Question 1

Disadvantages of the corporate form include:

Accepted Answer

A) agency costs 
B) double taxation 
C) cost of managing the corporation 
D) all of the options 
A) agency costs 
B) double taxation 
C) cost of managing the corporation 
D) all of the options

Question 2

Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year?

Accepted Answer

A) $19,000 
B) $40,000 
C) $60,000 
D) $70,000 
A) $19,000 
B) $40,000 
C) $60,000 
D) $70,000

Question 3

In the principal-agent framework:

Accepted Answer

A) shareholders are the principals. 
B) managers are the principals. 
C) managers are the agents. 
D) shareholders are the principals and managers are the agents. 
A) shareholders are the principals. 
B) managers are the principals. 
C) managers are the agents. 
D) shareholders are the principals and managers are the agents.

Question 4

As a legal entity, a corporation can perform the following functions EXCEPT:

Accepted Answer

A) borrow money and lend money. 
B) borrow money, lend money, and sue and be sued. 
C) vote. 
D) borrow money, lend money, sue and be sued, and vote. 
A) borrow money and lend money. 
B) borrow money, lend money, and sue and be sued. 
C) vote. 
D) borrow money, lend money, sue and be sued, and vote.

Question 5

A firm's investment decision is also called its

Accepted Answer

A) financing decision. 
B) liquidity decision. 
C) capital budgeting decision. 
D) leasing decision. 
A) financing decision. 
B) liquidity decision. 
C) capital budgeting decision. 
D) leasing decision.

Question 6

Mr. Bird has $100 income this year and zero income next year. The market interest rate is 10 percent per year. Mr. Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. What will be his consumption next year?

Accepted Answer

A) $80 
B) $82 
C) $100 
D) $102 
A) $80 
B) $82 
C) $100 
D) $102

Question 7

The choice of the proper mixture of debt and equity, used to finance a corporation, is also referred to as the

Accepted Answer

A) capital budgeting decision. 
B) capital structure decision. 
C) investment decision. 
D) liquidity decision. 
A) capital budgeting decision. 
B) capital structure decision. 
C) investment decision. 
D) liquidity decision.

Question 8

The following are examples of real assets:

Accepted Answer

A) machinery, office buildings, and warehouses only. 
B) machinery and office buildings only. 
C) common stock only. 
D) machinery only. 
A) machinery, office buildings, and warehouses only. 
B) machinery and office buildings only. 
C) common stock only. 
D) machinery only.

Question 9

Briefly discuss principal-agent problems as related to a corporation.

Accepted Answer

Principal-agent problems arise in a corp

Question 10

The financial goal of a corporation is to:

Accepted Answer

A) maximize profits. 
B) maximize sales. 
C) maximize the value of the firm for the shareholders. 
D) maximize managers' benefits. 
A) maximize profits. 
B) maximize sales. 
C) maximize the value of the firm for the shareholders. 
D) maximize managers' benefits.

Question 11

Ms. Venus has $100 income this year and $110 next year. The market interest rate is 10 percent per year. Suppose Ms. Venus consumes $60 this year. What will be her consumption next year?

Accepted Answer

A) $120 
B) $154 
C) $170 
D) $210 
A) $120 
B) $154 
C) $170 
D) $210

Question 12

The firm's purchase of real assets is also referred to as the:

Accepted Answer

A) capital structure decision. 
B) CFO decision. 
C) financing decision. 
D) capital investment decision. 
A) capital structure decision. 
B) CFO decision. 
C) financing decision. 
D) capital investment decision.

Question 13

Which of the following is an important function of financial markets?

Accepted Answer

A) providing financing 
B) providing financing and liquidity 
C) providing financing, providing liquidity, reducing risk, and providing information 
D) providing information 
A) providing financing 
B) providing financing and liquidity 
C) providing financing, providing liquidity, reducing risk, and providing information 
D) providing information

Question 14

Which of the following types of assets are intangible?

Accepted Answer

A) production machinery 
B) factories 
C) trademarks 
D) office equipment 
A) production machinery 
B) factories 
C) trademarks 
D) office equipment

Question 15

The line that connects the maximum that one can consume this year (now, on the horizontal axis)and the maximum one can consume next year:

Accepted Answer

A) has a slope of (1 + r). 
B) has a slope of - (1 + r). 
C) has a slope of r. 
D) has a slope of 1/r. 
A) has a slope of (1 + r). 
B) has a slope of - (1 + r). 
C) has a slope of r. 
D) has a slope of 1/r.

Question 16

A firm's total asset value belongs entirely to the shareholders.

Accepted Answer

A) True 
 B)False

Question 17

The board of directors is ultimately responsible for all large investment decisions.

Accepted Answer

A) True 
 B)False

Question 18

This book is mainly about:

Accepted Answer

A) financial decisions made by corporations. 
B) financial decisions made by households. 
C) financial decisions made by governments. 
D) financial decisions made by employees. 
A) financial decisions made by corporations. 
B) financial decisions made by households. 
C) financial decisions made by governments. 
D) financial decisions made by employees.

Question 19

Which of the following groups are referred to as stakeholders?

Accepted Answer

A) employees, customers, and suppliers only 
B) shareholders only 
C) employees and customers only 
D) employees, customers, shareholders, and suppliers 
A) employees, customers, and suppliers only 
B) shareholders only 
C) employees and customers only 
D) employees, customers, shareholders, and suppliers

Question 20

Managers, shareholders, and the firm's debtholders have identical information about the value of the firm.

Accepted Answer

A) True 
 B)False

Exam 1: Introduction to Corporate Finance

Disadvantages of the corporate form include:

Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year?

In the principal-agent framework:

As a legal entity, a corporation can perform the following functions EXCEPT:

A firm's investment decision is also called its

The choice of the proper mixture of debt and equity, used to finance a corporation, is also referred to as the

The following are examples of real assets:

Briefly discuss principal-agent problems as related to a corporation.

The financial goal of a corporation is to:

Ms. Venus has $100 income this year and $110 next year. The market interest rate is 10 percent per year. Suppose Ms. Venus consumes $60 this year. What will be her consumption next year?

The firm's purchase of real assets is also referred to as the:

Which of the following is an important function of financial markets?

Which of the following types of assets are intangible?

The line that connects the maximum that one can consume this year (now, on the horizontal axis)and the maximum one can consume next year:

A firm's total asset value belongs entirely to the shareholders.

The board of directors is ultimately responsible for all large investment decisions.

This book is mainly about:

Which of the following groups are referred to as stakeholders?

Managers, shareholders, and the firm's debtholders have identical information about the value of the firm.

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

Agency Problems and Investment

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