FIN 534 Courses / fin534dotcom

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FIN 534 Entire Course (Str Course)

FIN 534 Week 1 Chapter 1 Solution (Str Course)

FIN 534 Week 1 Chapter 1 Solution





Which of the following statements is CORRECT?

a. One of the disadvantages of a

sole proprietorship is that the proprietor is exposed to unlimited liability.

b. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.

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FIN 534 Week 1 DQ 1 (Str Course)

1. Which of the following statements is CORRECT?

a. Typically, a firm’s DPS should

exceed its EPS. b. Typically, a firm’s EBIT should

exceed its EBITDA.

Imagine a startup company of your own and briefly trace its development from a sole proprietorship to a major corporation with a focus on how that development would be financed.

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FIN 534 Week 1 DQ 2 (Str Course)

Fin 534 Week 1 Quiz 1 (Str Course)

Discuss ways that the basic concepts we have discussed in this chapter directly impact your life. Provide specific examples to support your response.

Question 1 You recently sold 100 shares of

your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

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a. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.

b. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.

c. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.

1. A $50,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

a. The annual payments would be larger if the interest rate were lower.

b. If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.

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FIN 534 Week 3 Quiz 2 (Str Course)

Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT?

Question 1 Which of the following

statements is CORRECT? a. Since companies can deduct

dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies’ debt ratios to be lower than they would be if interest and dividends were both deductible.

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a. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.

b. If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one.

1. Which of the following statements is CORRECT?

a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

b. Two firms with the same expected dividend and growth rates must also have the same stock price.

c. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.

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1) A time line is not meaningful unless all cash flows occur annually

2) Time lines are useful for visualizing complex problems prior to doing actual calculations

3) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly

4) Time lines can only be constructed for annuities where the payments occur at the ends of the periods, i.e.,


a. Put options give investors the right to buy a stock at a certain strike price before a specified date.

b. Call options give investors the right to sell a stock at a certain strike price before a specified date.

c. Options typically sell for less than their exercise value.

d. LEAPS are very short-term options that were created relatively recently and now trade in the market.

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1. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

a. Increase the dividend payout ratio for the upcoming year.

Finance 534 week 5 quiz 4 Question 1 Assume that in recent years

both expected inflation and the market risk premium (rM

− rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes?

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a. The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

b. The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

c. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.


a. An externality is a situation where a project would have an adverse effect on some other part of the firm’s overall operations. If the project would have a favorable effect on other operations, then this is not an externality.

b. An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank’s other offices to decline.

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a. Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.

b. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.

Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations?

a. $1,714,750

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Finance 534 week 7 quiz 6 Question 1 Which of the following

statements is CORRECT? Answer

Which of the following statements about dividend policies is CORRECT?

a. Modigliani and Miller argue

that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the ―bird-in-the hand‖ effect.

b. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.

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1. Which of the following statements best describes the optimal capital structure?

a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS).

b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s stock price.

c. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of equity.

Finance 534 week 8 quiz 7 This quiz consist of 30 multiple

choice questions. The first 15 questions cover the material in Chapter 12. The second 15 questions cover the material in Chapter 13. Be sure you are in the correct Chapter when you take the quiz.

Question 1 Last year Godinho Corp.

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Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off-peak seasons (in thousands of dollars):

Peak Off-Peak Cash $ 50 $ 30 Marketable securities 0 20


statements about dividend policies is correct?

Question 2 If a firm adheres strictly to the

residual dividend policy, the issuance of new common stock would suggest that

Question 3

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1. In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

a. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.


statements is NOT CORRECT? Question 2 Which of the following

statements is CORRECT?

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Finance 534 week 11 quiz 10 Question 1 Suppose DeGraw Corporation, a U.S.

exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw actually receive after it exchanged yen for U.S. dollars?

Finance 534 week 6 Quiz5 Question 1 Call options on XYZ

Corporation’s common stock trade in the market. Which of the following statements is most correct, holding other things constant?

Question 2 Other things held constant, the

value of an option depends on the stock's price, the risk-free rate, and the

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