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FNCE 317 Midterm and Final Exam Review Package Spring 2025 a Om \S CO ey > HASKAYNE FINANCE CLUB Prepared by: Haskayne Finance Club (HFC) ! Scanned with hs HASEAYINE Note: This exam review package was created by the Haskayne Finance Club (“HFC”) and is intended to provide additional support to students in preparing for the FNCE 317 Spring 2025 midterm and final exam. Please note that this package does not cover all possible topics or questions that may appear on the final exam, We encourage students to use their textbook, lecture notes, and other study materials to ensure comprehensive exam preparation. Unauthorized photocopying, sharing, or distributing this exam package is considered a violation of copyright and academic integrity policies. Students found engaging in such activities may face a punitive fee of $20 and be denied further assistance from the HFC. Additionally, these actions may lead to academic penalties under the University's Academic Integrity guidelines. Interested in getting more involved with the Haskayne Finance Club? Scan the QR code below to learn more! Note: Haskayne Finance Club Home Website Page/Instagram Page/LinkedIn Page Respectively What Initiatives & Events Does HFC Host? | What Companies Does HFC Partner With? > Company presentations RBC Capital Markets, VersaFi, Enbridge > Networking (Corporate Development), The Marquee > Skill workshops Group, ATB Capital Markets, Stifel, > Finance industry subset highlights Scotiabank Global Banking and Markets, > Office tours Ayrshire, BMO, Training the Street, > Socials Mackenzie Investments, Pivotal Energy > Equity Research Program Partners, Invico Capital Corporation, Graham, > Discovery trip to Toronto Mawer, Fidelity Investments, CPKC, AIMCo, TriWest Capital Partners, SAF Group, ARC Financial, bp, Macquarie Group, Trafigura, National Bank Financial Markets, CPPIB How Can You Get Involved in HFC? > Sign up for the HFC mailing list and follow the HFC LinkedIn & Instagram pages > Attend HFC-hosted events > Apply for the Equity Research Program & > Apply for a club Executive position HFC - FNCE 317 SPRING 2025 - MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with ' (9 CamScanner >, ; HASKAYNE FINRNCECLUB, ey The CFO asks you about the firm's legal structure as an income fund. "If we were considering forming an income fund, what is an advantage of doing so?” a. Not subject to corporate income tax b. Limited liability c. Generation of social capital for members d. Dissolves when a unit holder chooses to sell v 3. The CFO points out that sometimes managers may act in their own self-interest rather than for the benefit of shareholders. "What is the term for this issue, and why does it occur?" a. Market inefficiency: it happens due to poor economic conditions b. Agency problem: it occurs because managers may have different goals than shareholders c. Conflict of interest: it happens because investors and creditors disagree d. Management inefficiency: it occurs due to lack of strategic vision 4, The company is considering issuing new shares to raise capital for expansion. The CFO asks, "Where will we sell these new shares, and where will they trade afterward?" How do you explain the difference between the two markets involved? a. Primary market: where existing shares are sold; Secondary market: where new shares are issued b. Primary market: where new securities are issued; Secondary market: where existing securities are traded c. Primary market: where debt instruments are traded; Secondary market: where equity is issued d. Primary market: where securities are restructured; Secondary market: where new securities are bought back Chapter 2: Financial Statements, Taxes, and Cash Flow Use the balance sheet provided for ABC Inc. to answer the following two questions: Statement of Financial Position December 31, 2024 Item Amount Assets Cash $87,000 Accounts Receivable $105,000 Inventory $293,000 Total Current Assets $485,000 Fixed Assets $630,000 Total Assets $1,115,000 Liabilities Accounts Payable $210,000 HFC - FNCE 317 SPRING 2025 —- MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner = ES cet HASKAYNE HiNRace cio Notes Payable $160,000 Total Current Liabilities $370,000 Long-term Debt $315,000 Total Liabilities $685,000 Equity Common Stock ? Retained Earnings $210,000 Total Liabilities & Equity ne 5. What is the book value of ABC Inc.’s common stock? $205,000 $210,000 $220,000 $250,000 Beep 6. Ifat the end of 2023, ABC Inc.’s current assets were $450,000 and current liabilities were $350,000, what is the change in Net Working Capital (NWC) for 2024, and does this represent a cash inflow or outflow? a. Increase of $35,000, cash inflow b. Decrease of $35,000, cash outflow c. Increase of $15,000, cash outflow d. Decrease of $15,000, cash inflow 7. Sunshine House Ltd., a landscaping company, purchased $180,000 of gardening tools in 2022. These tools fall under the CRA’s asset class 8 with a CCA rate of 20%. What is the UCC at the beginning of 2024? a. $100,800 b. $115,200 c. $80,640 d. $92,160 8. If Sunshine House sells all of its gardening tools in 2024 for $85,000, was there a capital gain, recaptured CCA, or terminal loss? a. Capital gain because $85,000 is greater than the total CCA claimed for the tools b. Recaptured CCA because $85,000 is less than the remaining UCC at the end of 2024 c. Terminal loss because $85,000 is less than the $180,000 originally paid for the tools in 2022 d. Recaptured CCA because $85,000 is greater than the remaining UCC at the end of 2024 HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner 4 st +7) nats 10, What is the Henn on Hqulty (HOV) for Nimbus Strategies? a 10% b, 16.67% 6, 25% d, 33.33% 11, Using the DuPont Identity, whieh of the following aalements a Wie about Nimbus Atrategies? (Assume all else ly held constant for ench of the ehanges outlined), a, If Nimbus Strategies repald all debts, ROL, would Inerenue, and ROA would decrease b, IP Nimbus Airategles Issued more common mack, ROW, would Inereave 6. If Nimbus fitrategles Increased wales, auset uve eMeleney would improve dd. TP Nimbus fitralegien Invested In more fixed assets nsvet n4e efficleney would Improve Chapter 5; The Time Value of Money 12, You need to borrow 41,000 today and are presented with two repayment options: I) Repay 41,200 in 4 years, or Il) Horrow at an interest rate of 5% for 4 years, What i9 the implied Interest rate for the first option, and whieh should you ehoose? a, 3.45%; choose Option | because It has a lower rite b. 4.00%; choose Option il because the cost is lower c. 4.66%; choose Option | heeause It has a lower total repayment amount d, 4,66%; choose Option Hi because the Implied interest rate for Option fis lower 13, You are the beneficiary of a trust fund that will start paying you in 5 years’ time, You will receive $25,000 each year and there will be a total of A0 annual payments, If the interest rate is 4% per year, how much should the trust fund be valued taday to find these eash flows? (Round to the nearest dollar), a, $422,974 b, $494,819 ¢, $1,000,000 d, $854,804 14, KNU Lid, is considering purchasing equipment that costs $50,000 and is given an option to finance the full amount and repay the loan by making equal payments once every two years for the next 20 years, If the interest rate 19 4%, how much will each of the biannual payments be? (Round to the nearest dollar), a, $7,505 b, $4,167 ¢, $3,452 d, $1,679 Chapter 6; Discounted Cash Mlow Valuation 15, Noah Is moving to Toronto and needs a morigage from the bank for $645,000, The APR on the mortgage Is 4,5% with semi-annual compounding, The mortgage is for 15 years and payments are due monthly, What is the monthly interest rate he will pay? HVC — PNCE 317 SPRING 2025 ~ MIDTERM AND TINAL EXAM REVIEW PACKAGE Scanned with } ( CamScanner KS C2 HASRAINE a. 0,3546% b. 0.4025% c. 0.3715% d, 0,4256% 16. Joey just won the lottery and will receive $530,000 today. As part of the lottery, he will also receive $144,000 at the end of cach year for the next 30 years, How much are Jocy’s winnings worth today if the discount rate is 7%? (Round to the nearest cent). a, $2,543,255.88 b. $2,316,901,93 c, $2,225,461.67 d. $2,428,312.49 17, Calder wants to save up to buy a golf membership which costs $35,000, If he saves and invests $275 a month and earns 0.4% per month, How long will it take until he can purchase the membership? (Round to one decimal place). a, 7.8 years b. 8.6 years c, 9.1 years d. 8.2 years 18. You are planning to save for retirement in the next 40 years, To achieve your goals, you believe that a mix of stocks and bonds meets your investment needs, You plan to invest $850 amonth in a stock account which earns 10% APR, For the bond account you plan to invest $450 a month, which earns 6% APR. When you retire, you will combine the accounts into a single account which earns 9% APR, How much can you withdraw cach month from your account given that you want your retirement money to last you 30 years? Assume that APR is compounded monthly. a. $50,463.02 b. $52,564.89 c, $47,786.90 d, $51,897.45 Chapter 7: Interest Rates and Bond Valuation 19. Consider two bonds, H & F. Both bonds are selling at par and pay a $60 annual coupon. Bond H will mature in 10 years and bond F matures in 30 years. If the YTM on bonds goes from 9% to 10%; a. Both bonds will increase in value, but bond H will increase more than bond F b. Both bonds will decrease in value, but bond H will decrease more than bond F c. Both bonds will decrease in value, but bond F will decrease more than bond H d. Both bonds will increase in value, but bond F will increase more than bond H 20. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in ten years, and has a yield to maturity of 8%, The intrinsic value of the bond today will be if the coupon rate is 6.5%. HFC - FNCE 317 SPRING 2025 —- MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner instq sKAYN HNANCE CLUB! 26. What is the cost of equity for Crew Inc if the company has just paid an annual dividend of $2.0 that grows at 5% forever. The current price of the stock is $60. a. 8.65% b. 8.25% c. 8.50% d. 8.35% 27. Suppose you bought Crew Inc shares for $55 and held onto them for two years. In that time, you received 2 annual dividends of $1.50 and $1.65. Additionally, you sold the shares for $60. What is the annualized holding period return? a. 7.15% b. 7.50% c. 7.00% d. 6.85% 28. Which of the following statements is correct? Owning a stock can provide up to three different types of cash inflows Owning a stock provides two distinct sources of cash inflows Owning a stock results in only one type of cash inflow Owning a stock results in more than two ways to receive cash inflows There is no possible way to receive cash inflows from owning a stock P PLS oP 29. Which of the following statements is false? a. To calculate the dividend yield, you can take the annual dividend per share and divide it by the stock’s current price per share b. When a company is rapidly growing it should pay out all, or more than all its earnings to shareholders via dividends c. Stock valuation can be estimated by multiplying the earnings per share (EPS) by the price to earnings ratio d. None of the above 30. Crew Inc is currently trading at $50 per share with 2 million shares outstanding and has net debt of $10 million. Its EBITDA for the last fiscal year was $15 million. Turmoil Corp. has 3 million shares outstanding and net debt of $15 million, with an EBITDA of $12 million. Given that both companies operate in the same industry, both are in the Permian basin and also have comparable financial leverage, growth prospects, and risk profiles, what is the implied price per share of Turmoil Corp? (Hint: use Crews EV/EBITDA multiple) a. $20.88 b. $24.33 c. $28.56 d. $30.49 HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner th ‘ Q mo <2 te HASRAM Chapter 9: Net Present Value and Other Investment Criteria 31. An investment project is likely to be accepted by the payback period rule and not accepted by the NPV rule if the project has: a. Large cash flows up-front and smaller cash flows in the future b. A large outlay of cash at the end of the project due to asset retirement obligations c. None of the above, both the Payback rule and the NPV rule always result in the same decision d. Consistent cash flows throughout the entire life of the project 32. Crew Inc can purchase a piece of equipment for $5,000. The asset has a 5-year life, will produce a cash flow of $800 in years I to 3 and $1,600 in years 4 and 5. The interest rate is 8%. Calculate the project’s IRR. Should the project be undertaken? What is the NPV? a. Yes; IRR = 9.33%; NPV = -678 b. No; IRR = 3.39%; NPV = -673 c. Yes; IRR = 8.89%; NPV = +363 d. No; IRR = 6.87%; NPV = -345 33. Reece is pondering an investment that will cost him $160,000. The investment produces no cash flows in the first year. In the second year the cash flow is $25,000. In the following two years the cash flows were $45,000 and then $65,000. The final year's cash flow is $70,000. Reece wants a 12% return and needs to have a discounted payback period of 4 years. You advise Reece to the project because the discounted payback period is ? a. Accept; 3.89 years b. Accept; 3.53 years c. Reject; project does not pay back d. None of the above Part B: Final Exam Practice Questions Chapter 10: Making Capital Investment Decisions 34. Which statement correctly explains the purpose of using the Equivalent Annual Cost (EAC) method when it comes to the evaluation of a project? a. It converts a project's Net Present Value (NPV) into a series of equal annual cash flows to allow comparison between projects of unequal lifespans. b. It determines the annual rate of return needed for a project's NPV to be zero. c. Itcalculates the yearly profit generated by a project over its lifetime, including depreciation, d. It estimates the total lifetime value of a project based on forecasted revenue streams, 35. Which of the following is true regarding Equivalent Annual Benefit (EAB) and the EAC method? HFC - FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner b. c. d. 12 $462,480 $425,450 $415,860 Chapter 12: Lessons form Capital Market History 40. If the stock market is semi-strong form efficient, then an investor can earn excess profits by: eae oe Trading on insider information. Trading on newly released public information. Identifying mispriced securities. Studying historical price patterns. Studying financial statements as they become available. 41. In order to counteract the effects of dispositional investors (where investors want to lock in small wins) an investor should use the strategy called momentum investing which is: SoBe oP Use the provided figure below to answer the following two questions. Buy winners and sell losers Sell winners and buy losers Buy winners and buy losers Sell winners and sell losers Create call options on the losers and put options on the winners Year Price Dividend i S65 - 2 $75.65 $.50 B $87.88 $.55 Ht $84.78 $.65 42. A stock had the following prices and dividends. What is the geometric average return on this stock? a. 11.1% b. 10.1% c. 9.6% d. 12.1% e. 9.5% 43. If you were to analyze the returns using the arithmetic average instead of the geometric average, you would expect the arithmetic average to be: poe ge Greater than the geometric average Smaller than the geometric average The same as the geometric average An equal chance of being greater or smaller than the geometric average None of the above HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner SS as} HASRAYINE Chapter 13: Return, Risk and the Security Market Line 44. Noah has achieved the greatest portfolio optimization in the world. As a result, he was able to achieve complete diversification in his portfolio. The standard deviation of Noah’s portfolio will be equal to: a. Zero. b. One. c. The portfolio beta. d. The systematic risk. e. The risk premium of the portfolio. State Probability Return on A Return on B [Boom 0.3 18% 14% Normal 0.5 12% 8% [Bust 0.2 6% 12% 45. What is the Expected return & standard deviation of returns for asset A? 12.6%: 5.54% 13.5%: 3.52% 8.67%: 2.81% 12.6%: 4.96% 12.6%: 4.20% ppose Use the provided information for the following two questions. State Return on A Return on B Super Boom 18% -6% Normal 12% A% Super Bust 6% 16% 46. If A and B are combined in a portfolio with 50% invested in each, the expected return and risk (standard deviation) would be: a. 8.3%; 2.05% b. 8.0%; 2.55% c. 8,3% 4.55% d, 8.0% 2.05% €, 9.0% 2.05% 47. What is the beta for a portfolio equally weighted in four assets: A, the market portfolio; B, which has a quarter the risk of A; C, which has four times the risk of A; and D, which is risk- free? a. 1,3125 b. 1.3455 c. 14555 d. 0.9876 HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner Ww Sh 15 HAS! FINANCE 1 a] r S ES b. Diversification reduces risk whenever the correlation between two stocks is less than 1.0. Diversification is only beneficial when two stocks are perfectly negatively correlated. Diversification does not affect risk if the two stocks are not perfectly positively correlated. oo 53. An overpriced asset has an expected rate of return the security market line: a. Below b. Above c. Equal to d. None of the above. 54. On January Ist, 2023, shares of NXT Corp were trading at $22.40. By December 31st, 2023, the stock closed at $31.10. During the year, NXT paid out total dividends of $0.75 per share. What was the total return on NXT stock for 2023? 39.3% 42.2% 43.5% 46.3% Boop Chapter 14: Cost of Capital 55. Which of the following is FALSE regarding the use of the Dividend Growth Model to calculate the cost of equity? a. It is only applicable to companies currently paying dividends b. It is acceptable to approximate the growth rate with some uncertainty if dividends aren’t growing at a constant rate c. Growth rates can be estimated using the historical average d. Risk is not explicitly factored in 56. Under Modigliani and Miller Proposition II (with taxes), what happens to WACC as the debt-to-equity ratio increases? a. WACC increases due to financial risk b. WACC remains constant c. WACC decreases due to the tax shield on debt d. WACC decreases only when equity is issued 57. Which of the following statements is FALSE? a. Using the Adjusted Present Value (APV) approach with a constant debt-to-equity ratio requires solving for the project’s debt and value simultaneously. b. Weighted Average Cost of Capital (WACC) is an appropriate project discount rate when it has the same risk as the firm’s current operations. c. The WACC method analyzes a project under all equity financing and then adds the additional effects of financing. HFC — FNCE 317 SPRING 2025 —- MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner Dh 16 insng HASKANE d. The problem with the Pure Play approach is finding appropriate peer companies, Use the provided information below to answer the following two questions, Bodpa Resources Inc. _ Tay ae beets Shares outstanding 13 million Share price $20 Beta Las [Market risk premium 0% Risk-free rate 3% Debt outstanding (face value) [$1 billion (Current quote (% of par) 105 (Coupon rate (semi-annual) 9% [Years to maturity 10 ‘ax rate H0% 58. What is Bodpa Resources’ cost of equity? a, 10.8% b. 9.6% c. 14.5% d, 13.35% 59. What is Bodpa Resources’ cost of debt and after-tax cost of debt, respectively? a, 8.498%; 5.099% b. 7.854%; 3.399% c. 3.923%; 4.249% d, 4.249%; 2.549% Chapter 16: Financial Leverage and Capital Structure Policy 60. UMA Manufacturing is an all-equity financed company with 80,000 shares outstanding at a price of $25 per share and produces an annual EBIT of $600,000. The firm is considering issuing $400,000 of debt and repurchasing shares. The cost of debt is 8%. If taxes are ignored, how much will EPS change if the company issues the debt and EBIT remains constant? a. EPS increases by $1.38 b. EPS decreases by $0.75 c. EPS increases by $1.25 d. EPS decreases by $2.00 61. What is the optimal capital structure when considering corporate taxes but ignoring bankruptcy costs? a, Allequity HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner 18 inst@ HASKAYNE FINANCE CLUB. KR $127M $120M $112M $108M aeoe HFC - FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } Scanned with } ( CamScanner Part C: Midterm Exam Comprehensive Solution Guide 1. D Correct Answer: Y Capital budgeting These decisions involve determining whether long-term investments, such as new technology, are worth the capital expenditure. This process includes forecasting the expected benefits and evaluating the risks and returns of the investment. The company is considering a major investment in technology. This is a long-term decision with implications for costs, revenues, and productivity. Capital budgeting helps determine whether this investment will generate a return that exceeds its cost. Incorrect Answers: * a. Capital structure Incorrect because capital structure deals with how the company finances its operations or investments (e.g., through debt, equity, or a mix). This decision focuses on financing rather than determining whether to make an investment. * b. Dividend policy Incorrect because dividend policy refers to decisions regarding how much profit should be returned to shareholders in the form of dividends. It is unrelated to the decision to make a new investment. xc. Working capital management Incorrect because working capital management focuses on managing a company's short-term assets and liabilities, such as inventory, receivables, and payables. It is not concerned with long-term investments like new technology. 2. A Correct Answer: Y Not subject to corporate income tax Income funds are often structured to avoid corporate income tax, as income is typically distributed directly to the unit holders and taxed at the individual level. This is a primary advantage of such a structure, making it attractive to investors seeking tax-efficient returns. Incorrect Answers: xb, Limited liability Incorrect because while income funds may provide limited liability to their investors (unit holders), this is not a unique advantage of income funds. Many business structures, including corporations and LLCs, offer limited liability. * c. Generation of social capital for members Incorrect because social capital relates to the networks, relationships, and trust between people or organizations. While some funds may focus on generating social capital as part of HFC — FNCE 317 SPRING 2025 — MIDTERM AND FINAL EXAM REVIEW PACKAGE } _ Scanned with : CamScanner