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FIN 515 Managerial Finance Week
8 Final Exam Complete Set 1 and
Set 2 Answer

FIN 515 Managerial Finance Week 8 Final Exam Complete Set 1 and Set 2 Answer
FIN 515 Managerial Finance Week 8 Final Exam Complete Set 1 and Set 2 Answer
Set 1
Question 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
Question 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.
Question 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.
Question 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)
Set 2
Week 8 : Final Exam Final Exam
Page 1
Question 1. 1. (TCO A) In the United States, which of the following types of organization
has the greatest revenue in total? (Points : 5)
Sole proprietorship
C corporation
S corporation
Limited partnership
Question 2. 2. (TCO A) A sole proprietorship is owned by (Points : 5)
one person.
one or two people, but if there are two owners, they must be married to each other.
up to 100 owners.
up to 64 owners.
Question 3. 3. (TCO B) Which of the following would cause the present value of an
annuity to increase? (Points : 5)
Reducing the number of payments.
Increasing the interest rate.
Decreasing the interest rate.
Decreasing the liquidity of the payments.
Question 4. 4. (TCO B) Which of the following is an annuity due? (Points : 5)
A typical car loan.
A typical mortgage.
A typical apartment rental agreement.
A credit card balance.
Question 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)

Question 6. 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)
Question 7. 7. (TCO D) A stock has just declared an annual dividend of $2.25 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)
Question 8. 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)
Question 9. 9. (TCO D) A bond currently sells for $1,030 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)
Question 10. 10. (TCO D) Explain thoroughly how stock portfolios affect the risk to an
investor. (Points : 30)
Question 11. 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)
Question 12. 12. (TCO A) 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)
Question 13. 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)
Question 14. 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)

FIN 515 Managerial Finance Week

8 Final Exam Complete Set 1 and
Set 2 Answer