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FIN 260 Final Exam Practice 2024/2025 with 100% correct answers

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FIN 260 Fi Practice

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FIN 260 Fi Practice

New Town Instruments is analyzing a proposed project. The company expects to sell 2,100 units, ±4 percent. The expected variable cost per unit is $270 and the expected fixed costs are $548,000. Cost estimates are considered accurate within a plus or minus 3 percent range. The depreciation expense ...

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FIN 260 Final Exam Practice

New Town Instruments is analyzing a proposed project. The company expects to sell 2,100 units, ±4
percent. The expected variable cost per unit is $270 and the expected fixed costs are $548,000. Cost
estimates are considered accurate within a plus or minus 3 percent range. The depreciation expense is
$118,000. The sales price is estimated at $789 per unit, plus or minus 5 percent. What is the sales
revenue under the worst case scenario? correct answersSales Revenue = Sales price * no. of Units

Sales Price: 789 * 0.95 = 749.55

No. of Units: 2100 * 0.96 = 2016

749.55 * 2016 = 1,511,092.8

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take
5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost
estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is
$129,000. The sales price is estimated at $750 per unit, give or take 2 percent. The tax rate is 35 percent.
The company is conducting a sensitivity analysis on the sales price per unit using a sales price estimate of
$755. What is the operating cash flow based on this analysis? correct answersOCF = (((Sales Price -
Variable Cost) *Total Units) - Fixed Costs) * ((1- Tax) + (Depreciation * Tax))

(((755 - 260) * 2100) - 589,000) * ((1-35%) + (129,000 * 35%) = $337,975

We are evaluating a project that costs $932,000, has a 12-year life, and has no salvage value. Assume
depreciation is straight-line to zero over the life of the project. Sales are projected at 75,000 units per
year, the price per unit is $39, variable cost per unit is $26, and fixed costs are $778,900 per year. The tax
rate is 35 percent and we require a return of 13.5 percent on this project. Suppose the projections given
for price, quantity, variable costs, and fixed costs are all accurate to within ±2 percent. What is the worst-
case NPV? correct answersAnnual Depreciation = Initial Cost/Number of useful years

932,000/12 = $77,666.67

NPV = PV of Future cash flow - Initial cash layout

,69,740.13 x PVIFA (13.5 %, 12) - $ 932,000 = $528,438

Assume you graph a project's net present value given various sales quantities. Which one of the
following is correct regarding the resulting function? correct answersThe slope of the function measures
the sensitivity of the net present value to a change in sales quantity.

Which one of the following characteristics best describes a project that has a low degree of operating
leverage? correct answersHigh variable costs relative to the fixed costs.

Precise Machinery is analyzing a proposed project. The company expects to sell 1,100 units, ±5 percent.
The expected variable cost per unit is $174 and the expected fixed costs are $218,000. Cost estimates are
considered accurate within a plus or minus 4 percent range. The depreciation expense is $76,000. The
sales price is estimated at $335 per unit, give or take 2 percent. What is the contribution margin per unit
under the best case scenario? correct answers102% -- 2% higher than 100%

96% - - 4% lower than 100%

Sales Price: 102% * 335 = 341.7

Variable Cost: 174 * 96% = 167.04

341.7 - 167.04 = 174.66

A forward PE is based on: correct answersestimated future earnings

The Shore Hotel just paid a dividend of $2 per share. The company will increase its dividend by 6 percent
next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches
the industry average of 2 percent dividend growth, after which the company will keep a constant growth
rate forever. What is the price of this stock today given a required return of 12 percent? correct
answersDividend: 2.00

Growth rate (Y1): 6%

2.00 * (1+6%) = 2.12

Growth Rate (Y2) : 6% - 2% = 4%

, 2.12 * (1+4%) = 2.2048

Growth Rate (Y3): 4%-2% = 2%

2.2048 * (1+2%) = 2.248896

Growth Rate (Y--): 2%

2.248896 * (1+2%) = 2.29387392

( (2.12/(1+12%)) + (2.2048/(1+12%)) + (2.248896/(1+12%)) ) ( (2.29387392/12% - 2%)/(1+12%) ) =
$21.58

A preferred stock pays an annual dividend of $6.75 and sells for $58.60 a share. What is the rate of
return on this security? correct answerspO = 58.6

D1 = 6.75

pO = D1/ke

58.6 = 6.75/ke

ke = 11.52%

The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per
share next year when the annual dividend is distributed. The firm has established a pattern of increasing
its dividends by 2.15 percent annually and expects to continue doing so. What is the market rate of
return on this stock? correct answersD1 = 2.28

P = 43.19

G = 2.15%

RoR = D1/P + G

RoR = (2.28/43.19) + 2.15%

RoR = 7.43%

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Exam (elaborations)

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