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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 SOLUTION

1. Which of the following statements is CORRECT?

a. One of the disadvantages of a sole proprietorship is that the proprie
tor is exposed to unlimited liability.
b. It is generally easier to transfer ones ownership interest in a partner
ship than in a corporation.
c. One of the advantages of the corporate form of organization is that i
t avoids double taxation.
d. One of the advantages of a corporation from a social standpoint is t
hat every stockholder has equal voting rights, i.e., one person, one vot
e.
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 interes
t rates on all debt securities in the economy?
a. Households start saving a larger percentage of their income.

FIN 534 WEEK 1 CHAPTER 2 SOLUTION ( STR COURSE)

1. Which of the following statements is CORRECT?

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 nor
mally expect to see its stock price exceed its book value per share.
d. If a firm is more profitable than most other firms, we would normall
y expect to see its book value per share exceed its stock price, especiall
y after several years of high inflation.
e. The more depreciation a firm has in a given year, the higher its EPS,
other things held constant.

FIN 534 WEEK 1 DQ 1 (STR COURSE)

Imagine a startup company of your own and briefly trace its developm
ent from a sole proprietorship to a major corporation with a focus 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 chapter
directly impact your life. Provide specific examples to support your res
ponse.

FIN 534 WEEK 1 QUIZ 1 (STR COURSE)

Question 1
You recently sold 100 shares of your new company, XYZ Corporation, t
o your brother at a family reunion. At the reunion your brother gave y
ou a check for the stock and you gave your brother the stock certificate
s. Which of the following statements best describes this transaction?
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 SOLUTION ( STR COURSE)

1. Which of the following statements is CORRECT?

a. The ratio of long-term debt to total capital is more likely to experienc
e seasonal fluctuations than is either the DSO or the inventory turnove
r 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 expecte
d to increase the total assets turnover ratio.
d. An increase in the DSO, other things held constant, could be expecte
d to increase the ROE.

FIN 534 WEEK 3 CHAPTER 4 SOLUTION ( STR COURSE)

1. A $50,000 loan is to be amortized over 7 years, with annual end-of-y

ear payments. Which of these statements is CORRECT?
a. The annual payments would be larger if the interest rate were lower.
b. If the loan were amortized over 10 years rather than 7 years, and if t
he interest rate were the same in either case, the first payment would i
nclude more dollars of interest under the 7-year amortization plan.
c. The proportion of each payment that represents interest as opposed
to repayment of principal would be lower if the interest rate were lowe
r.
d. The last payment would have a higher proportion of interest than th
e first payment.

FIN 534 WEEK 3 CHAPTER 5 SOLUTION ( STR COURSE)

1 . Three $1,000 face value bonds that mature in 10 years have the sa
me level of risk, hence their YTMs are equal. Bond A has an 8% annual
coupon, Bond B has a 10% annual coupon, and Bond C has a 12% ann
ual coupon. Bond B sells at par. Assuming interest rates remain consta
nt for the next 10 years, which of the following statements is CORRECT
?
a. Bond As current yield will increase each year.
b. Since the bonds have the same YTM, they should all have the same p
rice, and since interest rates are not expected to change, their prices s
hould 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, ou
r tax system favors the use of equity financing over debt financing, and
this causes companies debt ratios to be lower than they would be if int
erest and dividends were both deductible.
b. Interest paid to an individual is counted as income for tax purposes
and taxed at the individuals regular tax rate, which in 2008 could go u
p 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 SOLUTION ( STR COURSE)

1. Which of the following statements is CORRECT?

a. If you add enough randomly selected stocks to a portfolio, you can c
ompletely eliminate all of the market risk from the portfolio.
b. If you were restricted to investing in publicly traded common stocks,
yet you wanted to minimize the riskiness of your portfolio as measure
d by its beta, then according to the CAPM theory you should invest an
equal amount of money in each stock in the market. That is, if there we
re 10,000 traded stocks in the world, the least risky possible portfolio
would include some shares of each one.

FIN 534 WEEK 4 CHAPTER 7 SOLUTION ( STR COURSE)

. Which of the following statements is CORRECT?

a. The constant growth model takes into consideration the capital gain
s investors expect to earn on a stock.
b. Two firms with the same expected dividend and growth rates must a
lso have the same stock price.
c. It is appropriate to use the constant growth model to estimate a stoc
k's value even if its growth rate is never expected to become constant.

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 annually
2) Time lines are useful for visualizing complex problems prior to doing
actual calculations
3) Time lines cannot be constructed to deal with situations where som
e of the cash flows occur annually but others occur quarterly
4) Time lines can only be constructed for annuities where the payment
s occur at the ends of the periods, i.e., for ordinary annuities
5) Time lines cannot be constructed where some of the payments cons
titute an annuity but others are unequal and thus are not part of the a
nnuity

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 strike
price before a specified date.
b. Call options give investors the right to sell a stock at a certain strike
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 recen
tly 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 SOLUTION (STR COURSE)

1. Bankston Corporation forecasts that if all of its existing financial poli

cies are followed, its proposed capital budget would be so large that it
would have to issue new common stock. Since new stock has a higher
cost than retained earnings, Bankston would like to avoid issuing new s
tock. Which of the following actions would REDUCE its need to issue ne
w 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 market ris
k premium (rM
rRF) have declined. Assume also that all stocks have positive betas.
Which of the following would be most likely to have occurred as a resul
t 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 aca
demics as being the best single method for evaluating capital budgetin
g projects.
b. The payback method is generally regarded by academics as being th
e best single method for evaluating capital budgeting projects.
c. The discounted payback method is generally regarded by academics
as being the best single method for evaluating capital budgeting projec
ts.

FIN 534 WEEK 6 CHAPTER 11 SOLUTION ( STR COURSE)

1. Which of the following statements is CORRECT?

a. An externality is a situation where a project would have an adverse e
ffect on some other part of the firms overall operations. If the project
would have a favorable effect on other operations, then this is not an e
xternality.
b. An example of an externality is a situation where a bank opens a ne
w office, and that new office causes deposits in the banks other offices
to decline.
c. The NPV method automatically deals correctly with externalities, eve
n 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 market.
Which of the following statements is most correct, holding other things
constant?
Question 2
Other things held constant, the value of an option depends on the stoc
k'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 financ
ial statements is to determine the breakdown of common equity betwe
en common stock and retained earnings.
b. The first, and perhaps the most critical, step in forecasting financial r
equirements is to forecast future sales.
c. Forecasted financial statements, as discussed in the text, are used pr
imarily as a part of the managerial compensation program, where man
agements historical performance is evaluated.

FIN 534 WEEK 7 CHAPTER 13 SOLUTION (STR

COURSE)

1. Suppose Leonard, Nixon, & Shull Corporations projected free cash flow for ne
xt year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the c
ompanys weighted average cost of capital is 11%, what is the value of its operat
ions?
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 weight
ed average cost of capital is 11% and FCF is expected to grow at a rate of 5% aft
er Year 2, what is the Year 0 value of operations, in millions? Assume that the RO
IC is expected to remain constant in Year 2 and beyond (and do not make any h
alf-year adjustments).
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 interes
t rates and money costs generally are relatively low. The WACC for two
mutually exclusive projects that are being considered is 8%. Project S h
as an IRR of 20% while Project L's IRR is 15%. The projects have the sa
me 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 CORREC

T?
a. Modigliani and Miller argue that investors prefer dividends to capital
gains because dividends are more certain than capital gains. They call t
his the bird-in-the hand effect.
b. One reason that companies tend to avoid stock repurchases is that
dividend payments are taxed at a lower rate than gains on stock repurc
hases.
c. One advantage of dividend reinvestment plans is that they allow sha
reholders to avoid paying taxes on the dividends that they choose to re
invest.

FIN 534 WEEK 8 CHAPTER 15 SOLUTION (STR

COURSE)

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

structure?
a. The optimal capital structure is the mix of debt, equity, and preferre
d stock that maximizes the companys earnings per share (EPS).
b. The optimal capital structure is the mix of debt, equity, and preferre
d stock that maximizes the companys stock price.
c. The optimal capital structure is the mix of debt, equity, and preferre
d stock that minimizes the companys cost of equity.
d. The optimal capital structure is the mix of debt, equity, and preferre
d stock that minimizes the companys cost of debt.
e. The optimal capital structure is the mix of debt, equity, and preferre
d 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 questions cov
er the material in Chapter 12. The second 15 questions cover the material i
n Chapter 13. Be sure you are in the correct Chapter when you take the qui
z.
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 l
arge could sales have been if the company had operated at full capacity?
Question 2
Which of the following is NOT a key element in strategic planning as it is de
scribed 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 follow

ing summary balance sheet data show its assets and liabilities at 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 correct?
Question 2
If a firm adheres strictly to the residual dividend policy, the issuance 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 shareh
olders who sell their stock for more than they paid for it will be 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 180-day

securities have a 5% annualized return. In the United States, 90-day se
curities have a 4% annualized return and 180-day securities have an an
nualized return of 4.5%. All securities are of equal risk, and Japanese s
ecurities are denominated in terms of the Japanese yen. Assuming that
interest rate parity holds in all markets, which of the following stateme
nts is most CORRECT?
a. The yen-dollar spot exchange rate equals the yen-dollar exchange ra
te 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 stat
ion to a Japanese customer at a price of 143.5 million yen, when the ex
change rate was 140 yen per dollar. In order to close the sale, DeGraw
agreed to make the bill payable in yen, thus agreeing to take some exc
hange rate risk for the transaction. The terms were net 6 months. If th
e yen fell against the dollar such that one dollar would buy 154.4 yen w
hen the invoice was paid, what dollar amount would DeGraw actually r
eceive after it exchanged yen for U.S. dollars?

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