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FIN 302 EXAM 3 Questions & Answers

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FIN 302 EXAM 3 Questions & Answers If a US company has an RE of 5.6% and a cost of RD of 6.2% and increased risk is not a major concern and a tax rate of 9% they should fund their new projects with - ✔✔Equity If a company is 90+ days behind in paying bills and spending an inordinate amount of management time on financial problems and it is apparent they will never catch up the company is experiencing - ✔✔Technical Insolvency Selling off a valuable piece of the company to keep the rest of the company afloat under federal judge supervision is an example of - ✔✔Chapter 11 bankruptcy Unsystematic risk exists when the is too high? - ✔✔None of the above If you are choosing between the following projects because they are mutually exclusive which would you choose? - ✔✔NPV 50,001 and IRR 8% If our WACC is 9% and the risk free rate of 1.2% and our company is considering an oil exploration project in Alepo, Syria we would use what as our discount rate for the NPV? - ✔✔1.2% plus the appropriate risk premium The WACC tells us what? - ✔✔All of the Above IF we have paid dividends of 3, 3.3, and 3.63 per year and our stock price is $4. What is the expected return on the stock? - ✔✔None of the Above The goal of financial management is to make money or add value to the company - ✔✔False If the US state government has to pay a slightly higher rate on its debt the risk free rate will - ✔✔Rise greatly Volatility is a synonym for - ✔✔Risk If the IRR is 4.2% and the NPV=0, and the discounted cash flows are as follows year 1= 100K, 2=135K, and 3=175K what are the initial costs? - ✔✔410K IF your project choices are limited by available resources. You have a budget of 750K and you can choose from the following projects: A Cost: 200K and NPV=30K and IRR=8% B Cost: 690K and NPV=90K and IRR=13% C Cost: 535K and NPV=73K and IRR=14% D Cost: 55K and NPV=13.5K and IRR=40% - ✔✔B&D The way we deal with systematic risk is - ✔✔Receive a risk premium Assume ALFA Company has a bond issue with a ytm of 5%. The company has 3.2 mil shares of common stock outstanding with a dividend growth rate of 1.2%. They will issue a 75 cent dividend next week and their beta is 1.2. The T-Bill rate is 2%. They have 10K in preferred stock (which is 15% of their equity) with a 7.55% dividend. The company's tax rate is 35%. The capital structure is 60% equity and 40% debt. The market risk premium is 6.5%. What is the company's cost of equity? - ✔✔None of the above What is the company's after cost debt? - ✔✔None of the above What is the WACC - ✔✔None of the above The company is - ✔✔More volatile that the market If a company's cost of capital is 8.5% and by implementing a new software system they can save 420K per year for three years and then the software will be obsolete. The initial cost is 401, 231.00 this amount includes 200K in working capital and the tax rate is 38% The NPV is between - ✔✔350k and 500k The NPv is between - ✔✔350K and 500K

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