FINA3301 - Fall 2021 - Mock Final Exam

NORTHEASTERN UNIVERSITY
D’AMORE-MCKIM SCHOOL OF BUSINESS
FINA3301: CORPORATE FINANCE / MOCK FINAL EXAM
LAST NAME (IN CAPS):………………………………………………………………...
FIRST NAME (IN CAPS):………………………………………………………………..
Please review your syllabus for grading guidelines and other relevant information. This
final exam will count for 35% of your course grade.
Exam Format:
You will have 120 minutes to answer 13 questions:

1) 6 True/False questions of 5 points each.
2) 7 Numerical questions of 10 points each.
The exam will be in-person on Wednesday, December 15, 2021, from 3:30pm EST to
5:30pm EST in CARGILL HALL 097. Those approved for special accommodations will
take their exam, the same day at the DRC on a case per case basis (Please make the room
reservation with the DRC in advance).
Do not forget to print and bring the formula sheet uploaded in Canvas. Bring your
calculators as well (a basic scientific calculator is also fine).
Please make sure to also show your intermediate calculations for partial credit
consideration in case your calculations were in the right direction, but some mistakes led
to a wrong final answer.
Finally, make sure to follow the instructions pertaining to the rounding of your final answer
on each numerical question (all final numerical answers must be rounded to 2 decimal
places).
Good luck!
FINA3301 Corporate Finance Mock Final Exam

Instructor: Jean Claude Makolo page 1 of 4
PART I: TRUE / FALSE QUESTIONS
1. One of the indirect costs of bankruptcy is the effect that a potential bankruptcy has on
the firm's decisions. The general result is that bondholders expropriate value from
stockholders by selecting high-risk projects.
2. From a tax-paying investor's point of view, a stock repurchase is equivalent to a cash

dividend.
3. The information content of a dividend increase generally signals that management

believes the future earnings of the firm will be strong.
4. If the All-Star Fuel Filling Company, a chain of gasoline stations, acquires the Mid-
States Refining Company, a refiner of oil products, this would be an example of a
horizontal acquisition.
5. A use of cash is associated with both a decrease in an asset and a decrease in treasury
stock.
6. ABC Manufacturing historically produced products that were held in inventory until
they could be sold to a customer. The firm is now changing its policy and only
producing a product when it receives an actual order from a customer. All else equal,
this change will decrease the cash cycle.

PART II: NUMERICAL QUESTIONS
7. The Winter Wear Company has expected earnings before interest and taxes of $3,800,
an unlevered cost of capital of 15.4 percent and a tax rate of 22 percent. The company
also has $2,600 of debt with a coupon rate of 5.7 percent. The debt is selling at par value.
What is the value of this firm?
8. NDS Industries is evaluating a project with an initial investment at Time 0 of $640,000.

The present value of the levered cash flows is $729,400 and the net present value of the
project is $157,000. Using the flow-to-equity method of valuation determine the amount
borrowed.
9. Four Wheels requires $1.5 million to fund a new project and has decided to raise the
funds via a seasoned stock offering. Assume the firm will incur $110,000 in indirect
costs and pay 8 percent of the gross proceeds in direct costs. How much does the firm
need to raise in total to cover all the issue costs as well as fund the new project?

10. A lease with a term of 5 years calls for annual payments of $2,000. The leased asset
would cost $9,000 to buy and would be depreciated straight-line to a zero-salvage value
over the 5 years. The use of the asset will result in a $5,000 cost savings per year for 5
years. The actual salvage value is negligible. The firm can borrow at a rate of 10 percent.
What is the net advantage of leasing if the lessee's tax rate is 20 percent?
11. A firm has 600 shares of stock and 100 warrants outstanding. Assume the warrants are
all exercised. The market value of the firm's assets is $25,000 and the market value of
its debt is $8,000. Each warrant grants its owner the right to buy one new share at $27.50.
What is the capital gain on each warrant?
12. D & F expects credit sales of $980, $1,460, $1,730 and $950 for the months of April
through July, respectively. The firm collects 25 percent of sales in the month of sale, 65
percent of sales in the month following the month of sale, and 8 percent in the second
month following the month of sale. The remaining sales are never collected. How much
money does the firm expect to collect in the month of July?
13. Jay's has a market value of $3,600 and believes that if it acquires Benny's in a stock
transaction the combination of the new firm will be worth $6,000 given the expected
synergy of $200. If Jay's wants to keep 75 percent of the synergy for itself, what should
be the value of the stock it issues to Benny's?


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NORTHEASTERN UNIVERSITY

D’AMORE-MCKIM SCHOOL OF BUSINESS

FINA3301: CORPORATE FINANCE / MOCK FINAL EXAM

LAST NAME (IN CAPS):………………………………………………………………...

FIRST NAME (IN CAPS):………………………………………………………………..

You will have 120 minutes to answer 13 questions:

2) 7 Numerical questions of 10 points each.

FINA3301 Corporate Finance Mock Final Exam

2. From a tax-paying investor's point of view, a stock repurchase is equivalent to a cash

3. The information content of a dividend increase generally signals that management

FINA3301 Corporate Finance Mock Final Exam

8. NDS Industries is evaluating a project with an initial investment at Time 0 of $640,000.

FINA3301 Corporate Finance Mock Final Exam

FINA3301 Corporate Finance Mock Final Exam

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