FIN 534- WEEK 11 FINAL EXAM PART 2 with complete solution

FIN 534- WEEK 11 FINAL EXAM PART 2 • Question 1 2 out of 2 points Which of the following is NOT normally regarded as being a barrier to hostile takeovers? Answer • Question 2 2 out of 2 points ...

FIN 534- WEEK 11 FINAL EXAM PART 2 • Question 1 2 out of 2 points Which of the following is NOT normally regarded as being a barrier to hostile takeovers? Answer • Question 2 2 out of 2 points Which of the following is NOT normally regarded as being a good reason to establish an ESOP? Answer • Question 3 2 out of 2 points Which of the following statements is correct? Answer • Question 4 2 out of 2 points The capital budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target capital structure that is 30% debt and 70% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual dividend policy, what will be its total dividend payment? • Question 5 2 out of 2 points Which of the following statements is correct? Answer • Question 6 2 out of 2 points Which of the following statements is NOT correct? Answer • Question 7 2 out of 2 points Which of the following statements is correct? Answer • Question 8 2 out of 2 points Consider two very different firms, M and N. Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M's growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct? Answer • Question 9 2 out of 2 points Poff Industries' stock currently sells for $120 a share. You own 100 shares of the stock. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place? Answer • Question 10 2 out of 2 points Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant? Answer • Question 11 2 out of 2 points Two operationally similar companies, HD and LD, have the same total assets, operating income (EBIT), tax rate, and business risk. Company HD, however, has a much higher debt ratio than LD. Also HD's basic earning power (BEP) exceeds its cost of debt (rd). Which of the following statements is CORRECT? Answer • Question 12 2 out of 2 points Companies HD and LD have identical tax rates, total assets, and basic earning power ratios, and their basic earning power exceeds their before-tax cost of debt, rd. However, Company HD has a higher debt ratio and thus more interest expense than Company LD. Which of the following statements is CORRECT? Answer • Question 13 2 out of 2 points Based on the information below for Benson Corporation, what is the optimal capital structure? Answer • Question 14 2 out of 2 points Which of the following statements best describes the optimal capital structure? The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's ____. Answer • Question 15 2 out of 2 points Blueline Publishers is considering a recapitalization plan. It is currently 100% equity financed but under the plan it would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company's total assets, nor would it affect the firm's basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? Answer • Question 16 2 out of 2 points Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company's common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization? Answer • Question 17 2 out of 2 points Other things held constant, which of the following would tend to reduce the cash conversion cycle? Answer • Question 18 2 out of 2 points A lockbox plan is Answer