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FIN 515 WEEK 8 FINAL EXAM VERSION 1

1. (TCO A) Which of the following does NOT always increase a company’s market value? (Points : 5) (a) Increasing the expected growth rate of sales (b) Increasing the expected operating profitability (NOPAT/Sales) (c) Decreasing the capital requirements (Capital/Sales) (d)…….

2. (TCO F) Which of the following statements is correct? (Points : 5) (a) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. (b) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. (c)……

3. (TCO F) Which of the following statements is correct? (Points : 5) (a) The MIRR and NPV decision criteria can never conflict. (b) The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be. (c) One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption. (d)……

4. (TCO F) Which of the following statements is correct? (Points : 5) (a) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. (b) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. (c) The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. (d)……..

5. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings……?

6. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

7. (TCO D) The Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?

(TCO G) The ABC Corporation’s budgeted monthly sales are $4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the

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