- Version: D
Brock University
Department of Finance, Operations, and Information Systems
FNCE 2P51 Fall 2014
Midterm Exam
Student Name (Last name, Firs
Student Number
FNCE 2P5] Code
Thursday, October 9, 2014
7:00PM- 9:00PM
AS 203
Que
.- iverSions-A
Brock University
Department of Finance, Operations, and Information Systems
FNCE 2P51 Fall 2014
Midterm Exam
Student Name (Last name, First nam
Student Number
FN CE 2PSI Code
Thursday, October 9, 2014 gota Marks: 50
7:00PM- 9:
Introduction to Finance
2
Concepts in Valuation
Future Value
The amount an investment is worth after one or more periods.
FV = PV (1+r)
FV = Future Value
PV = Present Value
r = interest rate (annual)
Example: Invest $1,000 for 1 year at 8% interest.
3
Con
I . Version: B
Brock University
Department of Finance, Operations, and Information Systems
FNCE 2151 - Fall 2014
Midterm Exam
Student Name (Last name, First I] ,_
Student Number
FNCE 2P51 Code
Thursday, October 9, 2014
7:00PM 9:00PM
AS 2
version: C,
Brock University
Department of Finance, Operations, and Information Systems
FNCE 2P51 m Fall 2014
Midterm Exam
Student Name (Last name, First an
Student Number
FNCE 2P51 Code
otalMarlcs: 50
Thursday, October 9, 2014
7 :OO
Introduction to Finance
2
Stock Valuation
Common Stock Features
Shareholders Rights
Voting: One share, one vote.
Cumulative voting
Straight voting
Proxy voting
Other Rights
Share proportionally in declared dividends
Share proportionally in remaining a
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The incremental cash flows used in the leasing versus buying decision consider all of the
following EXCEPT:
A) The after-tax salvage value
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
A swap dealer in the U.S.:
A) Is generally a commercial bank.
B) Is located on the trading floor at, or near, the booth for the commodity
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary
will cost 16 million and will generate cash inflow
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
"Striking price" can best be defined as:
A) The act of buying or selling the underlying asset via the option contract.
B) The fixed price
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Through financial engineering, investment dealers can replicate homemade dividends by
constructing:
A) Extra cash dividends.
B) Residual d
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Loans provided directly from a limited number of investors to a corporation, with
maturities typically in excess of five years, are called
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Which of the following would result in an increase in cash?
A) Existing accounts receivable are written off, that is, considered uncollect
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
M&M Proposition I with no tax supports the argument that:
A) The cost of equity rises as leverage rises.
B) Business risk determines the r
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Which of the following is the best definition of a "just-in-time inventory" (JIT)?
A) The gap between the interest rate a bank pays on dep
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Shareholders in firm B are paid the market value of their firm in shares of stock from
firm A. The earnings of the combined firm are $68,0
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Your firm needs $135,000 a week to pay bills. The standard deviation of the weekly
disbursements is $12,000. The firm has established a lo
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
"Confirmation bias" is best defined as:
A) The area of finance dealing with the implications of reasoning errors on financial
decisions.
B
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
1)
What is the cash flow to stockholders for 2015?
A) $482
B) $503
C) $452
Answer: A
Explanation:
A)
B)
C)
D)
E)
1
D)
$417
E) $408
2)
CCA
Introduction to Finance
2
Basic Bond Valuation
Bonds are long-term debt securities issued by corporations as
well as governments, including the Bank of Canada, and
provincial and municipal governments.
The issuer of the bond is the borrower; the investor
Net Present Value and Other Investment Criteria
Net Present Value (NPV)
Net Present Valuethe difference between the market value of an investment and its
cost.
Estimating Net Present Value
Discounted cash flowthe process of valuing an investment by discou
Introduction to Finance
2
Introduction to Finance
Finance is primarily concerned with acquiring funds
(needed by a firm) and directing those funds into
projects that will maximize value for the firms owners.
Three basic decisions:
1. Investment Decisions
Introduction to Finance
2
Making Capital Investment Decisions
Evaluating NPV Estimates
Projected vs. Actual cash flows
Forecasting risk
Sources of value
Scenario and Other What-If Analyses
Base case estimation
Estimated NPV based on initial cash flow
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Today, you turn 21. Your birthday wish is that you will be a millionaire by your 40th
birthday. In an attempt to reach this goal, you deci
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The Zolo Co. just declared that they are increasing their annual dividend from $1.00 per
share to $1.25 per share. If the stock price rema
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
You collect model airplanes. One particular model is currently valued at $275. If this
model increases in value by 5% annually, it will be
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Textile Importers paid a $1.60 per share annual dividend last week. Dividends are
expected to increase by 4% annually. What is one share o
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
This morning, Alicia bought a ten-year 7% coupon bond that pays interest annually. She
paid $994 for a $1,000 bond. If the market interest
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
A reduction in interest expense, all else constant, will cause a(n):
A) Increase in the cash coverage ratio.
B) Decrease in the long-term
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The Market Place Grill has annual sales of $1.9 million, depreciation of $238,000, and
net working capital of $196,001. The firm has a tax
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
A company has a market-to-book ratio that is greater than 1.0. If this company uses book
values to determine its WACC, it will derive a va
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
What is the expected return on a portfolio that is invested 30% in stock A and 70% in
stock B, given the following information?
A)
Answer:
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Nagel's Industries has a capital intensity ratio of 1.26 at full operating capacity. This
means that the firm:
A) Has $1.26 in net fixed a
Exam
Name_
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The sales level that results in a project net present value exactly equal to zero is called:
A) Operational break-even.
B) Leveraged break