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| 1 | |
The present value of $115,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is: |
| | A) | $121,000 |
| | B) | $100,500 |
| | C) | $110,000 |
| | D) | $104,545 |
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| 2 | |
A two-year discount factor at a discount rate of 10% per year is: |
| | A) | 0.826 |
| | B) | 1.000 |
| | C) | 0.909 |
| | D) | 0.814 |
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| 3 | |
If the one year discount factor is 0.8333, what is the discount rate (interest rate) per year? |
| | A) | 10% |
| | B) | 20% |
| | C) | 30% |
| | D) | None of the above |
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| 4 | |
If the present value of $444 to be paid at the end of one year is $400, what is the one year discount factor? |
| | A) | 0.9009 |
| | B) | 1.11 |
| | C) | 0.11 |
| | D) | None of the above |
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| 5 | |
If you invest $100,000 today at 12% interest rate for one year, what is the amount you will have at the end of the year? |
| | A) | $90,909 |
| | B) | $112,000 |
| | C) | $100,000 |
| | D) | None of the above |
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| 6 | |
If the present value of a cash flow generated by an initial investment of $100,000 is $120,000, what is the NPV of the project? |
| | A) | $120,000 |
| | B) | $20,000 |
| | C) | $100,000 |
| | D) | None of the above |
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| 7 | |
The following statements regarding the NPV rule and the rate of return rule are true except: |
| | A) | Accept a project if its NPV > 0 |
| | B) | Reject a project if its NPV < 0 |
| | C) | Accept a project if its rate of return > 0 |
| | D) | Accept a project if its rate of return > opportunity cost of capital |
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| 8 | |
A building is purchased for $300,000 and later sold for $365,000. All other things being equal, what is the return on the investment in the building? |
| | A) | 10.52% |
| | B) | 15.52% |
| | C) | 21.67% |
| | D) | 24.65% |
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| 9 | |
The opportunity cost of capital for a risky project is |
| | A) | The expected rate of return on a government security having the same maturity as the project |
| | B) | The expected rate of return on a well diversified portfolio of common stocks |
| | C) | The expected rate of return on a portfolio of securities of similar risks as the project |
| | D) | None of the above |
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| 10 | |
Mrs. Smith has $100 today. She wants to purchase goods that cost $50 right now. If she makes the purchase and then invests the rest at 10% for one year, how much can she consume next year? |
| | A) | $50 |
| | B) | $55 |
| | C) | $60 |
| | D) | $65 |
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| 11 | |
A stock is purchased for $85 and sold later at a price of $92.50. What is the expected return on the stock investment? |
| | A) | 7.52% |
| | B) | 8.82% |
| | C) | 9.93% |
| | D) | 10.22% |
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| 12 | |
The financial goal of a corporation is to: |
| | A) | Maximize stockholder wealth |
| | B) | Maximize profit |
| | C) | Maximize value of the corporation to the stockholders |
| | D) | None of the above |
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| 13 | |
The managers of a firm can maximize stockholder wealth by: |
| | A) | Taking all projects with positive NPVs |
| | B) | Taking all projects with NPVs greater than the cost of investment |
| | C) | Taking all projects with NPVs greater than present value of cash flow |
| | D) | All of the above |
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| 14 | |
The appropriate rate used in calculating NPV is |
| | A) | The discount rate |
| | B) | The borrowing rate |
| | C) | The return on equity |
| | D) | The opportunity cost of capital |
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| 15 | |
The threat of takeover is most pronounced when |
| | A) | The company has high growth |
| | B) | The managers are not maximizing NPV |
| | C) | Projects are making much more than expected |
| | D) | The opportunity cost of capital is below the return on investments |
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| 16 | |
Best practices in what area may insure managers serve shareholder interests? |
| | A) | Audits |
| | B) | Board of director selection |
| | C) | Corporate governance |
| | D) | Hiring consultants |
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| 17 | |
In Japan, whose interests are considered paramount? |
| | A) | Bondholders |
| | B) | Employees |
| | C) | Shareholders |
| | D) | All stakeholders |
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| 18 | |
What mechanism allows consumption desires and investment requirements to co-exist in an economy? |
| | A) | Borrowing |
| | B) | Delayed consumption |
| | C) | Expanded investment opportunities |
| | D) | Management oversight |
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| 19 | |
If the opportunity cost of capital is 12%, which of the following returns will generate a positive NPV? |
| | A) | 10% |
| | B) | 11% |
| | C) | 12% |
| | D) | 13% |
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| 20 | |
Which of the following do stockholders want? |
| | A) | To be as rich as possible |
| | B) | To transfer wealth into a desired time pattern of consumption |
| | C) | To choose the risk characteristics of their portfolio. |
| | D) | All of the above. |
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| 21 | |
What causes the opportunity cost of capital to be higher in one project versus another? |
| | A) | Borrowing rates |
| | B) | Expected stock returns |
| | C) | Poor management |
| | D) | Risk |
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