PREVIOUS FINAL EXAMS
FIN 413
Corporate Financial Policy
Spring 2007
Professor Clifford W. Smith Jr.
FIN 413 Final Exam
Spring 2004
Clifford W. Smith, Jr.
William E. Simon Graduate School of Business Administration
University of Rochester
Name ___________________________________________
Thursday, June 3, 2004
¾ This is a closed-book, closed-notes exam.
¾ Please do not sit in adjacent seats.
¾ The exam begins at 6:00 p.m. and ends at 8:30 p.m.
¾ Please do not open the exam until instructed to do so.
¾ Read the questions carefully.
¾ You are encouraged to use a couple of (blank) sheets of paper to organize your
answers before writing on the exam.
¾ Try to provide answers that are focused, responsive, and constructive.
¾ Please write only in the space provided for each question.
¾ If you have any questions during the exam, please ask me.
¾ Good luck!
G318 – Evening Section
S207 – Day Section (A – Li)
S407 – Day Section (Lu – Y)
1. (3 pts.) Define briefly:
a. Poison pill
b. Greenmail
c. Record date
d. Investment grade debt
e. Factoring
f. Libor
2. (8 pts.) Your boss shows you a NYT article that notes Kia Motors is building its first European
plant and will begin production by the end of 2006. She asks how such a project should affect
Kia’s financing policy over the next three years.
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3. (12 pts.) Discuss briefly:
a. “Three of the [Fleet Boston] executives … will receive Fleet severance payments
currently valued at $20 million whenever they leave Bank of America.”
b. “A simple and attractive way to bring market forces into play would be to require
executives to pre-announce, by perhaps a week, their indication to trade.”
c. “We’ve had a lot of companies, particularly technology companies, on track to do a
convertible deal and their stock went up 20% to 50%. So now they say, ‘I’m ok issuing
stock at current levels.’”
d. “US Airways is considering the sale of airport facilities and its east coast shuttle service.”
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4. (6 pts.) Your boss shows you a WSJ article that notes that HealthSouth is having great
difficulty renegotiating debt agreements to deal with default. Opposition is led by an instutional
investor, Franklin Resources. He notes we’ve been quite successful in renegotiating our debt
with the Prudential Insurance Company. He wonders why the difference.
5. (6 pts.) Your boss shows you an AP article that more CEO’s are receiving restricted stock and
fewer are receiving options. She suggests that perhaps we should drop options and just use
restricted stock. What do you say?
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6. (5 pts.) Your boss shows you a WSJ article that notes “the Financial Accounting Standards
Board would require companies to recognize on their income statements the cost of stock-option
grants.” She says “This is just an accounting change — it won’t matter.” What do you say?
7. (5 pts.) Your boss shows you a WSJ article that notes: “Frontier landed a $70 million loan
backed by $63 million in federal guarantees.” He notes that since the loans have been repaid the
guarantees didn’t cost anything.
8. (5 pts.) Your boss shows you a BW article that notes “Tech companies pay few dividends.”
She asks what that might suggest for Kodak and its strategic transition to digital?
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FIN 413 Final Exam
Spring 2005
Clifford W. Smith, Jr.
William E. Simon Graduate School of Business Administration
University of Rochester
Name ___________________________________________
Thursday, June 2, 2005
¾ This is a closed-book, closed-notes exam.
¾ Please do not sit in adjacent seats.
¾ The exam begins at 8:00 a.m. and ends at 10:15 a.m.
¾ Please do not open the exam until instructed to do so.
¾ Read the questions carefully.
¾ You are encouraged to use a couple of (blank) sheets of paper to organize your
answers before writing on the exam.
¾ Try to provide answers that are focused, responsive, and constructive.
¾ Please write only in the space provided for each question.
¾ If you have any questions during the exam, please ask me.
¾ Good luck!
1. (3 pts) Define briefly:
a. Coverage Ratio
b. Commercial Paper
c. Operating lease
d. Affirmative Covenant
e. Hybrid Debt
f. Zero-cost collar
2 a. (18 pts) Your boss shows you a BW article that says, “the tech sector has landed in the crosshairs of some of
the largest buyout shops in the world.” He wonders how financing policies should differ between the
traditional asset-intensive targets and tech targets. Explain.
b.
He asks how financing policies should differ between these firms that are bought and other similar
public firms? Explain.
c.
He then asks how the difference in leverage between LBO and public asset-intensive firms should
compare to the difference between LBO and public tech firms. Explain.
3. (5 pts) Your boss shows you an WSJ article on outsourcing. He notes that Kodak outsourced its
administrative computing to IMB, but retained its research computing. He asks why not outsource that as
well.
4. Discuss briefly: (24 pts)
a. “$5.1 million – Largest salary, to Calamos Asset Management’s John O. Calamos, Sr. He also had
the largest bonus at $8.3 million”.
b.
c.“Ryanair Holdings of Dublin, for example, is completely exposed to market prices for fuel this year and
says it won’t resume hedging until oil prices go below $40.”
d. “The second most important reason to lease… is protection against obsolescence.”
e. “History shows that the stock market rewards dividend givers and punishes most dealmakers.”
f. “H-P would consider a write-down (of goodwill from its Compaq merger) if its profits did not improve.”
Bob Wayman, H-P CFO.
FIN 413 Final Exam
Spring 2006
Clifford W. Smith, Jr.
William E. Simon Graduate School of Business Administration
University of Rochester
Name ___________________________________________
Sunday, June 4, 2006
¾ This is a closed-book, closed-notes exam.
¾ Please do not sit in adjacent seats.
¾ The exam begins at 4:00 p.m. and ends at 6:30 p.m.
¾ Please do not open the exam until instructed to do so.
¾ Read the questions carefully.
¾ You are encouraged to use a couple of (blank) sheets of paper to organize your
answers before writing on the exam.
¾ Try to provide answers that are focused, responsive, and constructive.
¾ Please write only in the space provided for each question.
¾ If you have any questions during the exam, please ask me.
¾ Good luck!
S107 – Evening Section
S103 – Day Section
1. (3 pts.) Define briefly:
a. Loading Fees
b. Standstill Agreementl
c. Interest Rate Swap
d. Service Lease
e. Negative Covenant
f. Intrafirm Tender Offer
2. (18 pts.) Discuss Briefly:
a. ”Microsoft salts away too much cash and doesn’t carry nearly enough debt.”
b. “GM closed down 53 cents when it announced it was cutting dividends.”
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c. “NCR doesn’t divulge the profit goal that Mr. Nuti must achieve before he can
exercise his options. To do so would create a competitive disadvantage.”
d. “Debt capital is cheaper than equity capital.”
e. “Varig is behind on fuel and airport fees, and 17 of 71 aircraft are grounded because
the company can’t afford maintenance.”
f. “Fewer loan conditions are beneficial for companies whose earnings may fluctuate
because of volatility in raw-material or energy prices, making it harder to meet
quarterly or annual financial targets.”
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4. (7 pts.) Your boss shows you a WSJ article that notes that more airlines are hedging their fuel
costs. He thinks this is great—ticket prices have been too volatile. He asks your thoughts.
5. (7 pts.) Your boss shows you an BW article that notes IBM is replacing its defined benefit
pension plan in favor of 401 (k)s. They say it will make “its finances more predictable.” Your
boss says he does not understand.
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6. (5 pts.) Your boss shows you a WSJ article that notes many executives receive dividends on
restricted shares, before they vest. He suggests, since these shares may never vest, the dividends
are inappropriate. What do you say?
7. (5 pts.) Your boss shows you a Forbes article that notes the median post buyback return was
about equal to the returns of companies that did not repurchase. He says, “Repurchases don’t
work.” What do you say?
8. (5 pts.) Your boss shows you a NYT article that notes Bausch and Lomb is repurchasing $544
million in debt at a premium to face. He wonders why B & L would do this?
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