1. What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is 7%, and the expected return on the stock market is 18%?

1. What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is 7%, and

the expected return on the stock market is 18%?

2. Two reasons for the agency problem in modern corporations is:

A. Dispersion of ownership,

B. Managers know how to manage the firm better than stockholders,

C. Separation of ownership and control of the firm,

D. [A] and [C].

3. Capital budgeting includes the evaluation of which of the following? A. Size of future cash flows only B. Size and timing of future cash flows C. Timing and risk of future cash flows D. Risk and size of future cash flows only E. Size, timing, and risk of future cash flows 4. According to corporate finance, the financial manager is responsible for:

A. Capital budgeting,

B. The Financing decision,

C. Dividend policy,

D. All of the above.

5. The primary goal of a corporate finance manager is to maximize: A. Current profits B. Market share C. Number of shares outstanding D. Value of the firm E. Revenue growth 6. Which of the following direct incentives may align management goals with shareholder interests? I. Employee stock options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight A. I and III only B. II and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

7. The group of stakeholders of a firm includes:

A. Anyone with a direct or indirect interest in the firm as an ongoing business concern.

B. Anyone with control of the firm.

8. The net present value of any investment represents the difference between the investments: A. cash inflows and outflows. B. cost and its net profit. C. cost and its market value. D. cash flows and its profits. E. assets and liabilities. 9. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: A. produce a positive annual cash flow. B. produce a positive cash flow from assets. C. offset its fixed expenses. D. offset its total expenses. E. recoup its initial cost. 10. Which one of the following defines the internal rate of return for a project? A. Discount rate that creates a zero cash flow from assets B. Discount rate that results in a zero net present value for the project C. Discount rate that results in a net present value equal to the project’s initial cost D. Rate of return required by the project’s investors E. The project’s current market rate of return 11. Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? A. Mutually exclusive B. Conventional C. Multiple choice D. Dual return E. Crosswise 12. Which one of the following indicates that a project is expected to create value for its owners? A. Profitability index less than 1.0 B. Payback period greater than the required period of time C. Positive net present value D. Positive average accounting rate of return E. Internal rate of return that is less than the project’s opportunity cost 13. The net present value: A. decreases as the required or hurdle rate of return increases. B. is equal to the initial investment when the internal rate of return is equal to the required return. C. method of analysis cannot be applied to mutually exclusive projects. D. is directly related to the discount rate. E. is unaffected by the timing of an investment’s cash flows. 14. If an investment is producing a return that is equal to the required cost of capital, the project’s net present value will be: A. positive.

B. greater than the project’s initial investment. C. zero. D. equal to the project’s net profit. E. less than, or equal to, zero. 15. If the initial investment of project X is -$400 million dollar, the cash flow at the end of year 1 is +$ 960 million and at the end of year 2 is $-572 million. Is the IRR the right tool to make the investment decision? (No need for calculations, just answer yes, no, or maybe). 16. One implicit managerial incentive is:

A. The firm’s probability of bankruptcy,

B. Stock-options,

C. A bonus,

D. [B] and [C].

17. Which one of the following methods of analysis is most appropriate to use when two investments are mutually exclusive? A. Internal rate of return B. Profitability index C. Net present value D. Equivalent annuities E. B and D 18. The net present value of project A is $442 with a maturity of 5 years. The net present value of project

B is $478 with a maturity of 10 years. If the WACC is 12% and both projects are mutually exclusive which

one you will pick?

19. Any changes to a firm’s projected future cash flows that are caused by adding a new project are referred to as which one of the following? A. Eroded cash flows B. Deviated projections C. Incremental cash flows D. Directly impacted flows E. Assumed flows 20. Jamie is analyzing the estimated net present value of a project under various what if scenarios. The type of analysis that Jamie is doing is best described as: A. sensitivity analysis. B. erosion planning. C. scenario analysis. D. benefit planning. E. opportunity evaluation