FIN 515 Final Exam 3 NEW NEW NEW

1. (TCO A) Double taxation is a drawback for which of the following types of business organization except? (Points : 5)

2. (TCO A) A sole proprietorship is owned by (Points : 5)

3. (TCO B) Which of the following would cause the present value of an annuity to decrease? (Points : 5)

4. (TCO B) Which of the following is an annuity due? (Points : 5)

5. (TCO G) If net income, total assets, and book value of equity stayed the same, what would be the effect on the DuPont Identity of an increase in sales? (Points : 20)

6. (TCO D) A stock has just paid a dividend and will pay a dividend of $3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0? (Points : 20)

7. (TCO D) A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0? (Points : 20)

8. (TCO D) A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semiannual coupons are $50. What is the bonds current market price? (Points : 10)

9. (TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? (Points : 10)

10. (TCO D) Explain thoroughly how stock portfolios affect the risk to an investor. (Points : 30)

11. (TCO E) A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Points : 30)

12. (TCO A) Relate how the job of the financial manager can be explained using the balance sheet. (Points : 25)

13. (TCO H) What is the difference between the cash cycle and the operating cycle? Under what condition would they be the same? (Points : 30)

14. (TCO F) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why?

You must use at least two capital budgeting methods. Show your work. Year A B C 0 -300 -100 -300 1 100 -50 100 2 100 100 100 3 100 100 100 4 100 100 100 5 100 100 100 6 100 100 100 7 -100 -200 0 (Points : 40)