83_Spring_2018_Final_Exams_and_Solutions

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Blue Ridge Community College *

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300

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Finance

Date

Feb 20, 2024

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pdf

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Version A 1 Version A Exam number ____________ Name _______________________________________ Student ID number _________________________ COB300B Final Exam Spring 2018 Instructions 1. There are 50 multiple choice questions . Each question has the same weight. 2. Select the best answer for each question . In the case of questions requiring calculations, select the closest numerical answer to the calculated answer. 3. You have 120 minutes to complete this exam , where completion of the exam is intended to include the transfer of your answers to the scanner sheet. 4. The use of calculators is permitted , but the sharing of calculators, cellphones, and the use of calculator instruction books is strictly prohibited. 5. No scratch paper is allowed. There will be sufficient space on the exam itself for you to work problems. 6. Fill in the spaces and corresponding circles on the scanner form for your name and your student number . Failure to complete the name and student number section of the scanner sheet will result in a loss of five points from your exam score. 7. Use a No. 2 pencil to fill in the circle on the scanner sheet that corresponds to your selected answer to each question. Improperly filled in circles will be scored as incorrect answers. 8. Feel free to separate the pages of the exam . If you separate pages of this exam, please write your name on the top right-hand corner of each separated page and return all exam material, including the formula sheet, at the end of the exam period. Failure to return any page of the exam will result in a loss of 10 points for each missing page . 9. No questions will be answered by the instructor during the exam . If you have a question/concern about a specific question, please write a note on this first page prior to turning in your exam. 10. Students may not leave during the exam . As you complete the exam, return all exam material, including the formula sheet, cover page, and questions pages. You may not leave the exam room and return to work on the exam; once you leave the room, you are not permitted to return.

Version A 2 The Objective of the Firm and Financial Management 1. The primary goal of a publicly-owned firm is best described as the: A. maximization of net income. B. maximization of stock price. C. maximization of market share. D. minimization of the chances of losses. 2. The board of directors of a publicly- traded company represents the company’s: A. creditors. B. shareholders. C. shareholders and creditors. 3. In the agency relationship between the company’s management and the owners, the company’s owners are the ___________ and the managers are the ____________. A. agents; principals. B. principals; agents. 4. A corporation is a form of business A. such that the legal entity has a limited life. B. that is separate and distinct from its owners and management. C. in which owners are taxed on their proportionate share of corporate income. 5. The intrinsic value of a stock is the: A. value of what shareholders receive in the event of a liquidation of the company. B. product of the number of shares outstanding and the market price of a share of stock. C. estimate of a stock’s true value, based on risk and return information about the corporation. 6. The Mars Company has earnings per share of $1.25 for the most recent fiscal year on revenues of $200 million. It has 4 million shares outstanding, with a share price of $25. The market capitalization of the Mars Company is closest to: A. $50 million. B. $100 million. C. $200 million. Financial Analysis 7. The DuPont system includes the breakdown of the return on: A. equity into asset management and profitability ratios. B. asset into asset management, profitability, and financial leverage ratios. C. equity into asset management, profitability, and financial leverage ratios.

Version A 3 8. Neptune Corp. has $400,000 of assets and has no liabilities. Its sales for the last year were $600,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15 percent. The net profit margin the company needs to achieve 15 percent return on equity, holding everything else constant, is closest to: A. 5 percent. B. 10 percent. C. 15 percent. D. 22.5 percent. 9. Mercury Corp. has a current ratio of 0.7 and Venus, Inc. has a current ratio of 2.5. Both companies decide to double their current liabilities by adding short term debt and putting the funds obtained in the cash account. How does this action change the current ratios? A. Both ratios remain the same B. Mercury’s changes to 1.4 and Venus’ changes to 5.0 C. Mercury’s changes to 0.35 and Venus’ changes to 5.0 D. Mercury ’s changes to 0.85 and Venus ’ changes to 1.75 10. Saturn has a share price today of $23.45 and their expected earnings in the next year are $1.56 per share. If the industry average P/E ratio is 12.3, investors value Saturn shares at: A. a lower price than $1 in earnings peer group shares. B. a higher price per $1 in earnings than peer group shares. C. approximately the same price per $1 in earnings as shares from other firms in the peer group. 11. The quick ratio is __________ ratio, and the total asset turnover is ____________ ratio. A. a productivity; a profitability B. a liquidity; a profitability C. a liquidity; an asset management D. a coverage; an asset management 12. Uranus Inc. has a debt-equity ratio of 0.7, and has no non-interest-bearing liabilities . The firm’s equity multiplier (i.e. Assets/Equity) is closest to A. 1.2 B. 1.7 C. 2.2 D. 3.7 13. Virgo Inc. has current sales of $10,000 and a current balance in accounts receivable of $1,000. It has projected sales of $24,000. If Virgo wants to increase the number of days that customers can pay by 9 days, its projected accounts receivable balance is closest to A. $2,000. B. $2,142. C. $2,667. D. $2,991.

Version A 4 Time Value of Money and Valuation 14. If the discount rate is the same for each of the following, which cash flow stream has the smallest present value? A. A series of four annual cash flows of $4,000 each, with the first cash flow received today. B. A series of four annual cash flows of $4,000 each, with the first cash flow received in one year. C. A series of four annual cash flows of $4,000 each, with the first cash flow received two years from today. 15. Which of the following financing arrangements offers the lowest cost of credit, on an effective annual rate basis? A. A simple interest loan of 12 percent per year. B. A loan with an APR of 11.45 percent, interest compounded quarterly. C. A loan with a stated interest of 11.2 percent, compounded continuously. D. A loan with a stated interest of 11.4 percent, interest compounded monthly. 16. Leo wants to begin saving $1,000 each year, starting three years from now, for five years. The present value of those savings right now if the discount rate is 5 percent is closest to A. $3,740. B. $3,927. C. $4,123. D. $4,245. E. $4,329. 17. An investor invests $20,000 today for a four-year term and receives 9 percent annual compound interest. The interest-on-interest (i.e. compound interest) the investor earns during the four years is closest to: A. $1,032. B. $1,154. C. $1,282. D. $1,317. E. $1,639. 18. You were injured in an accident, called Pisces & Aquarius, and received a settlement offer in your lawsuit. The defendant has offered you a settlement that may be paid four different ways, but you must choose one before signing the settlement papers. If the interest rate is 7 percent, which of the following offers the most value to you today? A. $1 million now. B. $1.5 million at the end of five years. C. $180,000 for each of the next ten years, starting today. D. $200,000 for each of the next ten years, starting in one year. 19. If the yield to maturity on a bond remains constant, a premium bond’s value will ______ as it approaches maturity. A. increase B. decrease 20. If the risk associated with a stock increases, yet the stock’s current dividend and expected growth rate remain unchanged, the value of the stock will most likely : A. increase. B. decrease.

Version A 5 21. Taurus bonds have a bond price of $925. These bonds mature in five years, have a coupon rate of 10 percent (paid semi-annually), and have a face value of $1,000. The yield to maturity on these bonds is closest to: A. 9 percent. B. 10 percent. C. 11 percent. D. 12 percent. E. 13 percent. 22. Which of the following bonds has the lowest yield to maturity? Assume a face value of 100 and semi-annual interest. A. A 6% coupon bond that matures in four years and is priced at 90. B. A zero-coupon bond that matures in five years and is priced at 75. C. A 5% coupon bond that matures in three years and is priced at 92. 23. In general, as market interest rates decrease, bond prices are most likely to __________. A. decrease B. increase C. remain unchanged Risk and Return 24. Risk that can be diversified away is best described as: A. market risk. B. systemic risk. C. systematic risk. D. unsystematic risk. 25. Which of the following portfolios would a risk averse investor not consider: Portfolio Expected return Standard deviation A 5% 7% B 6% 8% C 5% 6% D 4% 5% A. Portfolio A B. Portfolio B C. Portfolio C D. Portfolio D

Version A 6 26. The Libra Company is considering four projects, Project Correlation with existing projects A 0.25 B 0.65 C -0.10 D 0.05 Which of these projects offers the most diversification potential to the Libra Company? A. Project A B. Project B C. Project C D. Project D 27. Consider an investment of $1,000 whose value grows at 2 percent in the first year, 10 percent in the second year, 15 percent in the third year, and 3 percent in the fourth year. The value of the investment at the end of the fourth year is closest to: A. $1,300. B. $1,329. C. $1,335. 28. When evaluating your portfolio at year end, you notice that the mutual fund you bought a year ago for $10 is now trading for $13. The mutual fund has recently paid a $2.00 dividend. Your total return is closest to: A. 20 percent. B. 30 percent. C. 40 percent. D. 45 percent. E. 50 percent. 29. Opie owns a portfolio of stocks that has a beta of 2.4 and she hopes to reduce its market risk as much as possible. All else equal, a stock with a beta of _________ would best meet her needs. A. − 0.8 B. − 0.2 C. 0.0 D. 0.9

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