FIN 515 Final Exam New Version Set 6

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

2. (TCO A) The one thing that makes a corporation different from the other forms of business ownership is (Points : 5)

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

4. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing cash flows must be (Points : 5)

5. (TCO G) What are the names of the four components of the DuPont Identity and how are they calculated? What does each measure? (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 has declared an annual dividend of $12.00 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? (Points : 20)

8. (TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for? (Points : 10)

9. (TCO D) A bond currently sells for $887 even though it 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) Using examples, explain the difference between systematic risk and nonsystematic risk. Explain why the distinction is important for both investors and issuers of stock. (Points : 30)

11. (TCO E) A company has 30 million shares outstanding trading for $8 per share. It also has $90 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) What is the difference between capital structure and capital budgeting? Explain and give an example of a capital structure decision and an example of a capital budgeting decision. (Points : 25)

13. (TCO H) What is the Cash Conversion Cycle (CCC)? Name the components of the CCC and explain why the CCC is important to business. (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