FINA 3311 Summer 1 - Final Exam Study Guide Questions and Answers Graded A+
What is the pure play approach? - Answers Using a WACC that is based on companies in similar
lines of business.
What is the subjective approach? - Answers Using a WACC that involves making subjective
adjustments based upon the project.
The coupon rate on the firm's outstanding debt can be used as a substitute for the cost of debt.
- Answers False
For the Dividend Growth Model, the equation can be written as follows: P0 = =D1/(RE - g). How
can this equation be rearranged? - Answers RE = D1/P0 + g
The price the dealer is willing to pay is called the ________ price. - Answers Bid
The difference between the bid and ask prices is called the _________, and is the basic source of
dealer profits. - Answers Spread
The largest equities-based exchange in the world based on total market capitalization and listed
securities is the: - Answers New York Stock Exchange
Since preferred stock has a fixed dividend paid every period forever, it is essentially a perpetuity.
- Answers True
The required return of preferred stock is equal to the ________ ________ on the preferred stock. -
Answers Dividend Yield
Non-constant growth means ____________ growth rates over some finite length of time. -
Answers Supernormal
The percent of investment that the project costs can be referred to as all of the following,
except: - Answers Free Cash Flow
The cost of capital depends primarily on the source of the funds, not the use. - Answers False
A firm's target capital structure represents: - Answers a fixed debt-equity ratio that the company
attempts to maintain.
The Average Accounting Return (AAR) Rule states that a company will accept a project that has
an average account return that: - Answers exceeds a pre-determined target average accounting
return.
What is the first step when calculating the crossover rate? - Answers To calculate the cash flow
differences between each project.
What is crossover rate? - Answers The discount rate at which we are indifferent between two
What is the pure play approach? - Answers Using a WACC that is based on companies in similar
lines of business.
What is the subjective approach? - Answers Using a WACC that involves making subjective
adjustments based upon the project.
The coupon rate on the firm's outstanding debt can be used as a substitute for the cost of debt.
- Answers False
For the Dividend Growth Model, the equation can be written as follows: P0 = =D1/(RE - g). How
can this equation be rearranged? - Answers RE = D1/P0 + g
The price the dealer is willing to pay is called the ________ price. - Answers Bid
The difference between the bid and ask prices is called the _________, and is the basic source of
dealer profits. - Answers Spread
The largest equities-based exchange in the world based on total market capitalization and listed
securities is the: - Answers New York Stock Exchange
Since preferred stock has a fixed dividend paid every period forever, it is essentially a perpetuity.
- Answers True
The required return of preferred stock is equal to the ________ ________ on the preferred stock. -
Answers Dividend Yield
Non-constant growth means ____________ growth rates over some finite length of time. -
Answers Supernormal
The percent of investment that the project costs can be referred to as all of the following,
except: - Answers Free Cash Flow
The cost of capital depends primarily on the source of the funds, not the use. - Answers False
A firm's target capital structure represents: - Answers a fixed debt-equity ratio that the company
attempts to maintain.
The Average Accounting Return (AAR) Rule states that a company will accept a project that has
an average account return that: - Answers exceeds a pre-determined target average accounting
return.
What is the first step when calculating the crossover rate? - Answers To calculate the cash flow
differences between each project.
What is crossover rate? - Answers The discount rate at which we are indifferent between two
