Tutorial questions

FBF

25300

Tutorial 2 Introduction

1.

What area of finance is principally concerned with financial decision making for businesses?
(a) Corporate finance
(b) Investments
(c) Financial institutions
(d) International finance

2.

The goal of the firm should be:

(a) minimisation of risk
(b) maximisation of shareholder wealth
(c) maximisation of consumer satisfaction
(d) maximisation of sales
(e) maximisation of profits

3.

The risk and return function:

(a) is horizontal
(b) is downward sloping
(c) is upward sloping
(d) is vertical sloping
(e) there is no relationship

4.

A risk averse financial decision maker would accept an investment with a:

(a) relatively low risk and low return
(b) relatively high risk and low return
(c) relatively high risk and high return
(d) either a or c

5.

Capital budgeting is classified as:

(a) an investment decision
(b) a financing decision
(c) a capital structure decision
(d) working capital decision

6.

A major weakness of a partnership is:

(a) limited liability
(b) poor access to finance when compared to a sole trader
(c) low organisational costs
(d) difficulty liquidating or transferring ownership

7.

Which of the following is NOT an example of an agency problem?

(a) Managers are paid large bonuses regardless of the firms performance.
(b) A manager routinely awards lucrative supply contracts to businesses belonging to his
relatives.
(c) The managing director uses her company credit card to take friends to dinner.
(d) Managers receive share options that increase in value when the share price increases.
(e) These are all examples of agency problems.

8.

The following projects are equivalent in all respects except for the timing of their cash flows:
Cash flows
Year 1
Year 2

Project Bunny
Receive $0
Receive $300 000

Project Fox
Receive $300 000
Receive $0

(a) Project Bunny is preferred to Project Fox.

(b) Project Fox is preferred to Project Bunny.
(c) Both projects produce the same cash flows in total over the two years and are therefore
equivalent.
(d) Based on the available information we are unable to identify which project is preferred.
9.

The arrangements by which securities are first sold to investors is known as:
(a) the secondary market
(b) a private placement
(c) the primary market
(d) an initial public offering

10.

The regulator that administers the laws covering the issue of securities to the public is:
(a) the Australian Securities Exchange (ASX)
(b) the Reserve Bank of Australia (RBA)
(c) the Australian Securities and Investments Commission (ASIC)
(d) the Australian Prudential Regulation Authority (APRA)

11.

Your firm sold a $300 000 bus on 90 days credit. The bus cost $230 000 and has been paid in full.
When do you get paid?
(a) Today on the day of sale
(b) In 90 days time
(c) Never
(d) Possibly in around 90 days
What was the profit? When will the profit be recorded?