study exam final
FIN 370 Final Exam Answers – Updated 2014-15
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1. Which of the following is true regarding Investment Banks?
As of 2010, stand alone Investment banks are numerous.
2. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80
dividing the present value of the annual after-tax cash flows by the cost of the project.
Explanation: The profitability index is calculated as Net Present Value / Initial Outlay.
3. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines.
What is your evaluation of these two projects?
Both projects should be accepted because they have positive NPV's
Explanation: A positive NPV indicates the project is generating returns at the firms required rate of return and should be accepted.
4. Which of the following is most likely to occur if a firm over-invests in net working capital?
The return on investment will be lower than it should be.
Explanation: More funds will be allocated to current assets, which will make the firm’s relative return on investment (ROI) appear lower.
5. The Securities Investor Protection Corporation protects individuals from
Brokerage firm failures
6. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:
Increase the market value of the firm's common stock.
Explanation: Stock value increases are typically the most effective way to increase shareholder wealth.
7. Buying and selling in more than one market to make a riskless profit is called:
Arbitrage
8. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is
45 Days
Explanation: ACP = 360 / 8 = 45 Days
9.
Thank you for using ACCNERD.com. We love helping you earn better grades!
1. Which of the following is true regarding Investment Banks?
As of 2010, stand alone Investment banks are numerous.
2. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80
dividing the present value of the annual after-tax cash flows by the cost of the project.
Explanation: The profitability index is calculated as Net Present Value / Initial Outlay.
3. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines.
What is your evaluation of these two projects?
Both projects should be accepted because they have positive NPV's
Explanation: A positive NPV indicates the project is generating returns at the firms required rate of return and should be accepted.
4. Which of the following is most likely to occur if a firm over-invests in net working capital?
The return on investment will be lower than it should be.
Explanation: More funds will be allocated to current assets, which will make the firm’s relative return on investment (ROI) appear lower.
5. The Securities Investor Protection Corporation protects individuals from
Brokerage firm failures
6. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:
Increase the market value of the firm's common stock.
Explanation: Stock value increases are typically the most effective way to increase shareholder wealth.
7. Buying and selling in more than one market to make a riskless profit is called:
Arbitrage
8. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is
45 Days
Explanation: ACP = 360 / 8 = 45 Days
9.