FIN 515 Final Exam

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1. (TCO A) In the United States, which of the following types of organization has
the greatest revenue in total? (Points : 5)
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
2. (TCO A) Sole proprietorships have all of the following advantages except
(Points : 5)
a. easy to set up.
b. single taxation of income.
c. limited liability.
d. ownership and control are not separated.
3. (TCO B) Which of the following would cause the present value of an annuity to
decrease? (Points : 5)
a. Reducing the number of payments.
b. Increasing the number of payments.
c. Decreasing the interest rate.
d. Decreasing the liquidity of the payments.
4. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing
cash flows must be (Points : 5)
a. positive.
b. negative.
c. either positive or negative. It really doesnt matter.
d. stated in time units that are different from the time units in which the interest
rates are stated.
5. If you were a manager of a company, which of the three right side components
of the DuPont Identity would you want to increase and which would you want to
decrease, other things being equal? Give a specific example for how to do that for
each of the three. (Points : 20)
6. A stock pays an annual dividend of $2.50 and that dividend is not expected to
change. Similar stocks pay a return of 10%. What is P0? (Points : 20)
7. 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. 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. 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. 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)
11. Name and describe the three functions of managerial finance. For each, give an
example other than those used in the text and lecture. (Points : 25)
12. Explain thoroughly how stock portfolios affect the risk to an investor. (Points :
30)
13. What is the Cash Conversion Cycle (CCC)? Name the components of the CCC
and explain why the CCC is important to business.
14. 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)