EXAM NUMBER: ____________FINAL EXAMSpring 2002DIRECTIONS: Circle the letter corresponding to the best answer for each multiple choice question and then transfer that letter answer to the attached ANSWER SHEET. Be sure to carefully record your answers to the ANSWER SHEET. Only the ANSWER SHEET will be graded.Goal of Financial ManagementFinancial Analysis QuestionsBalance SheetHealth Valley CompanyTime Value of Money ProblemsStocks and Bonds QuestionsCapital Budgeting QuestionsEXAM NUMBER: ____________FI 3300 - CORPORATION FINANCEFINAL EXAMSpring 2002NAME ________________________________________________________STUDENT NUMBER ____________________________________________CLASS DAYS/TIME ___________________ INSTRUCTOR__________________________READ THE FOLLOWING DIRECTIONS VERY CAREFULLY. FAILURE TOFOLLOW THESE DIRECTIONS WILL ALMOST CERTAINLY RESULT IN YOUREXAM BEING MIS-GRADED WHICH WILL ADVERSELY AFFECT YOUR GRADE.IF THERE IS ANYTHING ABOUT THE DIRECTIONS THAT YOU DO NOTUNDERSTAND, ASK YOUR INSTRUCTOR IMMEDIATELY. 1. Fill in your name, student number, and the days and time of the class for which you areregistered (for example, T/Th at 5:00 p.m.) on the Answer Sheet as well as on the linesabove.2. In the box on the Answer Sheet titled "EXAM NUMBER" record the number thatappears in the upper right hand corner of this sheet on the line "EXAM NUMBER"– since there are multiple versions of the exam, failure to do so may result in yourexam being graded with the wrong answer key!!! DO NOT COPY FROMSOMEONE ELSE'S EXAM - YOUR NEIGHBOR MAY HAVE A DIFFERENTVERSION OF THE EXAM!!!3. Read each question very carefully. Consider all of the answer items and then select thebest correct answer - there is only one best answer per question. Circle the letter answeron the exam and record your answers on the Answer Sheet. NOTE WELL: ONLY THE ANSWER KEY WILL BE GRADED!!!4. You may use a financial calculator. No notes, formula sheets, scratch paper (use backpages of exam if necessary), or stored formulae allowed. The exam consists of 25 questions each worth 4.0 points. Choose the BEST ANSWERfor each question. Your score will be computed as: [100 - (number missed x 4.0)].You will have 120 minutes to complete the exam. Do not leave any answers blank - anunanswered question will be graded as a wrong answer. Good Luck!DIRECTIONS: Circle the letter corresponding to the best answer for each multiple choicequestion and then transfer that letter answer to the attached ANSWER SHEET. Be sure tocarefully record your answers to the ANSWER SHEET. Only the ANSWER SHEET will begraded.Goal of Financial Management1. According to the text, the primary goal for a firm’s financial managers should be to:a. Maximize the firm’s reported net income.b. Increase the annual dividend paid to common stockholders.c. Reduce to a minimum the volatility of the company’s common stock price.d. Smooth the firm’s earnings so they are positive and always growing.e. Maximize shareholder wealth.Financial Analysis QuestionsBalance SheetHealth Valley CompanyYears ending December 31, 2001 and 2002 2001 2002Cash $ 20,000 $ 12,000Accounts receivable 40,000 48,000Inventory 60,000 50,000 Total current assets $120,000 $110,000Gross fixed assets $400,000 $450,000(Accumulated depreciation) (120,000) (150,000)Net fixed assets $280,000 $300,000 Total assets $400,000 $410,000Notes payable 5,000 10,000Accounts payable to suppliers 25,000 30,000Accruals 10,000 5,000 Total current liabilities 40,000 45,000Long-term debt 100,000 140,000Common stock ($2.00 par value) 60,000 45,000Capital surplus 50,000 30,000Retained earnings 150,000 150,000 Total Liabilities and Equity $400,000 $410,000Health Valley Company Income Statement Data:2001 Net income = $15,0002002 Net income = $18,0002. Compute 2002 Net Cash Flow from Operating Activities for Health Valley Company.a. $20,000b. $46,000c. $40,000d. $50,000e. $55,0003. If cash decreases by $10,000 during the year, liabilities decrease by $5,000, and shareholders’ equityincreases by $5,000, what is the change in non-cash assets for the year?a. a decrease of $5,000b. an increase of $10,000c. a decrease of $10,000d. an increase of $5,000e. cannot be determined from the information given4. How would the issuance of common stock during the year affect the return on equity (i.e., ROE),assuming all other factors remain unchanged?a. An issuance of additional common stock will have no effect on ROE since the company will haveadditional cash equal to the amount of stock issued.b. ROE will be increased due to the additional shares outstanding.c. ROE will be reduced due to the addition to shareholders’ equity.d. ROE will be increased because the company will have relatively less debt outstanding. e. Both b and d are correct answers.5. Which of the following would reduce the outside funds needed (OFN) if all other things are heldconstant?a. An increase in the dividend payout ratio.b. A decrease in the profit margin.c. An increase in the expected sales growth rate.d. A decrease in the firm’s dividend payout ratio.e. Both c and d are correct.Time Value of Money Problems6. A security is currently selling for $8,000 and promises to pay $1,000 annually for the next 9 years,and $1,500 annually in the 3 years thereafter with all payments occurring at the end of each year. Ifyour required rate of return is 7% p.a., should you buy this security?a. Yes, because the return is greater than 7%b. No, because the return is less than 7%c. Yes, because the return is 7%d. Yes, because the present value at 7% is less than $8,000.e. There is insufficient information provided to answer this question.7. A given rate is quoted as 12% APR, but has an effective annual rate (EAR) of 12.55%. What is thefrequency of compounding during the year? a. Annually b. Semiannually c. Quarterlyd. Monthly e. Daily8. Deryl wishes to save money to provide for his retirement. Beginning one year from now, he willbegin depositing the same fixed amount each year for the next 30 years into a retirement savingsaccount. Starting one year after making his final deposit, he will withdraw $100,000 annually foreach of the following 25 years (i.e. he will make 25 withdrawals in all). Assume that the retirementfund earns 12% annually over both the period