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Midterm Test Section 610 Instructor.docx

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Ryerson University
FIN 300
Steve Joyce

Ryerson University CFIN401 Section 610 Midterm Exam Fall 2009 There are 2.0 hours in this exam. Student Name ____________________________ (Please Print) Student Number _________________________________ Notes: 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 Marks: Available 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 manager? a. Mike b. Jane c. Pete d. Mary e. Bill 2. Which executive is behaving in a manner most consistent with the agency problem a. Mike b. Jane c. Pete d. Mary e. Bill 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? a. $10,699.35 b. $11,555.3 c. $9,345.23 d. $33,940.14 e. $28,847.12 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? a. $179.82 b. $189.82 c. $199.82 d. $209.82 e. $219.82 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? a. $13.21 b. $14.99 c. $15.37 d. $16.28 e. $17.48 3
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