FINAL EXAMS FINAL ANSWERS FINAL QUESTIONS

1. FIN 571 FINAL EXAMS
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1) Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by
imitating the leader's behavior.
2) Occurs when inaccurate information can falsely exist.
3) Refers to situations wherein the agent can take unseen actions for personal benefit even
though such actions are costly to the principal.
4) The annual report refers to
5) Remaining maturity refers to:
6) Generally accepted accounting principles (GAAP) refers to
7) Original maturity refers to:
8) The firm's assets in the balance sheet refer to:
9) Book value (or Net book value) refers to:
10) The return expected by equity investors is called the __________.
11) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9%
and the current yield is 10%. Which of the following statements is true?
12) Preferred stock payment obligations are typically __________.
13) Certain countries have restrictions. In practice, U.S. investors have NOT invested very much
internationally. Possible factors include __________.
14) Certain countries have restrictions. In practice, U.S. investors have NOT invested very much
internationally. Possible factors include __________.
15) For diversified investors, the proper measure of a stock's risk is __________.
16) One problem with using negative values for w1 (the proportion invested in the riskless asset)
to represent a borrowed amount is that the implied borrowing rate of interest is the same as
__________.
17) Which of these investments would you expect to have the highest rate of return for the next
20 years?
18) According to the Principle of Risk-Return Trade-Off, investors require a higher return to
compensate for __________.
19) Suppose the Ruskin Oil Corporation has $150,000 for both its book balance and its bank
balance. It takes 4 days for a check to clear. If Ruskin writes a $3,000 check, which of the
following statements is false?
20) Stony Products has a payables turnover of six times. What is Stony's payables deferral period
(PDP)?
21) Stony Products has a receivables turnover of ten times. What is Stony’s receivables
collection period (RCP)?
22) __________ says to calculate the incremental after-tax cash flows connected with working
capital decisions.
23) __________ says to compare the benefits and costs of alternative uses and sources of money
using after-tax APYs.
24) Bank term loans represent __________.
25) Which (if any) of the below statements is false?
26) Credit-policy decisions involve all aspects of receivables management. The decision does
NOT include which of the following?

2. 27) Most credit sales are made on an open account basis, which means __________.
28) An all-equity-financed firm would __________.
29) A profitable firm would __________.
30) Whenever a firm splits itself into separate units, with each unit having limited liability with
respect to its financing, the capital structure of each unit becomes __________.
31) There are two important tax considerations for a capital budgeting project. These include
which (if any) of the following?
32) Projects can be classified into various categories. These include:
33) Ideas for capital budgeting projects come from all levels within an organization. The bottom
up process results in ideas percolating through the organization.
34) In practice, the __________ rule is preferred.
35) Whenever projects are both independent and conventional, then the IRR and NPV methods
agree. Which of the following statements is true?
36) The __________ method breaks down when evaluating projects in which the sign of the cash
flow changes.
37)Studies show systematic differences in capital structures across industries. These are due
mostly to differences in __________.
38) A firm cannot simply adopt the industry average debt ratio, because differences exist among
firms in any particular industry with respect to __________.
39) Studies show systematic differences in capital structures across industries. These are due
mostly to differences in __________.
40) Which of the following favors a high dividend payout policy?
41) There can be a variety of motives for stock repurchases including __________.
42) Some countries have __________ in which shareholders' returns are not fully taxed twice.
43) Conditional sales contracts __________.
44) The Time Value of Money Principle says __________.
45) Stated maturity is __________.
46) The Time Value of Money Principle says to __________.
47) __________ says to calculate the net advantage of leasing based on the incremental after-tax
benefits that leasing will provide.
48) __________ says to look for opportunities to develop asset-based financing arrangements
that offer new positive-NPV financing mechanisms.
49) The wholesale price for Captain John’s is $1.00 per loaf, and the variable cost of production
is $0.50 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional
5.0 million loaves in the next year. What additional revenues minus expenses will be generated
from expansion?
50) The wholesale price for Captain John’s is $3.00 per loaf. One million loaves will be sold in
the next year. What is the contribution margin?
51) The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production
is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an
additional 4.5 million loaves in the next five years. What additional revenues minus expenses
will be generated from expansion?
52) In efficient markets, as in the United States, you should think long and hard before you
conclude that a market price is __________.
53) Due to asymmetric information, the market fears that a firm issuing securities will do so
when the stock is ___________.

3. 54) Which of the following statements is true?
55) __________ says to forecast the firm’s cash flows, and analyze the incremental cash flows of
alternative decisions.
56) __________ says to carefully evaluate and monitor the financial plan’s impact on the firm
and its stakeholders.
57) __________ says to use common industry practices as a good starting place for the planning
process.