FIN 370 Exam 1 Questions and Answers
Graded A+
Ch 1 - Correct answer--Begins
First publicly traded company - Correct answer--1602 Dutch East Indian Shipping
Co
Free Cash Flows - Correct answer--Cash that is left over after business operations
and taxes are paid
Weighted Average Cost of Capital (WACC) - Correct answer--Average return
required by firm's investors
-Determined by relative amounts of debt & equity, interest rates, firm's risk and the
market's attitude towards risk
Intrinsic=market value when - Correct answer--Markets are efficient
Fundamental Value (Intrinsic Value) - Correct answer--Value of firm depends on
fcf, timing of flows & their risk
-Value=FCF/(1+WACC)
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, Transfers of Capital between borrowers and savers happens by: - Correct answer--
Direct transfer of money and securities
-Transfers through investment banks
-Transfers through financial intermediaries
Financial Security - Correct answer--Claim on future cash flows
-Includes debt, equity and derivatives
Securitization - Correct answer--New securities are created on claims of packages
of financial assets
Required Rate of Return - Correct answer--Prospect of future profit is required to
induce investors to give up money today
-It is cost from the user's perspective
Four factors that affect required rate of return (cost of money) - Correct answer--
Production opportunities
-Time preference for production
-Risk
-Inflation
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
Graded A+
Ch 1 - Correct answer--Begins
First publicly traded company - Correct answer--1602 Dutch East Indian Shipping
Co
Free Cash Flows - Correct answer--Cash that is left over after business operations
and taxes are paid
Weighted Average Cost of Capital (WACC) - Correct answer--Average return
required by firm's investors
-Determined by relative amounts of debt & equity, interest rates, firm's risk and the
market's attitude towards risk
Intrinsic=market value when - Correct answer--Markets are efficient
Fundamental Value (Intrinsic Value) - Correct answer--Value of firm depends on
fcf, timing of flows & their risk
-Value=FCF/(1+WACC)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, Transfers of Capital between borrowers and savers happens by: - Correct answer--
Direct transfer of money and securities
-Transfers through investment banks
-Transfers through financial intermediaries
Financial Security - Correct answer--Claim on future cash flows
-Includes debt, equity and derivatives
Securitization - Correct answer--New securities are created on claims of packages
of financial assets
Required Rate of Return - Correct answer--Prospect of future profit is required to
induce investors to give up money today
-It is cost from the user's perspective
Four factors that affect required rate of return (cost of money) - Correct answer--
Production opportunities
-Time preference for production
-Risk
-Inflation
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
