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2. FIN 534 Entire Course (Str 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

3. FIN 534 Week 1 Chapter 1 Solution (Str Course) • www.fin534tutor.com • 1. Which of the following statements is CORRECT? • a. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. • b. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. • c. One of the advantages of the corporate form of organization is that 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.

4. FIN 534 Week 1 Chapter 2 Solution (Str Course) • Which of the following statements is CORRECT? • a. Typically, a firm’s DPS should exceed its EPS. • b. Typically, a firm’s 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 share. • d. If a firm is more profitable than most other firms, we would normally 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 EPS, other things held constant.

5. FIN 534 Week 1 DQ 1 (Str Course) • Imagine a startup company of your own and briefly trace its development from a sole proprietorship to a major corporation with a focus on how that development would be financed.

6. 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 response.

7. Fin 534 Week 1 Quiz 1 • Question 1 • You recently sold 100 shares of your new company, XYZ Corporation, 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 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

8. 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 experience 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 expected to increase the total assets turnover ratio. • d. An increase in the DSO, other things held constant, could be expected to increase the ROE. • e. An increase in a firm’s debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.

9. FIN 534 Week 3 Chapter 4 Solution (Str Course) • 1 1. A $50,000 loan is to be amortized over 7 years, with annual end-of-year 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 the interest rate were the same in either case, the first payment would include 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 lower. • d. The last payment would have a higher proportion of interest than the first payment. • e. The proportion of interest versus principal repayment would be the same for each of the 7 payments.

10. FIN 534 Week 3 Chapter 5 Solution • 1 . Three $1,000 face value bonds that mature in 10 years have the same 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% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT? • a. Bond A’s current yield will increase each year. • b. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity. • c. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year. • d. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year. • e. Over the next year, Bond A’s price is expected to decrease, Bond B’s price is expected to stay the same, and Bond C’s price is expected to increase.

11. 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 financing, and this causes companies’ debt ratios to be lower than they would be if interest and dividends were both deductible. • b. Interest paid to an individual is counted as income for tax purposes and taxed at the individual’s regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. • c. The maximum federal tax rate on corporate income in 2008 was 50%.

12. FIN 534 Week 4 Chapter 6 Solution • 1. Which of the following statements is CORRECT? • a. If you add enough randomly selected stocks to a portfolio, you can completely 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 measured 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 were 10,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one. • c. If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market. • d. Market risk can be eliminated by forming a large portfolio, and if some Treasury bonds are held in the portfolio, the portfolio can be made to be completely riskless.

13. FIN 534 Week 4 Chapter 7 Solution (Str Course) • 1. Which of the following statements is CORRECT? • 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 must 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 constant. • d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock’s dividend yield is also 5%. • e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

14. FIN 534 Week 4 Quiz 3 (Str Course) • . 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 some of the cash flows occur annually but others occur quarterly • 4) Time lines can only be constructed for annuities where the payments occur at the ends of the periods, i.e., for ordinary annuities • 5) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity

15. FIN 534 Week 5 Chapter 8 Solution (Str Course) • . 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 recently 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? • a. If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock’s price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

16. FIN 534 Week 5 Chapter 9 Solution • www.fin534tutor.com • 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 budgeting projects. • b. The payback method is generally regarded by academics as being the 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 projects. • d. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. • e. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

17. FIN 534 Week 5 Quiz 4 (Str Course) • www.fin534tutor.com • Finance 534 week 5 quiz 4 • Question 1 • Assume that in recent years both expected inflation and the market risk 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 result of these changes? • Answer • Question 2 • Assume that the risk-free rate is 5%. Which of the following statements is CORRECT?

18. FIN 534 Week 6 Chapter 10 Solution (Str Course) • www.fin534tutor.com • 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 budgeting projects. • b. The payback method is generally regarded by academics as being the 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 projects. • d. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. • e. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

19. FIN 534 Week 6 Chapter 11 Solution (Str Course) • www.fin534tutor.com • 1. Which of the following statements is CORRECT? • a. An externality is a situation where a project would have an adverse effect on some other part of the firm’s overall operations. If the project would have a favorable effect on other operations, then this 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 bank’s 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. • d. Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not. • e. Identifying an externality can never lead to an increase in the calculated NPV.

20. FIN 534 Week 6 Quiz 5 (Str Course) • Finance 534 week 6 Quiz5 • Question 1 • Call options on XYZ Corporation’s 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 stock's price, the risk-free rate, and the

21. FIN 534 Week 7 Chapter 12 Solution • www.fin534tutor.com • 1. Which of the following statements is CORRECT? • a. Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings. • b. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales. • c. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management’s historical performance is evaluated. • d. The capital intensity ratio gives us an idea of the physical condition of the firm’s fixed assets. • e. The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.

22. FIN 534 Week 7 Chapter 13 Solution (Str Course) • Consider your current financial plan. Based on what you have learned about your financial goals, risk tolerance, and risk and return of various investment options, what adjustments should you make to the asset allocation of your investment portfolio? What specific actions do you need to take to make those adjustments or to establish your investment portfolio? What adjustments will you need to make to your budget and investment portfolio to include adequate insurance?Consider your current financial plan. Based on what you have learned about your financial goals, risk tolerance, and risk and return of various investment options, what adjustments should you make to the asset allocation of your investment portfolio? What specific actions do you need to take to make those adjustments or to establish your investment portfolio? What adjustments will you need to make to your budget and investment portfolio to include adequate insurance?

23. FIN 534 Week 7 Chapter 13 Solution (Str Course) • . Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital 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

24. FIN 420 Week 5 DQ 2 • Consider your current financial plan. Based on what you have learned about your financial goals, risk tolerance, and risk and return of various investment options, what adjustments should you make to the asset allocation of your investment portfolio? What specific actions do you need to take to make those adjustments or to establish your investment portfolio? What adjustments will you need to make to your budget and investment portfolio to include adequate insurance?Consider your current financial plan. Based on what you have learned about your financial goals, risk tolerance, and risk and return of various investment options, what adjustments should you make to the asset allocation of your investment portfolio? What specific actions do you need to take to make those adjustments or to establish your investment portfolio? What adjustments will you need to make to your budget and investment portfolio to include adequate insurance?

25. 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 cover the material in Chapter 12. The second 15 questions cover the material in Chapter 13. Be sure you are in the correct Chapter 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 operated at full capacity?

26. FIN 534 Week 8 Chapter 14 Solution (Str Course) • 1. Which of the following statements about dividend policies is CORRECT? • a. Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this 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 repurchases. • c. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest. • d. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy. • e. The clientele effect suggests that companies should follow a stable dividend policy.

27. FIN 534 Week 8 Chapter 15 Solution (Str Course) • . Which of the following statements best describes the optimal capital structure? • a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS). • b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s stock price. • c. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of equity. • d. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of debt. • e. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of preferred stock.

28. 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 cover the material in Chapter 12. The second 15 questions cover the material in Chapter 13. Be sure you are in the correct Chapter 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 operated at full capacity? • Question 2 • Which of the following is NOT a key element in strategic planning as it is described in the text?

29. 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

30. FIN 534 Week 10 Quiz 9 (Str Course) • Finance 534 week 10 quiz 9 • Question 1 • Which of the following statements is NOT CORRECT? • Question 2 • Which of the following statements is CORRECT? • Question 3 • Which of the following statements is CORRECT? • Answer

31. FIN 534 Week 11 Quiz 10 • 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, when the exchange 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 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 amount would DeGraw actually receive after it exchanged yen for U.S. dollars?

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