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FIN 370 Final Exam
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FIN 370 Final Exam (Newest)
1. Which financial statement reports the amounts of cash that the firm generated and
distributed during a particular time period?
statement of retained earnings
Income statement
Statement of cash flows
Balance sheet
2. We commonly measure the risk-return relationship using which of the following?
Expected returns
Coefficient of variation
Correlation coefficient
Standard deviation
3. What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?
6.1 percent
10.2 percent
6.0 percent
5.9 percent

4. Which financial statement reports a firm's assets, liabilities, and equity at a particular point in
time?
Statement of cash flows
Balance sheet
Statement of retained earnings
Income statement
5. As new capital budgeting projects arise, we must estimate__________.
the cost of the loan for the specific project
the cost of the stock being sold for the specific project
when such projects will require cash flows
the float costs for financing the project
6. Will's Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of 2013. If the
firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?
$3.25 million
$5 million
$7.69 million
$0.65 million
7. Which of these is the process of estimating expected future cash flows of a project using only
the relevant parts of the balance sheet and income statements?
Cash flow analysis
Incremental cash flows
Substitutionary analysis
Pro forma analysis

8. Which of these is the term for portfolios with the highest return possible for each risk level?
Total portfolios
Efficient portfolios
Modern portfolios
Optimal portfolios
9. Which financial statement shows the total revenues that a firm earns and the total expenses
the firm incurs to generate those revenues over a specific period of time — generally one
year?
Statement of cash flows
Statement of retained earnings
Balance sheet
Income statement
10. What are the tools available for the manager in financial planning?
Delaying disbursement of cash, reducing collection period, cash management, and
Increasing inventory turnover
Delaying disbursement of cash and cash management
Reducing collection period and delaying disbursement of cash
Increasing inventory turnover and reducing collection period
11. When firms use multiple sources of capital, they need to calculate the appropriate discount
rate for valuing their firm's cash flows as__________.
they apply to each asset as they are purchased with their respective forms of debt or equity
a sum of the capital components costs
a simple average of the capital components costs

a weighted average of the capital components costs
12. You are trying to pick the least-expensive machine for your company. You have two choices:
machine A, which will cost $50,000 to purchase and which will have OCF of -$3,500 annually
throughout the machine's expected life of three years; and machine B, which will cost $75,000
to purchase and which will have OCF of -$4,900 annually throughout that machine's four-year
life. Both machines will be worthless at the end of their life. If you intend to replace whichever
type of machine you choose with the same thing when its life runs out, again and again out
into the foreseeable future, and if your business has a cost of capital of 14 percent, which one
should you choose?
Neither machine A nor B
Both machines A and B
Machine B
Machine A
13. Financial plans include which of the following?
All of the above
Pro forma Income Statement, Balance Sheet
Short Term and Long Term Plan
Schedule of Sales, Expenses, and Capital Expenditure
14. Which of these statements is true regarding divisional WACC?
Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to
projects that present less risk than the firm's average beta.
Using a divisional WACC versus a WACC for the firm's current operations will result in quite a
few incorrect decisions.
Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to
projects that present more risk than the firm's average beta.
Using a firmwide WACC to evaluate new projects would have no impact on projects that
present less risk than the firm's average beta.

15. Which of these provide a forum in which demanders of funds raise funds by issuing new
financial instruments, such as stocks and bonds?
Investment banks
Secondary markets
Primary markets
Money markets
16. What are reasons for the firm to go abroad?
Lower production cost
All of the above
Diversification
Access to raw materials
17. The top part of Mars, Inc.'s 2013 balance sheet is listed as follows (in millions of dollars). What
are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2013?
4.2, 1.0, 0.2
2.3333, 0.5556, 0.1111
10.5, 6.0, 1.0
0.1111, 0.5556, 0.2
18. The Rule of 72 is a simple mathematical approximation for__________.
the future value required to double an investment
the present value required to double an investment
the payments required to double an investment
the number of years required to double an investment

19. Which of these ratios show the combined effects of liquidity, asset management, and debt
management on the overall operation results of the firm?
Coverage
Financial
Liquidity
Profitability
20. The overall goal of the financial manager is to__________.
minimize total costs
maximize shareholder wealth
maximize net income
maximize earnings per share
21. Which of the following can create ethical dilemmas between corporate managers and
stockholders?
Board of directors
Auditors
Venture Capitalist
Agency relationship
22. Which of the following terms means that during periods when interest rates change
substantially, bondholders experience distinct gains and losses in their bond investments?
Reinvestment rate risk
Credit quality risk
Interest rate risk
Liquidity rate risk

23. Which of these is used as a measure of the total amount of available cash flow from a project?
Free cash flow
Investment in operating capital
Operating cash flow
Sunk cash flow
24. Suppose that Model Nails, Inc.'s capital structure features 60 percent equity, 40 percent debt,
and that its before-tax cost of debt is 6 percent, while its cost of equity is 10 percent. If the
appropriate weighted average tax rate is 28 percent, what will be Model Nails' WACC?
7.73 percent
16.00 percent
8.40 percent
8.00 percent
25. Which of these does NOT perform vital functions to securities markets of all sorts by
channeling funds from those with surplus funds to those with shortages of funds?
Commercial banks
Insurance companies
Mutual funds
Secondary markets
26. Which of the following is a true statement?
If interest rates fall, U.S. Treasury bonds will have decreasing values.
If interest rates fall, no bonds will enjoy rising values.
If interest rates fall, corporate bonds will have decreasing values.
If interest rates fall, all bonds will enjoy rising values.

27. Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25
years (ending 20 years from now). James can make a 20-year investment today and lock in a
10 percent interest rate. How much money should he invest now in order to have the same
amount of money in 20 years as Jane?
$7,346.64
$3,160.43
$5,089.91
$3,464.11
28. We call the process of earning interest on both the original deposit and on the earlier interest
payments:
compounding.
multiplying.
computing.
discounting.
29. We can estimate a stock's value by__________.
using the book value of the total assets divided by the number of shares outstanding
using the book value of the total stockholder equity section
compounding the past dividends and past stock price appreciation
discounting the future dividends and future stock price appreciation

30. A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Financial
analysts believe the stock will be at their target price of $75.00 in two years. Compute the
value of this stock with a required return of 10 percent.
$65.40
$65.57
$79.14
$66.67
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