FIN 515 Final Exam (Version 3) Page 1

(TCO A) Which of the following does NOT always increase a company’s market value?(a) Increasing the expected growth rate of sales (b) Increasing the expected operating profitability (NOPAT/Sales) (c) Decreasing the capi ...

(TCO A) Which of the following does NOT always increase a company’s market value?(a) Increasing the expected growth rate of sales (b) Increasing the expected operating profitability (NOPAT/Sales) (c) Decreasing the capital requirements (Capital/Sales) (d) Decreasing the weighted average cost of capital (e) Increasing the expected rate of return on invested capital (TCO F) Which of the following statements is correct? (a) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. (b) For mutually exclusive projects with normal cash flows, ……….(e) The percentage difference between the MIRR and the IRR is equal to the project’s WACC (TCO F) Which of the following statements is correct? (a) The MIRR and NPV decision criteria can never conflict. (b) The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be………….(e) The MIRR method assumes that cash flows are reinvested at the crossover rate. (TCO F) Which of the following statements is correct? (a) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. (b) To find the MIRR, we first compound cash flows at the regular IRR to find the TV,……….cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March? (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price? (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t receive a discount………What is the average cash gain or (loss) during a typical month for the ABC Corporation? (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN)……….increased the payout from 10% to the new and higher level? All dollars are in millions. (TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don’t………What is the average cash gain or (loss) during a typical month for the ABC Corporation? (TCO G) Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity………. change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.