FIN/571 Final Examination Study Guide This study guide will prepare you for the Final Examination you will complete in the final week. It contains practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings and your student guide as study references for the Final Examination. Week One: Foundations of Finance Objective: Discuss 12 principles of foundational corporate finance. 1. __________ occurs when inaccurate information exists. a. 0 The principle of valuable ideas b. 0 Free-rider problem c. 0 Moral hazard d. 0 Adverse selection
Objective: Discuss 12 principles of foundational corporate finance. 2. __________ refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal. a. 0 Moral hazard b. 0 Zero-sum game c. 0 Adverse selection d. 0 The behavioral principle Objective: Discuss 12 principles of foundational corporate finance. 3. Which of the following correctly completes the next sentence? The value of any asset is the present value of all future a. 0 profits it is expected to provide b. 0 revenue it is expected to provide c. net working capital it is expected to provide d. 0 cash flows it is expected to provide Objective: Compare and contrast the market value of an asset or liability from the book value. 4. Original maturity refers to a. 0 a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time b. 0 the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of an item’s liquidity c. 0 the length of an asset’s life when it is issued d. the net amount, or net book value, for something shown in quarterly accounting statements Week Two: Business Valuation Objective: Apply the capital-asset pricing model to calculate a business’s required return. 5. The principle of __________ implies that the expected return for an asset equals its required return given that the market is performing at an optimal pace. a. 0 capital market efficiency b. 0 risk-return trade-off c. 0 comparative advantage d. 0 signaling Week Three: Working Capital Objective: Describe the cash conversion cycle and its importance to working capital management. . __________ says to calculate the incremental after-tax cash flows connected with working capital decisions. a. 0 The signaling principle b. 0 The principle of incremental benefits c. 0 The principle of time value of money d. 0 The options principle Objective: Identify sources and uses of short-term financing. 7. Which principle says to calculate the incremental after-tax cash flows connected with working capital decisions? a. 0 The signaling principle b. 0 The principle of incremental benefits c. 0 The principle of time value of money d. 0 The options principle
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Objective: Identify sources and uses of short-term financing. 8. Which principle says to compare the benefits and costs of alternative uses and sources of money using after-tax annual percentage yields? a. 0 The principle of time value of money b. 0 The signaling principle c. 0 The principle of incremental benefits d. 0 The options principle Week Four: Capital Budgets Objective: Analyze a capital project’s present value based on expected future net cash flows. 9. The __________ method breaks down when evaluating projects in which the sign of the cash flow changes. a. 0 net present value . 0 profitability index c. 0 internal rate of return d. 0 payback Week Five: Long-Term Financing Objective: Explain the types and main features of long-term debt. 10. If the coupon rate of an annual bond at par value is 12%, what is the annual interest payment? a. 0 $60 b. 0 $100 c. 0 $120 d. 0 $12 Week Six: Financial Planning Objective: Analyze the effect of price setting on capital budgeting. 11. The wholesale price for Captain John’s is $1. 70 per loaf, and the variable cost of production is $0. 80 per loaf. What is the contribution margin? a. 0 $0. 90 b. 0 $1. 70 c. 0 $2. 50 d. Not enough information Objective: Analyze the effect of price setting on capital budgeting. 12. The wholesale price for Captain John’s is $1. 00 per loaf, and the variable cost of production is $0. 50 per loaf. Captain John’s expects that expansion will allow them to sell an additional 5 million loaves in the next year. What additional revenues minus expenses will be generated from expansion? a. 0$25,000 b. 0$250,000 c. 0$550,000 d. 0$2,500,000 Objective: Explain the methods, pitfalls, and benefits of capital rationing. 13. Pursuing valuable ideas is the best way to __________. . 0 achieve extraordinary returns b. 0 get yourself in trouble c. 0 restrain your spending d. 0 avoid risk Objective: Explain the methods, pitfalls, and benefits of capital rationing. 14. Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is __________. a. 0 undervalued b. 0 overvalued c. 0 caught up in a bear market d. 0 being sold by insiders Objective: Create a financial plan. 15. __________ says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions. a. The signaling principle b. 0The time value of money principle c. 0The principle of incremental benefits d. 0The principle of risk-return Objective: Create a financial plan. 16. __________ says to carefully evaluate and monitor the financial plan’s effect on the firm and its stakeholders. a. 0 The principle of risk-return trade-off b. 0 The principle of diversification c. 0 The principle of capital market efficiency d. 0 The principle of self-interested behavior Answer Key 1. d 2. a 3. d 4. c 5. a 6. b 7. b 8. a 9. c 10. c 11. a 12. d 13. a 14. b 15. c 16. d