MANG2015W1 FINANCIAL MANAGEMENT SEMESTER 1 MID-TERM TEST 2016-17
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
MANG2015W1
SEMESTER 1 MID-TERM TEST 2016-17
FINANCIAL MANAGEMENT
DURATION: 90 MINUTES (1.5 HOURS)
SECTION A
You must answer ALL questions from this section.
Each question is worth 1 mark
1. Which of the following would be considered a capital budgeting decision?
A. Planning to issue common stock rather than issuing preferred stock
B. Deciding to expand into a new line of products, at a cost of $5 million
C. Repurchasing shares of common stock
D. lssuing debt in the form of long-term bonds
2. An example of a firm's financing decision would be:
A. Acquiring a competitive firm.
B. Determining how much to pay for a specific asset.
C. lssuing 10-year versus 20-year bonds.
D. Deciding whether or not to increase the price of its products.
3. Which of the following changes will increase the NPV of a project?
A. A decrease in the discount rate.
B. A decrease in the size of the cash inflows
C. An increase in the initial cost of project
D. A decrease in the number of cash inflows
4. A stock's beta measures the:
A. average return on the stock.
B. variability in the stock's returns compared to that of the market portfolio.
C. difference between the return on the stock and return on the market portfolio.
D. market risk premium on the stock.
5. What is the expected return on the market portfolio at a time when Treasury bills have a return as 6% and a stock with a beta of 1.4 is expected to have a return as 18%?
A. 8.6%
B. 10.8%
C. 12.0%
D. 14.6%
6. A financial intermediary provides financing for:
A. individuals.
B. companies.
C. other organizations.
D. all of these.
7. When corporations need to raise funds through stock issues, they rely on the:
A. primary market.
B. secondary market.
C. tertiary market.
D. centralized NASDAQ exchange.
8. A bond differs from a share of stock in that:
A. a bond represents a claim on the firm.
B. a bond has more risk.
C. a bond has guaranteed returns.
D. a bond has a maturity date.
9. What is the future value of $10,000 on deposit for 5 years at 6% simple interest?
A. $7,472.58
B. $10,303.62
C. $13,000.00
D. $13,382.26
10. Which of the following is a source of cash for a firm?
A. Retained earnings
B. lssuing new debt
C. lssuing new equity
D. All of these
11. How much interest is earned in just the third year on a
$1,000 deposit that earns 7% interest compounded annually?
A. $70.00
B. $80.14
C. $105.62
D. $140.00
12. Which of the following balance-sheet accounts will not be affected when there is a reduction in the number of
outstanding shares?
A. Retained earnings
B. Additional paid-in capital
C. Common shares (valued at par value)
D. Treasury shares at cost
13. A firm's capital structure is represented by its mix of:
A. assets.
B. liabilities and equity.
C. assets and liabilities.
D. assets, liabilities, and equity.
14. What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? lgnore taxes.
A. 54.0%
B. 60.0%
C. 66.7%
D. 75.0%
15. lf the announcement of a new equity offering causes current equity values to drop, then signalling theory would predict
that:
A. supply of equity will outstrip demand.
B. management knows the issue to be overpriced.
C. the firm has no attractive investment opportunities.
D. underwriters charge too high a spread.
SECTION B
You must answer TWO questions from this section.
Each question is worth 2.5 mark
1. Consider two investment options: X and Y. The cash flows in nominal terms for X and for Y areas follows:
|
Year |
Nomina1 Cash F1ow X |
Nomina1 Cash F1ow Y |
|
0 |
-$100000 |
-$100000 |
|
1 |
$50000 |
$55000 |
|
2 |
$45000 |
$47500 |
|
3 |
$50000 |
$45500 |
lf the REAL interest rate 10% per year and the inflation rate is 2%, which investment option should be picked based on net present value (NPV).
2. What is the relationship between the market risk of a security and the rate of return that investors demand of that security?
3. What is the weighted-average cost of capital for a firm with the following sources of funds and corresponding required rates of return: $5 million common stock at 16%, $500,000 preferred
stock at 10%, and $3 million debt at 9%. All amounts are listed at market values and the firm's tax rate is 35%.
4. When companies announce an issue of common stock as the financing method, the share price will normally fall. But when they announce an issue of debt, there,s typically no significant change on stock price. Can you explain why?
2023-12-12