FIN 370 FINAL EXAM / NEW VERSION

Aug 9th, 2016
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1. Capital Structure Theory in general assumes that: A firm’s value is determined by capitalizing (discounting) the firm’s expected net income by the firm’s cost of equity. A firm’s cost of capital rises as a firm uses more financial leverage. A firm’s value is determined by discounting the firm’s expected cash flows by the WACC. A firm’s cash flows will grow indefinitely at a constant rate. 2. Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management? Quick ratio Return on investment Current ratio Gross profit margin 3. The Securities Investor Protection Corporation protects individuals from other investors who fail to make delivery fraud by corporations making poor investment decisions brokerage firm failures 4. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,00

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FIN 370 FINAL EXAM / NEW VERSION1. Capital Structure Theory in general assumes that:A firms value is determined by capitalizing (discounting) the firms expected net income bythe firms cost of equity.A firms cost of capital rises as a firm uses more financial leverage.A firms value is determined by discounting the firms expected cash flows by the WACC.A firms cash flows will grow indefinitely at a constant rate.2. Which of the following financial ratios is the best measure of the operating effectiveness ofa firms management?Quick ratioReturn on investmentCurrent ratioGross profit margin3. The Securities Investor Protection Corporation protects individuals fromother investors who fail to make deliveryfraud by corporationsmaking poor investment decisionsbrokerage firm failures4. A company collects 60% of its sales during the month of the sale, 30% one month after thesale, and 10% two months after the sale. The company expects sales of $10,000 in August,$20,000 in September, $30,000 in October, and $40,000 in November. How much money isexpected to be collected in October?$25,000$35,000$45,000$15,0005. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Deltarequires an investment of $500,000 and has a NPV of $150,000. The projects involveunrelated new product lines. What is your evaluation of these two projects?The company should look at other investment criteria, not just NPV.Only project Delta s

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