Fin 370 Final Exam Question Answers Guide

1. The Securities Investor Protection Corporation protects individuals from
• brokerage firm failures
• making poor investment decisions
• fraud by corporations
• other investors who fail to make delivery

2. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?
• $38,720
• $39,720
• $31,060
• $25,000

3. When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?
• Debt
• Preferred stock
• Retained earnings
• Common stock

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4. Buying and selling in more than one market to make a riskless profit is called:
• profit maximization.
• globalization
• arbitrage.
• international trading.

5. Which of the following is true about bonds?
• They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year.
• At maturity of the bond, the investor receives the market price of the bond.
• They are obligations from the investor to the corporation.
• Their interest rate always varies with the Consumer Price Index

6. Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.
Initial outlay = $450
Cash flows:         Year 1 = $325
                          Year 2 = $65
                          Year 3 = $100
• 3.17 years
• 2.6 years
• 2.88 years
• 3.43 years

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7. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?
• Cash flows have a greater present value than accounting profits.
• Cash flows improve the tax position of a firm more than accounting profits.
• Cash flows are more stable than accounting profits.
• Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

8. Delta...