Exam 1: Introduction to Corporate Finance

Mr. Dell has $100 income this year and zero income next year. The expected return from investing in the stock market is 10 percent a year. Mr. Dell also has an investment opportunity-having the same risk as the market in which he can invest $50 this year and receive $80 next year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV of the investment opportunity?

Limited liability is an important feature of:

A corporation has a legal existence of its own and is based on "articles of incorporation."

The following groups are some of the claimants to a firm's income stream:

Real assets of a corporation are claims on their financial assets.

Ms. Anderson has $60,000 income this year and $40,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Anderson consumes $80,000 this year. What will be her consumption next year?

Briefly explain some of the institutional arrangements that ensure that managers work toward increasing the value of a firm.

Briefly explain the advantages of a corporation as a form of business organization.

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