an example of a principal of a firm is:

the agent

the owner

the ceo

board of director

all of the above

the owner

agent acts on behalf of the principal

others are agents

which of the following is true:

as riskiness of the CF increases, stock price inc.

as the the size of the expected cash inflow dec, sp inc.

as the length of time unitil an expected CF inc, sp dec.

all the above

none of the above

as the length of time unitil an expected CF inc, sp dec.

if you get more money sooner that should be worth more to you

"the primary goal of the business firm is to mazimize the wealth of the firms owners" for a corporation, this means that managers should focus on max the wealth of its shareholders or its:

sales rev

stock price

NI

min risk

none

stock price

all others have implication for share price, but max share price is goal

earnings per share

earnnings before interest and taxes 1,000,000

tax rate 34%

interest exp 35,000

common dividends paid 200,000

depreciation 100,000

# of share outstanding 500,000

EBIT 1,000,000

interest -35,000

taxable 965,000

NI 636,000

EPS= NI/#shares=1.27

depreciation:

is not a true expense

respresents a cash outflow on the CFS

is deducted from NI

is tax deductible non-cash expense

none of the above

is a tax deductible non-cash expense

which of the following is least related to the vaulation of firms stock

amount of CF

timing of CF

riskiness of CF

market share

all above

market share

focus 3 factors:

risk

time

CF

how long do you have to wait for an inital investment of $1000 to triple in value if investment earns 7% comppounded annually?

9

14

16

36

PV= 1000

I/Y=7

P/Y=1

PMT=0

FV=3000

CPT N= 16

best buy claims "3 yrs same as cash-0 % fin". You have been admiring a $3600 Blu-ray surround sound sys.

the salesman offers you 36 pymts of 100 or a 15% cash discount. what rate of int is implied by this "free" financing

0

11

13

15

cash=.85x3600=3060

P/Y=12

N=36

PV=3060

PMT=-100

FV=O

CPT I/Y=10.87

You have just graduated and celebrated by buying a car financed wit a 14% loan of $20,000 for 5 yrs. You also borrowed $5,000 at 6% for 5 yrs for a boat. both have monthly pymts. what is the closest int rate of portfolio?

12.47%

12.40%

11.95%

10.20%

none of the above

pymt car

P/Y=12

N=60

I/Y=14%

PV=20,000

FV=O

CMPT PMT=-465.365

PYMT BOAT

P/Y=12

N=60

I/Y=6%

PV=5,000

FV=0

CPT PMT= -96.664

PMT= -465.365+96.664=-562.03

N=60

PV=25,000

FV=0

CMPT I/Y= 12.47%

cash strapped senior will get job in 3 yrs

offers to buy your car with 4 annual pymts of 4000, begining 3 yrs from today

you can invest at 12%, you want $10,000 in todays value- accept?

1-PV OF PMTS

P/Y=1

N=4

I/Y=12

PMT=3000

FV=0

CPT PV=-12149

2-TODAYS

N=2

FV=12410

PMT=0

I/Y=10

CPT PV=9685

I have $40,000 to invest. put $30,000 in mutual fun with beta of 1.65. The rest in t-bill earning 3%.

expect market return to be 8%. What do I expect the return on my portfolio to be?

7

8

9

10

none

beta=think CAPM

return= 3+1.65(8-3)=11.25% for fund

30,000/40,000 x 11.25 + 10,000/40,000 x 3

=9.1875

currently n/p enterprises has required return of 12% and a beta of 1.2. According to CAPM n/p:

more risky than market

less risky than market

equal in risk to market

cant be compared

none

as winner of contest, you are entitle one of the following prizes. In tersm of PV which prize should be chosen if r=6%

14500 immed

2000/year for next 10 years

2000 payable every 20 years for 20 years

827 per year forever

doesnt matter

2000/year for next 10 years

pv=14720

sales person offers "buy new car for 25000 or with app. down pymt pay 500/month for 48 months at 8%"

what is the app. down pymt?

1810

4519

5127

20500

none

pv of pymts= 20481

so 4519 must be down pymt

you just won Amer Idol. sony comes with offer

opt 1: 3 mill/ year for 5 yrs at end of 1st yr

opt 2: 2 mill today, 2 mill/year end of yr, 7 yrs

opt 2-360000 better pv

opt 2- 528000 better pv

opt 1- 360000 better pv

opt 1- 528000 better pv

non

opt 1

P/Y=1

N=5

I/Y=10

PMT=3MILL

FV=O

CPT PV= 11.37MILL

OPT 2

P/Y=1

N=7

I/Y=10

PMT=2MILL

FV=O

CPT PV=9.73

+2MILL BONUS=11.73MILL=360K BETTER

ex of agency problems for a corp include all except

ceo bday party in greece for wife

inc in the cost of raw materials

the purchase of a corp jet for low level manager

acct records are manipulated in violation of SEC

all of the above

inc in the cost of raw materials

all others are shareholder abuse

you can start a bus for $100,000. it will provide annual CF of 22,000 for 7 yrs

which discount rate to reject?

6.05

3.79

4.06

15.34

none

CF0=-100,000

CF1=22,000

F1=7

IRR CPT= 12.127

REJECT 15.34

Suppose your firm owns an old car with current market value of 6000. car full depreciated. tax=34%

next yr car worth 4500 and maintance for the car will cost 1000 due at the end of the year

whats closest irr for operating another year?

-39

-41

-43

-45

none

CF0= AFTER TAX OPP COST=6000X.66=3960

CF1=AFTER SALE OF CAR=4500X.66=+2970-660(MAINT)

CF0=-3960

CF1=2310

IRR CPT=-41.67%

university can lease a bulldozer for $16000 annually next 5 yrs. Alt. can purchase one for $24000 plus $10000 annual maint.-5yrs. tax exempt, no deprec.

at a cost of capital of 12%

lease and save 342

lease and save 658

buy and save 342

buy and save 658

none

BUY

CF0=-24000

CF1=-10000

F1=5

I=12

CPT NPV=-60,048

P/Y=1

N=5

FV=0

PV=-60048

I/Y=12

CPT PMT=16658

SAVE 658 EAC W/LEASE

A firm has a 60/40 debt/equity split, 8% cost of debt, and 15% cost of equity. What would be firms cost of capital, after tax, if the tax rate is 34%?

7.13

9.17

10.80

11.12

none

$40 Mx1.12=44.8 M mkt value of what are now 22 yr bonds

need YTM for bonds from TVM.

p/y=1

n=22

pv=-44.8m

pmt=40mx10%

fv=40m

cpt i/y=8.7528

firm value=20+44.8=64.8m

WACC=

20/64.8(15%)+44.8/64.8(8.75%)(1-.34)=8.6235%

i can start flying a ballon again, costs 40,000 to buy new

first year no income(training)

2nd year rev=25000

3rd yr=30000

end of 3rd year ballon worthless

whats irr?

12

14

16

18

none

CF0=-40000

CF1=0

F1=1

CF2=25000

F2=1

CF3=30000

F3=1

CPT IRR=13.41

i can start flying a ballon again, costs 40,000 to buy new

first year no income(training)

2nd year rev=25000

3rd yr=30000

end of 3rd year ballon worthless

What is the NPV if the req rate of return is 16%?

accept proj?

accept npv=-2201

accept npv=2201

reject=-2201

reject=2201

none

i=16%

cpt NPV= -2201

what is the equiv. annual cost for a proj that requires 120000 invest, 10000 annual expense next 4 yrs, opp cost of cap is 12%

35238

44942

49508

150373

none

CFO=-120000

CF1=-10000

f1=4

i=12

cpt npv=-150373

on TVM

p/y=1

n=4

pv=150373

fv=0

i/y=12

cpt pmt=40508

what is the min CF at end of yr 3 to make proj acceptable

intial cost=260000

OpCF end of yr 1&2=110000

op cost of cap=9%

66498

86117

110000

147296

none

CFO=-26000

CF1=110,000

f1=2

i=9

cpt npv=-66498

tvm

p/y=1

n=3

pv=-66498

pmt=o

i/y=9

cpt fv=86117

you have an 8 yr proj that invest 68000 in net working cap

you will get all back at end

what is the marginal effect of net working cap on npv if cost of cap is 11%?

22944

24456

36944

38593

none

cf0=-68000

cf1=o

f=7

cf2=68000

i=11

npv=-38493

a proj generates rev of 12000, expenses before taxes of 3000 and dep charges of 1000/yr. 34 tax. cost of cap is 10%. find OCF for typical yr

6280

5280

4870

4634

none

rev 12000

exp -3000

dep -1000

------------

ebit=8000

tax x.34 -2720

ni=5280+dep(1000)=6280

which of the following is not a bad aspect of options that hurt shareholder value?

may make manager take on too much risk

makes both manager and shareholder want price inc

may inspire creative acct

dilutes share value

none

makes both manager and shareholder want price inc

common goal