FIN 3113 FINAL EXAM QUESTIONS
AND ANSWERS
Assume that upon receiving your recommendations to accept a project, the CEO of your
employer says the project is riskier than you've assumed in your analysis and directs
you to make adjustments to take into account the perceived increased riskiness. The
most logical and likely reaction will be to - Answer- Increased the required rate of return
Many analysts consider the ______to be a good indicator of the value of a stock in
relative terms. It is calculated as the current market value of the stock dividend by the
earnings on a per share basis. - Answer- P/E ratio
Which of the following cash flow events should NOT be taken into consideration in
capital building? - Answer- Interest Expense paid due to the project.
What is the purpose of concentration banking? - Answer- To deal only with large,
vertically-concentration banks.
The intrinsic or true value of any asset can be estimated by calculating the - Answer-
present value of all future cash flows discounted at the opportunity cost
The term capital rationing suggests allocating limited funds to finance projects that
maximize the value of the firm. Which of the following capital budgeting decision criteria
can be used to effectively allocate budgeted funds to maximize value per dollar of cost?
- Answer- Profitability index
Which of the following risk types can be diversified by adding low correlated stocks to a
portfolio? - Answer- Unique Risk
You currently hold a portfolio that contains stocks of the following companies:
ExxonMobil, ConocoPhillips, and Chesapeake Energy. You wish to reduce the risk of
your portfolio through diversification. Which of the following stocks should you add to
achieve this goal? - Answer- Starbucks
What is the name of Oklahoma State University's football team? (This question is our
Christmas present to you!!) - Answer- Cowboys
Which of the following are suitable marketable securities to be held as short-term
investments by a firm? - Answer- Preferred stocks
, Which of the five capital budgeting decision methods is both the easiest to compute and
also the only one which completely ignores the time value of money? - Answer-
(Traditional) Payback Period
Opportunity cost is the return on the best alternative use of an asset... - Answer- True
Wal-Mart's management team discloses that nearly $400,000 in research and
development costs were incurred before a new project proposal was put together. What
effect would this have on the project's NPV? - Answer- Decrease NPV
What is the purpose of a lockbox? - Answer- To speed up the deposit of money from
customers paying their bills
What is Float? - Answer- The difference between current and fixed assets
1. Which of the following marketable securities generally has the lowest yield or rate of
return? - Answer- Treasury Bills
3. The ________________ for holding cash suggests that cash is held to pay the day-
to-day bills of the firm. - Answer- Transactions motive
4. The goal of the financial manager is to: - Answer- Maximize the common stock price.
8. The total risk of any asset is measured by the: - Answer- Standard deviation
9. If a project is accepted and a subsequent investment is made, the value of the firm
will increase by which one of the following? - Answer- Net Present Value
11.You currently hold a portfolio that contains stocks of the following companies.
ExxonMobil, ConocoPhillips, and Chesapeake Energy. You wish to reduce the risk of
your portfolio through diversification. Which of the following stocks should you add to
your portfolio to achieve this goal of diversification? - Answer- Nike Inc.
12. In the BAT Model, increases in the T-bill rate suggest that: - Answer- Average cash
balance should be decreased.
16. Although commercial paper is unsecured, the companies that issue this short term
security are: - Answer- Large firms of top credit quality.
19. Which of the following will decrease the firm's minimum operating cash? - Answer-
Collect accounts receivables quickly, Increasing inventory turnover, stretching accounts
payable.
Which of the following risks is most important to an investor whose portfolio is
diversified? - Answer- Market Risk
AND ANSWERS
Assume that upon receiving your recommendations to accept a project, the CEO of your
employer says the project is riskier than you've assumed in your analysis and directs
you to make adjustments to take into account the perceived increased riskiness. The
most logical and likely reaction will be to - Answer- Increased the required rate of return
Many analysts consider the ______to be a good indicator of the value of a stock in
relative terms. It is calculated as the current market value of the stock dividend by the
earnings on a per share basis. - Answer- P/E ratio
Which of the following cash flow events should NOT be taken into consideration in
capital building? - Answer- Interest Expense paid due to the project.
What is the purpose of concentration banking? - Answer- To deal only with large,
vertically-concentration banks.
The intrinsic or true value of any asset can be estimated by calculating the - Answer-
present value of all future cash flows discounted at the opportunity cost
The term capital rationing suggests allocating limited funds to finance projects that
maximize the value of the firm. Which of the following capital budgeting decision criteria
can be used to effectively allocate budgeted funds to maximize value per dollar of cost?
- Answer- Profitability index
Which of the following risk types can be diversified by adding low correlated stocks to a
portfolio? - Answer- Unique Risk
You currently hold a portfolio that contains stocks of the following companies:
ExxonMobil, ConocoPhillips, and Chesapeake Energy. You wish to reduce the risk of
your portfolio through diversification. Which of the following stocks should you add to
achieve this goal? - Answer- Starbucks
What is the name of Oklahoma State University's football team? (This question is our
Christmas present to you!!) - Answer- Cowboys
Which of the following are suitable marketable securities to be held as short-term
investments by a firm? - Answer- Preferred stocks
, Which of the five capital budgeting decision methods is both the easiest to compute and
also the only one which completely ignores the time value of money? - Answer-
(Traditional) Payback Period
Opportunity cost is the return on the best alternative use of an asset... - Answer- True
Wal-Mart's management team discloses that nearly $400,000 in research and
development costs were incurred before a new project proposal was put together. What
effect would this have on the project's NPV? - Answer- Decrease NPV
What is the purpose of a lockbox? - Answer- To speed up the deposit of money from
customers paying their bills
What is Float? - Answer- The difference between current and fixed assets
1. Which of the following marketable securities generally has the lowest yield or rate of
return? - Answer- Treasury Bills
3. The ________________ for holding cash suggests that cash is held to pay the day-
to-day bills of the firm. - Answer- Transactions motive
4. The goal of the financial manager is to: - Answer- Maximize the common stock price.
8. The total risk of any asset is measured by the: - Answer- Standard deviation
9. If a project is accepted and a subsequent investment is made, the value of the firm
will increase by which one of the following? - Answer- Net Present Value
11.You currently hold a portfolio that contains stocks of the following companies.
ExxonMobil, ConocoPhillips, and Chesapeake Energy. You wish to reduce the risk of
your portfolio through diversification. Which of the following stocks should you add to
your portfolio to achieve this goal of diversification? - Answer- Nike Inc.
12. In the BAT Model, increases in the T-bill rate suggest that: - Answer- Average cash
balance should be decreased.
16. Although commercial paper is unsecured, the companies that issue this short term
security are: - Answer- Large firms of top credit quality.
19. Which of the following will decrease the firm's minimum operating cash? - Answer-
Collect accounts receivables quickly, Increasing inventory turnover, stretching accounts
payable.
Which of the following risks is most important to an investor whose portfolio is
diversified? - Answer- Market Risk
