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1. The following are examples of intangible assets except ______. (Points: 5) building trade marks patents technical expertise

2. The following are advantages of separation of ownership and management of corporations except ______. (Points: 5) corporations can exist forever facilitate transfer of ownership without affecting the operations of the firm hire professional managers incur agency costs

3. The financial goal of a corporation is to _______. (Points: 5) maximize profits maximize sales maximize the value of the firm for the shareholders maximize managers' benefits

4. Conflicts of interest between shareholders and managers of a firm result in ______. (Points: 5) principal-agent problem increased agency costs both A and B managers owning the firm

5. An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV of the project at a discount rate of 20%? (Points: 5) $176,000 $80,000 $0 (zero) None of the above

6. What is the present value of the following cash flow at a discount rate of 9%? Year 1 Year 2 Year 3 $100,000 $150,000 $200,000 (Points: 5) $372,431.81 $450,000 $405,950.68 none of the above

7. A perpetuity is defined as ______. (Points: 5) equal cash flows at equal intervals of time for a specific number of periods equal cash flows at equal intervals of time forever unequal cash flows at equal intervals of time forever none of the above

8. What is the present value of $1000 per year annuity for five years at an interest rate of 12%? (Points: 5) $6,352.85 $3,604.78 $567.43 none of the above

9. An annuity is defined as ______. (Points: 5) equal cash flows at equal intervals of time for a specified period of time equal cash flows at equal intervals of time forever unequal cash flows at equal intervals of time forever none of the above

10. If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using compound interest? (Points: 5) $136 $140.49 $240.18 none of the above

11. A 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual interest payment? (Points: 5) $80 $40 $100 none of the above

12. The value of a common stock today depends on ______. (Points: 5) number of shares outstanding and the number of shareholders the expected future dividends and the discount rate the Wall Street analysts present value of the future earnings per share

13. Casino Inc. is expected to pay a dividend of $6 per share at the end of year one and these dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 18%, what is current value of the stock today? (Points: 5) $30 $50 $100 $54

14. Dividend growth rate for a stable firm can be estimated as ______. (Points: 5) Plow back rate / the return on equity (ROE) Plow back rate * the return on equity (ROE) Plow back rate + the return on equity (ROE) Plow back rate - the return on equity (ROE)

15. Great Motor Company is currently paying a dividend of $1.50 per year. The dividends are expected to grow at a rate of 20% for the next three years and then a constant rate of 6 % thereafter. What is the expected dividend per share in year 5? (Points: 5) $2.91 $2.59 $2.00 $1.50

16. Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company. (Points: 5) $6 per share $10 per share $0.20 per share $5 per share

17. Which of the following investment rules may not use all possible cash flows in its calculations? (Points: 5) NPV payback period IRR all of the above

18. Given the following cash flows for project A: C0 = -2000, C1 = +600 , C2 = +1400 and C3 = +5000, calculate the payback period. (Points: 5) three years two years one year none of the above

19. Muscle Company is investing in a giant crane. It is expected to cost 6.0 million in initial investment and it is expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the NPV at 12% (approximately). (Points: 5) 2.4 million 1.2 million 0.80 million 0.20 million

20. Net Working Capital should be considered in project cash flows because ______. (Points: 5) firms must invest cash in short-term assets to produce finished goods they are sunk costs firms need positive NPV projects for investment none of the above

21. Money that a firm has already spent or committed to spend regardless of whether a project is taken is called ______. (Points: 5) fixed cost opportunity cost sunk cost none of the above

22. A firm has a general-purpose machine, which has a book value of $400,000 and is sold for $600,000 in the market. If the tax rate is 30%, what is the opportunity cost of using the machine in a project? (Points: 5) $600,000 $540,000 $400,000 none of the above

23. Capital equipment costing $250,000 today has 50,000 salvage value at the end of 5 years. If the straight line depreciation method is used, what is the book value of the equipment at the end of two years? (Points: 5) $200,000 $170,000 $140,000 $50,000

24. Spill Oil Company's stocks had -10%, 13% and 27% rates of return during the last three years respectively; calculate the average rate of return for the stock. (Points: 5) 10% per year 8% per year 12% per year none of the above

25. The portion of the risk that can be eliminated by diversification is called _____. (Points: 5) market risk unique risk interest rate risk default risk

26. The "beta" is a measure of ______. (Points: 5) unique risk total risk market risk none of the above

27. If the standard deviation of returns of the market is 20% and the beta of a well-diversified portfolio is 1.5, calculate the standard deviation of the portfolio ______. (Points: 5) 30% 20% 10% none of the above

28. The efficient portfolios: (I) have only unique risk (II) provide highest returns for a given level of risk (III) provide the least risk for a given level of returns (IV) have no risk at all (Points: 5) I only II and III only IV only II only

29. Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected return of 20% and a standard deviation of returns of 16%. The risk-free asset has an interest rate of 4%; calculate the expected return on the resulting portfolio ______. (Points: 5) 20% 40% 36% none of the above

30. If the beta of Microsoft is 1.7, risk-free rate is 3% and the market risk premium is 8%, calculate the expected return for Microsoft. (Points: 5) 16.6% 15.6% 13.9% 11.3%

31. The cost of capital for a project depends on ______. (Points: 5) the company's cost of capital the use to which the capital is put, i.e. the project the industry cost of capital all of the above

32. Cost of capital is the same as cost of equity for firms ______. (Points: 5) financed entirely by debt financed by both debt and equity financed entirely by equity none of the above

33. The market value of Charter Cruise Company's equity is $15 million, and the market value of its risk-free debt is $5 million. If the required rate of return on the equity is 20% and that on the debt is 8%, calculate the company's cost of capital. (Assume no taxes.) (Points: 5) 20% 17% 8.1% none of the above

34. You are given the following data for year-1. Revenue = $43; Total costs = $30; Depreciation = $3; Tax rate = 30%. Calculate the operating cash flow for the project for year-1. (Points: 5) $7 $10 $13 none of the above

35. A project has the following cash flows: C0 = -100,000; C1 = 50,000; C2 = 150,000; C3 = 100,000. If the discount rate changes from 12% to 15%, what is the change in the NPV of the project (approximately)? (Points: 5) 12,750 increase 12,750 decrease 122,650 increase 135,400 decrease

36. The final decision on a project should be from ______. (Points: 5) project analysis break-even analysis NPV analysis sensitivity analysis

37. When a firm has no debt, then such a firm is known as: (I) an unlevered firm (II) a levered firm (III) an all-equity firm (Points: 5) I only II only III only I and III only

38. When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of operating income because ______. (Points: 5) interest payments on the debt vary with EBIT levels interest payments on the debt stay fixed leaving less income to be distributed over less shares interest payments on the debt stay fixed, leaving less income to be distributed over more shares interest payments on the debt stay fixed, leaving more income to be distributed over less shares

39. The beta of an all equity firm is 1.2. If the firm changes its capital structure to 50% debt and 50% equity using 8% debt financing, what will be the beta of the levered firm? The beta of debt is 0.2. (Assume no taxes.) (Points: 5) 1.2 2.2 2.4 none of the above

40. The M&M Company is financed by $4 million (market value) in debt and $6 million (market value) in equity. The cost of debt is 5% and the cost of equity is 10%. Calculate the weighted average cost of capital. (Assume no taxes.) (Points: 5) 10% 15% 8% none of the above

41. Minimizing the weighted average cost of capital (WACC) is the same as ______. (Points: 5) maximizing the market value of the firm maximizing the book value of the firm maximizing the profits of the firm maximizing the liquidating value of the firm

42. The reason that MM Proposition I does not hold good in the presence of corporate taxes is because ______. (Points: 5) levered firms pay lower taxes when compared with identical unlevered firms bondholders require higher rates of return compared with stockholders earnings per share are no longer relevant with taxes dividends are no longer relevant with taxes

43. The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because ______. (I) Debt is more risky than equity (II) Bankruptcy and its attendant costs is a disadvantage to debt (III) The payment of personal taxes may offset the tax benefit of debt (Points: 5) I only II only III only II and III only

44. Indirect costs of bankruptcy are borne principally by ______. (Points: 5) bondholders stockholders managers the federal government

45. The trade-off theory of capital structure predicts that _____. (Points: 5) unprofitable firms should borrow more than profitable ones safe firms should borrow more than risky ones rapidly growing firms should borrow more than mature firms increasing leverage increases firm value

46. Capital budgeting decisions that include both investment and financing decisions can be analyzed by _____. (I) Adjusting the present value (II) Adjusting the discount rate (III) Ignoring financing mix (Points: 5) I only II only III only I and II only

47. The after-tax weighted average cost of capital (WACC) is calculated as ______. (Points: 5) WACC = rD (D/V) + rE (E/V) WACC = rD (1-TC )(D/V) + rE (E/V) WACC = rD (D/V) + rE(1-TC )(E/V) none of the above

48. The Cambridge Company is unlevered with assets of $30 million and EBIT of $6 million. If the firm's tax rate is 34%, calculate its after-tax cash flow. (Points: 5) $2.40 million $2.04 million $3.96 million $10.20 million

49. The Boston Company has total assets of $30 million, of which $10 million are financed by debt and $20 million by equity. The EBIT is $6 million. If the firm's tax rate is 34%, and the interest rate on debt is 10%, calculate it's after tax cash flow. (Points: 5) $3.96 million $3.30 million $2.04 million $1.70 million

50. The value of a business is given by ______. (Points: 5) PV = PV(free cash flows) PV = PV(free cash flows) + PV (horizon value) PV(free cash flows) – PV(horizon value) none of the above

51. A currency forward contract is described by ______. (Points: 5) agreeing today to buy or sell specified amount of a currency at a later date at a price set in the future agreeing today to buy or sell specified amount of a currency today at its current price agreeing today to buy or sell specified amount of a currency at a later date at a price set today none of the above

52. If a Big Mac costs $2.90 in the USA and in Japan 250 Yens, according to PPP, what is the implied exchange rate in Yens/US$? (Points: 5) 106 86.2069 125 none of the above

53. Large business combinations in Japan are normally carried out through reciprocal ownership of common stock. These networks, or keiretsu, involve a large number of diversified companies centered around a large bank, industrial firm, or trading firm. One of the main benefits of this structure is argued to be _______. (Points: 5) the monopolistic control of economic segments the reduction of financial distress costs large scale diversification that cannot be done by individual shareholders greater efficiency in management because the management skills are homogeneous even for

54. Conglomerates can be effective in ______. (Points: 5) the U.S.A. Great Britain developing economies none of the above

55. The United States has a market-based financial system because ______. (I) it has a large stock market (II) it has a large corporate bond market (III) it has financial institutions (Points: 5) I only II only III only I and II only

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