UNIVERSITY OF MINDANAO TAGUM COLLEGE
FINAL EXAMINATION
FINANCE 33
TEST 1: 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 2: ENUMERATION
16 MAJORS FACTORS DISTINGUISH FIINANCIAL MANAGEMENT AS PRACTICED BY DOMESTIC FIRMS
FROM THAT PRACTICED BY MULTINATIONAL CORPORATIONS.
7 10 FACTORS INFLUENCE A FIRMS CAPITAL STRUCTURE
11 14 TYPES OF DIVESTITURES
15 20 THE UNREALISTIC ASSUMPITIONS OF MODIGLIANE AND MILLER (MM) STUDY ABOUT CAPITAL
STRUCTURE THEORY
TEST 3: PROBLEM SOLVING:
1. In the spot market 7.8 Mexican pesos can be exchange for 1 U.S. dollar. A compact disc costs $15 in the United
States. If purchasing power parity (PPP) holds, what should be the price of the same disc in Mexico?
2. Cyclone Software Co., is trying to estimate its optimal capital structure. Cyclones current capital structure
consists of 25 percent debt and 75 percent equity; however, management believes the firm should use more
debt. The risk free rate kRF, is 5 percent, the market risk premium, kM kRF, is 6 percent, and the firms tax rate is
40 percent. Currently, Cyclones cost of equity is 14 percent, which is determined on the basis of the CAPM.
What should be Cyclones estimated cost of equity if it were to change its capital structure from its present
structure to 50 percent debt and 50 percent equity?
TEST 4: ESSAY:
1. Two large, publicly owned firms are contemplating a merger. No operating synergy is expected. However, since
returns on the 2 firms are not perfectly positively correlated, the standard deviation of earnings would be
reduced for the combined corporation. One group of consultants argues that this risk reduction is sufficient
grounds for the merger. Another group thinks this type of risk reduction is irrelevant because stockholders can
themselves hold the stock of both companies and thus gain the risk-reduction benefits without all the hassles
and expenses of the merger. Whose position is correct?
-END OF EXAMINATION-
PREPARE BY: MARIA TERESA A. OZOA, CPA
SometimeS the queStionS are complicated and the anSwerS are Simple.
Dr. Seuss
