Final Exam

1.Which of the following statements is CORRECT?

| a. | As the stock's price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases. | |

|

| b. | The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price. | |

|

| c. | An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value. | |

|

| d. | Issuing options provides companies with a low cost method of raising capital. | |

|

| e. | The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger. |

|

2. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

| a. | The company pays a dividend. | |

|

| b. | The company gives customers more time to pay their bills. | |

|

| c. | The company repurchases common stock. | |

|

| d. | The company issues new common stock. | |

|

| e. | The company purchases a new piece of equipmen |

|

3. Winston Washers's stock price is $90 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston's market/book ratio? Round your answer to two decimal places.

4Which of the following statements is CORRECT?

| a. | The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. | |

|

| b. | The proper goal of the financial manager should be to attempt to...