Question 1

Fisher's separation theorem means that:

Accepted Answer

A) a company can make an investment decision even if all shareholders do not agree. 
B) a company should invest beyond the point where the net present value of the marginal unit of investment is zero. 
C) a company should invest up to a point where the rate of return on the marginal unit of investment equals the market interest rate. 
D) none of the given options is correct. 
A) a company can make an investment decision even if all shareholders do not agree. 
B) a company should invest beyond the point where the net present value of the marginal unit of investment is zero. 
C) a company should invest up to a point where the rate of return on the marginal unit of investment equals the market interest rate. 
D) none of the given options is correct. C

Question 2

The curve that displays the investment opportunities and outcomes available to the company is the:

Accepted Answer

A) production probability curve. 
B) production cost curve. 
C) production possibilities curve. 
D) production value curve. 
A) production probability curve. 
B) production cost curve. 
C) production possibilities curve. 
D) production value curve. C

Question 3

Fisher's separation theorem has no implications for the investment decision.

Accepted Answer

A) True 
 B)False  False

Question 4

An _______________ is a curve that shows a set of combinations such that an individual derives equal utility from any combination in the set.

Accepted Answer

The answer of An _______________ is a curve that shows...

Question 5

The slope of a market opportunity line is given by:

Accepted Answer

A) -(1 + i) 
B) C1 /(1 + i) 
C) C2 + C1(1 + i) 
D) -C1 /(1 + i) 
A) -(1 + i) 
B) C1 /(1 + i) 
C) C2 + C1(1 + i) 
D) -C1 /(1 + i)

Question 6

What is the role of the capital market in Fisher's Theorem?

Accepted Answer

A) To ensure there is no simple decision rule that will satisfy all shareholders. 
B) To increase the market interest rate. 
C) To allow for a transfer between current and future resources. 
D) To provide a market for companies to employ highly skilled individuals. 
A) To ensure there is no simple decision rule that will satisfy all shareholders. 
B) To increase the market interest rate. 
C) To allow for a transfer between current and future resources. 
D) To provide a market for companies to employ highly skilled individuals.

Question 7

Consider the following diagram:  
In this diagram,if the optimal policy is chosen,the company invests the amount:

Accepted Answer

A) W1-E 
B) W1-C*1 
C) E-C*1 
D) W2-E 
A) W1-E 
B) W1-C*1 
C) E-C*1 
D) W2-E

Question 8

The line that shows the combinations of current and future consumption that an individual can achieve from a given wealth level using capital market transactions is the:

Accepted Answer

A) capital market line. 
B) market opportunity line. 
C) market line. 
D) consumption opportunity line. 
A) capital market line. 
B) market opportunity line. 
C) market line. 
D) consumption opportunity line.

Question 9

Consider the following investment/dividend opportunities facing a company:  
Assume that the interest rate in the capital market is 12 per cent per period.What is the NPV of Project Normal?

Accepted Answer

A) $66.96 
B) $75.00 
C) $8.04 
D) $258.04 
A) $66.96 
B) $75.00 
C) $8.04 
D) $258.04

Question 10

Consider the following investment/dividend opportunities facing a company:  
Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mini.

Accepted Answer

A) 11.1% 
B) 0% 
C) 25% 
D) -20% 
A) 11.1% 
B) 0% 
C) 25% 
D) -20%

Question 11

Consider the following investment/dividend opportunities facing a company:  
Assume that the interest rate in the capital market is 12 per cent per period,and that the company has four equal shareholders (A,B,C and D).Also assume the company has chosen Projects Normal and Mega for investment.Suppose Shareholder B wishes to consume $165 now.What is his required repayment in the later period?

Accepted Answer

A) $65 
B) $165 
C) $72.80 
D) $184.80 
A) $65 
B) $165 
C) $72.80 
D) $184.80

Question 12

Consider the following production possibilities curve:  
Point Q represents:

Accepted Answer

A) an intermediate case in which a dividend of 30 units is paid at Time 1. 
B) an intermediate case in which 30 units is invested at Time 1. 
C) an intermediate case in which a dividend of 50 units is paid at Time 2. 
D) none of the given options. 
A) an intermediate case in which a dividend of 30 units is paid at Time 1. 
B) an intermediate case in which 30 units is invested at Time 1. 
C) an intermediate case in which a dividend of 50 units is paid at Time 2. 
D) none of the given options.

Question 13

To calculate a project's net present value (NPV),the project's required rate of return is used to:

Accepted Answer

A) compound cash flows to their future values. 
B) convert future cash flows to their equivalent values today. 
C) compute the weighted average cost of capital to discount the cash flows. 
D) convert the non-operating cash flows into operating cash flows. 
A) compound cash flows to their future values. 
B) convert future cash flows to their equivalent values today. 
C) compute the weighted average cost of capital to discount the cash flows. 
D) convert the non-operating cash flows into operating cash flows.

Question 14

Consider the following investment/dividend opportunities facing a company:  
Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mega.

Accepted Answer

A) 19.4% 
B) 19.2% 
C) 16.1% 
D) 23.1% 
A) 19.4% 
B) 19.2% 
C) 16.1% 
D) 23.1%

Question 15

Consider the following graph:  
Assume that the interest rate per period is 15 per cent.Calculate y.

Accepted Answer

A) 115 units 
B) 106 units 
C) 92.17 units 
D) 100 units 
A) 115 units 
B) 106 units 
C) 92.17 units 
D) 100 units

Question 16

Consider the following graph.  
Which of the following statements is false?

Accepted Answer

A) The Company has 150 units of resources available to it. 
B) The point (150,0)represents a dividend payment of zero units at Time 1. 
C) 190 units would be available for consumption at Time 2 if no dividend were paid at Time 1. 
D) None of the given options is false. 
A) The Company has 150 units of resources available to it. 
B) The point (150,0)represents a dividend payment of zero units at Time 1. 
C) 190 units would be available for consumption at Time 2 if no dividend were paid at Time 1. 
D) None of the given options is false.

Question 17

Under Fisher's separation theorem,the key factor that affects the way in which financial decisions are made is that:

Accepted Answer

A) it is critical that there are effective capital markets in place to allow firms to borrow from those lenders who choose the greater security of debt rather than equity. 
B) regardless of an individual shareholder's preference between investment and consumption,there is an identifiable single decision for the firm that all shareholders will support. 
C) shareholders are effectively separated from all decisions of the firm,in that they have no interest in the outcome of those decisions. 
D) each and every shareholder's preference between investment and consumption is effectively separate in determining the activities of the firm. 
A) it is critical that there are effective capital markets in place to allow firms to borrow from those lenders who choose the greater security of debt rather than equity. 
B) regardless of an individual shareholder's preference between investment and consumption,there is an identifiable single decision for the firm that all shareholders will support. 
C) shareholders are effectively separated from all decisions of the firm,in that they have no interest in the outcome of those decisions. 
D) each and every shareholder's preference between investment and consumption is effectively separate in determining the activities of the firm.

Question 18

Which of the following statements is false?

Accepted Answer

A) If there is only one market interest rate,then the value of the company and the wealth of its shareholders are independent of the company's capital structure. 
B) If any one point on a market opportunity line is attainable,then all other points on the line are also attainable by borrowing or lending. 
C) The dividend decision does not affect shareholders' wealth,provided that the company does not alter its investment decision. 
D) None of the given options. 
A) If there is only one market interest rate,then the value of the company and the wealth of its shareholders are independent of the company's capital structure. 
B) If any one point on a market opportunity line is attainable,then all other points on the line are also attainable by borrowing or lending. 
C) The dividend decision does not affect shareholders' wealth,provided that the company does not alter its investment decision. 
D) None of the given options.

Question 19

Suppose that a company has X units of resources and is considering three investment/dividend policies,P1,P2 and P.The following graph shows market opportunity lines drawn through each of these points:  
The line through P1 shows that:

Accepted Answer

A) if policy P1 were adopted,the shareholders' wealth would decrease from W to W1. 
B) if policy P1 were adopted,the shareholders' wealth would increase from X to W1. 
C) if policy P1 were adopted,the shareholders' wealth would remain unchanged at W1. 
D) none of the given options. 
A) if policy P1 were adopted,the shareholders' wealth would decrease from W to W1. 
B) if policy P1 were adopted,the shareholders' wealth would increase from X to W1. 
C) if policy P1 were adopted,the shareholders' wealth would remain unchanged at W1. 
D) none of the given options.

Question 20

B1 and B2 are equal shareholders in the company Banana Inc.They have each invested $200 in the company.The following graph shows on a per shareholder basis the production possibilities curve,B1 and B2's indifference curves and the market opportunity line.  
(a)What is the interest rate?
(b)How much is invested by the company at the optimal point?
(c)Assuming that the company invests at the optimal point,complete the following table (where applicable)for shareholder B1.   (d)Assuming that the company invests at the optimal point,complete the following table (where applicable)for B2.

Accepted Answer

The answer of B1 and B2 are equal shareholders in...

Fisher's separation theorem means that:

The curve that displays the investment opportunities and outcomes available to the company is the:

Fisher's separation theorem has no implications for the investment decision.

An _______________ is a curve that shows a set of combinations such that an individual derives equal utility from any combination in the set.

The slope of a market opportunity line is given by:

What is the role of the capital market in Fisher's Theorem?

Consider the following diagram: In this diagram,if the optimal policy is chosen,the company invests the amount:

The line that shows the combinations of current and future consumption that an individual can achieve from a given wealth level using capital market transactions is the:

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.What is the NPV of Project Normal?

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mini.

Consider the following production possibilities curve: Point Q represents:

To calculate a project's net present value (NPV),the project's required rate of return is used to:

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mega.

Consider the following graph: Assume that the interest rate per period is 15 per cent.Calculate y.

Consider the following graph. Which of the following statements is false?

Under Fisher's separation theorem,the key factor that affects the way in which financial decisions are made is that:

Which of the following statements is false?

Suppose that a company has X units of resources and is considering three investment/dividend policies,P₁,P₂ and P.The following graph shows market opportunity lines drawn through each of these points: The line through P₁ shows that:

Introduction

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Exam 2: Consumption, Investment and the Capital Market

Fisher's separation theorem means that:

The curve that displays the investment opportunities and outcomes available to the company is the:

Fisher's separation theorem has no implications for the investment decision.

An _______________ is a curve that shows a set of combinations such that an individual derives equal utility from any combination in the set.

The slope of a market opportunity line is given by:

What is the role of the capital market in Fisher's Theorem?

Consider the following diagram: In this diagram,if the optimal policy is chosen,the company invests the amount:

The line that shows the combinations of current and future consumption that an individual can achieve from a given wealth level using capital market transactions is the:

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.What is the NPV of Project Normal?

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mini.

Consider the following production possibilities curve: Point Q represents:

To calculate a project's net present value (NPV),the project's required rate of return is used to:

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Mega.

Consider the following graph: Assume that the interest rate per period is 15 per cent.Calculate y.

Consider the following graph. Which of the following statements is false?

Under Fisher's separation theorem,the key factor that affects the way in which financial decisions are made is that:

Which of the following statements is false?

Suppose that a company has X units of resources and is considering three investment/dividend policies,P1,P2 and P.The following graph shows market opportunity lines drawn through each of these points: The line through P1 shows that:

Introduction

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Suppose that a company has X units of resources and is considering three investment/dividend policies,P₁,P₂ and P.The following graph shows market opportunity lines drawn through each of these points: The line through P₁ shows that: