Posted: December 8th, 2020

Financial Management Final Examination

Final ExaminationFinancialManagement1Complete the following exam by answering the questions andcompiling your answers into a word-processing document.When you’re ready to submit your answers, refer to theinstructions at the end of your exam booklet. Be certain toindicate the proper question number before each of youranswers. Remember to show your work if an answer requiresa mathematical solution.Part A: Solve each of the following problems. Each answer isworth 20 points.1. Two mutually exclusive investments cost $10,000 each and havethe following cash inflows. The firm’s cost of capital is 10%.A. What is the net present value of each investment?B. What is the internal rate of return of each investment?C. Which investment(s) should the firm make?D. Would your answers be different to C if the funds receivedin Year 2 for investment A could be reinvested at 16%?Show your work.Final ExaminationFinancial ManagementEXAMINATION NUMBER:08175300Examination ExaminationInvestmentCash inflow A BYear 1 — —Year 2 $15,407 —Year 3 — —Year 4 — $19,3902 Financial Management2. Given the following information, answer the following questions:TR $3QTC $1,200 $2QA. What is the break-even level of output?B. If the firm sells 1,300 units, what are its earnings or losses?C. If sales rise to 2,000 units, what are the firm’s earnings or losses?D. If the total cost equation were TC $2,000 $1.80Q, what happens to the breakevenlevel of output units?3. Determine the current market prices of the following $1,000 bonds if the comparable rateis 10% and answer the following questions.Be sure you show your work here for the price and current yield and then answerthe questions below.XY 5.25% (interest paid annually) for 20 yearsAB 14% (interest paid annually) for 20 yearsA. Which bond has a current yield that exceeds the yield to maturity?B. Which bond may you expect to be called? Why?C. If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which waslower rated, what would be its price relative to the XY, Inc., bond? Explain.Part B: Indicate whether the statement is True or False. Each answer is worth 2points.________ 1. Discounting refers to the process of bringing the future back to the present.________ 2. An increase in retained earnings is a cash inflow.________ 3. If a firm doesn’t pay cash dividends, it may reinvest the earnings and grow.________ 4. Total revenue equals price times quantity.________ 5. The internal rate of return equates the present value of an investment’s cashinflows and its cost (outflows).Final Examination 3Part C: Select the one best answer to each question. Each answer is worth 4 points.1. An investor may place a limit order thatA. limits the amount of commissions.B. specifies when the stock will be purchased.C. establishes the exchange on which the security is to be bought or sold.D. states a price at which the investor seeks to buy or sell the stock.2. Which of the following is not a financial intermediary?A. New York Stock ExchangeB. Washington Savings and LoanC. First National City BankD. Merchants Savings Bank3. Using accelerated depreciationA. initially increases the firm’s profits.B. initially decreases the firm’s taxes.C. discourages investment in plant and equipment.D. increases expenses and decreases cash flow.4. The current yield on a bond isA. interest paid divided by the bond’s price.B. the bond’s coupon.C. the interest rate stated on the bond.D. the yield over the lifetime of the bond.5. The increased use of financial leverage mayI. affect the firm’s credit rating.II. decrease risk.III. alter the firm’s earnings.A. I and IIB. I and IIIC. II and IIID. I, II, and III4 Financial ManagementPart D: Solve each of the following problems. Each answer is worth 5 points.1. If a new college graduate wants a car costing $21,000, how much must be saved annuallyover the next four years if the funds earn 5%?2. You purchase a bond for $875. It pays $60 a year (that is, the semiannual coupon is 3%),and the bond matures after 10 years. What is the yield to maturity?

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