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Intermediate Financial Management exam with complete solutions, Exams of Financial Management

University of Texas - ArlingtonFinancial Management

Intermediate Financial Management exam with complete solutions

Typology: Exams

2024/2025

Available from 07/16/2025

michael-abonyo
michael-abonyo 🇺🇸

202 documents

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Intermediate Financial Management
exam with complete solutions
Corporate finance provides the skills for managers need to: - ANSWER-1. identify
and select corporate strategies and individual projects that add value to their
firm
2. forecast the funding requirements of their company
Three business organization from start-up to a major corporation? - ANSWER-1.
sole proprietorship
2. partnerships
3. corporations
Advantages and disadvantages of sole proprietorship: - ANSWER-ad: tax ad, easy
to start, cheaper
dis: unlimited liability, limited capital
Advantages and disadvantages of a corporation: - ANSWER-ad: limited liability,
unlimited life, easier to raise capital, easier to transfer ownership.
dis: double tax, harder to start, costly paper work requirements
Becoming a public corporation in 2 two ways? - ANSWER-1. IPO -raises capital,
allows found to "cash out"
2. SEO - or issue debt
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Intermediate Financial Management

exam with complete solutions

Corporate finance provides the skills for managers need to: - ANSWER-1. identify and select corporate strategies and individual projects that add value to their firm

  1. forecast the funding requirements of their company Three business organization from start-up to a major corporation? - ANSWER-1. sole proprietorship
  2. partnerships
  3. corporations Advantages and disadvantages of sole proprietorship: - ANSWER-ad: tax ad, easy to start, cheaper dis: unlimited liability, limited capital Advantages and disadvantages of a corporation: - ANSWER-ad: limited liability, unlimited life, easier to raise capital, easier to transfer ownership. dis: double tax, harder to start, costly paper work requirements Becoming a public corporation in 2 two ways? - ANSWER-1. IPO -raises capital, allows found to "cash out"
  4. SEO - or issue debt

What is the agency problem? - ANSWER-managers do not always act in the best interest of the owners What is corporate governance? - ANSWER-is a set of rules that controls a company;s behavior towards its directors, mangers, employees, shareholders, creditors, customers, competitors and community. What is the primary goal of any firm? - ANSWER-maximize shareholders wealth Is maximizing stock price good for society, employees, and customers? - ANSWER- higher employment growth: 1. that makes managers owners (LBO's), 2. privatized gov't firm What three aspects of the CF's affect an investment's value? - ANSWER-1. times of CF's (sooner)

  1. amount of CF's (more)
  2. risk of CF's (less) Free Cash Flows = - ANSWER-sales rev - operating costs - operating taxes - required investments in operating capital WACC (weighted average cost of capital) - ANSWER-is the average required by investors WACC is affected by? (4) - ANSWER-1. interest rate
  3. capital structure
  4. risk of firm
  5. investors attitude towards risk Intrinsic value? - ANSWER-is the sum of all the future expected free cashflows when converted into todays dollars: FCF 1/ (1+WACC)^1 + FCF 2 (1+WACC)^ Types of security: money market and capital market securities? - ANSWER- money market- maturity is less than a year

Over the counter (OTC) markets? - ANSWER-1. computers equivalent of a bulletin board

  1. poor liquidity
  2. no dealers Types of financial institutions? - ANSWER-1. commercial banks
  3. investment banks
  4. S& L's credit unions
  5. life insurance CO's
  6. mutual funds, pension funds
  7. private equity, hedge funds ` Role of securitization? - ANSWER-take group of loans put them in pool and sell them as 1 security What do we call the price, or cost, of debt capital? - ANSWER-interest rate What do we call the price , or cost, of equity capital? - ANSWER-required rate of return What four factors affect the cost of money? - ANSWER-1. expected inflation
  8. risk
  9. time preferences for consumption
  10. production opportunities What economic conditions affect the cost of money? (4) - ANSWER-1. fed policy
  11. budget deficit / surplus
  12. business activity ( recession, expansion)
  13. international trade deficit / surplus What international condition affect cost of money? (2) - ANSWER-1. country risk
  14. exchange rate risk

Exchange rates affected by:? (3) - ANSWER-1. inflation & interest rates

  1. country risk
  2. international trade deficit What two factors lead to exchange rate fluctuations? - ANSWER-1. change in relative inflation will lead to changes in exchange rates
  3. an increase in country risk will also cause that country's currency to fall The process of finding a FV is called? FV= pv( 1 + R)^n - ANSWER-compounding The process of finding the present value is called? PV = FV ( 1/(1 +r)^N) - ANSWER-discounting Other names for the interest rate : - ANSWER-opportunity cost, required return, discount rate, opportunity cost of capital, required rate of return, cost of capital Opportunity cost: - ANSWER-the rate of return available on the best alternative of equal risk Annuities: - ANSWER-stream of equal CF;s which is occurs at regular intervals for a finite peroid of time ordinary annuity - end Annuity due - beg Perpetuities: - ANSWER-stream of = CF's occurring at regular intervals that lasts forever What are investment return? - ANSWER-investment returns measures the financial results of an investment

The one-stock investor bears higher (stand-alone) risk, so the return is less than that required by the risk Measuring market risk for individual securities, what is used? - ANSWER- measure by a stock's beta R-squared:? - ANSWER-measures the percent of a stock's variance that is explained by the market The typical R^2 .3 is for an _____ ______, .9 is a well _______ ________ - ANSWER- individual stock, diversified portfolio Requirement for mrket equilibrium? - ANSWER-mkt price = intrinsic price How is equilibrium established? - ANSWER-If market < intrinsic value ------> additional demand increase prices, decreases expected return until equilibrium is reached Efficient portfolio:? - ANSWER-highest return for a level of risk , lowest risk for a level of return The feasible set of portfolios represents __________ - ANSWER-all portfolios that can be construed from a given set of stocks An efficient portfolio is one that offer? (2) - ANSWER-most return fro a given amount of risk , lowest risk fro a given amount of return indifference curves? - ANSWER-reflects investors attitude towards risk as related to his risk/return trade off function CAPM is - ANSWER-an equalibrium model that specifies the relationship between risk and required rate of return for assests held is well-diversified portfolio CAPM assumptions (7) - ANSWER-1.terms of a single holding peroid

  1. identical expectations.
  2. ican borrow/lend unlimited quantities at the Rf
  3. all assets are perfectly divisible
  4. there are no taxes or transaction costs
  5. price takers
  6. Quantities of all assets are given + fixed When a risk-free asset is added to the feasible set, - ANSWER-investors can create portfolios that combine the Rf asset with a portfolio of risk assets what does the CML equation tell us? - ANSWER-that the expected rate of return on any efficient portfolio is equal to the risk- free plus a risk premium SML measure of risk is the ______ coefficient of a company - ANSWER-beta What are two potential tests that can be conducted to verify the CAPM? - ANSWER-beta stability test , tests based on the slope of SML SML indicates: - ANSWER-linear relationship between realized return and market risk, slope is less than predicted APT is? - ANSWER-proposes that the relationship between risk and return is more complex and may be due to multiple factors such as, GDP growth, expected inflation, tax rate changes, and dividend yield FAMA- FRENCH 3 factor model - ANSWER-the excess market return