FIN 370 Final Exam - Assignment

FIN 370 Final Exam

1. The Securities Investor Protection Corporation protects individuals from

• brokerage firm failures
• making poor investment decisions
• fraud by corporations
• other investors who fail to make delivery

2. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?

• $38,720
• $39,720
• $31,060
• $25,000

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3. When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?

• Debt
• Preferred stock
• Retained earnings
• Common stock

4. Buying and selling in more than one market to make a riskless profit is called:

• profit maximization.
• globalization
• arbitrage.
• international trading.

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5. Which of the following is true about bonds?

• They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year.
• At maturity of the bond, the investor receives the market price of the bond.
• They are obligations from the investor to the corporation.
• Their interest rate always varies with the Consumer Price Index

6. Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.

Initial outlay = $450

Cash flows:         Year 1 = $325

                          Year 2 = $65

                          Year 3 = $100

• 3.17 years
• 2.6 years
• 2.88 years
• 3.43 years

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7. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

• Cash flows have a greater present value than accounting profits.
• Cash flows improve the tax position of a firm more than accounting profits.
• Cash flows are more stable than accounting profits.
• Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

8. Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero. The machine's purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent. The machine's initial cash outflow is:

• $23,000.
• $20,000.
• $27,000.
• $21,000.

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9. Which of the following is most likely to occur if a firm over-invests in net working capital?

• The return on investment will be lower than it should be.
• The times interest earned ratio will be lower than it should be.
• The current ratio will be lower than it should be.
• The quick ratio will be lower than it should be.

10. Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Corp.'s weighted average cost of capital?

• 8.32%
• 6.56%
• 10.84%
• 12.78%

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11. Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

• Return on investment
• Gross profit margin
• Current ratio
• Quick ratio

12. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80

• dividing the present value of the annual after-tax cash flows by the cost of capital.
• multiplying the cash inflow by the IRR. 
• multiplying the IRR by the cost of capital.
• dividing the present value of the annual after-tax cash flows by the cost of the project. 

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13. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?

• $15,000
• $35,000
• $25,000
• $45,000

14. Which of the following could offset the higher risk exposure a company would face if it’s current ratio and net working capital were relatively low?

• Its accounts receivable collection policy could increase the average collection period.
• It could offer no discounts for early payment by its customers.
• It could buy back some of its shares in the open market in order to reduce its equity.
• Its current assets would need to be highly liquid.

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15. The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental, event insurance and professional musicians. The theater will also take 10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket to raise $1,000 for their organization?

• 1,314 tickets
• 1,112 tickets
• 1,223 tickets
• 1000 tickets

16. Aspects of demand risk controllable by the firm include:

• product quality.
• interest rates.
• entry of external competitors.
• status of the regional and national economy.

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17. Which of the following is true regarding Investment Banks?

• As of 2010, stand alone Investment banks are numerous.
• Under the Glass-Steagal act, commercial banks were allowed to operate as Investment banks.
• As a result of the financial crisis of 2008, all stand-alone Investment banks either failed, were merged into commercial banks, or became commercial banks.
• When Glass-Steagal was repealed in 1999, commercial banks and Investment banks had to be separate entities.

18. Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

• 60 days.
• 75 days
• 90 days.
• 45 days.

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19. When the impact of taxes is considered, as the firm takes on more debt

• there will be no change in total cash flows.
• cash flows will increase because taxes will decrease.
• the weighted average cost of capital will increase.
• both taxes and total cash flow to stockholders and bondholders will decrease.

20. If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years?

• $5,008.76
• $3,525.62
• $3,408.88
• $2,465.78

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21. Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014; sales were $3,450,000 in fiscal 2013. Assume the following figures for the fiscal year ending 2013: cash $70,000; accounts receivable $250,000; inventory $400,000; net fixed assets $520,000; accounts payable $235,000; and accruals $155,000. Use the percent-of-sales method to forecast cash for the fiscal year ending 2014.

• $75,003
• $216,418
• $120,725
• $319,604

22. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:

• maximize sales revenues
• either increase or have no effect on the value of the firm's common stock.
• increase the market value of the firm's common stock.
• positively affect profits.

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23. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines. What is your evaluation of these two projects?

• Only project Delta should be accepted. Alpha's NPV is too low for the investment.
• Neither project should be accepted because they might compete with one another
• The company should look at other investment criteria, not just NPV.
• Both projects should be accepted because they have positive NPV's

24. Capital Structure Theory in general assumes that:

• A firm's value is determined by discounting the firm's expected cash flows by the WACC.
• A firm's cost of capital rises as a firm uses more financial leverage.
• A firm's value is determined by capitalizing (discounting) the firm's expected net income by the firm's cost of equity.
• A firm's cash flows will grow indefinitely at a constant rate.

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25. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

• Cash flows reflect the timing of benefits and costs more accurately than accounting profits.
• Cash flows have a greater present value than accounting profits.
• Cash flows improve the tax position of a firm more than accounting profits.
• Cash flows are more stable than accounting profits.

26. Which of the following is not part of the underwriting process?

• the syndicate
• the prospectus
• the Federal Reserve
• the Securities and Exchange Commission

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27. Long-term financial plans typically encompass:

• 6 to 12 months.
• 5 to 10 years.
• about 5 years.
• the entire lifecycle of the corporation.

 28. Accounting break-even analysis solves for the level of sales that will result in:

• IRR = Cost of Capital.
• net income = $0.00.
• Free cash flow = $0.00.
• NPV = $0.00.

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29. Which of the following statements best represents what finance is about?

• How political, social, and economic forces affect corporations
• Reducing risk 
• Creation and maintenance of economic wealth
• Maximizing profits

30. Which of the following goals is in the best long-term interest of stockholders?

• Risk minimization
• Maximizing of the market value of the existing shareholders' common stock
• Maximizing sales revenues
• Profit maximization 

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ECO 365 Final Exam Latest Question Answer UOP Online Help

ECO 365 Final Exam Latest Assignment

1. The DeBeers company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will:        

·         Exceed the marginal cost of diamonds but equal to the average total cost of diamonds. 

·         Exceed both the marginal cost and the average total cost of diamonds.      

·         Be equal to the marginal cost of diamonds.       

·         Be equal to the average total cost of diamonds.

2. Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:       

·         Economies of scope

·         Diseconomies of scale

·         Diminishing marginal productivity

·         Economies of scale

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3. Suppose that college tuition is higher this year than last and that more students are enrolled in college this year than last year.  Based on this information, we can best conclude that:     

·         despite the increase in price, quantity demanded rose due to some other factors changing.

·         the demand for a college education is positively sloped.

·         the law of demand is invalid.

·         this situation has nothing to do with the law of demand.

4. A monopoly firm is different from a perfectly competitive firm in that:           

·         A monopolist’s demand curve is perfectly inelastic whereas a perfectly competitive firm’s demand curve is perfectly elastic.

·         A competitive firm has a u-shaped average cost curve whereas a monopolist does not.

·         A monopolist can influence market price whereas a perfectly competitive firm cannot.

·         There are many substitutes for a monopolist’s product whereas there are no substitutes for a competitive firm’s product.

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5. The best example of positive externality is:          

·         Alcoholic beverages

·         Pollution

·         Education

·         Roller coaster rides

6. The theory that quantity supplied and price are positively related, other things constant, is referred to as the law of:  

·         supply

·         profit maximization

·         opportunity cost

·         demand

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7. A reduction in the supply of labor will cause wages to:

·         Decrease and employment to decrease.

·         Increase and employment to increase.

·         Decrease and employment to increase.

·         Increase and employment to decrease.

8. Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly of $17.85 while the market equilibrium hour rate is $16.50, the:

·         Quantity of workers demanded will exceed the quantity of workers supplied.

·         Quantity of workers supplied will exceed the quantity of workers demanded.

·         Supply of labor will decrease until the equilibrium wage rate is $17.85.

·         Demand for labor will increase until the equilibrium wage rate is $17.85.

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9. Alex is playing his music at full volume in his dorm room. The other people living on his floor found this to be a nuisance, but Alex doesn’t care. Alex’s music playing is an example of:

·         Pareto externality

·         Positive externality

·         Negative externality

·         Normative externality

10. Oligopoly is probably the best market for technological change because:           

·         The typical oligopoly has the funds to carry out research and development and believe that its competitors are innovating, which motivates it to conduct research and development.

·         The typical oligopoly lacks the funds to carry out research and development and therefore will use basic research from universities.

·         Research and development occurs only if government subsidizes such activity, and government tends to subsidize oligopolies.

·         The typical oligopoly keeps price very close to average total cost because it fears the entry of new rivals if its profits are excessively high.

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11. A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm’s goal is to maximize profit, it should:    

·         Produce more widgets

·         Produce fewer widgets

·         Continue producing 500 widgets

·         Shut down

12. Graphically, a change in price causes:

·         the demand curve to shift.

·         both supply and demand to shift.

·         a movement along a given supply curve, not a shift.

·         the supply curve to shift.

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13. In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the:

·         Supply of airline tickets is perfectly inelastic.

·         Supply elasticity of airline tickets is less than infinity.

·         Demand elasticity for airline tickets is greater than zero in absolute value.

·         Demand for airline tickets is perfectly inelastic.

14. In 2011, the Department of Justice sued AT&T to block its merger with the cell phone service provider T-Mobile. To defend itself against the charge, AT&T argued that the:

·         Combined company could raise prices, allowing it to survive in a rapidly changing market.

·         Government had no authority to block mergers in the telephone industry.

·         Government had guaranteed it exclusive control of cell phone service.

·         Merger would improve and expand cellular service to consumers.

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15. The law of diminishing marginal productivity implies that the marginal product of a variable input:

·         Never declines

·         Always declines

·         Is constant

·         Eventually declines

16. Suppose OPEC announces it will increase production. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the:

·         supply curve shifting to the right.

·         demand curve shifting to the left.

·         demand curve shifting to the right.

·         supply curve shifting to the left.

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17. Many call centers that provide telephone customer services for U.S. companies have been established in India, but few or none have been established in China. Why?

·         China is at a more advanced stage of economic development than India.

·         China lacks the political infrastructure to support call centers.

·         Indian labor costs are equal to Chinese labor costs.

·         Chinese labor lacks the specific language skills needed to make call centers profitable in China.

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18. Suppose people freely choose to spend 40 percent of their income on health care, but then the government decides to tax 40 percent of that person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

·         There is no difference because the total spending remains the same and the health care purchased remains the same.

·         Taxing income results in less deadweight loss because government knows better what health care coverage is good for society.

·         Taxing income results in deadweight loss, and purchasing health care on one’s own doesn’t result in deadweight loss.

·         There is no difference between goods that are purchased in the market in either case.

19. At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the production of fake killer whales exhibits:

·         Diminishing marginal product

·         Decreasing returns to scale

·         Constant returns to scale

·         Increasing returns to scale

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20. There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors.  There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day.  The restaurant industry in Raleigh is best characterized as:

·         Perfectly competitive.

·         Monopolistically competitive.

·         A pure monopoly.

·         An oligopoly.

21. Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market share.  From this information, what would economists strongly suspect about this industry?

·         Foreigners have a comparative advantage in shrimping.

·         The large sales of foreigners indicate they are better strategic business bargainers than Americans are.

·         Americans have a comparative advantage in shrimping.

·         Foreign sellers probably are colluding on price to maximize profits.

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22. For a monopolist, the price of a product:

·         Is less than the marginal revenue.

·         Exceeds the marginal revenue.

·         Equals the marginal cost.

·         Equals the marginal revenue.

23. When Ross Perot ran for president as a third party candidate in 1992, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation of why few economists agreed with Perot?

·         Although economics predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs.

·         Economists did not believe any jobs would be lost in the United States.

·         Although economists believed that in some areas the United States would lose jobs, they expected the United States would gain jobs in other areas.

·         Economics believed that the U.S. unemployment would rise.

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24. Mr. Woodward’s cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodward has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation?

·         The law of demand

·         The law of diminishing marginal productivity

·         The law of supply

·         The law of diminishing marginal utility

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25. Price elasticity of demand is the:

·         Change in the quantity of a good demanded divided by the change in the price of that good.

·         Percentage change in price of that good divided by the percentage change in the quantity of that good demanded.

·         Percentage change in quantity of a good demanded divided by the percentage change in the price of that good.

·         Change in the price of a good divided by the change in the quantity of that good demanded.

26. Which of the following statements is true about a downward-sloping demand curve that is a straight line?

·         The slope remains the same, but elasticity falls as you move down the demand curve.

·         The slope remains the same, but elasticity rises as you move down the demand curve.

·         The slope and the elasticity fall as you move down the demand curve.

·         The slope and elasticity are the same at all points.

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27. Strategic decision making is most important in: 

·         Monopolistically competitive markets.

·         Monopolistic markets.

·         Oligopolistic markets.

·         Competitive markets.

28. Cartels are organizations that:

·         Encourage price wars.

·         Keep markets contestable.

·         Use predatory pricing to monopolize industries.

·         Coordinate the output and pricing decisions of a group of firms.

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29. Microeconomics and macroeconomics are:

·         Interrelated because what happens in the economy as a whole is based on individual decisions.

·         Interrelated because both are often taught by the same instructors.

·         Not related because they are taught separately.

·         Virtually identical, though one is much more difficult than the other.

30. Microeconomics is the study of:

·         a firm's pricing policies

·         inflation

·         unemployment

·         business cycles

About Author

This article covers the topic for the University Of Phoenix ECO 365 Week 5 Final Exam

The author is working in the field of education from last 5 years. This article covers the basic of ECO 365 Week 5 Final Exam from UOP. Other topics in the class are as follows:

ECO 365 Week 1 Knowledge Check

ECO 365 Week 2 Knowledge Check

ECO 365 Week 3 Knowledge Check

ECO 365 Week 5 Knowledge Check

ECO 365 Week 5 Final Exam (Latest August 2015)

ECO 365 Week 5 Final Exam

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