Question 1

Which of the following actions-all else equal-will decrease a firm's EVA?

Accepted Answer

A) The firm raises its prices but ships the same amount of product. 
B) The firm reduces its inventory. 
C) The firm increases its borrowing to repurchase some of its shares. 
D) The firm increases its accounts receivable. 
A) The firm raises its prices but ships the same amount of product. 
B) The firm reduces its inventory. 
C) The firm increases its borrowing to repurchase some of its shares. 
D) The firm increases its accounts receivable.

Question 2

Economic income = cash flow - economic depreciation.

Accepted Answer

A) True 
 B)False

Question 3

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA)for the firm. (The cost of capital is 10 percent.)

Accepted Answer

A) $100 
B) $50 
C) $120 
D) $150 
A) $100 
B) $50 
C) $120 
D) $150

Question 4

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000.
Calculate the economic value added (EVA)for the firm. (The cost of capital is 15 percent.)

Accepted Answer

A) $500 
B) $1,500 
C) $2,000 
D) $1,000 
A) $500 
B) $1,500 
C) $2,000 
D) $1,000

Question 5

EVA can be increased by reducing assets employed.

Accepted Answer

A) True 
 B)False

Question 6

Shareholders typically rely on independent auditors to monitor the performance of their managers.

Accepted Answer

A) True 
 B)False

Question 7

Briefly explain the term qualified opinion issued by the auditors.

Accepted Answer

When independent auditors find problems

Which of the following actions-all else equal-will decrease a firm's EVA?

Economic income = cash flow - economic depreciation.

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA)for the firm. (The cost of capital is 10 percent.)

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000. Calculate the economic value added (EVA)for the firm. (The cost of capital is 15 percent.)

EVA can be increased by reducing assets employed.

Shareholders typically rely on independent auditors to monitor the performance of their managers.

Briefly explain the term qualified opinion issued by the auditors.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

Exam 12: Agency Problems and Investment

Which of the following actions-all else equal-will decrease a firm's EVA?

Economic income = cash flow - economic depreciation.

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA)for the firm. (The cost of capital is 10 percent.)

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000. Calculate the economic value added (EVA)for the firm. (The cost of capital is 15 percent.)

EVA can be increased by reducing assets employed.

Shareholders typically rely on independent auditors to monitor the performance of their managers.

Briefly explain the term qualified opinion issued by the auditors.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters