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FIN 534 Entire Course

FIN 534 Week 1 Chapter 1 Solution

FIN 534 Week 1 Chapter 2 Solution
FIN 534 Week 2 Chapter 3 Solution
FIN 534 Week 3 Chapter 4 Solution
FIN 534 Week 3 Chapter 5 Solution
FIN 534 Week 4 Chapter 6 Solution
FIN 534 Week 4 Chapter 7 Solution
FIN 534 Week 5 Chapter 8 Solution
FIN 534 Week 5 Chapter 9 Solution
FIN 534 Week 6 Chapter 10 Solution

FIN 534 Week 1 Chapter 1 Solut

ion

1. Which of the following statements is CORRECT?

a. One of the disadvantages of a sole proprietorship is that the pro
prietor is exposed to unlimited liability.
b. It is generally easier to transfer ones ownership interest in a par
tnership than in a corporation.
c. One of the advantages of the corporate form of organization is t
hat it avoids double taxation.
d. One of the advantages of a corporation from a social standpoint
is that every stockholder has equal voting rights, i.e., one person,
one vote.
e. Corporations of all types are subject to the corporate income tax
.
2. Which of the following would be most likely to lead to higher int
erest rates on all debt securities in the economy?
a. Households start saving a larger percentage of their income.

FIN 534 Week 1 Chapter 2 Sol

ution (
1. Which of the following
statements
is CORRECT?
Str
Course)

a. Typically, a firms DPS should exceed its EPS.

b. Typically, a firms EBIT should exceed its EBITDA.
c. If a firm is more profitable than average (e.g., Google), we would
normally expect to see its stock price exceed its book value per sha
re.
d. If a firm is more profitable than most other firms, we would nor
mally expect to see its book value per share exceed its stock price,
especially after several years of high inflation.
e. The more depreciation a firm has in a given year, the higher its E
PS, other things held constant.

FIN 534 Week 1 DQ 1 (Str

Course)

Imagine a startup company of your own and briefly trace its develo
pment from a sole proprietorship to a major corporation with a foc
us on how that development would be financed.

FIN 534 Week 1 DQ 2 (Str

Course)

Discuss ways that the basic concepts we have discussed in this cha
pter directly impact your life. Provide specific examples to support
your response.

Fin 534 Week 1 Quiz 1 (Str

Course)

Question 1
You recently sold 100 shares of your new company, XYZ Corporatio
n, to your brother at a family reunion. At the reunion your brother
gave you a check for the stock and you gave your brother the stock
certificates. Which of the following statements best describes this t
ransaction?
1) This is an example of an exchange of physical assets.
2) This is an example of a primary market transaction.
3) This is an example of a direct transfer of capital.
4) This is an example of a money market transaction.
5) This is an example of a derivatives market transaction.

FIN 534 Week 2 Chapter 3 Sol

ution (
1. Which of the following
statements
is CORRECT?
Str
Course)

a. The ratio of long-term debt to total capital is more likely to exper

ience seasonal fluctuations than is either the DSO or the inventory
turnover ratio.
b. If two firms have the same ROA, the firm with the most debt can
be expected to have the lower ROE.
c. An increase in the DSO, other things held constant, could be exp
ected to increase the total assets turnover ratio.
d. An increase in the DSO, other things held constant, could be exp
ected to increase the ROE.

FIN 534 Week 3 Chapter 4 Sol

ution (
1. A $50,000 loan isStr
to be amortized
over 7 years, with annual endCourse)
of-year payments. Which of these statements is CORRECT?

a. The annual payments would be larger if the interest rate were lo

wer.
b. If the loan were amortized over 10 years rather than 7 years, an
d if the interest rate were the same in either case, the first paymen
t would include more dollars of interest under the 7-year amortizat
ion plan.
c. The proportion of each payment that represents interest as opp
osed to repayment of principal would be lower if the interest rate
were lower.
d. The last payment would have a higher proportion of interest tha
n the first payment.

FIN 534 Week 3 Chapter 5 Sol

ution (
1 . Three $1,000 face
value Course)
bonds that mature in 10 years have the
Str
same level of risk, hence their YTMs are equal. Bond A has an 8% a

nnual coupon, Bond B has a 10% annual coupon, and Bond C has a
12% annual coupon. Bond B sells at par. Assuming interest rates re
main constant for the next 10 years, which of the following statem
ents is CORRECT?
a. Bond As current yield will increase each year.
b. Since the bonds have the same YTM, they should all have the sa
me price, and since interest rates are not expected to change, their
prices should all remain at their current levels until maturity.

FIN 534 Week 3 Quiz 2 (Str

Course)

Question 1
Which of the following statements is CORRECT?
a. Since companies can deduct dividends paid but not interest paid
, our tax system favors the use of equity financing over debt financ
ing, and this causes companies debt ratios to be lower than they w
ould be if interest and dividends were both deductible.
b. Interest paid to an individual is counted as income for tax purpo
ses and taxed at the individuals regular tax rate, which in 2008 cou
ld go up to 35%, but dividends received were taxed at a maximum
rate of 15%.
financial position at a point in time.

FIN 534 Week 4 Chapter 6 Sol

ution (
1. Which of the following
statements
is CORRECT?
Str
Course)

a. If you add enough randomly selected stocks to a portfolio, you c

an completely eliminate all of the market risk from the portfolio.
b. If you were restricted to investing in publicly traded common st
ocks, yet you wanted to minimize the riskiness of your portfolio as
measured by its beta, then according to the CAPM theory you shou
ld invest an equal amount of money in each stock in the market. T
hat is, if there were 10,000 traded stocks in the world, the least risk
y possible portfolio would include some shares of each one.

FIN 534 Week 4 Chapter 7 Sol

ution (
. Which of the following
statements
is CORRECT?
Str
Course)

a. The constant growth model takes into consideration the capital

gains investors expect to earn on a stock.
b. Two firms with the same expected dividend and growth rates m
ust also have the same stock price.
c. It is appropriate to use the constant growth model to estimate a
stock's value even if its growth rate is never expected to become co
nstant.

FIN 534 Week 4 Quiz 3 (Str

Course)

1. Which of the following statements is CORRECT?

1) A time line is not meaningful unless all cash flows occur annuall
y
2) Time lines are useful for visualizing complex problems prior to d
oing actual calculations
3) Time lines cannot be constructed to deal with situations where s
ome of the cash flows occur annually but others occur quarterly
4) Time lines can only be constructed for annuities where the pay
ments occur at the ends of the periods, i.e., for ordinary annuities
5) Time lines cannot be constructed where some of the payments c
onstitute an annuity but others are unequal and thus are not part
of the annuity

FIN 534 Week 5 Chapter 8 Solution (Str

Course)

1. Which of the following statements is CORRECT?

a. Put options give investors the right to buy a stock at a certain str
ike price before a specified date.
b. Call options give investors the right to sell a stock at a certain str
ike price before a specified date.
c. Options typically sell for less than their exercise value.
d. LEAPS are very short-term options that were created relatively r
ecently and now trade in the market.
e. An option holder is not entitled to receive dividends unless he or
she exercises their option before the stock goes ex dividend.
2. Which of the following statements is CORRECT?

FIN 534 Week 5 Chapter 9 Soluti

on (
1. Bankston Corporation
forecasts
that if all of its existing financial
Str
Course)
policies are followed, its proposed capital budget would be so larg

e that it would have to issue new common stock. Since new stock h
as a higher cost than retained earnings, Bankston would like to avo
id issuing new stock. Which of the following actions would REDUCE
its need to issue new common stock?
a. Increase the dividend payout ratio for the upcoming year.
b. Increase the percentage of debt in the target capital structure.
c. Increase the proposed capital budget.

FIN 534 Week 5 Quiz 4 (Str Course)

Finance 534 week 5 quiz 4

Question 1
Assume that in recent years both expected inflation and the marke
t risk premium (rM
rRF) have declined. Assume also that all stocks have positive bet
as. Which of the following would be most likely to have occurred as
a result of these changes?
Answer
Question 2

FIN 534 Week 6 Chapter 10 Solution (Str

Course)

1. Which of the following statements is CORRECT?

a. The internal rate of return method (IRR) is generally regarded by
academics as being the best single method for evaluating capital b
udgeting projects.
b. The payback method is generally regarded by academics as bein
g the best single method for evaluating capital budgeting projects.
c. The discounted payback method is generally regarded by acade
mics as being the best single method for evaluating capital budgeti
ng projects.

FIN 534 Week 6 Chapter 11 So

lution (
1. Which of the following
statements
is CORRECT?
Str
Course)

a. An externality is a situation where a project would have an adver

se effect on some other part of the firms overall operations. If the
project would have a favorable effect on other operations, then thi
s is not an externality.
b. An example of an externality is a situation where a bank opens a
new office, and that new office causes deposits in the banks other
offices to decline.
c. The NPV method automatically deals correctly with externalities,
even if the externalities are not specifically identified, but the IRR
method does not. This is another reason to favor the NPV.

FIN 534 Week 6 Quiz 5 (Str

Course)

Finance 534 week 6 Quiz5

Question 1
Call options on XYZ Corporations common stock trade in the mark
et. Which of the following statements is most correct, holding othe
r things constant?
Question 2
Other things held constant, the value of an option depends on the
stock's price, the risk-free rate, and the
Question 3
Which of the following statements is CORRECT?
Question 4
Which of the following statements is CORRECT?

FIN 534 Week 7 Chapter 12 Solution (Str

Course)

1. Which of the following statements is CORRECT?

a. Perhaps the most important step when developing forecasted fi
nancial statements is to determine the breakdown of common equ
ity between common stock and retained earnings.
b. The first, and perhaps the most critical, step in forecasting finan
cial requirements is to forecast future sales.
c. Forecasted financial statements, as discussed in the text, are use
d primarily as a part of the managerial compensation program, wh
ere managements historical performance is evaluated.

FIN 534 Week 7 Chapter 13 Solution (Str

Course)

1. Suppose Leonard, Nixon, & Shull Corporations projected free ca

sh flow for next year is $100,000, and FCF is expected to grow at a
constant rate of 6%. If the companys weighted average cost of cap
ital is 11%, what is the value of its operations?
a. $1,714,750
b. $1,805,000
c. $1,900,000
d. $2,000,000
e. $2,100,000
2. Leak Inc. forecasts the free cash flows (in millions) shown below.
If the weighted average cost of capital is 11% and FCF is expected t
o grow at a rate of 5% after Year 2, what is the Year 0 value of oper
ations, in millions? Assume that the ROIC is expected to remain co
nstant in Year 2 and beyond (and do not make any half-year adjust
ments).
Year: 1 2

FIN 534 Week 7 Quiz 6 (Str

Course)

Finance 534 week 7 quiz 6

Question 1
Which of the following statements is CORRECT?
Answer
Question 2
Which of the following statements is CORRECT?
Question 3
Assume that the economy is in a mild recession, and as a result int
erest rates and money costs generally are relatively low. The WACC
for two mutually exclusive projects that are being considered is 8%
. Project S has an IRR of 20% while Project L's IRR is 15%. The proje
cts have the same NPV at the 8% current WACC.

FIN 534 Week 8 Chapter 14 Solution (Str

Course)

1. Which of the following statements about dividend policies is CO

RRECT?
a. Modigliani and Miller argue that investors prefer dividends to ca
pital gains because dividends are more certain than capital gains. T
hey call this the bird-in-the hand effect.
b. One reason that companies tend to avoid stock repurchases is t
hat dividend payments are taxed at a lower rate than gains on stoc
k repurchases.
c. One advantage of dividend reinvestment plans is that they allow
shareholders to avoid paying taxes on the dividends that they choo
se to reinvest.

FIN 534 Week 8 Chapter 15 Solution (Str

Course)

1. Which of the following statements best describes the optimal ca

pital structure?
a. The optimal capital structure is the mix of debt, equity, and pref
erred stock that maximizes the companys earnings per share (EPS)
.
b. The optimal capital structure is the mix of debt, equity, and pref
erred stock that maximizes the companys stock price.
c. The optimal capital structure is the mix of debt, equity, and pref
erred stock that minimizes the companys cost of equity.
d. The optimal capital structure is the mix of debt, equity, and pref
erred stock that minimizes the companys cost of debt.
e. The optimal capital structure is the mix of debt, equity, and pref
erred stock that minimizes the companys cost of preferred stock.

FIN 534 Week 8 Quiz 7 (Str Course)

Finance 534 week 8 quiz 7

This quiz consist of 30 multiple choice questions. The first 15 quest
ions cover the material in Chapter 12. The second 15 questions cov
er the material in Chapter 13. Be sure you are in the correct Chapt
er when you take the quiz.
Question 1
Last year Godinho Corp. had $250 million of sales, and it had $75
million of fixed assets that were being operated at 80% of capacity.
In millions, how large could sales have been if the company had op
erated at full capacity?
Question 2
Which of the following is NOT a key element in strategic planning a
s it is described in the text?
Question 3
Spontaneous funds are generally defined as follows:

FIN 534 Week 9 Chapter 16 Solution (Str

Course)

1. Swim Suits Unlimited is in a highly seasonal business, and the fol

lowing summary balance sheet data show its assets and liabilities a
t peak and off-peak seasons (in thousands of dollars):
Peak Off-Peak
Cash $ 50 $ 30
Marketable securities 0 20
Accounts receivable 40 20
Inventories 100 50
Net fixed assets 500 500
Total assets $690 $620

FIN 534 Week 9 Quiz 8 (Str Course)

Question 1
Which of the following statements about dividend policies is correc
t?
Question 2
If a firm adheres strictly to the residual dividend policy, the issuanc
e of new common stock would suggest that
Question 3
Which of the following statements is correct?
Answer
Correct Answer:
If a firm repurchases some of its stock in the open market, then sh
areholders who sell their stock for more than they paid for it will b
e subject to capital gains taxes.

FIN 534 Week 10 Chapter 17 Solution (Str Course)

1. In Japan, 90-day securities have a 4% annualized return and 18

0-day securities have a 5% annualized return. In the United States,
90-day securities have a 4% annualized return and 180-day securiti
es have an annualized return of 4.5%. All securities are of equal ris
k, and Japanese securities are denominated in terms of the Japane
se yen. Assuming that interest rate parity holds in all markets, whic
h of the following statements is most CORRECT?
a. The yen-dollar spot exchange rate equals the yen-dollar exchang
e rate in the 90-day forward market.

FIN 534 Week 11 Quiz 10 (Str Course)

Finance 534 week 11 quiz 10

Question 1
Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating
station to a Japanese customer at a price of 143.5 million yen, whe
n the exchange rate was 140 yen per dollar. In order to close the s
ale, DeGraw agreed to make the bill payable in yen, thus agreeing t
o take some exchange rate risk for the transaction. The terms were
net 6 months. If the yen fell against the dollar such that one dollar
would buy 154.4 yen when the invoice was paid, what dollar amou
nt would DeGraw actually receive after it exchanged yen for U.S. d
ollars?

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