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8/17/2019 FIN 534 GENIUS Teaching Effectively Fin534geniusdotcom

1/31

IN 534 GENIUS Teaching Effe

ctively/fin534geniusdotcom

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2/31

FIN 534 Entire ourse

• FIN 534 !ee" # ha$ter # Solution

• FIN 534 !ee" # ha$ter % Solution

• FIN 534 !ee" % ha$ter 3 Solution

• FIN 534 !ee" 3 ha$ter 4 Solution

• FIN 534 !ee" 3 ha$ter 5 Solution• FIN 534 !ee" 4 ha$ter & Solution

• FIN 534 !ee" 4 ha$ter ' Solution

• FIN 534 !ee" 5 ha$ter ( Solution

• FIN 534 !ee" 5 ha$ter ) Solution

• FIN 534 !ee" & ha$ter #* Solution


3/31

FIN 534 !ee" # ha$ter # Solution

• #+ !hich of the follo,ing statements is -..ET/

• a+ -ne of the disadvantages of a sole $ro$rietorshi$ is that the $ro$rietor is e0$osed to unlimited lia1ility+

• 1+ It is generally easier to transfer one2s o,nershi$ interest in a $ar

tnershi$ than in a cor$oration+• c+ -ne of the advantages of the cor$orate form of organiation is t

hat it avoids dou1le ta0ation+

• d+ -ne of the advantages of a cor$oration from a social stand$ointis that every stoc"holder has eual voting rights i+e+ 6one $erson

one vote+7• e+ or$orations of all ty$es are su18ect to the cor$orate income ta0

+

• %+ !hich of the follo,ing ,ould 1e most li"ely to lead to higher interest rates on all de1t securities in the economy/

• a+ 9ouseholds start saving a larger $ercentage of their income+


4/31

IN 534 !ee" # ha$ter % Sol

ution :

Str ourse;


• a+ Ty$ically a firm2s IT should e0ceed its E>IT


5/31

IN 534 !ee" #


6/31

IN 534 !ee" #


7/31

in 534 !ee" # @ui # :Str

ourse;

• @uestion #

• Aou recently sold #** shares of your ne, com$any BAC or$oration to your 1rother at a family reunion+ ?t the reunion your 1rothergave you a chec" for the stoc" and you gave your 1rother the stoc"

certificates+ !hich of the follo,ing statements 1est descri1es this transaction/

• #; This is an e0am$le of an e0change of $hysical assets+

• %; This is an e0am$le of a $rimary mar"et transaction+

• 3; This is an e0am$le of a direct transfer of ca$ital+

• 4; This is an e0am$le of a money mar"et transaction+• 5; This is an e0am$le of a derivatives mar"et transaction+

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8/31

IN 534 !ee" % ha$ter 3 Sol

ution :

Str ourse;


• a+ The ratio of longDterm de1t to total ca$ital is more li"ely to e0$erience seasonal fluctuations than is either the


9/31

IN 534 !ee" 3 ha$ter 4 Sol

ution :

Str ourse;

• #+ ? 5**** loan is to 1e amortied over ' years ,ith annual endDofDyear $ayments+ !hich of these statements is -..ET/

• a+ The annual $ayments ,ould 1e larger if the interest rate ,ere lo,er+

•

1+ If the loan ,ere amortied over #* years rather than ' years and if the interest rate ,ere the same in either case the first $ayment ,ould include more dollars of interest under the 'Dyear amortiation $lan+

• c+ The $ro$ortion of each $ayment that re$resents interest as o$$

osed to re$ayment of $rinci$al ,ould 1e lo,er if the interest rate,ere lo,er+

• d+ The last $ayment ,ould have a higher $ro$ortion of interest than the first $ayment+

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10/31

IN 534 !ee" 3 ha$ter 5 Sol

ution :

Str ourse;

• # + Three #*** face value 1onds that mature in #* years have thesame level of ris" hence their ATs are eual+ >ond ? has an ( annual cou$on >ond > has a #* annual cou$on and >ond has a#% annual cou$on+ >ond > sells at $ar+ ?ssuming interest rates remain constant for the ne0t #* years ,hich of the follo,ing statements is -..ET/

• a+ >ond ?2s current yield ,ill increase each year+

• 1+ Since the 1onds have the same AT they should all have the same $rice and since interest rates are not e0$ected to change their$rices should all remain at their current levels until maturity+



11/31

IN 534 !ee" 3 @ui % :Str

ourse;

• @uestion #

• !hich of the follo,ing statements is -..ET/

• a+ Since com$anies can deduct dividends $aid 1ut not interest $aid our ta0 system favors the use of euity financing over de1t financ

ing and this causes com$anies2 de1t ratios to 1e lo,er than they ,ould 1e if interest and dividends ,ere 1oth deducti1le+

• 1+ Interest $aid to an individual is counted as income for ta0 $ur$oses and ta0ed at the individual2s regular ta0 rate ,hich in %**( could go u$ to 35 1ut dividends received ,ere ta0ed at a ma0imum

rate of #5+• financial $osition at a $oint in time+

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12/31

IN 534 !ee" 4 ha$ter & Sol

ution :

Str ourse;


• a+ If you add enough randomly selected stoc"s to a $ortfolio you can com$letely eliminate all of the mar"et ris" from the $ortfolio+

• 1+ If you ,ere restricted to investing in $u1licly traded common st

oc"s yet you ,anted to minimie the ris"iness of your $ortfolio asmeasured 1y its 1eta then according to the ?= theory you should invest an eual amount of money in each stoc" in the mar"et+ That is if there ,ere #**** traded stoc"s in the ,orld the least ris"y $ossi1le $ortfolio ,ould include some shares of each one+



13/31

IN 534 !ee" 4 ha$ter ' Sol

ution :

Str ourse;

• + !hich of the follo,ing statements is -..ET/

• a+ The constant gro,th model ta"es into consideration the ca$italgains investors e0$ect to earn on a stoc"+

• 1+ T,o firms ,ith the same e0$ected dividend and gro,th rates m

ust also have the same stoc" $rice+• c+ It is a$$ro$riate to use the constant gro,th model to estimate a

stoc"Hs value even if its gro,th rate is never e0$ected to 1ecome constant+



14/31

IN 534 !ee" 4 @ui 3 :Str

ourse;


• #; ? time line is not meaningful unless all cash flo,s occur annually

• %; Time lines are useful for visualiing com$le0 $ro1lems $rior to d

oing actual calculations• 3; Time lines cannot 1e constructed to deal ,ith situations ,here s

ome of the cash flo,s occur annually 1ut others occur uarterly

• 4; Time lines can only 1e constructed for annuities ,here the $ayments occur at the ends of the $eriods i+e+ for ordinary annuities

•5; Time lines cannot 1e constructed ,here some of the $ayments constitute an annuity 1ut others are uneual and thus are not $artof the annuity



15/31

IN 534 !ee" 5 ha$ter ( Solution :Str

ourse;


• a+ =ut o$tions give investors the right to 1uy a stoc" at a certain stri"e $rice 1efore a s$ecified date+

• 1+ all o$tions give investors the right to sell a stoc" at a certain str

i"e $rice 1efore a s$ecified date+• c+ -$tions ty$ically sell for less than their e0ercise value+

• d+ E?=S are very shortDterm o$tions that ,ere created relatively recently and no, trade in the mar"et+

• e+ ?n o$tion holder is not entitled to receive dividends unless he or

she e0ercises their o$tion 1efore the stoc" goes e0 dividend+• %+ !hich of the follo,ing statements is -..ET/

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16/31

FIN 534 !ee" 5 ha$ter ) Soluti

on :Str ourse;• #+ >an"ston or$oration forecasts that if all of its e0isting financial

$olicies are follo,ed its $ro$osed ca$ital 1udget ,ould 1e so large that it ,ould have to issue ne, common stoc"+ Since ne, stoc" has a higher cost than retained earnings >an"ston ,ould li"e to avoid issuing ne, stoc"+ !hich of the follo,ing actions ,ould .E


17/31

IN 534 !ee" 5 @ui 4 :Str ourse;

• Finance 534 ,ee" 5 ui 4

• @uestion #

• ?ssume that in recent years 1oth e0$ected inflation and the mar"et ris" $remium :r

•

−

r.F; have declined+ ?ssume also that all stoc"s have $ositive 1etas+ !hich of the follo,ing ,ould 1e most li"ely to have occurred asa result of these changes/

• ?ns,er

• @uestion %

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18/31

IN 534 !ee" & ha$ter #* Solution :Str

ourse;


• a+ The internal rate of return method :I..; is generally regarded 1yacademics as 1eing the 1est single method for evaluating ca$ital 1udgeting $ro8ects+

•

1+ The $ay1ac" method is generally regarded 1y academics as 1eing the 1est single method for evaluating ca$ital 1udgeting $ro8ects+

• c+ The discounted $ay1ac" method is generally regarded 1y academics as 1eing the 1est single method for evaluating ca$ital 1udgeting $ro8ects+



19/31

IN 534 !ee" & ha$ter ## So

lution :

Str ourse;


• a+ ?n e0ternality is a situation ,here a $ro8ect ,ould have an adverse effect on some other $art of the firm2s overall o$erations+ If the$ro8ect ,ould have a favora1le effect on other o$erations then this is not an e0ternality+

• 1+ ?n e0am$le of an e0ternality is a situation ,here a 1an" o$ens ane, office and that ne, office causes de$osits in the 1an"2s otheroffices to decline+

• c+ The N=J method automatically deals correctly ,ith e0ternalities

even if the e0ternalities are not s$ecifically identified 1ut the I..method does not+ This is another reason to favor the N=J+



20/31

IN 534 !ee" & @ui 5 :Str

ourse;

• Finance 534 ,ee" & @ui5

• @uestion #

• all o$tions on BAC or$oration2s common stoc" trade in the mar"et+ !hich of the follo,ing statements is most correct holding othe

r things constant/• @uestion %

• -ther things held constant the value of an o$tion de$ends on thestoc"Hs $rice the ris"Dfree rate and the

• @uestion 3

• !hich of the follo,ing statements is -..ET/• @uestion 4




21/31

IN 534 !ee" ' ha$ter #% Solution :Str

ourse;


• a+ =erha$s the most im$ortant ste$ ,hen develo$ing forecasted financial statements is to determine the 1rea"do,n of common euity 1et,een common stoc" and retained earnings+

•

1+ The first and $erha$s the most critical ste$ in forecasting financial reuirements is to forecast future sales+

• c+ Forecasted financial statements as discussed in the te0t are used $rimarily as a $art of the managerial com$ensation $rogram ,here management2s historical $erformance is evaluated+



22/31

IN 534 !ee" ' ha$ter #3 Solution :Str

ourse;

• #+ Su$$ose eonard Ni0on K Shull or$oration2s $ro8ected free cash flo, for ne0t year is #***** and FF is e0$ected to gro, at aconstant rate of &+ If the com$any2s ,eighted average cost of ca$ital is ## ,hat is the value of its o$erations/

• a+ #'#4'5*

• 1+ #(*5***

• c+ #)*****

• d+ %******

• e+ %#*****

• %+ ea" Inc+ forecasts the free cash flo,s :in millions; sho,n 1elo,+If the ,eighted average cost of ca$ital is ## and FF is e0$ected to gro, at a rate of 5 after Aear % ,hat is the Aear * value of o$erations in millions/ ?ssume that the .-I is e0$ected to remain constant in Aear % and 1eyond :and do not ma"e any halfDyear ad8ust

ments;+• AearL # %



23/31

IN 534 !ee" ' @ui & :Str

ourse;

• Finance 534 ,ee" ' ui &

• @uestion #


• ?ns,er

•@uestion %


• @uestion 3

• ?ssume that the economy is in a mild recession and as a result interest rates and money costs generally are relatively lo,+ The !?

for t,o mutually e0clusive $ro8ects that are 1eing considered is (+ =ro8ect S has an I.. of %* ,hile =ro8ect Hs I.. is #5+ The $ro8ects have the same N=J at the ( current !?+



24/31


25/31

IN 534 !ee" ( ha$ter #5 Solution :Str

ourse;

• #+ !hich of the follo,ing statements 1est descri1es the o$timal ca$ital structure/

• a+ The o$timal ca$ital structure is the mi0 of de1t euity and $ref erred stoc" that ma0imies the com$any2s earnings $er share :E=S;+

• 1+ The o$timal ca$ital structure is the mi0 of de1t euity and $ref erred stoc" that ma0imies the com$any2s stoc" $rice+

• c+ The o$timal ca$ital structure is the mi0 of de1t euity and $ref erred stoc" that minimies the com$any2s cost of euity+

•

d+ The o$timal ca$ital structure is the mi0 of de1t euity and $ref erred stoc" that minimies the com$any2s cost of de1t+

• e+ The o$timal ca$ital structure is the mi0 of de1t euity and $ref erred stoc" that minimies the com$any2s cost of $referred stoc"+



26/31

IN 534 !ee" ( @ui ' :Str ourse;

• Finance 534 ,ee" ( ui '

• This ui consist of 3* multi$le choice uestions+ The first #5 uestions cover the material in ha$ter #%+ The second #5 uestions cover the material in ha$ter #3+ >e sure you are in the correct ha$ter ,hen you ta"e the ui+

• @uestion #

• ast year Godinho or$+ had %5* million of sales and it had '5million of fi0ed assets that ,ere 1eing o$erated at (* of ca$acity+In millions ho, large could sales have 1een if the com$any had o$erated at full ca$acity/

• @uestion %

• !hich of the follo,ing is N-T a "ey element in strategic $lanning as it is descri1ed in the te0t/

• @uestion 3

•S$ontaneous funds are generally defined as follo,sL



27/31

IN 534 !ee" ) ha$ter #& Solution :Str

ourse;

• #+ S,im Suits Unlimited is in a highly seasonal 1usiness and the follo,ing summary 1alance sheet data sho, its assets and lia1ilities at $ea" and offD$ea" seasons :in thousands of dollars;L

• =ea" -ffD=ea"

•

ash 5* 3*• ar"eta1le securities * %*

• ?ccounts receiva1le 4* %*

• Inventories #** 5*

• Net fi0ed assets 5** 5**

• Total assets &)* &%*



28/31

IN 534 !ee" ) @ui ( :Str ourse;

• @uestion #

• !hich of the follo,ing statements a1out dividend $olicies is correct/

• @uestion %

•

If a firm adheres strictly to the residual dividend $olicy the issuance of ne, common stoc" ,ould suggest that

• @uestion 3

• !hich of the follo,ing statements is correct/

• ?ns,er

• orrect ?ns,erL• If a firm re$urchases some of its stoc" in the o$en mar"et then sh

areholders ,ho sell their stoc" for more than they $aid for it ,ill 1e su18ect to ca$ital gains ta0es+



29/31

IN 534 !ee" #* ha$ter #' Solution :Str ourse;

• #+ In Oa$an )*Dday securities have a 4 annualied return and #(*Dday securities have a 5 annualied return+ In the United States)*Dday securities have a 4 annualied return and #(*Dday securities have an annualied return of 4+5+ ?ll securities are of eual ris" and Oa$anese securities are denominated in terms of the Oa$ane

se yen+ ?ssuming that interest rate $arity holds in all mar"ets ,hich of the follo,ing statements is most -..ET/

• a+ The yenDdollar s$ot e0change rate euals the yenDdollar e0change rate in the )*Dday for,ard mar"et+

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30/31

IN 534 !ee" ## @ui #* :Str ourse;

• Finance 534 ,ee" ## ui #*

• @uestion #

• Su$$ose


31/31

IN 534 GENIUS Teaching Effe

ctively fin534geniusdotcom

FOR MORE CLASSES VISIT

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