1.

Generally, a corporation is owned by its

Board of Directors

Shareholders

All of the above

Managers

2. The opportunity cost of capital for a risky project is

The expected rate of return on a government security having the same

maturity as the project

The expected rate of return on a well diversified portfolio of common

stocks

The expected rate of return on a portfolio of securities of similar risks as

the project

None of the above

3. The appropriate rate used in calculating NPV is

The opportunity cost of capital

The return on equity

The borrowing rate

The discount rate

4. What function raises cash and invests in projects?

Firm's operations

Shareholders

Financial markets

Financial manager
5. Mrs. Smith has GHs100 today. She wants to purchase goods that cost GHs50 right
now. If she makes the purchase and then invests the rest at 10% for one year,
how much can she consume next year?

GHs55

GHs50

GHs60

GHs65

6. The following are advantages of separation of ownership and management of

corporations except

Corporations can exist forever

Incur agency costs

Hire professional managers

Facilitate transfer of ownership without affecting the operations of the

firm

7. Present Value is defined as:

Inverse of future cash flows

Future cash flows discounted to the present at an appropriate discount

rate

None of the above

Present cash flow compounded into the future

8. Which of the following is typically not considered a financial manager in a large

corporation?

Treasurer

Auditor

Chief Financial Officer

 Controller

9. If the present value of GHs444 to be paid at the end of one year is GHs400, what
is the one year discount factor?

0.9009

0.11

1.11

None of the above

10. The financial goal of a corporation is to:

Maximize profit

Maximize value of the corporation to the stockholders

None of the above

Maximize stockholder wealth

11. The difference in information held by managers, owners, and lenders is often
referred to as what kind of information?

Convergent

Quality

Private

Asymmetric

12. If the opportunity cost of capital is 12%, which of the following returns will
generate a positive NPV?

10%

12%

13%
 11%

13. The threat of takeover is most pronounced when

The company has high growth

Projects are making much more than expected

The opportunity cost of capital is below the return on investments

The managers are not maximizing NPV

14. Which of the following is not a disadvantage of organizing as a corporation?

Limited liability

Costly communication

Tax consequences

Managing legal issues

15. The managers of a firm can maximize stockholder wealth by:

All of the above

Taking all projects with NPVs greater than the cost of investment

Taking all projects with positive NPVs

Taking all projects with NPVs greater than present value of cash flow

16. A building is purchased for GHs300,000 and later sold for GHs365,000. All other
things being equal, what is the return on the investment in the building?

21.67%

15.52%

24.65%
 10.52%

17. If the present value of a cash flow generated by an initial investment of

GHs100,000 is GHs120,000, what is the NPV of the project?

GHs100,000

GHs120,000

GHs220,000

GHs20,000

18. Which of the following do stockholders want?

All of the above.

To be as rich as possible

To transfer wealth into a desired time pattern of consumption

To choose the risk characteristics of their portfolio.

19. The controller typically does all of the following, expect

Raise capital

Taxes

Prepare financial statements

Accounting

20. The following statements regarding the NPV rule and the rate of return rule are
true except:

Accept a project if its rate of return > opportunity cost of capital

Accept a project if its NPV > 0

Accept a project if its rate of return > 0

 Reject a project if its NPV < 0

21. Best practices in what area may insure mangers serve shareholder interests?

Corporate governance

Hiring consultants

Audits

Board of director selection

22. The treasurer is usually responsible the following functions of a corporation except

Internal accounting

Cash management

Raising new capital

Banking relationships

23. If you invest GHs100,000 today at 12% interest rate for one year, what is the
amount you will have at the end of the year?

GHs112,000

GHs90,909

GHs100,000

None of the above

24. The treasurer usually oversees the following functions of a corporation except

Preparation of financial statements

Investor relationships

Cash management
 Obtaining finances

25. What causes the opportunity cost of capital to be higher in one project versus
another?

Poor management

Risk

Expected stock returns

Borrowing rates

26. A two-year discount factor at a discount rate of 10% per year is:

1.000

0.814

0.909

0.826

27. If the one year discount factor is 0.8333, what is the discount rate (interest rate)
per year?

10%

None of the above

30%

20%

28. Agency costs are costs incurred when

Both A and B

Managers do not attempt to maximize firm value

None of the above

 Shareholders incur costs to monitor the managers and influence their
actions

29. A stock is purchased for GHs85 and sold later at a price of GHs92.50. What is the
expected return on the stock investment?

9.93%

10.22%

7.52%

8.82%

30. An annuity is defined as

An asset that pays a fixed sum each year forever

None of the above

An asset that pays either a fixed or unequal sum for a specified number of
years

An asset that pays a fixed sum each year for a specified number of years

31. Shares owned and not traded on an exchange are sometimes referred to as

Private

Closely Held

Public

Asymmetric

32. A firm's investment decision is also called the

None of the above

Capital budgeting decision

Financing decision
 Liquidity decision

33. The financial goal of a corporation is to

Maximize managers' benefits

Maximize the value of the firm

Maximize profits

Maximize sales

34. The present value of GHs115,000 expected to be received one year from today at an
interest rate (discount rate) of 10% per year is:

GHs121,000

GHs104,545

GHs100,500

GHs110,000

35. What the name most often used in place of financial markets?

Capital markets

Bond markets

Options markets

Stock markets

36. Limited liability is an important feature of

Sole proprietorships

Corporations

All of the above

Partnerships
37. What is the value of the tax shield if the value of the firm is GHs5 million, its value if unlevered
would be GHs4.78 million, and the present value of bankruptcy and agency costs is GHs360,000?

GHs580,000

GHs360,000

GHs140,000

GHs220,000

38. What is the phrase used to describe the typical relationship between capital
budgeting and financing decisions?

Linked

Dependent

Separated

Tied

39. Which of the following is typically considers an agency cost?

Cost of goods sold

Consultant fees

Taxes

Audit

40. Financial markets serve which of the following functions?

Allow firms to manage risk

All of the above

Provide liquidity for investors

Allow investors to adjust risk exposure