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Finc 600 Principles of Corporate Finance

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375597 Week 1 Practice Q

Part 1 of 1 - 12.0/ 15.0 Points

Question 1 of 15

1.0/ 1.0 Points

As a legal entity a corporation can perform the following functions except: I) borrow money; II) lend

money; III) sue and be sued; IV) vote

A.I and II only

B.I, II, and III only

C.IV only

D.I, II, III and IV

Answer Key: C

Question 2 of 15

1.0/ 1.0 Points

A firm's investment decision is also called the:

A.Financing decision

B.Liquidity decision

C.Capital budgeting decision

D.None of the above

Answer Key: C

Question 3 of 15

1.0/ 1.0 Points

The following are important functions of financial markets: I) Source of financing; II) Provide liquidity; III)

Reduce risk; IV) Source of information

A.I only

B.I and II only

C.I, II, III, and IV

D.IV only

Answer Key: C

Question 4 of 15

1.0/ 1.0 Points

The mixture of debt and equity, used to finance a corporation is also known as:

A.Capital budgeting

B.Capital structure

C.Investing

D.Treasury

Answer Key: B

Question 5 of 15

1.0/ 1.0 Points

The following are some of the actions shareholders can take if the corporation is not performing well:

A.Replace the board of directors in an election.

B.Force the board of directors to change the management team.

C.Sell their shares of stock in the corporation.

D.Any of the above

Answer Key: D

Question 6 of 15

0.0/ 1.0 Points

Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except:

A.good investor protection

B.increase in compliance costs

C.that it constrains managers' ability to run the firm

D.that it may discourage development of human capital in the firm

Answer Key: A

Question 7 of 15

1.0/ 1.0 Points

Present Value is defined as:

A.Future cash flows discounted to the present at an appropriate discount rate

B.Inverse of future cash flows

C.Present cash flow compounded into the future

D.None of the above

Answer Key: A

Question 8 of 15

0.0/ 1.0 Points

Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of

25% per year is:

A.$80,000

B.$125,000

C.$100,000

D.None of the above

Answer Key: A

Feedback: PV = (100,000)/(1 + 0.25) = 80,000

Question 9 of 15

1.0/ 1.0 Points

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the

NPV of the project?

A.$250,000

B.$50,000

C.$200,000

D.None of the above

Answer Key: B

Feedback: NPV = -200,000 + 250,000 = 50,000

Question 10 of 15

1.0/ 1.0 Points

According to the net present value rule, an investment in a project should be made if the:

A.Net present value is greater than the cost of investment

B.Net present value is greater than the present value of cash flows

C.Net present value is positive

D.Net present value is negative

Answer Key: C

Question 11 of 15

0.0/ 1.0 Points

An annuity is defined as

A.Equal cash flows at equal intervals of time for a specified period of time

B.Equal cash flows at equal intervals of time forever

C.Unequal cash flows at equal intervals of time forever

D.None of the above

Answer Key: A

Question 12 of 15

1.0/ 1.0 Points

The concept of compound interest is most appropriately described as:

A.Interest earned on an investment

B.The total amount of interest earned over the life of an investment

C.Interest earned on interest

D.None of the above

Answer Key: C

Question 13 of 15

1.0/ 1.0 Points

The following entities issue bonds to raise long-term loans except:

A.The federal government

B.State and local governments

C.Companies

D.Individuals

Answer Key: D

Question 14 of 15

1.0/ 1.0 Points

A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual

interest payment? Annual interest payment = 1000(0.08) = $80; Semi-annual payment = 80/2 = $40

A.$80

B.$40

C.$100

D.None of the above

Answer Key: B

Feedback: Annual interest payment = 1000(0.08) = $80;

Semi-annual payment = 80/2 = $40

Question 15 of 15

1.0/ 1.0 Points

A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:

A.9.09%

B.6.8%

C.14.6%

D.6.0%

Answer Key: A

Feedback: Volatility (%) = Duration/(1 + yield) = 10/1.1 = 9.09%

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