CFIN401 Section 610
There are 2.0 hours in this exam.
Student Name ____________________________
Student Number _________________________________
1. This is a closed book exam. You may only have pens, pencils , a calculator and one cheat sheet
double sided on 8 by 11 paper at your desk.
2. Please fill out the scanner sheet as you go along in the exam. You will not be given extra
time at the end of the exam to fill it out.
3. Select the best possible answer for each multiple-choice question
4. Each of the 40 MC questions is worth 1 mark
Total 40 _________
There are 13 pages in this exam.
1 Use the following information to answer questions 1 & 2. The following four executives have the
following ambitions for the upcoming year;
Mike: Plans to focus on restructuring his firms operations to produce products on the market
faster than his competitors thus helping his corporation grab a larger market share and eliminate
much of the competition, making them the largest producer in the province
Jane: Is seeking to slightly increase the leverage in her firm so as to reduce capital costs after tax
effects and cause the firm value to increase. Combined with the reduced number of shares, this
should cause the stock price to skyrocket
Pete: Wants to embark on a hostile takeover bid of a smaller corporation. The net result is that
his firms share value will diminish greatly but he will be the CEO of the largest conglomerate on
the east coast after the takeover and will likely be recognized in Forbes
Mary: Wants to focus on developing a more responsible corporate image in hopes of avoiding
unnecessary bad press and excess regulation
Bill: Feels that leverage should be increased as they can get favourable tax benefits from debt
1. Which executive is behaving in a manner most consistent with the role of the financial
2. Which executive is behaving in a manner most consistent with the agency problem
3. You have an investment that will pay $1250 a year for the next 15 years. What would you pay
for that investment today of the appropriate discount rate was 8% EAR?
2 4. You wish to save up for a trip to the arctic in seven years. The trip will cost $25,000. You
currently have $1120 already in an account that earns 10% APR compounded semi annually. If
you plan on saving for this trip by making monthly payments into that account, what would those
payments be worth?
5. You are looking at a project that will require an initial investment of $1,200,000. This project
will provide after tax cash flows of $300,000 for the first three years, $400,000 for the following
four years, and then $275,000 for the following six years. If your WACC is 8.2% what is the
payback period for this project?
a. 3 years and 5 months
b. 3 years and 7 months
c. 3 years and 9 months
d. 3 years and 11 months
e. 4 years and 2 months
6. A 12 year bond has a YTM of 8% and a coupon rate of 9%. This is a?
a. Discount bond with a price of $921.53
b. Discount bond with a price of $989.21
c. Par Bond
d. Premium bond with a price of $1,076.23
e. Premium bond with a price of $1,094.18
7. Your firm had an EPS of $3.25 for the period that just ended yesterday, which is expected to
grow at 2.5% indefinitely. The retention ratio of your firm is 55% and the return on equity of this
risk level is 12.5%. What will the price be one year from today?