UNIVERSITY OF MINDANAO TAGUM COLLEGE

FINAL EXAMINATION
FINANCE 33
MARIA TERESA A. OZOA, CPA

TEST I:
Instruction: Write TRUE if the statement is correct and FALSE if it is incorrect.

1. Debentures are commonly issued by small companies.

2. If a company has promised to pay interest on debt, it must pay the interest even if it shows no profit for the
year, or else it may go bankrupt.
3. Bonds may be recalled only if there is a specific call provision in the bond.
4. A financing lease usually calls for an annual expense deduction equal to the lease payment.
5. Common stockholders have a residual claim to income, in other words they are last in line.
6. Preferred stock dividends are a deductible expense for a corporation.
7. If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the
year.
8. One of the major influences on dividends is the corporate growth rate in sales and the subsequent return on
assets.
9. When a firm raises its dividend, the information content is usually positive for investors.
10. Stability of dividends in not important to stockholders.

TEST II:
Instruction: Write the letter that corresponds to your answer. (2 points each)
1. The term debenture refers to
A. long-term, secured debt.
B. long-term, unsecured debt.
C. the after-acquired property clause.
D. a 100-page document covering the specific terms of the offering.

2. Which of the following bonds offers the most security to the bondholder?
A. Primary mortgage bonds C. Secondary mortgage bonds
C. Debenture bond D. Income bond

3. The residual theory of dividend policy asserts that

A. sufficient dividends are paid to maintain a stable total dividend paymentany residual is invested internally by
the firm.
B. sufficient dividends are paid to maintain a stable dividend payout ratioany residual is invested internally by
the firm.
C. dividends are paid out of the residual remaining after internal investments by the firm.
D. dividend payments are adjusted to maintain dividends at a constant percentage of total cash flows.

4. A major desire of stockholders regarding dividend policy is

A. frequent stock dividends.
B. dividend stability.
C. high payouts when earnings are up and lower payouts when earnings are down.
D. payment of dividends at frequent intervals.

5. Which of the following generally does not influence the dividend policy of the firm?
A. Cash position of the firm
B. Desire for control
C. Seasonal changes in the level of income
D. Investor's expectations of the future based on dividend policy

6. Which of the following does not affect a company's dividend policy?

A. Legal rules concerning capital impairment
B. The efficient market hypothesis
C. Access to capital markets
D. Tax position of shareholders
 7. According to the law, dividends may be funded from:
A. past earnings.
B. current earnings.
C. future earnings.
D. Only a and b.

8. Some dividend reinvestment plans allow the stockholder to acquire shares of stock
A. from the company's unissued shares.
B. in the market through the company's transfer agent.
C. at a discount from the market price.
D. all of these

9. A firm will repurchase their own shares in the market because

A. it can stabilize their price in the market
B. they believe the shares are selling at a high price
C. it will generally provide a benefit to the shareholders
D. all of these

10. A stock dividend will

A. increase the total value of stockholders' equity.
B. decrease the total value of stockholders' equity.
C. not affect the total value of stockholders' equity.
D. change the total value of stockholders' equity but the direction cannot be determined unless the market price
and par value is known

TEST III:

1. A bond with a coupon rate of 7.5%, maturing in 10 years at a value of $1,000 and current market price of $776
will have a current yield of
a. 11.3% b. 10.2% c. 9.7% d. 8.5%

2. A bond with a coupon rate of 7.2%, maturing in 10 years at a value of $1,000 and a current market price of $800,
will have a yield to maturity (using the approximation formula) of
a. between 10% and 10.5% b. between 10.5% and 11%
b. between 11% and 11.5% d. between 11.5% and 12%

3. Lucas, Inc., earned $10 million last year and retained $6 million. Lucas has 5 million shares outstanding, and the
current price of Lucas shares is $30 per share. What is the payout ratio?
a. 2.67% b. 4% c. 40% d. 60%

4. Mirrlees Furniture earned $500,000 last year and had a 40 percent payout ratio. How much did the firm add to
its retained earnings?
a. $200,000 c. $300,000
b. There is not enough information to tell. D. None of these

5. The growth rate for the firm's common stock is 7%. The firm's preferred stock is paying an annual dividend of $5.
What is the preferred stock price if the required rate of return is 8%?
A. $5 B. $62.5 C. $500 D. $550

TEST IV:

PROBLEM 1:
Gray House is issuing bonds paying $105 annually that will mature fifteen years from today. The bond is
currently selling for $980. (Assuming that the par value of the bond is $1,000)
Calculate:
a) Coupon Rate
b) Current Yield
c) Yield To Maturity

PROBLEM 2:
The preferred stock of Ultra Corporation pays an annual dividend of $6.30. It has a required rate of return of 9
percent. Compute the price of the preferred stock.
PROBLEM 3:
BioScience, Inc., will pay a common stock dividend of $3.20 at the end of the year (D1). The required return on
common stock (Ke) is 14 percent. The firm has a constant growth rate (g) of 9 percent. Compute the current
price of the stock (P0).

PROBLEM 4:
Maxwell Electronics had net income of $15 million last year, and had 3 million common shares outstanding.
They declared a 12% stock dividend. Calculate EPS before and after the stock dividend.

TEST V:
Instruction: Fill in the blanks with the missing word or phrase to complete the Vision, Mission and Goals.

VISION

Um Tagum College envisions to be a _____(1)_____ non-sectarian institution recognized for its _____(2)_____
education responsive to the needs of communities.

MISSION

To provide a culturally responsive __________(3)__________ through quality instruction, _____(4)_____ and extension.

GOALS

To offer academic programs that meet national and international standards;

To produce graduates who are _______(5)_______, innovative and ethical members of society.
To _______(6)_______ dedicated and competent human resource responsive to the pursuit of quality services;
To provide modern facilities to support instruction, research and extension;
To contribute to the improvement of the __________(7)__________ through research;
To implement extension services that will empower members of the community.

CORE VALUES

8. ____________ our business is based on long term relationship that requires utmost. We are accountable to our
customers, owners, suppliers and fellow employees. We do what we say we are going to do.

9. ____________ we realized that every employee is integral to the success of the institution and strive to promote
across department for the benefit of our customers.

10. ___________ we always think outside the box to provide the best solutions for our customers. Our best
solutions often evolve from discussions across different division and with our many strategic partners.