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FIN 534 Midterm Examination Answers
Review Test Submission: Week 5 Midterm Exam Part 1
Course
Financial Management
Test
Week 5 Midterm Exam Part 1
Instructions
This exam consist of 25 multiple choice questions and covers the material in Chapters 1 through 3.
Results Displayed
Submitted Answers, Correct Answers, Feedback
Question 1
2 out of 2 points
Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?
Question 2
2 out of 2 points
Which of the following statements is CORRECT?
Question 3
2 out of 2 points
Which of the following statements is CORRECT?
Question 4
2 out of 2 points
Which of the following statements is CORRECT?
Question 5
2 out of 2 points
Which of the following statements is CORRECT?
Question 6
2 out of 2 points
Money markets are markets for
Question 7
2 out of 2 points
Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
Question 8
2 out of 2 points
Which of the following statements is CORRECT?
Question 9
2 out of 2 points
Which of the following statements is CORRECT?
Question 10
2 out of 2 points
Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance?
Question 11
2 out of 2 points
Which of the following statements is CORRECT?
Question 12
0 out of 2 points
DeYoung Devices Inc., a new high-tech instrumentation firm, is building and equipping a new manufacturing facility. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?
Question 13
2 out of 2 points
Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes.
Question 14
2 out of 2 points
Assume that Congress recently passed a provision that will enable Barton’s Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BRB’s net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BRB’s financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
Question 15
2 out of 2 points
Which of the following statements is CORRECT?
Question 16
2 out of 2 points
Analysts following Armstrong Products recently noted that the company’s operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
Question 17
2 out of 2 points
Which of the following statements is CORRECT?
Question 18
2 out of 2 points
Considered alone, which of the following would increase a company’s current ratio?
Question 19
2 out of 2 points
A firm’s new president wants to strengthen the company’s financial position. Which of the following actions would make it financially stronger?
Question 20
The Cavendish Company recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company’s total assets or operating income. Which of the following effects would occur as a result of this action?
Question 21
2 out of 2 points
Which of the following statements is CORRECT?
Question 22
2 out of 2 points
Companies A and C each reported the same earnings per share (EPS), but Company A’s stock trades at a higher price. Which of the following statements is CORRECT?
Question 23
Which of the following statements is CORRECT?
Question 24
2 out of 2 points
A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio?
Question 25
2 out of 2 points
Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?
FIN534 Week 5 Midterm Exam Part 2
Review Test Submission: Week 5 Midterm Exam Part 2
Question 1
2 out of 2 points
Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
Question 2
2 out of 2 points
A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?
Question 3
2 out of 2 points
Which of the following statements regarding a 15-year (180-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)
Question 4
2 out of 2 points
Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?
Question 5
2 out of 2 points
You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?
Question 6
2 out of 2 points
Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Question 7
2 out of 2 points
Which of the following statements is CORRECT?
Question 8
2 out of 2 points
A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?
Question 9
2 out of 2 points
Which of the following statements is CORRECT?
Question 10
2 out of 2 points
Which of the following statements is CORRECT?
Question 11
2 out of 2 points
A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is NOT CORRECT?
Question 12
2 out of 2 points
Bonds A and B are 15-year, $1,000 face value bonds. Bond A has a 7% annual coupon, while Bond B has a 9% annual coupon. Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 15 years. Which of the following statements is CORRECT?
Question 13
2 out of 2 points
Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows:
T-bond = 7.72%          A = 9.64%
AAA = 8.72% BBB = 10.18%
The differences in rates among these issues were most probably caused primarily by:
Question 14
2 out of 2 points
Which of the following statements is CORRECT?
Question 15
Stock A’s beta is 1.7 and Stock B’s beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct.
Question 16
Which of the following statements is CORRECT?
Question 17
Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks?
Question 18
2 out of 2 points
Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur?
Question 19
2 out of 2 points
Which of the following statements is CORRECT?
Question 20
2 out of 2 points
Merrell Enterprises’ stock has an expected return of 14%. The stock’s dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?
Question 21
2 out of 2 points
Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
X
Y
Price
$25
$25
Expected dividend yield
5%
3%
Required return
12%
10%
Question 22
Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
A
B
Price
$25
$25
Expected growth (constant)
10%
5%
Required return
15%
15%
Question 23
Which of the following statements is CORRECT?
Question 24
Which of the following statements is CORRECT?
Question 25
2 out of 2 points
The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?