Question 1

If a firm can borrow or lend at a 6 percent annual interest rate, it will

Accepted Answer

A) buy more capital if it has the funds on hand than if it has to borrow them 
B) ignore the market rate of interest when making capital investment decisions 
C) buy less capital if it has the funds on hand than if it has to borrow them 
D) ignore the market rate of interest when making saving decisions 
E) buy the same amount of capital whether it has the funds on hand or has to borrow them

Question 2

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is less than the present value of receiving $200 two years from today when the prevailing rate of interest is 8%

Accepted Answer

A) True 
 B)False

Question 3

Saving is necessary for production because

Accepted Answer

A) more roundabout production is better 
B) less roundabout production is better 
C) production takes time 
D) production is expensive 
E) production requires labor

Question 4

Once ABC Corp.sells shares of stock to the public, the stock's price tends to

Accepted Answer

A) fluctuate inversely with the profit prospects of ABC Corp. 
B) fluctuate inversely with the dividend payout of ABC Corp. 
C) fluctuate directly with the dividend payout of ABC Corp. 
D) fluctuate directly with the profit prospects of ABC Corp. 
E) remain constant

Question 5

Exhibit 13-2  One reason for the decline in output with the seventh machine in Exhibit 13-2 could be that

Accepted Answer

A) the increase in the company's power consumption when seven machines are being used causes its electricity bills to be much higher 
B) the increase in the company's power consumption when seven machines are being used causes fuses to blow more often 
C) no one uses the seventh machine; only six are necessary 
D) no one uses the seventh machine; only five are necessary 
E) workers no longer have to wait in line to make copies because more machines are available

Question 6

Saving is

Accepted Answer

A) helpful for production but not necessary 
B) not useful for production because they imply a decrease in consumption 
C) required for production 
D) not useful for production because it is not a resource 
E) not useful for production because savers must be paid interest

Question 7

The marginal rate of return on investment is equal to capital's

Accepted Answer

A) MRC ´ MRP/2 
B) MRC/MRP 
C) MRP/MRC 
D) MRC ´ MRP ´ the interest rate

Question 8

Interest is a payment for deferred

Accepted Answer

A) taxation 
B) saving 
C) consumption 
D) investment 
E) none of the above

Question 9

Increased saving today means

Accepted Answer

A) more consumption today and in the future 
B) less consumption today and in the future 
C) more consumption today and less in the future 
D) less consumption today and more in the future 
E) more income today, but the net effect of increased income on the balance between consumption and saving cannot be determined in advance

Question 10

If the annual interest rate is 4 percent, a consumer who spends $100 today

Accepted Answer

A) will have to pay back $104 to the bank 
B) would have to pay $104 next year to get the same goods 
C) will receive $96 from the bank next year 
D) would have to pay $96 next year to get the same goods 
E) is giving up the ability to spend $104 on goods next year

Exam 13: Capital, Interest, and Corporate Finance