 – 0.32)

  B. $67,000 × (1 – 0.20) ÷ 0.32

  C. $67,000 × (1 + 0.32)

  D. $67,000 × 0.32




5.   A disadvantage of the discounted payback period method when compared to NPV is that it
    
  A. may reject economically viable projects (positive NPV projects).

  B. is more difficult to understand.

  C. may accept negative NPV projects.

  D. completely ignores the time value of money.

6.   Assume a project has cash flows of –$51,300, $18,200, $37,300, and $14,300 for years zero to three, respectively. What's the profitability index given a required return of 12½ percent?
    
  A. .98

  B. 1.09

  C. 1.11

  D. 1.06


7.   What's an example of a variable cost?
    
  A. Cost of goods sold

  B. Administrative costs

  C. Rent

  D. Depreciation

8.   A project will require $498,000 for fixed assets and $58,000 for net working capital. The fixed assets will be depreciated straight-line to a zero book value over the five-year life of the project. At the end of the project, the fixed assets will be worthless. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $875,000 and costs of $640,000. The tax rate is 35 percent, and the required rate of return is 15 percent. What's the amount of the annual operating cash flow?
    
  A. $117,320

  B. $147,820

  C. $187,610

  D. $105,000


 
9.   Net present value is based on many estimates and forecasts. What can be done to compensate for the uncertainty of these future variables?
    
  A. Using IRR instead

  B. Nothing

  C. Decreasing the discount rate

  D. Sensitivity and scenario analysis

10.   Assume a project has a sales quantity of 8,600 units plus or minus five percent and a sales price of $69 a unit plus or minus one percent. The expected variable cost per unit is $11 plus or minus three percent, and the expected fixed costs are $290,000 plus or minus two percent. The depreciation expense is $68,000. The tax rate is 34 percent. What's the operating cash flow under the best-case scenario?
    
  A. $187,295.40

  B. $175,705.93

  C. $168,470.15

  D. $164,208.11

11.   The profitability index is calculated by
    
  A. multiplying NPV weighted by the proportion of project assets to firm assets.

  B. setting the NPV to zero and solving for the discount rate.

  C. dividing cash flows by the initial investment.

  D. dividing NPV by the initial investment.

12.   Mary has decided to get a two-year degree from a local technical school, despite being offered a job at the local hardware store for $11 dollars per hour, 40 hours per week. She quickly calculates that she would have made $45,760 in the two years she was at school. $45,760, the cost of her next best option, is considered a/an
    
  A. erosion cost.

  B. opportunity cost.

  C. sunk cost.

  D. cash outflow cost.


13.   Assume that a firm has an average net income of $120,000 and an average book value of $600,000. What's the firm's average accounting return?
    
  A. 30 percent

  B. 20 percent

  C. 35 percent

  D. 25 percent


14.   Changes in the net working capital requirements
    
  A. are generally excluded from project analysis due to their irrelevance to the total project.

  B. are excluded from the analysis as long as they're recovered when the project ends.

  C. can affect the cash flows of a project every year of the project's life.

  D. only affect the initial and final cash flows of a project.






 
15.   The Coffee Express has computed its fixed costs to be $.48 for every cup of coffee it sells, given annual sales of 145,000 cups. The sales price is $1.29 per cup, while the variable cost per cup is $.07. How many cups of coffee must it sell to break even on a cash basis?
    
  A. 57,049

  B. 67,630

  C. 46,472

  D. 23,910







16.   You're working on a bid to build two apartment buildings a year for the next three years. This project requires the purchase of $1,089,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. The equipment can be sold at the end of the project for $815,000. You'll also need $280,000 in net working capital over the life of the project. The fixed costs will be $528,000 a year, and the variable costs will be $1,640,000 per building. Your required rate of return is 18 percent for this project, and your tax rate is 35 percent. What's the minimal amount, rounded to the nearest $100, you should bid per building?
    
  A. $4,489,500

  B. $4,233,000

  C. $2,780,600

  D. $2,116,200


17.   A project requires an initial investment of $45,400 today. The present value of the cash inflows likely to result from this initial investment is $45,300. Should the firm proceed with the investment? Why or why not?
    
  A. Yes, because the NPV is positive.

  B. No, because the NPV is positive.

  C. No, because the NPV is negative.

  D. Yes, because the NPV is negative.


 

18.   Why is it important to find changes of net working capital (NWC) in developing cash flows?
    
  A. Changes in NWC have important tax implications (a tax shield), so they must be multiplied by 1 minus the tax rate to find total cash flow.
  B. Changes in NWC indicate capital expenditures (such as purchase of equipment). They must be subtracted from cash inflows (measured by other cash flow).
  C. Changes in NWC indicate cash outflows (measured by change in NWC) must be subtracted from cash inflows (measured by operating cash flow).
  D. Changes of NWC are unimportant.

19.   A new project will cause a $2,200 increase in sales, a $1,045 increase in costs, a $440 increase in depreciation, and a $243 increase in taxes. Using the bottom-up approach, what's the change to OCF?
    
  A. $912

  B. $342

  C. $1,155

  D. $472

20.   A project requires an initial investment of $950,000 today. The present value of the cash inflows likely to result from this initial investment is $1,208,293. What's the net present value of this investment?
    
  A. $950,000

  B. –$950,000

  C. $258,293

  D. –$258,293








 


 

 








 

Exam 500301 Future Cash.....finance

1.   Amortized loans must have which one of these characteristics?
    
  A. One lump sum principal payment

  B. Either equal or unequal principal payments over the life of the loan

  C. Increasing payments over the life of the loan

  D. Equal interest payments over the life of the loan

2.   Why is "preferred" stock given that name?
    
  A. Despite its deceptive name, preferred stock is actually a special kind of debt with a AAA rating, and the debt holders can vote in stockholder elections.
  B. It's stock that's preferred by investors because of its high performance and the fact that it's in the S&P 500 and other stock market indexes.
  C. While all stockholders have rights to dividends, preferred stockholders also can vote on changes to the corporate charter and can vote to hire and fire executives, whereas common stockholders can't.
  D. Preferred stockholders have preferential treatment over common stockholders; they're usually paid first and sometimes have additional voting rights.

3.   Would you expect to pay a higher interest rate for an unsecured loan for $2,000 or a secured loan for the same amount?
    
  A. The rate for both would be about the same on average.

  B. The secured loan would be at a higher rate.

  C. The unsecured loan would be at a higher rate.

  D. The rate for each loan would vary based on inflation.

4.   What's the present value of $4,500, discounted at eight-percent interest per period, for two periods? (Round your answer to the nearest dollar.)
    
  A. $3,858

  B. $4,160

  C. $3,932

  D. $4,166









5.   Which of the following is a network-based, over-the-counter exchange, with no physical marketplace?
    
  A. NYSE (New York Stock Exchange)

  B. NYMEX (New York Mercantile Exchange)

  C. NASDAQ (National Association of Securities Dealers Automated Quotations)
D. WSJ (Wall Street Journal)

6.   You can't attend the shareholder's meeting for Alpha United, so you authorize another shareholder to vote on your behalf. The granting of this authority is called
    
  A. alternative voting.

  B. straight voting.

  C. voting by proxy.

  D. cumulative voting.


 

7.   New Homes has a bond issue with a coupon rate of 5½ percent that matures in 8½ years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What's the yield to maturity?
    
  A. 6.36 percent

  B. 6.42 percent

  C. 5.74 percent

  D. 5.92 percent


8.   A floor broker on the NYSE
    
  A. trades for his or her personal inventory.

  B. supervises the commission brokers of a specific financial firm.

  C. executes orders on behalf of a commission broker.

  D. maintains an inventory and assumes the role of a market maker.

9.   What's it called when we use a table or spreadsheet to track a loan balance, payments, and the portion of these payments that can be attributed to interest and paying off the principal?
    
  A. Loan tracking

  B. Loan matrix

  C. Loan amortization

  D. Loan payment plan


10.   Most investments can be valued by looking at all future cash flows. The cash flows from stocks are usually paid as
    
  A. net income.

  B. bond yields.

  C. dividends.

  D. capital gains.


11.   Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today?
    
  A. $15.57

  B. $16.00

  C. $16.67

  D. $18.23


12.   You own a classic car currently valued at $64,000. If the value increases by 2½ percent annually, how much will the car be worth 15 years from now?
    
  A. $86,008.17

  B. $92,691.08

  C. $80,013.38

  D. $91,480.18


13.   The next dividend (D1) for the Jimmy Company will be $6 per share. Investors require a 20-percent return on companies such as the Jimmy Company. Jimmy's dividends are expected to increase by 10 percent every year. Based on the dividend growth model, what's the value of the stock today?
    
  A. $60

  B. $30

  C. $66

  D. $120







 
14.   Suppose that you buy a $2,000 bond with a 10-percent annual coupon, payable semiannually on January 1st and July 1st. On both January 1st and July 1st, the bondholder will receive $100 for a total annual interest payment of $200 ($100 + $100). Based on the principal and accrued interest only, how much would you expect to pay to purchase this bond on April 1st?
    
  A. $2,050

  B. $2,000

  C. $2,100

  D. $2,200

15.   Assume that a corporation wants to borrow $100,000 by issuing one hundred 10-year, $1,000 bonds. The interest rate required for similar bonds from similar corporations is 11 percent. What's the bond's face value?
    
  A. $111,000

  B. $1,000

  C. $1,110

  D. $110

16.   Today, you deposit $1,500 into an account that pays six-percent interest annually. How much will you have in the account after five years? (Round your answer to the nearest dollar.)
    
  A. $2,007

  B. $2,097

  C. $1,894

  D. $1,950


17.   Megan is thinking about creating a small college fund for her daughter, Jayda, to help Jayda with the first year of tuition. Jayda is four years from starting university, and Megan estimates that tuition will be about $10,000. Megan has $10,000 today, but she wants to spend some of it on a new computer. How much of the $10,000 will Megan need to invest today in an account with a seven-percent interest rate to have enough in four years to pay for the first year of college? (Round your answer to the nearest dollar.)
    
  A. 7,200

  B. 7,932

  C. 7,629

  D. 8,327


18.   While researching construction loans, you discover you can take out a Bank of America five-year, $200,000 loan with eight-percent interest compounded annually, or a Chase Bank loan with the same terms—except that the eight-percent interest is compounded semiannually. You know you won't be able to make any payments on the loan until you sell the building at the end of year five. Which loan will result in the lowest interest expense?
    
  A. The Chase Bank loan

  B. The Bank of America loan

  C. It doesn't make any difference; the interest expense will be the same.

  D. It isn't possible to determine the interest expense of these loans with the information provided.


 
19.   What's the present value of the right to receive three equal payments, with the first payment starting today (annuity due) of $9,000 per period, discounted at a rate of 10 percent per period? (Round your answer to the nearest dollar.)
    
  A. $24,620

  B. $27,000

  C. $22,382

  D. $15,620



 
20.   The Pet Tracker Company announced that their dividend next year (D1) will be $18 per share. Investors require a 25-percent return on companies such as the Pet Tracker. The firm's dividends are expected to increase by five percent every year. Based on the dividend growth model, what's the value of the stock today?
    
  A. $95

  B. $45

  C. $72

  D. $90











 





 






 

Exam 350350RR - Rehearsal and Delivery.....finance

Exam 350350RR - Rehearsal and Delivery

Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a pagebreak, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. The blueprint for your speech is the
A. research.
B. summary.
C. outline.
D. conclusion.

2. To commemorate an anniversary, a marketer for Bell Labs will give a speech on three scientificachievements of Alexander Graham Bell. Which pattern should the marketer use?
A. Spatial
B. Topical
C. Pro-and-con
D. "Who? what? where? when? and why?"

3. A presidential campaign manager tapes a pep talk telling volunteer workers they're "the best, thebrightest, the most brilliant strategists I have ever seen," knowing that assigning these traits will get them toact accordingly. What is the campaign manager doing?
A. Positive labeling
B. Agenda setting
C. Name calling
D. Low-context speaking

4. A pediatrician wants to speak about contemporary parents who push and over-schedule their children tothe point of exhaustion, asking, "Is this the right way to treat kids?" "Is this immoral?" The pediatrician isexploring the subject with questions of
A. fact.
B. culture.
C. value.
D. policy.

5. A seasoned speaker has decided he is most comfortable using extemporaneous delivery. The mainreason is because using this method can be thought of as taking part in a kind of
A. rehearsed theater.
B. formal recitation.
C. spontaneous commentary.
D. enlarged conversation.

6. A speaker who learned English as a second language often accents the wrong syllable and says soundsthat should be silent—demonstrating two of the most widespread problems with
A. articulation.
B. diction.
C. pronunciation.
D. translation.

7. When you consider whether audience members are from a high-context or low-context culture, you'rethinking about the
A. degree to which individuals are influenced by their culture.
B. way technology and mass media shape their culture.
C. level of sophistication in their culture.
D. way information is communicated in their culture.

8. Twelve people have one characteristic in common—they're all gay parents—which allows them to assisteach other in coping with specific problems they confront in society. They have organized a/an _______
group.
A. intervention
B. encounter
C. consciousness-raising
D. assertiveness training

9. A term or phrase combining two normally opposite qualities is a/an
A. oxymoron.
B. analogy.
C. simile.
D. metaphor.

10. A new regional manager is ready to practice giving a report to the annual meeting but isn't exactly surehow. The manager should be advised to rehearse it
A. from beginning to end, including leaving and returning to her seat.
B. by memorizing it word for word.
C. by reading the preparation outline aloud.
D. in separate parts in order to make it simpler.

11. An economist signals where he is going in his presentation on the national debt when he says, "Let medefine the problem," and later, "So what is the solution?" He is using _______ transitions.
A. connective
B. preview
C. signpost
D. review

12. For a persuasive speech with a hostile audience, your goal should be to
A. create incremental change.
B. create action in favor of your argument.
C. incite a vocal debate.
D. change the audience's opinion.

13. How many main points are optimal in a speech of 5–15 minutes?
A. 2–4
B. 100–200
C. 20–40
D. 10–20

14. A poet incorporates many words and phrases invoking temperature, texture, and touch in her lecture sothe audience can practically feel what she's describing. In this way she creates _______ imagery in her
speech.
A. metaphorical
B. auditory
C. tactile
D. visual

15. A young man who is new to public speaking wants to do everything he can to rehearse effectively.What technique should he try, since it has been shown to greatly help speakers rehearse?
A. Using a microphone
B. Becoming very conscious of all his flaws
C. Practicing alone rather than with an audience
D. Taping or videotaping himself

16. Which of the following informational topics would be most efficiently organized using the temporalpattern?
A. The richest woman in the world
B. The backpacking guide to the National Parks
C. The amazing structure of the brain
D. The strategic moves taken during the Cuban Missile Crisis

17. A speaker opens her presentation by asking an intriguing question, though she doesn't really expect ananswer. She is using a/an _______ question for her introduction.
A. rhetorical
B. open-ended
C. closed-ended
D. narrative

18. A TV celebrity is asked to give a commencement speech, the first the celebrity has ever presented.
What advice should the celebrity be given?
A. Organize the speech in a topical pattern.
B. Be very detailed and thorough.
C. Offer a motivational message.
D. Focus on a persuasive argument.

19. Which of the following speakers should use internal summaries in structuring the presentation?
A. She has a humorous speech that's quite brief.
B. She would like to suggest what will be coming later.
C. He wants to trace a map or route using a spatial format.
D. He needs to recap major subdivisions in a long and complex speech.

20. What are the five steps in the motivated sequence?
A. Selection, identification, deliberation, action, conclusion
B. Attention, need, satisfaction, visualization, action
C. Perception, attention, motivation, visualization, negotiation
D. Definition, need, perception, realization, satisfaction