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1. Strayer-University FIN 534 Final Exam
Part 1
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FIN 534 Week 11 Final Exam Part 1
• Question 1
A company expects sales to increase during the coming year, and it is using the AFN equation to
forecast the additional capital that it must raise. Which of the following conditions would cause the
AFN to increase?
• Question 2
The capital intensity ratio is generally defined as follows:
• Question 3
Which of the following statements is CORRECT?
• Question 4

2. The term "additional funds needed (AFN)" is generally defined as follows:
• Question 5
Which of the following is NOT one of the steps taken in the financial planning process?
• Question 6
F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming
year. All else being equal, which of the following factors is most likely to lead to an increase of the
additional funds needed (AFN)?
• Question 7
Which of the following procedures best accounts for the relative risk of a proposed project?
• Question 8
Collins Inc. is investigating whether to develop a new product. In evaluating whether to go
ahead with the project, which of the following items should NOT be explicitly considered when cash
flows are estimated?
• Question 9
Which of the following procedures does the text say is used most frequently by businesses when
they do capital budgeting analyses?

3. • Question 10
Which of the following statements is CORRECT?
• Question 11
When evaluating a new project, firms should include in the projected cash flows all of the following
EXCEPT:
• Question 12
While developing a new product line, Cook Company spent $3 million two years ago to build
a plant for a new product. It then decided not to go forward with the project, so the building is
available for sale or for a new product. Cook owns the building free
on it. Which of the following statements is CORRECT?
• Question 13
Which of the following statements is CORRECT?
• Question 14
Suppose Acme Industries correctly estimates its WACC at a given point in time and then
uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most
likely
• Question 15

4. Which of the following statements is CORRECT? Assume a company's target capital
structure is 50% debt and 50% common equity.
• Question 16
To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You
have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant).
Based on the DCF approach, what is the cost of common from reinvested earnings?
• Question 17
Burnham Brothers Inc. has no retained earnings since it has always paid out all of its
earnings as dividends. This same situation is expected to persist in the future. The company uses
the CAPM to calculate its cost of equity, and its target capital structure consists of common stock,
preferred stock, and debt. Which of the following events would REDUCE its WACC?
• Question 18
Which of the following statements is CORRECT?
• Question 19
Suppose you believe that Florio Company's stock price is going to decline from its current
level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option
giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and
Florio's stock price actually dropped to $60, what would your pre-taxnet profit be?
• Question 20

5. Which of the following statements is most correct, holding other things constant, for XYZ
Corporation's traded call options?
• Question 21
The current price of a stock is $22, and at the end of one year its price will be either $27 or
$17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the
stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's
value? (Hint: Use daily compounding.)
• Question 22
Which of the following statements is CORRECT?
• Question 23
Which of the following statements is CORRECT?
• Question 24
Which of the following statements is CORRECT?
• Question 25
Which of the following statements is CORRECT?
• Question 26

6. Projects C and D both have normal cash flows and are mutually exclusive. Project C has a higher
NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds
12%. Which of the following statements is CORRECT?
• Question 27
Which of the following statements is CORRECT?
• Question 28
Assume a project has normal cash flows. All else equal, which of the following statements is
CORRECT?
• Question 29
Which of the following statements is CORRECT?
• Question 30
Which of the following statements is CORRECT?
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