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FIN 401 FINAL Exam Study Guide Solutions

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FIN 401 FINAL Exam Study Guide Solutions Way to increase Economic Value Added: - ANSWER-One way to achieve the same level of operating income but with less investor-supplied capital Advantages of Sole Proprietorships & Partnerships vs. Corporations - ANSWER-Tax Advantages Rate of Return - ANSW...

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  • November 4, 2024
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KaylinHoffman
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FIN 401 FINAL Exam Study Guide

Solutions


Way to increase Economic Value Added: - ANSWER✔✔-One way to achieve the same level of operating

income but with less investor-supplied capital


Advantages of Sole Proprietorships & Partnerships vs. Corporations - ANSWER✔✔-Tax Advantages


Rate of Return - ANSWER✔✔-= Dividend Yield + Capital Gains Yield


Intrinsic Value per Share - ANSWER✔✔-P0 = D1 / rs - g


Market Value Added - ANSWER✔✔-= Market Value of Company - Total Equity (Common Stock + Retained

Earnings)


Economic Value Added - ANSWER✔✔-= (Operating Capital)(ROIC - WACC)


What might lead to a need for AFN - ANSWER✔✔-The company's profit margin decreases


Self-Supporting Growth Rate - ANSWER✔✔-= M(1 - POR)(Sales) / Assets - Spont. Liabilities - M(1 -

POR)(Sales)


What are some ways to increase cost of equity - ANSWER✔✔-Increase flotation costs


Increase market risk premium


Increase risk-free rate


Increase Beta


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, Copyright © KAYLIN 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH NOVEMBER, 2024


Increase expected inflation


The risk free rate goes up - ANSWER✔✔-If inflation goes up


Sunk cost - ANSWER✔✔-A cost that has already been committed and cannot be recovered


Opportunity Cost - ANSWER✔✔-Cost of a lost opportunity


Increases the E(NPV) through real options - ANSWER✔✔-Considering growth and abandonment options


Real Options (More inclined to accept projects) - ANSWER✔✔-1) Considering investment timing options


2) Considering growth and abandonment options


Dividend Preference Theory - ANSWER✔✔-Investors prefer the certainty of current cash to future capital

gains


Tax Effect Theory - ANSWER✔✔-Proposes that investors prefer capital gains over dividends, because

capital gains taxes can be deferred into the future but taxes on dividends must be paid as the dividends

are received


Dividend Irrelevance Theory - ANSWER✔✔-The theory that a firm's dividend policy has no effect on

either its value or its cost of capital


Two different types of DRIP's - ANSWER✔✔-1) Open Market Purchase Plan


2) New Issue Plan


Stock Split Equation - ANSWER✔✔-P1 = P0 / Split Ratio


Recapitalization - ANSWER✔✔-Value of operations does not change, yet the value of equity would

change due to the WACC and the debt tax shield


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