BFMFinalKey - Name (Printed) FIN 5405 Financial Management...

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Unformatted text preview: Name (Printed) FIN 5405 Financial Management OEM 2009 Program Final Exam - Solutions - Code A August2,200B Note: This exam consists of 40 questions: 10 true/false questions worth 1 point each and 30 problem-oriented questions worth 3 points each. By turning in this quiz I am confirming that all work on this quiz is my own and that I have not received help from other individuals in answering the specific questions on this quiz. Student's Signature _ FIN 5405 - Final Exam Solutions - OEM 2009 Program - Code A Page 1 Score _ .<' ;, Section 1 - True/False Questions- 1 Point Each 1. A change in a firm's capital structure (debt versus equity) can have an immediate impact on the levered or equity beta of the firm's stock, but should have no impact on the firm's asset or unlevered beta unless the firm also changes the composition (i.e., risk) of its assets. * A B. True False 2. Modigliani and Miller showed that in a world without taxes, a firm's optimal capital structure would be to go towards 100 percent debt financing. * A. B. True False 3. Firms that are comprised of multiple divisions of differing degrees of risk, but which use a corporate-wide cost of capital to evaluate projects, are likely to reject good (positive NPV), high risk and high rate of return projects while accepting bad (negative NPV), low risk and low rate of return projects * A. B. True False 4. Other things held constant, an increase in the cost of capital discount rate will result in a decrease in a project's IRR. * A. B. True False 5. Additional funds needed are typically raised from some combination of notes payable, accounts payable, accruals, long-term bonds, and common stock. We can consider these accounts to be non-spontaneous, since they require an explicit financing decision by the firm to increase them. * A. B. True False FIN 5405 - Final Exam Solutions - OEM 2009 Program - Code A Page 2. 6. If a company were to issue debt and use the proceeds to increase assets, and if the company's return on assets (ROA) remained the same, then the return on equity (ROE) would increase. * A B. True False 7. To use the Gordon, constant growth model to evaluate the price of a firm's stock, based on the present value of the dividends to be paid on the stock, we must assume that the long-run sustainable growth rate of dividends is less than the investors' required rate of return. If we do not, we may easily get nonsensical results. * A B. True False 8. Because of flotation costs, the cost to the firm of debt financing, preferred stock, retained earnings, newly issued equity, etc., will always be greater than the investors' comparable required rates of return. * A S. True False 9. Assume that you buy a bond at par and hold it until it matures. If reinvestment rates decrease right after you purchase the bond, then your realized compounded yield should be less than the bond's yield-to-maturity, whereas if reinvestment rates increase right after you purchase the bond, then your realized compounded...
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This note was uploaded on 05/12/2010 for the course FIN 5405 taught by Professor Tapley during the Summer '08 term at University of Florida.

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BFMFinalKey - Name (Printed) FIN 5405 Financial Management...

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