FIN 350
Sample Final Exam
Instruction. In this sample exam, there are 37
multiple choice questions. The actual final
will have about 45 questions.
1. Given the following cash flows for project A: C
0
= 2000, C
1
= +1500 , C
2
=
+500
and
C
3
=
+5000, calculate the payback period.
A) One year
B) 2 years
C) 3 years
D) Any of the above
E)
None of the above
Since 2000=1500+500
Answer: B)
2.
One common reason for partnerships to convert to a corporate form of
organization is that the partnership:
A) wishes to avoid double taxation of profits.
B) has rapidly growing financing requirements.
C) has issued all of its allotted shares.
D) agreement expires after ten years of use
E)
none of the above
B
3.
Financial managers are expected to make corporate decisions
to maximize
A) the wealth of both shareholders and bondholders
B) the wealth of shareholders
C) the wealth of bondholders.
D) the wealth of corporate employees
E)
the value of the firm with bond and stock holders
B
4.
Firms that
do not
issue stocks :
A) will not be able to increase sales.
B) cannot take positive NPV projects.
C) do not face double taxation of their profits
D) have no internal cash flows to fund positive NPV projects
E)
None of the above
C
5.
You have two plans to pay your friend: plan A: you pay $1000 to your friend
three yeas from now , with a discount rate of 5%; plan B: you pay $5000 to your
friend 10 years from now, with a discount rate of 7%,
which plan do you prefer
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from your point of view? (assume that you are rational)
A) A
B) B
C) Either A or B
D) none of the above
PV(A)= 1000/1.05
3
= $863.84; PV(B)= 5000/1.07
10
=$2,541.75. Since PV(A) is less than
PV(B), plan A is better for you.
A
6.
You have a car loan of $10,000 (which is called the principle) with the interest
rate of 7%. You decide
to pay off this
loan in next three years with equal
payment each year, How much of
your first payment is for the interest?
A) $3810.5
B) $3110.5
C) $954.4
D) $6889.5
E)
none of the above
The interest payment in the first payment is the balance times the interest rate,
That is 10000*0.07=$700
E
7. Which of the following presents the correct relationship?
As the coupon rate of a bond
decreases, the bond’s:
A) face value is decreases.
B) current bond price increases.
C) coupon payments increase
D) interest payments decrease.
E)
none of the above
D
8..The IRR is defined as:
A) The discount rate that makes the NPV equal to zero
B) The difference between the cost of capital and the present value of the cash
flows
C) The discount rate used in the NPV method
D) The discount rate used in the discounted payback period method
E)
None of the above
A
9. A stock
paying $5 in annual dividends next year sells now for $50 and has an
expected return of 14%.
What the expected growth rate of dividends?
A) 5%
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 Spring '07
 Chen

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