The financial goal of a corporation is to: correct answers Maximize the value of the firm for the shareholders
Which one of the following is not usually the responsibility of a treasurer in a corporation? correct answers Preparing financial statements(They do cash management, investor relationsh...
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The financial goal of a corporation is to: correct answers Maximize the value of the firm for the
shareholders
Which one of the following is not usually the responsibility of a treasurer in a corporation?
correct answers Preparing financial statements(They do cash management, investor relationships,
raise new capital)
Generally, a corporation is owned by its correct answers shareholders
Which one of these statements is correct? correct answers It is easy to transfer ownership of a
corporation
Agency costs are incurred by a corporation because: correct answers Managers may not attempt
to maximize the value of the firm for its shareholders, corporations have separation of ownership
and management, shareholders incur costs for monitoring managers actions
Which one of the following statements is most correct? correct answers A corporation is a legal
entity, based on its "articles of incorporation", it is required to produce financial statements on a
regular basis, the board of directors of a corporation must approve all large investment decisions.
The opportunity cost of capital for a risky capital investment is the correct answers expected rate
of return on a portfolio of securities of similar risk as the project
A person considering retirement is considering 3 possible investments for their money. The first
is to buy units of a mutual fund of stocks that tracks the S&P 500 index. The second investment
is in 30 year treasury bonds, and the third is in bonds issued by the Tesla corporation. Given the
investors aim is to minimize risk, which investment would you advise them to take? correct
answers Buy treasury bonds
An initial investment of $200 produces a cash flow of $210 one year from today. What is the rate
of return on the project? correct answers 5%(210-200/200)
The one-year discount factor at a discount rate of 15% per year is correct answers
0.8696(1/1+.15)
If the probability of a recession is 45%, normal growth is 40% and a boom is 15%, and the cash
flow in the event of a recession is $200, normal growth is $400, and boom is $600, what is the
expected cash flow? correct answers 200(.45)+400(.4)+600(.15)=$340
Ms Thomas has $160 income this year and no income next year. The market interest rate is 10%
per year. Ms. Thomas also has an investment opportunity where she can invest $60 this year and
receive $80 next year. Suppose Ms Thomas consumes $80 this year, invests in the project and
invests her remaining income in the market. How much will she have available for consumption
next year? correct answers 160-60-80=20(1.1)+80=$102
, You would like to have enough money saved to receive $200,000 per year from a perpetuity
after retirement. How much would you need to have saved in your retirement fund to achieve
this goal? Assume that the payments from the perpetuity start one year from the date of your
retirement, and the interest rate is 5%. correct answers 200,000/.05=$4,000,000
An annuity is defined as correct answers Equal cash flows at equal intervals of time for a
specified period of time
Jill has taken a $300,000 mortgage on her house, which calls for monthly payments over the next
30 years. This will cost her $2,500 per month. What is the annuity factor for this loan? correct
answers 300,000/2500=120
Consider an amortized loan with monthly payments. Which of the following is most correct?
correct answers The monthly principal repayments increase from one month to the next.
Which of the following regarding the NPV rule is correct? correct answers Accept a project if its
NPV >0
Which of the following statements regarding the rate of return rule is correct? correct answers
Accept a project if its return > opportunity cost of capital
An initial investment of $10,000 in a project expects to result in a cash flow of $11,250 at the
end of the year. If the opportunity cost of capital for the project is 14% would you correct
answers Reject the project
Suppose you invest $10,000 in a bank account that pays 10% per year interest with annual
payments. You leave the interest payments in the account. How much money will be in the
account at the end of 3 years? correct answers 10,000 x 1.10^3= 13,310
A corporation, potentially, has infinite life because it:
Is a legal entity
Always has the same ownership and management
Has limited liability
Is closely regulated correct answers Is a legal entity
Limited liability is an important feature of:
Both partnerships and corporations
Corporations
Sole proprietorships
Partnerships correct answers Corporations
You plan to invest $10,000 into your new savings account the end of the year for the next 10
years. The interest earned in the account is 8% per year.
How much do you expect to have in the account at the end of 10 years?
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