FINANCE 215Sophia Finance Milestone Final.

Sophia

Principles of Finance

Milestone Final

1

Mason is a financial analyst who specializes in securities. When providing an analysis of
securities to which he has a personal connection, he discloses his conflict of interest.



By doing so, which federal regulation is he complying with?




Securities Act Amendments of 1975




Securities Act of 1933




Sarbanes-Oxley Act of 2002




Securities Exchange Act of 1934



CONCEPT

Market Regulation

2

You deposit $7,000 in a bank account that earns 2% compound interest annually.



What is the value of your $7,000 in four years?

,$6,423




$7,577




$7,560




$6,440



CONCEPT

Future Value, Single Cash Flows

3

Company A Company B

Market Value of Equity $700,000 $900,000

Market Value of Debt $300,000 $200,000

Cost of Equity 8% 10%

Cost of Debt 1.5% 3%

Tax Rate 30% 25%



Based solely on their current weighted average cost of capital, which company should pursue an
investment opportunity with an expected return of 7%?




Both Company A and Company B

, Neither Company A nor Company B




Only Company B




Only Company A



CONCEPT

The WACC

4

What must be forecasted first in order to prepare the pro forma income statement?




Cost of goods sold




Sales




Net income




Expenses



CONCEPT