FIN 534 Final Exam Help (30/30 Q&A)
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Question 1
Cazden Motors’ stock is trading at $30 a share. Call options on the company’s stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?
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• Question 2
BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options, other things held constant?
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• Question 3
Which of the following statements is CORRECT?
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• Question 4
An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?
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• Question 5
Which of the following statements is CORRECT?
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• Question 6
Which of the following statements is most correct, holding other things constant, for XYZ Corporation’s traded call options?
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• Question 7
To help them estimate the company’s cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?
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• 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?
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• Question 9
Which of the following statements is CORRECT?
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• Question 10
Adams Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm’s cost of common from reinvested earnings based on the CAPM?
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• Question 11
Which of the following statements is CORRECT?
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• Question 12
Perpetual preferred stock from Franklin Inc. sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company’s cost of preferred stock for use in calculating the WACC?
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• Question 13
Which of the following statements is NOT a disadvantage of the regular payback method?
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• Question 14
Which of the following statements is CORRECT?
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• Question 15
Projects C and D both have normal cash flows and are mutually exclusive. Project C has a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%. Which of the following statements is CORRECT?
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• Question 16
Which of the following statements is CORRECT?
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• Question 17
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?
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• Question 18
Which of the following statements is CORRECT?
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• Question 19
Which of the following statements is CORRECT?
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• Question 20
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?
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• Question 21
Which of the following statements is CORRECT?
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• Question 22
Which of the following statements is CORRECT?
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• Question 23
When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:
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• Question 24
Which of the following statements is CORRECT?
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• Question 25
The capital intensity ratio is generally defined as follows:
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• Question 26
Which of the following statements is CORRECT?
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• Question 27
Which of the following statements is CORRECT?
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• Question 28
Which of the following assumptions is embodied in the AFN equation?
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• Question 29
The term “additional funds needed (AFN)” is generally defined as follows:
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• Question 30
Which of the following statements is CORRECT?
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