FINALEXAMINATION MARIATERESAA.

OZOA,CPA
FINANCE33 MAY17,2013

TEST I: TRUE or FALSE

1. The value of a share of stock is the present value of the expected stream of future dividends. T
2. The value of a share of stock is the present value of the expected stream of future dividends. T
3. The drawback of the future stock value procedure is that it does not consider dividend income. F
4. An increase in yield to maturity would be associated with an increase in the price of a bond. F
5. The yield to maturity is always equal to the interest payment of a bond. F
6. Most bonds promise both a periodic return and a lump-sum payment. T
7. Financial leverage emphasizes the impact of using debt in the business. T
8. Operating leverage determines how income from operations is to be divided between debt holders and
stockholders. F
9. Contribution margin is equal to fixed costs minus variable costs. F
10. The potential of a tax loss carryforward has no effect when considering the acquisition of a company. F
11. Too much diversification has led many companies to sell off companies previously acquired during the merger
boom. T
12. Mergers often improve the financing flexibility that a larger company has available. T
13. When a country has a weak currency relative to other countries, visiting that country is much more expensive for
residents of other countries. F
14. Companies such as Coca-Cola and IBM generate more than 50 percent of their sales and earnings from foreign
activities. T
15. A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least
amount of political risk. T

TEST II: IDENTIFICATION

1. A method of valuing a target company that applies a market determined multiple to net income, earnings per
share, sales, book value and so forth.
2. A type of assets that is not easily sold in the regular course of a businesss operations for cash and is generally
owned for its role in contributing to the businesss ability to generate profit.
3. The situation when the spot rate is greater than the forward rate.
4. The situation in which investors and managers have identical information about firms prospects.
5. An action taken by a fir0s management that provides clues to investors about how management views the firms
prospects.
6. A system under which exchanges rate are not fixed by government policy but are allowed to float up or down in
accordance with supply and demand.
7. A merger in which the firms involved will not be operated as a single unit and from which no operating
economics are expected.
8. The process in which a business determines whether projects such as building a new plant or investing in a long
term ventures are worth pursuing.
9. An action that will seriously hurt a company if it is acquired by another.
10. Is the added risk borne by stockholders as a result of financial leverage.
11. The firms beta coefficient if it has no debt.
12. Occurs when a country established a fixed exchange rate with another major currency; consequently, values of
pegged currencies move together over time.
13. Potential actions by a host government that would reduce the value of a companys investment.
14. A currency that may readily exchanged for other currencies.
15. The mix of debt, preferred stock and common equity with which the firm plans to raise capital.
16. An ongoing cost of running a product, business or system.
17. 5s the amount a company spends on buying fixed assets other than as part of acquisitions.
18. The extent to which fixed costs are used in a firms operations.
19. The process of sending cash flows from a foreign subsidiary back to the parent company.
20. The condition wherein the whole is greater than the sum of its parts.
 Business Risk Political Risk Financial Risk
Signal Floating Exchange Rate Asymmetric Information
Operating Breakeven Operating Expenditures Synergy
Capital Budgeting Discount on Forward rate Financial Merger
Capital Goods Unlevered Beta Premium on Forward Rate
Symmetric Information Capital Assets Operating Leverage
Convertible Currency Capital Expenditures White Squire
Market Multiple Analysis Target Capital Structure Exchange Rate
Repatriation of Earnings Poison Pill Pegged Exchange Rate

TEST III: PROBLEM

1. If a firm has fixed costs of $30,000, a price of $4.00, and a breakeven point of 15,000 units, the variable cost per unit
is:
A. $5.00 B. $2.00 C. $.50 D. $4.00
2. If a firm has a price of $4.00, variable cost per unit of $2.50 and a breakeven point of 20,000 units, fixed costs are
equal to:
A. $13,333 B. $10,000 C. $30,000 D. $50,000
3. A firm with $50,000 in fixed costs breaks even on unit sales of 10,000, how many units must the firm sell to earn
$20,000 in operating profits?
A. 12,000 units B. 14,000 units C. 16,000 units D. 18,000 units.
4. If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage?
A. 5.33x B. 1.23x C. .8125x D. 4.33x

ITEMS 5 8

5. Refer to the figure above. This firm's break-even point is

A. 4,800 units B. 14,634 units C. 7,142 units D. 18,000 units

6. Refer to the figure above. The Degree of Operating Leverage (DOL) is

A. 1.58x B. 1.95x C. 3.50x D. 1.40x

7. Refer to the figure above. The Degree of Financial Leverage (DFL) is

A. 3.50x B. 1.40x C. 1.95x D. 1.58x

8. Refer to the figure above. The Degree of Combined Leverage (D.C.L.) is

A. 3.08x B. 5.45x C. 2.73x D. 6.83x